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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
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For the fiscal year ended December 31, 2004 |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
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For the transition period
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Commission File Number: 000-28782
Spectrum Pharmaceuticals, Inc.
(Exact Name of Registrant as Specified in its Charter)
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Delaware
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93-0979187 |
(State or other jurisdiction
of incorporation or organization) |
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(I.R.S. Employer
Identification No.) |
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157 Technology Drive
Irvine, California
(Address of principal executive offices) |
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92618
(Zip Code) |
Registrant’s telephone number, including area code:
(949) 788-6700
Securities registered pursuant to Section 12(b) of the
Act:
None
Securities registered pursuant to Section 12(g) of the
Act:
Common Stock, $.001 par value
Common Stock Purchase Warrants
Rights to Purchase Series B Junior Participating
Preferred Stock
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not
contained herein, and will not be contained, to the best of
registrant’s knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this
Form 10-K or any amendment to this
Form 10-K. þ
Indicate by check mark whether the registrant is an accelerated
filer (as defined in Exchange Act
Rule 12b-2). Yes þ No o
The aggregate market value of the voting and non-voting common
equity held by non-affiliates of the registrant as of
June 30, 2004 was $86,466,288 based on the closing sale
price of such common equity on such date.
As of March 1, 2005 there were 15,326,484 shares of
the registrant’s common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the Registrant’s 2005
Annual Meeting of Stockholders, to be filed on or before
April 29, 2005, are incorporated by reference into
Part III of this Form 10-K.
TABLE OF CONTENTS
FORWARD-LOOKING STATEMENTS
Spectrum Pharmaceuticals, Inc.’s Annual Report on
Form 10-K contains certain words, not limited to,
“believes,” “may,” “will,”
“expects,” “intends,” “estimates,”
“anticipates,” “plans,” “seeks,”
or “continues,” and also contains predictions,
estimates and other forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of
1934, as amended, and in reliance upon the safe harbor
provisions of the Private Securities Litigation Reform Act of
1995. Such forward-looking statements are based on the beliefs
of the Company’s management as well as assumptions made by
and information currently available to the Company’s
management. Readers should not put undue reliance on these
forward-looking statements. Reference is made in particular to
forward looking statements regarding the success of our drug
candidates, product approvals, product sales, development
timelines, product acquisitions, liquidity and capital resources
and trends. Forward-looking statements are inherently subject to
risks and uncertainties, some of which cannot be predicted or
quantified. Spectrum Pharmaceuticals, Inc.’s actual results
may differ materially from the results projected in the
forward-looking statements. Factors that might cause such a
difference include, but are not limited to, those discussed in
this Report, including the “Risk Factors” in
“ITEM 1 — Business”, and in “ITEM
7 — Management’s Discussion and Analysis of
Financial Condition and Results of Operations” included in
PART II. We do not plan to update any such forward-looking
statements and expressly disclaim any duty to update the
information contained in this filing except as required by
law.
Unless the context otherwise requires, all references to the
“Company”, “we”, “us”,
“our”, “Spectrum” and “Spectrum
Pharmaceuticals” refer to Spectrum Pharmaceuticals, Inc.
and its subsidiaries, as a consolidated entity. We primarily
conduct all our activities as Spectrum Pharmaceuticals.
PART I
Corporate Background and Business Strategy
Spectrum Pharmaceuticals, Inc. is a Delaware corporation that
was originally incorporated in Colorado as Americus Funding
Corporation in December 1987, became NeoTherapeutics, Inc. in
August 1996, was reincorporated in Delaware in June 1997, and
was renamed Spectrum Pharmaceuticals, Inc. in December 2002.
Prior to August 2002, when we announced a shift in our strategic
focus, we were engaged in the discovery and development of
neurology drugs as well as functional genomics research.
We are a specialty pharmaceutical company engaged in the
business of acquiring, developing and commercializing
prescription drug products for various indications. Our business
model is to acquire and develop a diversified portfolio of
proprietary and generic drug products, with a mix of near-term
and long-term revenue potential. While our primary strategic
focus is on proprietary drug products addressing cancer and
other unmet medical needs, we are also leveraging our
developmental and regulatory capabilities, and those of our
strategic alliance partners, to enhance the potential for
realizing near-term revenues by taking advantage of
opportunities for developing and commercializing select generic
drug products with a focus on specific niche categories. We plan
to execute our business strategy by attracting and retaining
talented people, entering into strategic business alliances, and
maintaining a strong cash position.
As of the date of filing this report, we have six proprietary
drug product candidates under development: satraplatin,
EOquintm,
elsamitrucin, SPI-153;
RenaZorbtm;
and SPI-1620, one Abbreviated New Drug Application, or ANDA, for
ciprofloxacin tablets, approved by the United States Food and
Drug Administration (FDA) and eight ANDAs pending at the
FDA.
Since August 2002, when we shifted our strategic focus, through
the date of this report, we have accomplished the following
major milestones:
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Recapitalized the Company by securing over $55 million in
equity financing. |
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Enhanced our research and development capabilities and
strengthened our management team. |
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Entered into several strategic business alliances to position
the Company for growth. |
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Advanced clinical development of our drug product candidates: |
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Entered into a co-development and license agreement for the
development of satraplatin, an orally administered
platinum-derived chemotherapy agent which has demonstrated an
initial indication of efficacy in treating hormone refractory
prostate cancer. Satraplatin is currently in a Phase 3
trial for hormone refractory prostate cancer. The costs of
conducting clinical trials are being borne entirely by our
co-development partner GPC Biotech AG. |
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Initiated the development of and advanced into a Phase 2
trial,
EOquintm,
a synthetic prodrug (an inactive drug compound) which is
activated by certain enzymes present in higher amounts in cancer
cells than in normal cells, for its intended initial indication,
refractory superficial bladder cancer. |
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Initiated the development of and advanced into a Phase 2
trial, elsamitrucin, an anti-tumor antibiotic that acts as a
dual inhibitor of two key enzymes involved in DNA replication,
topoisomerase I and II, for its intended initial indication,
refractory non-Hodgkin’s lymphoma. |
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Acquired three new proprietary drug product candidates: |
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In-licensed SPI-153, a LHRH (Luteinizing Hormone Releasing
Hormone, also known as GnRH or Gonadotropin Releasing Hormone)
antagonist and are preparing to commence clinical trials to
evaluate it for safety and efficacy in its intended initial
indications, hormone-dependent prostate cancer and benign
prostatic hypertrophy. We also plan to evaluate the compound for
the treatment of endometriosis. |
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In-licensed
RenaZorbtm,
two second-generation lanthanum-based phosphate binding agents,
and plan to complete preclinical studies and conduct clinical
trials to evaluate it for safety and efficacy in its intended
initial indication, hyperphosphatemia, i.e., high phosphate
levels in blood, in patients with end-stage renal
(kidney) disease and/or chronic kidney disease. |
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In-licensed SPI-1620, an endothelinB agonist which stimulates
receptors on endothelial cells to selectively dilate tumor blood
vessels and thereby selectively increase the delivery of
anti-cancer drugs to cancer tissue. We plan to complete
preclinical studies and conduct clinical trials to evaluate
SPI-1620 for safety and efficacy as an adjunct to chemotherapy
for the treatment of cancer. |
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Filed nine ANDAs with the FDA seeking approval for marketing
generic versions of branded prescription drugs whose patent
protection and/or marketing exclusivity is scheduled to expire
in the near-term, or has already expired: |
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One of the ANDAs, for ciprofloxacin tablets, a synthetic,
broad-spectrum anti-bacterial agent, was approved by the FDA in
September 2004. |
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One of the ANDAs filed in October 2004, for sumatriptan
succinate injection, the generic form of GlaxoSmithKline’s
Imitrex® injection, which is used for the acute treatment
of migraine attacks and of cluster headache episodes in adults,
included a Paragraph IV certification. GlaxoSmithKline has
commenced suit against us alleging that the filing of our ANDA
infringes their patent. We believe that the patent that we have
challenged covering GlaxoSmithKline’s Imitrex®
injection, which with pediatric exclusivity is set to expire on
February 6, 2009, is invalid, unenforceable and/or or will
not be infringed by our generic product candidate. Imitrex®
injection is also covered by a patent which together with
pediatric exclusivity does not expire until June 28, 2007.
This patent is not currently being challenged by any third party. |
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The other seven ANDAs are still pending at the FDA. |
We plan to continue to evaluate acquisitions, or in-licensing,
of additional promising clinical-stage as well as
near-clinical-stage drugs from other companies and institutions;
and expect to file several ANDAs in 2005 and beyond and to have
several generic drugs FDA approved and marketed in the U.S. over
the next 5 years. In addition, we plan to seek additional
strategic alliances to manufacture, develop and market our
current and future drug products.
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Drug Product Candidates
New drug development, whereby drug product candidates are tested
with a view to filing a New Drug Application (NDA) (or similar
filing in other countries) and eventually obtaining marketing
approval is an inherently uncertain, lengthy and expensive
process, requiring several clinical trials to demonstrate to the
satisfaction of the U.S. Food and Drug Administration
(FDA) and other regulatory authorities in the United States
and other countries, that the products are both safe and
effective in their respective indications. Our proprietary drug
strategy is designed to address the significant risks of drug
development by focusing our acquisition and development efforts
on clinical stage drug candidates (those in human trials). We
do, however, also undertake the acquisition and development of
promising pre-clinical drug candidates when we believe that the
therapy is novel and/or when we believe the drug candidates have
a higher probability of regulatory approval than that of a
typical compound at a similar stage of development.
Our proprietary drug candidates, their target indications, and
status of development are summarized in the following table, and
discussed below in further detail:
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Satraplatin
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Hormone Refractory Prostate Cancer |
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Late Phase 3 |
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EOquintm
(EO9)
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Refractory Superficial Bladder Cancer |
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Late Phase 2 |
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Elsamitrucin
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Refractory non-Hodgkin’s Lymphoma |
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Phase 2 |
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SPI-153
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Hormone Dependent Prostate Cancer |
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Phase 2 expected to begin in 2005 |
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SPI-153
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Benign Prostatic Hypertrophy |
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Phase 2 expected to begin in 2005 |
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Satraplatin
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Non-small Cell Lung Cancer |
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Phase 1/2 |
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EO9
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Radiation Sensitization |
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Pre-clinical |
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RenaZorbtm
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End-stage Renal Disease, Chronic Kidney Disease |
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Pre-clinical |
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SPI-1620
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Adjunct to Chemotherapy |
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Pre-clinical |
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While other indications have not yet been identified, some of
our drug candidates may prove to be beneficial in additional
disease indications as we continue to study and develop these
drug candidates. In addition, we have a few neurology compounds
that we may out-license to third parties for further development.
We believe our proprietary drug candidates have the potential to
be effective therapeutic agents with some advantages over
existing therapies. Our goal is to develop and, if successful,
commercialize these drugs in the United States and worldwide (to
the extent of the territorial rights in our licenses).
Overview of Indications We Are Targeting
Cancer is the second leading cause of death in the United
States, accounting for approximately 25% of all deaths. In its
most recent annual report, the American Cancer Society reported
that in the under 85 age group, cancer is the leading cause of
death. In the United States, approximately 1.4 million new
cancer cases are expected to be diagnosed in 2005 and over
570,000 persons are expected to die from the disease in 2005.
Accordingly, there is significant demand for improved and novel
cancer treatments.
Cancer occurs when abnormal cells divide without control. These
cells can invade nearby tissues or spread through the
bloodstream and lymphatic system to other parts of the body. 5
to 10 percent of all cancers are believed to be due to
inheriting a faulty gene. The remaining 90 to 95 percent
are believed to be caused by damage to the genes during a
person’s lifetime. These damaging agents can be internal,
such as hormones or an altered immune system, or external, such
as viruses, and exposure to chemicals or harmful ultraviolet
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sunrays. Sometimes ten or more years may pass between exposure
and cancer detection. Cancer is currently treated by surgery,
chemotherapy, radiation therapy, hormonal therapy and
immunotherapy.
We believe that traditional chemotherapeutic agents are likely
to remain the mainstay therapy for cancer for the foreseeable
future. However, we continue to seek additional novel drugs,
drug delivery methods and combination therapies that address
cancer or cancer related indications with significant unmet
medical need. Accordingly, we are actively seeking novel and
proprietary oncology drug candidates that:
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have demonstrated initial safety and efficacy in clinical trials
and/or we believe have a higher probability of regulatory
approval than that of a typical compound at a similar stage of
development; |
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target cancer indications with significant unmet medical need,
where current treatments either do not exist or are not
effective; and |
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we believe are acquirable at a fair value based on our judgment
of clinical and commercial potential. |
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Benign Prostatic Hypertrophy |
Benign prostatic hypertrophy is a non-cancerous enlargement of
the prostate. Enlargement of the prostate is controlled by
testosterone. According to the National Institutes of Health,
benign prostatic hypertrophy affects more than 50% of men over
age 60 and as many as 90% of men over the age of 70. Treatment
options for benign prostatic hypertrophy include surgery and
medications to reduce the amount of tissue and increase the flow
of urine.
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End-Stage Renal Disease and Chronic Kidney
Disease: Hyperphosphatemia |
Hyperphosphatemia, or high phosphate levels in blood, affects
patients with chronic kidney disease, especially end-stage
kidney disease patients on dialysis. It can lead to significant
bone disease (including pain and fractures) and cardiovascular
disease, and is independently associated with increased
mortality. Treatment of hyperphosphatemia is aimed at lowering
blood phosphate levels by: (1) restricting dietary
phosphorus intake; and (2) using, on a daily basis, and
with each meal, oral phosphate binding drugs that facilitate
fecal elimination of dietary phosphate rather than its
absorption from the gastrointestinal tract into the bloodstream.
Restricting dietary phosphorus intake has historically not been
a successful means of serum phosphate control, and phosphate
binders are the mainstay of hyperphosphatemia management.
According to the United States Renal Data System’s 2004
Annual Report and the National Kidney Foundation, there are an
estimated 340,000 patients with end-stage renal disease in
the United States. The end-stage renal disease population is
estimated to grow by approximately 8% annually and is expected
to reach 500,000 patients by 2010. We anticipate growth in
the use of phosphate binders due to (1) recommendations for
expanded use of phosphate binders in Stage 3 and
Stage 4 chronic kidney disease (8 million patients in
the United States) under the revised National Kidney Foundation
Kidney Disease Outcomes Quality Initiative, or K/ DOQI, clinical
guidelines; (2) trends in treatment toward separating
control of phosphate levels from control of calcium levels,
based on K/ DOQI guidelines, creating more demand for
non-calcium, non-aluminum phosphate binders, including
lanthanum-based agents; (3) reimbursement for oral
medications for dialysis patients under a new Medicare plan,
beginning in 2006; and (4) significant room to improve
patient compliance, currently as low as 40% for some phosphate
binders.
Currently marketed therapies for treating hyperphosphatemia
include aluminum-based phosphate binders, calcium-based
phosphate binders and non-calcium, non-aluminum phosphate
binders. Under the new National Kidney Foundation K/ DOQI
guidelines, non-calcium, non-aluminum phosphate binders are
recommended as first line or long-term therapy for the
management of hyperphosphatemia.
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Our proprietary drug candidates |
Satraplatin: Satraplatin, an orally administered
platinum-derived chemotherapy agent, is being developed by our
co-development partner GPC Biotech AG (Nasdaq: GPCB) as a
second-line chemotherapy
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treatment for its intended initial indication,
hormone-refractory prostate cancer. Cancer is referred to as
refractory when it has not responded or is no longer responding
to previous treatment.
Prostate cancer is the second leading cause of cancer deaths in
men. According to figures released by the American Cancer
Society, approximately 232,090 new cases and 30,350 deaths will
occur in the U.S. during 2005. The initial treatment of
prostate cancer includes surgery along with radiation therapy
and hormonal therapy. Although hormonal therapy is generally
very effective, and produces a response in most patients, it is
usually non-curative. The average duration of response to
initial hormonal treatment is eighteen months. Once the disease
progresses after the initial hormonal treatment, it is
considered hormone refractory. For those patients failing
hormone therapy, treatment currently involves chemotherapy,
which is also non-curative and is limited to improvement of
symptoms of cancer with only limited prolongation of survival.
Platinum compounds continue to represent one of the most widely
used classes of chemotherapeutic agents in modern cancer therapy
and are typically used in combination with other
chemotherapeutic agents for the treatment of various types of
cancer. While the platinum compounds currently on the market are
intravenously administered, satraplatin is an orally
administered compound. We believe an orally administered
platinum-derived chemotherapeutic agent may offer important
clinical and commercial advantages over platinum drugs that need
to be intravenously administered in a hospital setting,
including ease of administration and patient convenience. These
advantages, in turn, could potentially lead to improved patient
compliance as well as potential cost savings to patients and the
healthcare system.
A pivotal Phase 3 trial, the SPARC (Satraplatin and
Prednisone Against Refractory Cancer) trial for satraplatin in
hormone-refractory prostate cancer, was initiated by GPC Biotech
in September 2003, following completion of a Special Protocol
Assessment (an assessment by a special committee of the FDA).
Also in September 2003, the FDA granted fast track designation
to satraplatin as a second-line chemotherapy for patients with
hormone-refractory prostate cancer. In February 2004, GPC
Biotech announced the receipt of a Scientific Advice Letter from
the European Agency for the Evaluation of Medicinal Products
enabling the Phase 3 pivotal trial on satraplatin to
proceed in Europe using the SPARC protocol. Enrollment for the
Phase 3 pivotal SPARC trial is proceeding as planned. GPC
Biotech anticipates to begin a rolling NDA submission, where GPC
can submit different sections of the NDA when the sections are
ready instead of waiting for the NDA to be complete before
submission, in 2005, and, assuming positive data, to complete
the NDA filing in the second half of 2006. A phase 1/2
trial of satraplatin in combination with simultaneous, standard
doses of radiotherapy was opened for accrual in patients with
locally advanced non-small cell lung cancer. Additional clinical
trials designed to evaluate the potential of satraplatin for the
treatment of other cancers, including in combination with a
taxane-based therapy, are expected to begin in 2005.
The decision to pursue hormone-refractory prostate cancer as the
initial indication for satraplatin was based, among other
things, on results from a randomized, 50-patient study initiated
in June 1998 in first-line chemotherapy for hormone-refractory
prostate cancer sponsored by Bristol-Myers Squibb that were
presented at the American Society of Clinical Oncology Annual
Meeting in June 2003. The data from this study have also been
published in the peer-reviewed journal “Oncology”. The
data demonstrated statistically significant improvement in time
to disease progression and doubling of progression-free survival
in the satraplatin-treated group compared to the control group.
In addition to hormone-refractory prostate cancer, satraplatin
has shown initial indication of anti-tumor activity in ovarian
and small cell lung cancers in Phase 2 trials conducted to
date.
See “Business Alliances — Johnson Matthey PLC and
GPC Biotech AG” for commercial terms relating to
satraplatin licensing and development.
EOquintm:
EOquin, a synthetic prodrug (an inactive drug compound) which is
activated by certain enzymes present in higher amounts in cancer
cells than in normal cells, is currently being developed for its
intended initial indication, refractory superficial bladder
cancer, or cancer which has not invaded the muscle of the
bladder wall.
EOquintm
is the trademarked name for our drug product candidate EO9
(apaziquone).
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The American Cancer Society estimates that there will be 63,210
new cases and 13,180 deaths from bladder cancer in 2005 in the
United States. Superficial bladder cancer accounts for 75 to
80 percent of all cases of bladder cancer at first
diagnosis. The initial treatment of this cancer is surgical
removal of the tumor. Because of the high frequency of early
recurrences of the tumor, patients are usually prescribed
additional therapy to prevent or delay such recurrences. This
additional therapy generally consists of immunotherapy or
chemotherapy drugs instilled directly into the bladder.
Since
EOquintm
is activated to a greater degree within tumor cells, we believe
it carries a lesser risk of killing or harming normal body
cells. During the fourth quarter of 2003, we initiated a
multi-national, multi-center, open-label, non-randomized
Phase 2 clinical trial. The decision to initiate
Phase 2 trials in this indication was based, among other
things, on results from Phase 1 trials that demonstrated
that
EOquintm
had no systemic toxicity, and was well tolerated at the dose
level chosen for the Phase 2 trials. More importantly,
EOquintm
demonstrated an initial indication of anti-tumor activity
against refractory superficial bladder cancer, as evidenced by
eight of twelve patients showing a complete response, defined as
the complete disappearance of the tumor as confirmed by biopsy,
after receiving six treatments with
EOquintm
over a period of six weeks. Of these eight patients, only one
has experienced a recurrence after eighteen months, with the
seven other patients disease free for at least six months after
treatment and three of the patients disease free for over a
year, with the longest follow-up over two years. The primary
objective of the Phase 2 trial is to evaluate tumor
response (the level of anti-tumor activity of
EOquintm),
with time to recurrence and overall safety as the secondary
objectives. We hope to determine the level of anti-tumor
activity in a larger number of patients. The current status of
the Phase 2 trial:
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We completed enrollment of the phase 2 trial. |
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To date, the phase 2 data has confirmed anti-tumor activity
against refractory superficial bladder cancer, as evidenced by
nineteen of thirty-one patients (61%) showing a complete
response after receiving six weekly treatments with
EOquintm
instilled into the urinary bladder. |
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Results also demonstrated that
EOquintm
was well-tolerated, with no systemic toxicity, and local
toxicity limited to chemical cystitis (inflammation of the
urinary bladder), dysuria (difficulty of urination) and
hematuria (blood in the urine). While follow-up was short, no
responding patient has relapsed, confirming the response
duration observed in a previous phase 1 trial. |
In January 2005, we received from the U.S. Patent and
Trademark Office a Notice of Allowance for our patent
application for
EOquintm
entitled “Medical Compositions for Intravesical Treatment
of Bladder Cancer.” This patent, when issued, will cover
EOquintm
for use in the treatment of superficial bladder cancer in the
United States and will not expire until November 2022. We may
seek European and Japanese development and marketing partners
for
EOquintm.
We have also initiated an investigation of whether EO9 may have
potential utility as a radiation sensitizer in the treatment of
certain cancers. Radiotherapy along with chemotherapy has been
the primary treatment for a number of cancers. Certain types of
cancer cells can be primed through pre-treatment by a radiation
sensitizer to respond better to radiation therapy.
See “Business Alliances — NDDO Research
Foundation” for commercial terms relating to EOquin
licensing and development.
Elsamitrucin: Elsamitrucin, an anti-tumor
antibiotic that acts as a dual inhibitor of two key enzymes
involved in DNA replication, topoisomerase I and II, is
currently being developed for its intended initial indication,
refractory non-Hodgkin’s lymphoma.
Non-Hodgkin’s lymphoma is a tumor arising from the lymph
nodes. According to the American Cancer Society, an estimated
56,390 new cases and 19,200 deaths will occur from
non-Hodgkin’s lymphoma in 2005 in the U.S. In early
stages, localized diseased lymph nodes can be treated with
radiation therapy. Later stages of this disease are treated with
chemotherapy or with chemotherapy plus radiation and highly
specific monoclonal antibodies depending on the type of
non-Hodgkin’s lymphoma. We believe elsamitrucin may
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prove to be an important addition in treating refractory
non-Hodgkin’s lymphoma patients because it has shown some
activity when used alone and it has exhibited a relatively low
level of associated toxicity.
By inhibiting the activity of the two key enzymes involved in
DNA replication, elsamitrucin is thought to lead to DNA breaks
that prevent the correct replication of DNA and ultimately
result in cancer cell death. In April 2004, we initiated a
multi-center, Phase 2 trial in patients with refractory
non-Hodgkin’s lymphoma. In clinical trials conducted by us
and previously by Bristol-Myers Squibb to date, elsamitrucin has
also demonstrated a favorable side effect profile. The current
status of the Phase 2 trial:
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In November 2004, an abstract on initial positive results from
the ongoing phase 2 trial of elsamitrucin in refractory
non-Hodgkin’s lymphoma was published in the proceedings of
the American Society of Hematology Annual Meeting. Elsamitrucin
continued to demonstrate early evidence of anti-tumor activity
against refractory NHL and a favorable side effect profile. |
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We are continuing to enroll patients in the ongoing Phase 2
trial of elsamitrucin in refractory non-Hodgkin’s lymphoma
and we expect completion by the end of 2005. |
We plan to initiate additional studies in head and neck cancer
and possibly other tumor types.
See “Business Alliances — Bristol-Myers
Squibb” for commercial terms relating to elsamitrucin
licensing and development.
SPI-153: SPI-153, a LHRH (Luteinizing Hormone
Releasing Hormone, also known as GnRH or Gonadotropin Releasing
Hormone) antagonist (a substance that blocks the effects of a
natural hormone found in the body) is currently being evaluated
for its intended initial indications, hormone-dependent prostate
cancer and benign prostatic hypertrophy. We also plan to
evaluate the compound for the treatment of endometriosis.
As described earlier, under satraplatin, prostate cancer is the
second leading cause of cancer deaths in men. The initial
treatment of prostate cancer includes surgery along with
radiation therapy and hormonal therapy. We believe SPI-153 may
prove to be an important addition in treating hormone-dependent
prostate cancer patients because of its ability to induce
prolonged testosterone suppression in healthy volunteers as
shown in early trials. There are other LHRH antagonist and
agonists (a substance that mimics the effects of a natural
hormone found in the body) that are currently marketed or are
being tested for the treatment of the indications we are
pursuing. However, we believe that SPI-153 has certain
advantages over other LHRH antagonists which include improved
solubility, less tendency for aggregation resulting in greater
bioavailability (absorption by the body) and minimal histamine
release tendency which should reduce allergic reactions. We also
believe that SPI-153 has advantages over LHRH agonists which
include immediate and dose dependent suppression of sex hormones
and no risk of testosterone surge or clinical flare up.
As described earlier, benign prostatic hypertrophy is a
non-cancerous enlargement of the prostate which is caused by
testosterone. Unlike GnRH-like drugs, SPI-153, which is an
antagonist of GnRH, has the potential to reduce testosterone
just enough to reduce both prostate size and symptoms. A GnRH
antagonist similar to SPI-153 is in the late stages of clinical
development for benign prostatic hypertrophy.
Endometriosis is the displacement of endometrial tissue (the
mucous lining of the uterus) to other organs outside the womb.
Endometriosis is one of the most common causes of pelvic pain
and infertility in women. At least 5.5 million women in
North America alone have endometriosis. Based on the stage of
the disease the treatment can include hormone therapy or surgery
or a combination of both. Current hormonal treatment aims to
stop ovulation for as long as possible. SPI-153 is an antagonist
(blocker) of GnRH (gonadotropin releasing hormone), a hormone
that provokes ovulation. A GnRH antagonist similar to SPI-153 is
in the late stages of clinical development for endometriosis.
During the first half of 2005, we plan to initiate clinical
trials in hormone-dependent prostate cancer and benign prostatic
hypertrophy in Europe and to file an investigational new drug
application with the FDA to begin U.S. clinical trials.
7
See “Business Alliances — Zentaris GmbH” for
commercial terms relating to SPI-153 licensing and development.
RenaZorbtm:
In January 2005, we acquired rights to
RenaZorbtm,
two pre-clinical, second-generation lanthanum-based phosphate
binding agents which utilize nanoparticle technology, that have
the potential to address hyperphosphatemia, or high phosphate
levels in blood, in patients with end-stage renal disease and
chronic kidney disease. Please see the discussion of
hyperphosphatemia above.
We believe that
RenaZorbtm
has the opportunity, because of its possible higher capacity for
binding phosphate, to significantly improve patient compliance
by offering the lowest-in-class dosage (potentially one tablet
per meal) and smaller sized tablets to achieve the same
therapeutic benefit as other phosphate binders, while also
potentially offering a more favorable safety/side effect profile.
See “Business Alliances — Altair
Nanotechnologies” for commercial terms relating to
licensing and development.
SPI-1620: SPI-1620 is an endothelinB agonist,
which can stimulate receptors on endothelial cells, the
innermost, simple layer of cells lining the blood vessels to
selectively dilate tumor blood vessels and thereby selectively
increase the delivery of anti-cancer drugs to cancer tissue.
This technology takes advantage of the fact that there is
differential blood supply to the tumors. Tumors get their blood
supply from blood vessels that are different from normal blood
vessels and mostly have only a layer of endothelium, which
contains the endothelial cells. Tumor blood vessels lack smooth
muscle and associated innervations found in other blood vessels.
When an endothelinB agonist is administered it stimulates
receptors on the endothelial cells and leads to enhanced blood
supply selectively to the tumors; because of this enhanced blood
supply to the tumor the concentration of injected
chemotherapeutics such as paclitaxel injection administered
after an endothelinB agonist reaches several fold higher in the
tumor. In other words, this increased blood supply to the tumor
leads to increased concentration of drugs in the tumor and
enhanced tumor kill, possibly without any significant increase
in untoward effects to normal tissues. This result has only been
shown in animal studies to date.
We acquired rights for the above mentioned use of this compound
in February 2005 and plan to evaluate its effectiveness as an
adjunct to chemotherapy for the treatment of cancer.
See “Business Alliances — Chicago Labs” for
commercial terms relating to licensing and development.
The Drug Price Competition and Patent Term Restoration Act of
1984 signed into law in part to accelerate the approval of
generic drugs, created an Abbreviated New Drug Application, or
ANDA, approval process to foster generic competition. While an
ANDA application is subject to significant regulatory review and
scrutiny before approval by the FDA, the costs and timelines
associated with the development of a generic drug, the overall
timelines associated with the completion of regulatory review
and subsequent commercialization of the generic drug product can
be significantly shorter as compared to the New Drug
Application, or NDA, approval process, and relatively less
uncertain and less expensive.
Our generic drugs, their target indications, and status are
summarized in the following table, and discussed below in
further detail:
| |
|
|
|
|
|
|
| Drug Product |
|
Target Indication | |
|
Status |
| |
|
| |
|
|
|
Ciprofloxacin tablets
|
|
|
Anti-bacterial |
|
|
ANDA approved September 2004 |
|
Carboplatin injection
|
|
|
Anti-cancer |
|
|
ANDA pending at the FDA |
|
Fluconazole tablets
|
|
|
Anti-fungal |
|
|
ANDA pending at the FDA |
|
Sumatriptan succinate injection
|
|
|
Anti-migraine |
|
|
ANDA pending at the FDA |
|
Other (5 products)
|
|
|
Various |
|
|
ANDAs Pending at the FDA |
8
As a result of the number of branded pharmaceutical products
coming off patent over the next decade, combined with the aging
U.S. population and cost-containment efforts by the
U.S. Federal Government and private insurance payers, we
believe the U.S. market for generic drugs will continue to
grow. We plan to capitalize on this growth by focusing our
effort in niche categories such as injectable products and
oncology drugs where the competition is not as intense and where
we can leverage our resources and those of our strategic
partners to create synergies with the proprietary drugs we
develop.
|
|
|
Our generic drug candidates |
Ciprofloxacin. Ciprofloxacin is a synthetic,
broad-spectrum anti-bacterial agent that is indicated for the
treatment of infections caused by susceptible strains of
microorganisms in certain diseases. Ciprofloxacin is available
in multiple dosage forms including tablets, oral suspension,
otic, intravenous infusion and ophthalmic preparations. In 2003,
through our affiliate NeoJB and on behalf of JB
Chemical & Pharmaceuticals Limited, our joint venture
partner in NeoJB, we filed an ANDA for ciprofloxacin tablets. We
received FDA approval of the ANDA for ciprofloxacin tablets in
September 2004. Our ciprofloxacin tablets are manufactured by
JBCPL utilizing its FDA approved facility in India. In late 4th
quarter 2004 we recorded $185,000 revenue from product sales of
the first shipment of ciprofloxacin tablets to the Lannett
Company, our distributor for ciprofloxacin tablets. In view of
the competitive market for sales of ciprofloxacin tablets, we
are unable to assess the future revenue potential of this
product. Fifteen other companies have received FDA approval to
market generic versions of ciprofloxacin tablets, and we have
observed a significant reduction in the market price for
ciprofloxacin tablets since June 2004, when the pediatric
exclusivity for ciprofloxacin expired.
Fluconazole. Fluconazole is a synthetic
anti-fungal agent indicated for the treatment of localized and
systemic fungal infections. Fluconazole is available in multiple
dosage forms including tablets, oral suspension and intravenous
infusion. In 2003, through NeoJB, we filed an ANDA for
fluconazole tablets on behalf of JBCPL. We have entered into a
supply agreement with JBCPL pursuant to which JBCPL will
manufacture fluconazole tablets for NeoJB utilizing JBCPL’s
FDA approved facility in India.
The patent and pediatric exclusivity for Diflucan®, the
branded form of fluconazole marketed by Pfizer Inc., had both
expired by July 2004. If we receive FDA approval of our ANDA, we
may begin marketing and selling fluconazole tablets using one or
more third-party distributors with experience selling generic
drug products into retail and institutional channels. We may not
successfully establish distributor arrangements with a qualified
third party distributor for this generic drug product. In
addition, the market is very competitive with versions from
generic drug manufacturers such as Taro Pharmaceutical
Industries, Mylan, Sandoz, Ranbaxy, IVAX, Genpharm, Gedeon
Richter, TEVA, Torpharm, Roxane and Pliva approved by the FDA
for sale in the U.S. Due to the significant price erosion of the
product caused by the number of companies selling the product we
may not market our product if it is not economical to do so.
Carboplatin. Carboplatin injection is an
anti-cancer drug indicated for the initial treatment of advanced
ovarian cancer in combination with other approved
chemotherapeutic agents and for the palliative treatment of
patients with ovarian cancer recurrent after prior chemotherapy,
including patients treated with cisplatin injection, another
chemotherapeutic agent. The patent and pediatric exclusivity for
Paraplatin®, the branded form of carboplatin injection
marketed by Bristol Myers Squibb, had both expired by October
2004,
We filed an ANDA for carboplatin injection and if FDA approval
for our ANDA is obtained, we intend to begin marketing and sale
of carboplatin injection following such approval. We will
initially likely use one or more third party distributors with
particular experience distributing injectable oncology drugs to
carry out our distribution plan. We may not successfully
establish distributor arrangements with third party distributors
or be able to acquire the necessary quantities of the drug from
our supply sources on commercially feasible terms or terms
otherwise acceptable to us. In addition, the FDA has granted
ANDA approval to five generic companies, including Pharmachemie,
APP, Bedford, Mayne and Pliva. TEVA Pharmaceuticals, through an
agreement with Bristol Myers Squibb, is currently selling
carboplatin produced by Bristol Myers Squibb as a generic drug.
Sumatriptan succinate injection: Sumatriptan
succinate injection is marketed by GlaxoSmithKline under the
brand name Imitrex® and is used for the acute treatment of
migraine attacks, with or without aura,
9
and the acute treatment of cluster headache episodes in adults.
The total U.S. market size for the branded form of
sumatriptan succinate injection 6mg/0.5mL, Imitrex®,
is estimated at about $200 million annually. Imitrex®
is currently covered by two patents. One patent expires in
December 2006, but Imitrex® has been afforded pediatric
exclusivity, until June 2007. The second patent expires in
August 2008, but pediatric exclusivity protects the product
until February 2009.
In October 2004, we filed an ANDA with the FDA for sumatriptan
succinate injection 6mg/0.5mL, seeking approval to engage
in the commercial manufacture and sale of the sumatriptan
succinate injection product in the U.S. Our ANDA includes a
paragraph IV certification that the second patent expiring
February 6, 2009 (including the pediatric exclusivity
period) associated with GlaxoSmithKline’s Imitrex®
injection, is invalid, unenforceable and/or or will not be
infringed by our generic product candidate. On
February 18, 2005, GlaxoSmithKline filed a lawsuit
against us in the United States District Court for the District
of Delaware, alleging infringement of this second patent on
Imitrex®. See “Litigation” and “Patents and
Proprietary Rights — Paragraph IV Challenge”
for additional description of the foregoing legal proceedings.
There currently is no legal challenge of the first patent, and
therefore, even we were successful in our challenge to the
second patent, we will not be able to market our generic product
until June 2007.
In 2003, Dr. Reddy’s Laboratories Ltd. filed an ANDA
with the FDA for sumatriptan succinate tablets and
GlaxoSmithKline filed a lawsuit against Dr. Reddy’s
for infringement in the United States District Court for the
Southern District of New York. In 2004, Cobalt Pharmaceuticals,
Inc. also filed an ANDA with the FDA for sumatriptan succinate
tablets and GlaxoSmithKline filed a lawsuit against Cobalt for
infringement in the United States District Court for the
District of Delaware. The case was transferred to the United
States District Court for the Southern District of New York and
was consolidated with the case against Dr. Reddy’s.
Business Alliances
Strategic business alliances are an important part of the
execution of our business strategy. We currently do not have any
manufacturing or distribution capabilities. In addition, in
general, we direct and pay for all aspects of the drug
development process, and consequently incur the risks and
rewards of drug development, which is an inherently uncertain
process. To mitigate such risks and address our manufacturing
and distribution needs we enter into alliances where we believe
our partners can provide strategic advantage in the development,
manufacturing or distribution of our drugs. In such situations,
the alliance partners may share in the risks and rewards of the
drug development and commercialization. We have entered into
product supply and distribution alliances for the manufacture
and sale of some of our drug candidates and intend to enter into
additional alliances in the future.
|
|
|
Product Development and Manufacturing |
GPC Biotech AG (GPC): In 2002, in exchange for an
upfront license fee, and future milestones and royalties, we
entered into a Co-Development and License Agreement with GPC for
further development and commercialization of satraplatin. Under
the terms of this agreement, GPC agreed to fully fund the
development expenses for satraplatin. A joint development
committee establishes the development plans for satraplatin,
with members from both GPC and Spectrum. GPC, however,
represents a majority of the committee and the final procedures
are effectively decided and implemented by GPC. We have the
ability to perform additional studies, if so desired, at our
expense. Licensing fees, including upfront fees and milestone
payments, received in 2004, 2003, and 2002 amounted to $73,000,
$1,000,000 and $2,000,000, respectively. In addition, during
2003, pursuant to the license agreement, GPC made an equity
investment of $1,000,000 in 128,370 shares of our common
stock at fair value. We are entitled to additional revenues upon
achievement of specified milestones, which are generally based
on developmental or regulatory events; and royalties, if any, on
worldwide sales of the product.
Johnson Matthey PLC: In 2001, we in-licensed
exclusive worldwide rights to satraplatin from its developer,
Johnson Matthey, in exchange for an upfront fee, additional
payments to be made based upon achievement of certain milestones
and royalties based on any net sales, if any, if and when a
commercial drug is approved and sales are initiated. Each of our
contingent future cash payment milestone obligations to
10
Johnson Matthey is generally matched by a corresponding, greater
milestone receivable from GPC Biotech. We did not have to make
any cash payments to Johnson Matthey for the upfront fees,
milestone payments and equity investments we have received so
far from GPC. Johnson Matthey currently supplies GPC with
satraplatin for clinical trials, however, we, and therefore,
GPC, are under no contractual obligation to purchase satraplatin
from Johnson Matthey.
NDDO Research Foundation (NDDO): In 2001, we
in-licensed exclusive worldwide rights to
EOquintm
and numerous related derivates from the NDDO in the Netherlands,
in exchange for an up front fee, additional payments based upon
achievement of certain milestones and a royalty based on net
sales, if any, if and when a commercial drug is approved and
sales are initiated. Currently, we are paying NDDO for clinical
research services for our Phase 2 clinical trial with
EOquintm.
Bristol-Myers Squibb: We in-licensed exclusive
worldwide rights to elsamitrucin from its developer,
Bristol-Myers Squibb, in 2001, in exchange for an upfront fee,
additional payments based upon achievement of milestones and a
royalty based on net sales, if any, if and when a commercial
drug is approved and sales are initiated. Currently, we are
paying Bristol-Myers Squibb for the active pharmaceutical
ingredient for elsamitrucin for our Phase 2 clinical trial.
Zentaris GmbH (Zentaris): In 2004, we entered into
a license agreement with Zentaris, whereby we acquired an
exclusive license to develop and commercialize SPI-153 in North
America (including Canada and Mexico) and India. Zentaris
received an upfront payment of $1.8 million in cash and
equity, and is eligible to receive payments upon achievement of
certain development and regulatory milestones, in addition to
royalties on potential net sales. Zentaris retains exclusive
rights to the rest of world, but will share with Spectrum
upfront and milestone payments, royalties or profits from
potential sales in Japan. In the event Zentaris, or another
licensee, independently develops SPI-153 for territories not
licensed to us, we are entitled to receive and utilize the
results of those development efforts. With certain exceptions,
we are required to purchase all finished drug product from
Zentaris for the clinical development of SPI-153 at a set price.
The parties will discuss entering into a joint supply agreement
for commercial supplies of finished drug product.
Altair Nanotechnologies, Inc.: In January 2005, we
entered into a license agreement with Altair Nanotechnologies,
Inc., whereby we acquired an exclusive worldwide license to
develop and commercialize
RenaZorbtm
for all human therapeutic and diagnostic uses. We paid Altair an
upfront payment of 100,000 shares of restricted Spectrum
common stock and made an equity investment of $200,000 for
38,314 shares of Altair common stock, and are obligated to
make future payments contingent upon the successful achievement
of certain development and regulatory milestones. In addition we
will pay royalties and sales milestones on net sales, if any,
assuming marketing approval is obtained from regulatory
authorities. Under the terms of the agreement, Altair has agreed
to work to establish FDA certified cGMP facilities for the
manufacture of the active pharmaceutical ingredient contained in
this product, in which case it will be the supplier of the
active pharmaceutical ingredient to Spectrum.
Chicago Labs: In February 2005, we entered into a
license agreement with Chicago Labs, Inc., whereby we acquired
an exclusive worldwide license to develop and commercialize
SPI-1620 for the prevention and treatment of cancer. We paid
Chicago Labs an upfront fee of $100,000, and are obligated to
make future payments contingent upon the successful achievement
of certain development and regulatory milestones. In addition we
will pay royalties and sales milestones on net sales, if any,
after marketing approval is obtained from the FDA and other
regulatory authorities. Chicago Labs may terminate the agreement
if we do not meet certain development deadlines which may be
extended by Chicago Labs upon our request if we demonstrate good
faith efforts to meet the deadlines.
J.B. Chemicals & Pharmaceuticals Ltd.
(JBCPL): In 2002, we formed a joint venture, NeoJB, LLC,
with JBCPL, an India based pharmaceutical manufacturer, with a
view to utilizing JBCPL’s existing manufacturing
capabilities to produce selected oral prescription drug products
for marketing in the United States. JBCPL operates
11 manufacturing facilities in India, which produce active
pharmaceutical ingredients, intermediates (“building
blocks” in chemical compounds), finished dosage form
pharmaceuticals and herbal remedies. We own an 80% interest in
NeoJB, LLC. Through the date of this report, we have filed three
ANDAs on behalf of the joint venture. In September 2004, the FDA
approved our ANDA for ciprofloxacin
11
which is manufactured by JBCPL. The joint venture purchases
product from JBCPL based on market prices prevailing at the time
of purchase, and does not have long-term volume or price
commitments.
In 2002, JBCPL granted NeoJB an exclusive license to obtain
regulatory approval to market and distribute certain products
within the United States, including ciprofloxacin tablets and
fluconazole tablets. The agreement provides that we, or NeoJB,
will bear all costs of regulatory approvals for the products and
that JBCPL will manufacture and supply to NeoJB the products in
such quantities as NeoJB may require at prices reasonably
acceptable to both parties. The agreement provides that JBCPL
shall not enter into any distribution or sale arrangement or
grant any license with respect to any product covered by the
agreement in the United States unless it first offers to enter
into a supply agreement with NeoJB pursuant to certain
procedures and conditions. In addition, the agreement provides
that NeoJB shall not, for 5 years from the later of the
termination of the agreement or expiration of the applicable
patents, market in the United States any products which would
compete with the distribution, marketing or sale of the products
covered by the agreement. The agreement continues so long as
JBCPL or any of its affiliates is a member of NeoJB or until
jointly terminated by the parties.
In conjunction with the formation of NeoJB, we granted a
five-year warrant to JBCPL to purchase up to 4,000 shares
of our common stock at an exercise price of $11.25 per
share, equal to the market price of our common stock on the date
of grant.
Under our alliance agreement with JBCPL, an entity affiliated
with JBCPL agreed to invest $1 million in our common stock.
The first $250,000 was invested in 2003 following acceptance by
the FDA of our ANDA filing for ciprofloxacin, for
125,565 shares of our common stock at a price per share of
$1.99, equal to the closing price of our common stock on the
date immediately prior to the date of acceptance of the ANDA by
the FDA, and the remaining $750,000 which was scheduled for
investment in September 2004, upon receipt of the FDA approval
of the ciprofloxacin ANDA, was received in February 2005 and we
issued 119,617 shares of common stock, at a price per share
equal to $6.27, the closing price of our common stock on the
date immediately prior to the date of approval of the ANDA by
the FDA.
FDC Limited (FDC): In 2003, we entered into an
agreement with FDC, an India based pharmaceutical manufacturer,
with a view to marketing in the United States certain ophthalmic
drugs manufactured by FDC. FDC manufactures, among other
products, active pharmaceutical ingredients and certain oral,
ophthalmic and otic drugs at their manufacturing facilities in
India, and is engaged in selling certain active pharmaceutical
ingredients produced at their FDA approved facilities in India
into the United States market. Through the date of this report,
we have filed four ANDAs for ophthalmic drugs under this
alliance. We do not have long-term volume or price commitments,
and we anticipate negotiating transfer prices for each product
only after FDA approval of the corresponding ANDA is
accomplished. Either party may terminate the agreement upon
failure to agree to a mutually satisfactory supply price with
respect to the products, in which case FDC is prohibited from
selling such products within the United States for a price less
than that offered to us under the agreement. The agreement
continues until jointly terminated by the parties. However,
either party may terminate the agreement upon the failure to
reach certain milestones within specified time periods.
Shantha Biotechnics Pvt. Ltd. (Shantha): In 2004,
we entered into an alliance with Shantha, an Indian
biopharmaceutical company engaged in the development,
manufacture and commercialization of human healthcare products
produced by recombinant technology for the detection and
treatment of cancer and infectious diseases. We are responsible
for all regulatory, marketing and distribution matters in the
United States for certain products currently marketed by Shantha
elsewhere in the world and certain other products under
development by Shantha. The product candidates under evaluation
for development include oncology biologics, cancer diagnostics,
as well as vaccines. However, there are no current
U.S. regulatory guidelines that allow for generic
equivalents to branded biologics to be filed with the FDA using
an abbreviated application and review process. The FDA is
working with the pharmaceutical industry at-large to better
understand the position of the biotech and biopharmaceutical
companies regarding the issue of equivalence of biogenerics to
the branded products and the equivalence of the processes used
to manufacture the active biological ingredient. Until such time
that the FDA adopts clear guidelines covering biogenerics and/or
Congress creates new laws and regulations that would allow for
an abbreviated application, review and approval process for
12
biogenerics we will not be in a position to move forward in the
United States on a number of product candidates covered under
this agreement.
Others: In connection with the carboplatin
injection and sumatriptan succinate injection ANDAs filed with
the FDA, we are negotiating commercial supply and service
arrangements with sources for the active pharmaceutical
ingredients and developmental laboratories with the capacity to
manufacture drug products on a commercial scale, after FDA
approval is received. When we file additional ANDAs for other
drug products, we expect to enter into similar arrangements, if
the products are not covered under one of our business alliances
mentioned above.
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Sales, Marketing and Distribution |
As described below, The Lannett Company markets and distributes
our first approved drug product, ciprofloxacin tablets. In 2003
we hired a vice president of marketing and sales and, in light
of anticipated FDA approvals, we may hire additional sales and
marketing personnel, as needs dictate. We also intend to seek
alliances with other third parties to assist us in the marketing
and sale of our other drug candidates.
The Lannett Company (Lannett): In 2003, we entered
into a sales and distribution agreement with Lannett, a
Philadelphia based pharmaceutical company engaged in the
marketing and distribution of prescription drugs. Under the
agreement Lannett is our exclusive distributor for ciprofloxacin
tablets in the United States, and we are obligated to distribute
ciprofloxacin tablets only through Lannett. During late
4th quarter of 2004, subsequent to receipt of FDA approval,
we sold ciprofloxacin tablets to Lannett. We sell product to
Lannett based on market prices prevailing at the time of sale,
and do not have any long-term volume or price commitments. The
agreement contemplates, and the parties expect, that additional
products may be added to the agreement from time to time.
Lannett agrees that if it decides to distribute any products
other than ciprofloxacin tablets under this agreement, that it
will not, without our prior written consent, market, distribute
or sell any product that competes with such additional products.
The agreement continues for 18 months after the date upon
which we were first allowed to sell ciprofloxacin tablets in the
United States, unless renewed by mutual agreement.
Competition
The pharmaceutical industry is characterized by rapidly evolving
technology and intense competition. We expect technological
developments and improvements in the fields of our business to
continue to occur at a rapid rate and, as a result, expect
competition to remain intense. Several companies are engaged in
research and development of compounds that are similar to our
research. Technologies under development by these and other
pharmaceutical companies could result in treatments for diseases
and disorders for which we are developing our own treatments. In
the event that one or more of those programs is successful, the
market for some of our drug candidates could be reduced or
eliminated. Any product for which we obtain FDA approval must
also compete for market acceptance and market share.
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Competition for Proprietary Products |
Competing in the branded product business requires us to
identify and quickly bring to market new products embodying
technological innovations. Successful marketing of branded
products depends primarily on the ability to communicate the
effectiveness, safety and value to healthcare professionals in
private practice, group practices and managed care
organizations. Competition for branded drugs is less driven by
price and is more focused on innovation in treatment of disease,
advanced drug delivery and specific clinical benefits over
competitive drug therapies. Unless our proprietary products are
shown to have better efficacy and are as cost effective, if not
more cost effective, than other alternatives, they may not gain
acceptance by the medical field and therefore never be
successful commercially.
Companies that have products on the market or in research and
development that are in the same oncology focus as us include
Amgen, Inc., Genentech, Inc., Bayer AG, Eli Lilly and Co.,
Novartis Pharmaceuticals Corporation, Bristol-Myers Squibb
Company, GlaxoSmithKline, Biogen-IDEC Pharmaceuticals, Inc.,
Guilford Pharmaceuticals, Inc., Cephalon, Inc., Sanofi-aventis
Inc., Pfizer, Inc., AVI
13
Biopharma, Inc., Chiron Corp., Corixa Corp., Genta Inc., Imclone
Systems Incorporated, MGI Pharma, Inc. and SuperGen, Inc., among
others. Many of our competitors are large and well capitalized
companies focusing on a wide range of diseases and drug
indications, and have substantially greater financial, research
and development, human and other resources than we do.
Furthermore, large pharmaceutical companies have significantly
more experience than we do in pre-clinical testing, human
clinical trials and regulatory approval procedures, among other
things.
In treating hyperphosphatemia, under the new National Kidney
Foundation K/DOQI guidelines, non-calcium, non-aluminum binders
are the recommended first-line long-term therapy for managing
high phosphate levels. To our knowledge, Genzyme
Corporation’s Renagel® and Shire Pharmaceuticals’
Fosrenol® are the only two FDA approved non-calcium,
non-aluminum, branded pharmaceuticals specifically for the
treatment of hyperphosphatemia in end-stage renal disease. We
expect to compete with these products and potentially others
based upon phosphate binding capacity, patient compliance, side
effects and cost. While we believe
RenaZorbtm
has the potential to perform better than these competitors,
RenaZorbtm
is not yet a clinical stage drug and, consequently, if
RenaZorbtm
is successfully developed and receives FDA approval, it will be
a number of years after Renagel® and Fosrenol® have
been FDA approved and marketed. In addition, Genzyme and Shire
may seek to modify their products or create new therapies that
could reduce or eliminate any perceived benefit we believe
RenaZorbtm
may have over these products.
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Competition for Generic Products |
The generic drug market is price sensitive and price competitive
and revenues and gross profit derived from the sales of generic
drug products tend to follow a pattern based on certain
regulatory and competitive factors. As patents and regulatory
exclusivity for brand name products expire, the first generic
manufacturer to receive regulatory approval for the generic
equivalents of such products is generally able to achieve
significant market penetration and retain market share. As
competing generic manufacturers receive regulatory approvals on
similar products, market share, revenues and gross profit
typically decline, in some cases, dramatically. Accordingly, the
level of market share, revenues and gross profit attributable to
a particular generic product is normally related to the number
of competitors in that product’s market and the timing of
that product’s regulatory approval and launch, in relation
to competing approvals and launches. Consequently, we must
develop and introduce new generic products in a timely and
cost-effective manner to achieve and maintain significant
revenues and gross profit. In addition to competition from other
generic drug manufacturers, we face competition from brand name
companies in the generic market. Many of these companies seek to
participate in sales of generic products by, among other things,
collaborating with other generic pharmaceutical companies
through authorized generic programs or by marketing their own
generic equivalent to their branded products.
Companies that have a significant generic presence include
American Pharmaceutical Partners, Bedford Laboratories, Barr
Laboratories, Sicor, Inc., Teva Pharmaceuticals,
Dr. Reddy’s Laboratories, Ranbaxy Laboratories, Mylan
Laboratories, Inc., Sandoz, and Watson Pharmaceuticals, Inc.
Some additional competitors in the generics market include Eon
Labs, Inc., Pliva, Inc., Impax Laboratories, Inc. and Akorn,
Inc., a competitor particularly in the field of generic
ophthalmic drugs.
Please also read our discussion of competition matters in the
“RISK FACTORS” section of this report.
Research and Development
From our inception through August 2002, we devoted substantially
all of our resources and efforts to early stage drug research
and development. Commencing with the launch of our new business
strategy in August 2002, we eliminated early stage drug research
and development and focused our research and development efforts
on development of later stage drug product candidates that are
already in or about to enter human clinical trials. Research and
development expenditures, including related stock-based charges,
are expensed as we incur them and were approximately
$8 million in 2004, $5 million in 2003, and
$13 million in 2002.
14
Patents and Proprietary Rights
The United States Constitution provides Congress with the
authority to provide inventors the exclusive right to their
discoveries. Congress codified this right in United States Code
Title 35 which gave the patent office the right to grant
patents to inventors and defined the process for securing a
U.S. patent. This process involves the filing of a patent
application that teaches a person having ordinary skill in the
respective art how to make and use the invention in clear and
concise terms. The invention must be novel (not previously
known) and non-obvious (not an obvious extension of what is
already known). The patent application concludes with a series
of claims that specifically describe the subject matter that the
patent applicant considers his invention.
The patent office undertakes an examination process that can
take from one to five years depending on the complexity of the
patent and the problems encountered during examination.
Generally, the less novel an invention is, the longer the
examination process will last.
In exchange for disclosing the invention to the public, the
successful patent applicant is provided a right to exclude
others from making, using or selling the claimed invention for a
period of 20 years from the filing date of the patent
application.
Under certain circumstances a patent term may be extended.
Patent extensions are most frequently granted in the
pharmaceutical and medical device industries under the Drug
Price Competition and Pricing Term Restoration Act of 1984, or
commonly known as the Hatch-Waxman Act, to recover some of the
time lost during the FDA regulatory process, subject to a number
of limitations and exceptions. The patient term may be extended
up to a maximum of five years, however, as a general rule, the
average extension period granted for a new drug is approximately
three years and approximately 18 months for a new medical
device. Only one patent can be extended per FDA approved product
and a patent can only be extended once.
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Generic Drugs and Pediatric Exclusivity |
As an incentive for pharmaceutical companies to research the
safety and efficacy of their brand name drugs for use in
pediatric populations, Congress enacted the Food & Drug
Administration Modernization Act of 1997 which included a
pediatric exclusivity for brand name drugs. This pediatric
exclusivity protects drug products from generic competition for
six months after their patents expire in exchange for research
on children. For example, if a pharmaceutical company owns a
patent covering a brand name drug they can only exclude third
parties from selling generic versions of that drug until that
patent expires. However, if the FDA grants a brand named drug
pediatric exclusivity the FDA will not approve of the sale of
any generic drugs for six months beyond the patent term covering
the brand name drug. Thus, the pediatric exclusivity effectively
extends the brand named company’s patent protection for six
months. This extension applies to all dosage forms and uses that
the original patent(s) covered.
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Our Patent, Proprietary Rights and ANDAs |
We in-license from third parties certain patent and related
intellectual property rights related to our proprietary
products. In particular, we have licensed patent rights with
respect to satraplatin,
EOquintm,
elsamitrucin, SPI-153,
RenaZorbtm
and SPI-1620, in each case for the remaining life of the
applicable patents. Except for SPI-153, our agreements generally
provide us with exclusive worldwide rights to, among other
things, develop, sublicense, and sell the drug candidates. We
are generally responsible for all development, patent filing and
maintenance costs, sales, marketing and liability insurance
costs. In addition, these licenses and agreements may require us
to make royalty and other payments, to reasonably exploit the
underlying technology of applicable patents. If we fail to
comply with these and other terms in these licenses and
agreements, we could lose the underlying rights to one or more
of our potential products, which would adversely affect our
product development and harm our business.
The protection, preservation and infringement-free commercial
exploitation of these patents and related intellectual property
rights is very important to the successful execution of our
proprietary drug strategy. However, the issuance of a patent is
not conclusive as to its validity or as to the enforceable scope
of the claims
15
of the patent. Accordingly, our patents and the patents we have
in-licensed may not prevent other companies from developing
similar or functionally equivalent products or from successfully
challenging the validity of our patents. If our patent
applications are not approved or, even if approved, if our
patents or the patents we have in-licensed, are circumvented or
not upheld by the courts, our ability to competitively exploit
our patented products and technologies may be significantly
reduced. Also, such patents may or may not provide competitive
advantages for their respective products or they may be
challenged or circumvented by competitors, in which case our
ability to commercially exploit these products may be diminished.
From time to time, we may need to obtain licenses to patents and
other proprietary rights held by third parties to develop,
manufacture and market our products. If we are unable to timely
obtain these licenses on commercially reasonable terms, our
ability to commercially exploit such products may be inhibited
or prevented.
As mentioned above, we have in-licensed from third parties
certain patent rights related to our proprietary products. We
believe that our patents and licenses are important to our
business, but that with the exception of the United States and
European patents discussed in this paragraph, relating to our
proprietary products, no one patent or license is
currently of material importance to our business. We have two
U.S. patents covering satraplatin, a compound patent that
expires in 2008 and a medical use patent that expires in 2010,
and an issued compound patent in Europe that expires in various
countries between 2008 and 2009. There is a possibility, under
the Hatch-Waxman Act, to obtain up to a 5-year extension of one
of the U.S. patents for the time spent during the FDA
regulatory process. There are similar extension possibilities in
Europe. For
EOquintm,
the U.S. compound patent expires in 2009, however, we
recently received from the U.S. Patent and Trademark Office
a Notice of Allowance for a patent application for
EOquintm
that, when issued, will cover
EOquintm
for use in the treatment of superficial bladder cancer and will
not expire until November 2022. In Europe, we have an issued
compound patent that expires in various countries in 2007 and we
have a patent application pending for the treatment of bladder
cancer. For elsamitrucin, the U.S. and Europe patents have
already expired, however, we anticipate filing future U.S. and
European patent applications covering new formulations or uses
for this product. For SPI-153, we have a U.S. compound
patent issued that will expire in 2020, and in Europe we have a
patent application pending. For
RenaZorbtm,
there are compound patents pending in the United States and
Europe. For SPI-1620, we have filed method of use patent
applications in U.S. and Europe. We are constantly evaluating
our patent portfolio and considering new patent applications in
order to maximize the life cycle of each of our products.
While the United States and the European Union are currently the
largest markets for most our proprietary products, we also have
patents issued and patent applications pending outside of the
United States and Europe. Limitations on patent protection in
these countries, and the differences in what constitutes
patentable subject matter in countries outside the United
States, may limit the protection we have on patents issued or
licensed to us outside of the United States. In addition, laws
of foreign countries may not protect our intellectual property
to the same extent as would laws in the United States. To
minimize our costs and expenses and to maintain effective
protection, we usually focus our patent and licensing activities
within the United States, the European Union, Canada and Japan.
In determining whether or not to seek a patent or to license any
patent in a certain foreign country, we weigh the relevant costs
and benefits, and consider, among other things, the market
potential and profitability, the scope of patent protection
afforded by the law of the jurisdiction and its enforceability,
and the nature of terms with any potential licensees. Failure to
obtain adequate patent protection for our proprietary drugs and
technology would impair our ability to be commercially
competitive in these markets.
We also hold U.S. and foreign patent rights related to our
neurology drug candidates. All neurology patents were assigned
to us by the inventors, including Dr. Alvin Glasky, our
former Chairman and CEO, and McMaster University, for certain
royalty payments. We may out-license these patent rights for
further development.
In addition to the specific intellectual property subjects
discussed above, we have trademark protection for
EOquintm
and
RenaZorbtm.
We will likely register trademarks for the branded names of our
proprietary drug products.
16
In conducting our business generally, we rely upon trade
secrets, know-how, licensing arrangements and customary
practices for the protection of our confidential and proprietary
information such as confidentiality agreements. It is possible
that these agreements will be breached or will not be
enforceable in every instance, and that we will not have
adequate remedies for any such breach. It is also possible that
our trade secrets or know-how will otherwise become known or
independently developed by competitors. The protection of
know-how is particularly important because the know-how is often
the necessary or useful information that allows us to practice
the claims in the patents related to our proprietary products.
We may find it necessary to initiate litigation to enforce our
patent rights, to protect our trade secrets or know-how or to
determine the scope and validity of the proprietary rights of
others. Litigation concerning patents, trademarks, copyrights
and proprietary technologies can often be protracted and
expensive and, as with litigation generally, the outcome is
inherently uncertain. See “Risk Factors” for more
information.
In connection with ANDAs filed on behalf of JBCPL and FDC, we
have the exclusive license to market and distribute those drugs
within the United States, if and when approved by the FDA. We
own the ANDAs for carboplatin and sumatriptan succinate
injection.
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Paragraph IV Certification |
In 1984, Congress enacted the Hatch-Waxman Act in part to
establish a streamlined approval process for the FDA to use in
approving generic versions of previously approved branded drugs.
Under the Hatch-Waxman Act, for each patent listed in the Orange
Book, where branded companies are required to list their patents
for branded products, for the relevant branded drug, an ANDA
applicant must certify one of the following claims:
(1) that there is no patent information listed;
(2) that such patent has expired; (3) that the
proposed drug will not be marketed until expiration of the
patent; or (4) that either the proposed generic drug does
not infringe the patent or the patent is invalid, otherwise
known as Paragraph IV certification.
If an ANDA applicant files a paragraph IV certification,
the Hatch-Waxman Act requires the applicant to provide the
patent holder with notice of that certification and provides the
patent holder with a 45-day window, during which it may bring
suit against the applicant for infringement. If patent
litigation is initiated during this period, the FDA may not
approve the ANDA until the earlier of (1) 30 months
from the patent holder’s receipt of the notice (the
30-month stay) or (2) the issuance of a final,
non-appealed, or non-appealable court decision finding the
patent invalid, unenforceable or not infringed. If the patent is
found to be infringed by the filing of the ANDA, the patent
holder could seek an injunction to block the launch of the
generic product until the patent expires.
Often more than one company will file an ANDA that includes a
paragraph IV certification. However, the Hatch-Waxman Act
provides that such subsequent ANDA applications will not be
approved until 180 days after the earlier of (1) the
date of the first commercial marketing of the first-filed ANDA
applicant’s generic drug or (2) the date of a decision
of a court in an action holding the relevant patent invalid,
unenforceable, or not infringed. Thus, the Hatch-Waxman Act
effectively grants the first-filed ANDA holder 180 days of
marketing exclusivity for the generic product.
For more information on our ANDA with paragraph IV
certification for sumatriptan succinate injection, please see
“Our generic drug candidates — Sumatriptan
succinate injection.”
Please also read our discussion of patent and intellectual
property matters in the “RISK FACTORS” section of this
report.
Governmental Regulation
The production and marketing of our proprietary and generic drug
products are subject to regulation for safety, efficacy and
quality by numerous governmental authorities in the United
States and other countries. In the United States, drugs are
subject to rigorous regulation. The Federal Food, Drug and
Cosmetics Act, as amended from time to time, and the regulations
promulgated thereunder, as well as other federal and state
statutes and regulations, govern, among other things, the
testing, manufacture, safety, efficacy, labeling,
17
storage, record keeping, approval, advertising and promotion of
our proposed products. Product development and approval within
this regulatory framework, including for drugs already at a
clinical stage of development, can take many years and require
the expenditure of substantial resources. In addition to
obtaining FDA approval for each product, each drug manufacturing
establishment must be registered with, and approved by, the FDA.
Domestic manufacturing establishments are subject to regular
inspections by the FDA and must comply with Good Manufacturing
Practices. To supply products for use in the United States,
foreign manufacturing establishments must also comply with Good
Manufacturing Practices and are subject to periodic inspection
by the FDA or by regulatory authorities in certain of such
countries under reciprocal agreements with the FDA.
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General Information about the Drug Approval Process |
The United States system of new drug approval is one of the most
rigorous in the world. Only a small percentage of compounds that
enter the pre-clinical testing stage are ever approved for
commercialization. Our proprietary drug strategy focuses on
in-licensing clinical stage drug candidates that are already in
or about to enter human clinical trials. This strategic focus on
clinical stage drug candidates (those eligible for human trials)
is designed to address certain risks of drug development by
shortening the timeline to marketability and reducing the risk
of failure, both of which are higher with an early stage product.
The following general comments about the drug approval process
are relevant to the development activities we are undertaking
with our proprietary drugs.
Pre-clinical Testing: During the pre-clinical testing
stage, laboratory and animal studies are conducted to show
biological activity of a drug compound against the targeted
disease and the compound is evaluated for safety.
Investigational New Drug Application: After pre-clinical
testing, an Investigation New Drug Application is submitted to
the FDA to begin human testing of the drug.
Phase 1 Clinical Trials: After an Investigational
New Drug Application becomes effective, Phase 1 human
clinical trials can begin. These trials, involving small numbers
of healthy volunteers or patients usually define a drug
candidate’s safety profile, including the safe dosage range.
Phase 2 Clinical Trials: In Phase 2 clinical
trials, controlled studies of volunteer human patients with the
targeted disease are conducted to assess the drug’s
effectiveness. These studies are designed primarily to determine
the appropriate dose levels, dose schedules and route(s) of
administration, and to evaluate the effectiveness of the drug on
humans, as well as to determine if there are any side effects on
humans to expand the safety profile following Phase 1.
Phase 3 Clinical Trials: This Phase usually involves
large numbers of patients with the targeted disease. During the
Phase 3 clinical trials, physicians monitor the patients to
determine the drug candidate’s efficacy and to observe and
report any adverse reactions that may result from long-term use
of the drug on a large, more widespread, patient population.
During the Phase 3 clinical trials, the drug candidate is
compared to either a placebo or a standard treatment for the
target disease.
New Drug Application: After completion of all three
clinical trial phases, if the data indicates that the drug is
safe and effective, a New Drug Application is filed with the
FDA. We estimate that approval of a New Drug Application for a
cancer drug generally takes six months to three years.
Fast Track Review: The FDA has established procedures for
accelerating the approval of drugs to be marketed for serious
life threatening diseases for which the manufacturer can
demonstrate the potential to address unmet medical needs. One of
our drug candidates, satraplatin, has been given a fast track
designation for the hormone refractory prostate cancer
indication.
Phase 4 Clinical Trials: After a drug has been
approved by the FDA, Phase 4 studies are conducted to
explore additional patient populations, compare the drug to a
competitor, or to further study the risks, benefits and optimal
use of a drug. These studies may be a requirement as a condition
of the initial approval of the NDA.
18
Abbreviated New Drug Application (ANDA): The Abbreviated
New Drug Application is particularly relevant for our business
strategy. An ANDA is the abbreviated review and approval process
created by the Drug Price Competition and Patent Term
Restoration Act of 1984 signed into law in part for the
accelerated approval of generic drugs. When a company files an
ANDA, it must make a patent certification if there are any
patents covering the branded product listed in the FDA’s
Orange Book. An ANDA applicant must make one of four
certifications: (1) that there is no patent information
listed in the Orange Book; (2) that the listed patent has
expired; (3) that the listed patent will expire on a stated
date or (4) that the listed patent is invalid or will not
be infringed by the generic product. The ANDA must also
demonstrate both chemical equivalence and bio-equivalence (the
rate and extent of absorption of the generic drug in the body is
substantially equivalent to the brand name product), unless a
bio-equivalence waiver is granted by the FDA in the case of an
injectable generic drug to the brand name product. The ANDA drug
development and approval process generally takes less time than
the NDA drug development and approval process since the ANDA
process does not require new clinical trials establishing the
safety and efficacy of the drug product. We estimate that
approval of an Abbreviated New Drug Application generally takes
one to two years.
Approval: If the FDA approves the New Drug Application,
the drug becomes available for physicians to prescribe to
patients for treatment. The marketing of a drug after FDA
approval is subject to substantial continuing regulation by the
FDA, including regulation of adverse event reporting
manufacturing practices and the advertising and promotion of the
drug.
Failure to comply with FDA and other governmental regulations
can result in fines, unanticipated compliance expenditures,
recall or seizure of products, total or partial suspension of
production and/or distribution, suspension of the FDA’s
review of NDAs, ANDAs or other product applications enforcement
actions, injunctions and criminal prosecution. Under certain
circumstances, the FDA also has the authority to revoke
previously granted drug approvals. Although we have internal
compliance programs, if these programs do not meet regulatory
agency standards or if our compliance is deemed deficient in any
significant way, it could have a material adverse effect on us.
See “Risks Factors — Our failure to comply with
extensive governmental regulation to which we are subject may
delay or prevent approval of our product candidates and may
subject us to penalties.”
The Generic Drug Enforcement Act of 1992 established penalties
for wrongdoing in connection with the development or submission
of an ANDA. Under this Act, the FDA has the authority to
permanently or temporarily bar companies or individuals from
submitting or assisting in the submission of an ANDA, and to
temporarily deny approval and suspend applications to market
generic drugs. The FDA may also suspend the distribution of all
drugs approved or developed in connection with certain wrongful
conduct and/or withdraw approval of an ANDA and seek civil
penalties. The FDA can also significantly delay the approval of
any pending NDA, ANDA or other regulatory submissions under its
Fraud, Untrue Statements of Material Facts, Bribery and Illegal
Gratuities Policy.
As part of the Medicare Prescription Drug, Improvement, and
Modernization Act of 2003, companies are now required to file
with the Federal Trade Commission and the Department of Justice
certain types of agreements entered into between branded and
generic pharmaceutical companies related to the manufacture,
marketing and sale of generic versions of branded drugs. This
new requirement could affect the manner in which generic drug
manufacturers resolve intellectual property litigation and other
disputes with branded pharmaceutical companies, and could result
generally in an increase in private-party litigation against
pharmaceutical companies. The impact of this new requirement,
and the potential private-party lawsuits associated with
arrangements between brand name and generic drug manufacturers,
is uncertain and could adversely affect our business.
Continuing studies of the proper utilization, safety and
efficacy of pharmaceuticals and other health care products are
being conducted by industry, government agencies and others.
Such studies, which increasingly employ sophisticated methods
and techniques, can call into question the utilization, safety
and efficacy of previously marketed products and in some cases
have resulted, and may in the future result, in the
discontinuance of their marketing.
19
Employees
The efforts of our employees are critical to our success. We
believe we have assembled a strong management team with the
experience and expertise needed to execute our business
strategy. However, we are constantly looking for talented
individuals that provide the right mix of skills to join our
company. We anticipate hiring additional personnel as needs
dictate to implement our growth strategy. As of
December 31, 2004, we had 25 employees, of which four held
M.D. degrees and four held a Ph.D. degree. We cannot assure you
that we will be able to attract and retain qualified personnel
in sufficient numbers to meet our needs. Our employees are not
subject to any collective bargaining agreements, and we regard
our relations with our employees to be good.
Available Information
We file with the Securities and Exchange Commission
(SEC) our annual report on Form 10-K, quarterly
reports on Form 10-Q, current reports on
Form 8-K, proxy statements and registration
statements, and all amendments to those reports, proxy
statements and registration statements. The public may read and
copy any materials we file with the SEC at the SEC’s Public
Reference Room at 450 Fifth Street, N.W.,
Washington, D.C. 20549. The public may also obtain
information on the operation of the Public Reference Room by
calling the SEC at 1-800-SEC-0330. In addition, the SEC
maintains an internet site at http://www.sec.gov that
contains reports, proxy and information statements and other
information regarding registrants, including us, that file
electronically.
We also maintain a website located at
http://www.spectrumpharm.com, and electronic copies of
our periodic and current reports, and any amendments to those
reports, are available, free of charge, under the “Investor
Relations” link on our website as soon as practicable after
such material is filed with, or furnished to, the SEC.
For financial information regarding our business activities,
please see “Item 8 — Financial
Statements.”
20
RISK FACTORS
An investment in our common stock involves a high degree of
risk. Our business, financial condition, operating results and
prospects can be impacted by a number of factors, any one of
which could cause our actual results to differ materially from
recent results or from our anticipated future results. As a
result, the trading price of our common stock could decline, and
you could lose a part or all of your investment. You should
carefully consider the risks described below with all of the
other information included in this Annual Report. Failure to
satisfactorily achieve any of our objectives or avoid any of the
risks below would likely have a material adverse effect on our
business and results of operations.
Risks Related to Our Business
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Our losses will continue to increase as we expand our
development efforts, and our efforts may never result in
profitability. |
Our cumulative losses since our inception in 1987 through
December 31, 2004 were in excess of $165 million. We
lost approximately $12 million in 2004, $10 million in
2003 and $18 million in 2002. We expect to continue to
incur losses in the future, particularly as we continue to
invest in the development of our drug product candidates,
acquire additional drug candidates and expand the scope of our
operations. We recently received approval to market our first
generic drug product, ciprofloxacin, in the United States and
recorded modest revenue in 2004. However, we currently do not
sell any other products or services and we may never achieve
significant revenues from sales of products or become
profitable. Even if we eventually generate significant revenues
from sales, we will likely continue to incur losses over the
next several years.
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Our business does not generate the cash needed to finance
our ongoing operations and therefore, we will need to raise
additional capital. |
Our current business operations do not generate sufficient
operating cash to finance the clinical development of our drug
product candidates. We have historically relied primarily on
raising capital through the sale of our securities, and/or
out-licensing our drug candidates and technology, to meet our
financial needs. While anticipated profits from the sale of
generic drugs, if we are successful in generating significant
revenues from generics, may help defray some of the expenses of
operating our business, we believe that in order to prepare the
company for continued future drug product development and
acquisition, and to capitalize on growth opportunities, we will,
for the foreseeable future, need to continue to raise funds
through public or private financings.
We may not be able to raise additional capital on favorable
terms, if at all. Accordingly, we may be forced to significantly
change our business plans and restructure our operations to
conserve cash, which would likely involve out-licensing or
selling some or all of our intellectual, technological and/or
tangible property not presently contemplated and at terms that
we believe would not be favorable to us and/or reducing the
scope and nature of our currently planned research and drug
development activities. An inability to raise additional capital
would also impact our ability to expand operations.
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Clinical trials may fail to demonstrate the safety and
efficacy of our proprietary drug candidates, which could prevent
or significantly delay obtaining regulatory approval. |
Prior to receiving approval to commercialize any of our
proprietary drug candidates, we must demonstrate with
substantial evidence from well-controlled clinical trials, and
to the satisfaction of the FDA, and other regulatory authorities
in the United States and other countries that each of the
products is both safe and effective. For each product candidate,
we will need to demonstrate the efficacy and monitor its safety
throughout the process. If such development is unsuccessful, our
business and reputation would be harmed and our stock price
would be adversely affected.
All of our product candidates are prone to the risks of failure
inherent in drug development. The results of pre-clinical
studies and early-stage clinical trials of our product
candidates do not necessarily predict the results of later-stage
clinical trials. Later-stage clinical trials may fail to
demonstrate that a product candidate
21
is safe and effective despite having progressed through initial
clinical testing. Even if we believe the data collected from
clinical trials of our drug candidates are promising, such data
may not be sufficient to support approval by the FDA or any
other United States or foreign regulatory approval. Pre-clinical
and clinical data can be interpreted in different ways.
Accordingly, FDA officials could interpret such data in
different ways than we or our partners do, which could delay,
limit or prevent regulatory approval. The FDA, other regulatory
authorities, our institutional review boards, our contract
research organization, or we may suspend or terminate our
clinical trials for our drug candidates. Any failure or
significant delay in completing clinical trials for our product
candidates, or in receiving regulatory approval for the sale of
any drugs resulting from our drug candidates, may severely harm
our business and reputation. Even if we receive FDA and other
regulatory approvals, our product candidates may later exhibit
adverse effects that may limit or prevent their widespread use,
may cause FDA to revoke, suspend or limit their approval, or may
force us to withdraw products derived from those candidates from
the market.
Our proprietary drug candidates, their target indications, and
status of development are summarized in the following table:
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| Drug Candidate |
|
Target Indication |
|
Development Status |
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Satraplatin
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Hormone Refractory Prostate Cancer |
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Late Phase 3 clinical trial |
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EOquintm
(EO9)
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Refractory Superficial Bladder Cancer |
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Late Phase 2 clinical trial |
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Elsamitrucin
|
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Refractory non-Hodgkin’s Lymphoma |
|
Phase 2 clinical trial |
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SPI-153
|
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Hormone Dependent Cancers |
|
Phase 2 clinical trial |
|
SPI-153
|
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Benign Prostatic Hypertrophy |
|
Phase 2 clinical trial |
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Satraplatin
|
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Non-small cell lung cancer |
|
Phase 1/2 clinical trial |
|
EO9
|
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Radiation Sensitizer |
|
Pre-clinical |
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RenaZorbtm
|
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End-stage Renal Disease, Chronic Kidney Disease |
|
Pre-clinical |
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SPI-1620
|
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Adjunct to Chemotherapy |
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Pre-clinical |
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The development of our drug candidate, satraplatin,
depends on the efforts of a third party and, therefore, its
eventual success or commercial viability is largely beyond our
control. |
In 2002, we entered into a co-development and license agreement
with GPC Biotech AG for the development and commercialization of
our lead drug candidate, satraplatin. GPC Biotech has agreed to
fully fund development and commercialization expenses for
satraplatin. We do not have control over the drug development
process and therefore, the success of our lead drug candidate
depends upon the efforts of GPC Biotech. GPC Biotech may not be
successful in the clinical development of the drug, the
achievement of any additional milestones such as the acceptance
of a New Drug Application, or NDA, filing by the FDA, or the
eventual commercialization of satraplatin.
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The development of our drug candidate, SPI-153, may be
adversely affected by the development efforts of Zentaris GmbH
who retained certain rights to the product. |
Zentaris GmbH licensed the rights to us to develop and market
SPI-153 in the United States, Canada, Mexico and India. Zentaris
may conduct their own clinical trials on SPI-153 for regulatory
approval in other parts of the world. We will not have control
over Zentaris’ efforts in this area and our own development
efforts for SPI-153 may be adversely impacted if their efforts
are not successful.
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From time to time we may need to license proprietary
technologies from third parties, which may be difficult or
expensive to obtain. |
We may need to obtain licenses to patents and other proprietary
rights held by third parties to successfully develop,
manufacture and market our drug products. As an example, it may
be necessary to utilize a third party’s proprietary
technology to reformulate one of our drug products in order to
improve upon
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the capabilities of the drug product. If we are unable to timely
obtain these licenses on reasonable terms, our ability to
commercially exploit our drug products may be inhibited or
prevented.
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Our limited experience at managing and conducting clinical
trials ourselves may delay the trials and increase our
costs. |
We may manage and conduct some future clinical trials ourselves
rather than hiring outside clinical trial contractors. While
some of our management has had experience at conducting clinical
trials, we have limited experience in doing so as a company. If
we move forward with self-conducted clinical trials, our limited
experience may delay the completion of our clinical trials and
increase our costs.
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The inability to retain and attract key personnel could
significantly hinder our growth strategy and might cause our
business to fail. |
Our success depends upon the contributions of our key management
and scientific personnel, especially Dr. Rajesh C.
Shrotriya, our Chairman, President and Chief Executive Officer
and Dr. Luigi Lenaz, our Chief Scientific Officer.
Dr. Shrotriya has been President since 2000 and Chief
Executive Officer since 2002, and has spearheaded the major
changes in our business strategy and coordinated our structural
reorganization. Dr. Lenaz has been President of our
Oncology Division since 2000 and Chief Scientific Officer since
2005, and has played a key role in the identification and
development of our proprietary drug candidates. The loss of the
services of Dr. Shrotriya, Dr. Lenaz or any other key
personnel could delay or preclude us from achieving our business
objectives. Dr. Shrotriya has an employment agreement with
us that will expire on December 31, 2005, with automatic
one-year renewals thereafter unless we, or Dr. Shrotriya,
give notice of intent not to renew at least 90 days in
advance of the renewal date. Dr. Lenaz has an employment
agreement with us that will expire on July 1, 2005, with
automatic one year renewals thereafter unless Dr. Lenaz or
we give notice of intent not to renew at least 90 days in
advance of the renewal date.
We also may need substantial additional expertise in marketing
and other areas in order to achieve our business objectives.
Competition for qualified personnel among pharmaceutical
companies is intense, and the loss of key personnel, or the
delay or inability to attract and retain the additional skilled
personnel required for the expansion of our business, could
significantly damage our business.
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We are dependent on third parties for clinical testing,
manufacturing and marketing our proposed proprietary products.
If we are not able to secure favorable arrangements with such
third parties, our business and financial condition could be
harmed. |
We may not conduct clinical trials ourselves, and we will not
manufacture any of our proposed proprietary products for
commercial sale nor do we have the resources necessary to do so.
In addition, we currently do not have the capability to market
our drug products ourselves. We intend to contract with larger
pharmaceutical companies or contract research organizations to
conduct such activities. In connection with our efforts to
secure corporate partners, we may seek to retain certain
co-promotional and/or co-marketing rights to certain of our
proprietary drug candidates, so that we may promote our products
to selected medical specialists while our corporate partner
promotes these products to the medical market generally. We may
not be able to enter into any partnering arrangements on this or
any other basis. If we are not able to secure adequate
partnering arrangements, our business and financial condition
could be harmed. In addition, we will have to hire additional
employees or consultants, since our current employees have
limited experience in these areas. Sufficient employees with
relevant skills may not be available to us. Any increase in the
number of our employees would increase our expense level, and
could have an adverse effect on our financial position.
In addition, we, or our potential corporate partners, may not
successfully introduce our proposed proprietary products or our
proposed proprietary products may not achieve acceptance by
patients, health care providers and insurance companies.
Further, it is possible that we may not be able to secure
arrangements to manufacture and market our proposed proprietary
products at prices that would permit us to make a profit. To the
extent that clinical trials are conducted by corporate partners,
we may not be able to control the design and conduct of these
clinical trials.
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Our efforts to acquire or in-license and develop
additional proprietary drug candidates may fail, which would
limit our ability to grow our proprietary business. |
The long-term success of our strategy depends in part on
obtaining drug candidates in addition to our existing portfolio.
We are actively seeking to acquire, or in-license, additional
proprietary drug candidates that demonstrate the potential to be
both medically and commercially viable. We have certain criteria
that we are looking for in any drug candidate acquisition and
therefore, we may not be successful in locating and acquiring,
or in-licensing, additional desirable drug candidates on
acceptable terms.
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We are a small company relative to our principal
competitors and our limited financial resources may limit our
ability to develop and market our drug products. |
Many companies, both public and private, including well-known
pharmaceutical companies and smaller niche-focused companies,
are developing products to treat all of the diseases we are
pursuing, or distributing generic drug products directly
competitive to the generic drugs we intend to market and
distribute. Many of these companies have substantially greater
financial, research and development, manufacturing, marketing
and sales experience and resources than us. As a result, our
competitors may be more successful than us in developing their
products, obtaining regulatory approvals and marketing their
products to consumers.
Competition for branded drugs is less driven by price and is
more focused on innovation in treatment of disease, advanced
drug delivery and specific clinical benefits over competitive
drug therapies. We have six proprietary drug candidates
currently under development. We may not be successful in any or
all of these studies; or if successful, and if one or more of
our proprietary drug candidates is approved by the FDA, we may
encounter direct competition from other companies who may be
developing products for similar or the same indications as our
drug candidates. Companies active in the areas of oncology which
is our focus include Astra Zeneca, Amgen, Inc., Bayer AG, Eli
Lilly and Co., Genentech, Inc., Novartis Pharmaceuticals
Corporation, Bristol-Myers Squibb Company, GlaxoSmithKline,
Biogen-IDEC Pharmaceuticals, Inc., Guilford Pharmaceuticals,
Inc., Cephalon, Inc., Sanofi-Aventis Inc., Pfizer, Inc., Chiron
Corp., Genta Inc., Imclone Systems Incorporated, MGI Pharma,
Inc., SuperGen, Inc., Roche Pharmaceuticals and others who are
more established and are currently marketing products for the
treatment of various forms of cancer including the forms our
oncology drug candidates target. Many of our competitors are
large and well capitalized companies focusing on a wide range of
diseases and drug indications, and have substantially greater
financial, research and development, human and other resources
than we do. Furthermore, large pharmaceutical companies have
significantly more experience than we do in pre-clinical
testing, human clinical trials and regulatory approval
procedures, among other things
Any proprietary product for which we obtain FDA approval must
compete for market acceptance and market share. For example,
cisplatin injection and carboplatin injection are the most
prevalent platinum-based derivatives used in chemotherapy and
are the primary treatment for many of the cancer types we are
pursuing. Our drug candidate, satraplatin, if the FDA approves
it for sale, would likely compete against these drugs directly.
Unless satraplatin is shown to have better efficacy and is as
cost effective, if not more cost effective, than cisplatin and
carboplatin, it may not gain acceptance by the medical field and
therefore may never be successful commercially.
With regard to our drug product candidate,
RenaZorbtm,
in treating hyperphosphatemia, under the new National Kidney
Foundation K/ DOQI guidelines, non-calcium, non-aluminum
binders, are the recommended first-line long-term therapy for
managing high phosphate levels. Genzyme corporations’s
Renagel® and Shire Pharmaceutical’s Fosrenol® are
the only two FDA approved non-calcium, non-aluminum, branded
pharmaceuticals specifically for the treatment of
hyperphosphatemia in end stage renal disease. We expect to
compete with these products and potentially others based upon
phosphate binding capacity, patient compliance, side effects and
cost. While we believe
RenaZorbtm
has the potential to perform better than these competitors, if
RenaZorbtm
is successfully developed and receives FDA approval, it will be
a number of years after Renagel® and Fosrenol® have
been FDA approved and marketed. In addition, Genzyme and Shire
may seek to modify their products or create new therapies that
could reduce or eliminate any perceived benefit we believe
RenaZorbtm
may have over these products.
24
Our success in the marketing of our generic drug products will
depend significantly upon our ability to forecast market
conditions that may prevail after we obtain ANDA approval and
identify generic drugs that our strategic partners and
associated suppliers can produce for us cost-effectively. In
addition, we must be able to expand our marketing, selling and
distribution relationships in the United States since we
currently do not have any internal distribution capabilities and
an alliance with a single product distributor. Furthermore, as a
new generic competitor entering the marketplace which is made up
of many well-established companies, with established customers
as well as established sales, marketing and distribution
organizations we may not be able to successfully compete.
Since price is the primary basis for competition among generic
versions of a given drug, any ability by our competitors to
reduce production costs can provide them with a significant
competitive advantage, and our ability to compete will be
largely dependent on our ability to obtain supplies of our
generic drug product from manufacturers at favorable prices. As
a new generic competitor, we will be competing against
established generic companies such as Teva Pharmaceuticals,
Sandoz, Barr Laboratories, Mylan Laboratories Inc., Watson
Pharmaceuticals, Inc., Genpharm, Dr. Reddy’s, Ranbaxy,
American Pharmaceutical Partners, Bedford Laboratories and
others. These companies may have greater economies of scale in
the production of their products and in certain cases may
produce their own product supplies, such as active
pharmaceutical ingredients, or can procure product supplies on
more favorable terms which may provide significant cost and
supply advantages to customers in the retail prescription market
We expect that the generic market will be competitive and will
be largely dominated by the competitors listed above who will
target many if not all of the same products for development as
Spectrum.
We currently have eight generic drug candidates under review at
the FDA. For ciprofloxacin tablets, our first generic product
candidate filed with FDA, and for which we obtained approval in
September 2004, there are currently fifteen generic
manufacturers approved to sell versions of ciprofloxacin
tablets, which include Apotex, Barr, Cobalt, Taro, Teva, West
Ward, Eon Labs, Carlsbad Technology, IVAX, Sandoz, Genpharm,
Ranbaxy, Dr. Reddy’s, Martec and Mylan Laboratories,
Inc. The pediatric exclusivity for Diflucan, the branded form of
fluconazole, our second generic product filed with the FDA,
expired on July 29, 2004. The market is very competitive
with versions from generic drug manufacturers such as Taro
Pharmaceutical Industries, Mylan Laboratories, Inc, Sandoz,
Ranbaxy, IVAX, Genpharm, Gedeon Richter, TEVA, Torpharm, Roxane
and Pliva approved by the FDA for sale in the U.S. We have
not yet obtained approval from the FDA for fluconazole tablets
and can give no assurance for when approval is likely to come,
if at all. Carboplatin injection, our third generic drug ANDA
filed with FDA, is the generic equivalent of Bristol Meyers
Squibb’s brand Paraplatin, for which the patent expired in
April 2004. The FDA granted approval, following the expiration
of pediatric exclusivity in October 2004, for carboplatin
injection to five generic companies, including Pharmachemie,
APP, Bedford, Mayne and Pliva. TEVA Pharmaceuticals, through an
agreement with Bristol Myers Squibb, is currently selling
carboplatin injection produced by Bristol Myers Squibb as a
generic drug. We have not yet obtained approval from the FDA for
carboplatin injection and can give no assurance for when
approval is likely to come, if at all. The patent for
Imitrex® injection, the brand name for sumatriptan
succinate injection, for which we filed an ANDA with
paragraph IV certification, has not yet expired. However,
we have initiated a challenge of the patent and are currently in
litigation with GlaxoSmithKline, the patent holder for
Imitrex® injection. Based on the guidelines available to
us, and our experience with the FDA approval process, we do not
anticipate receiving approval for our five other ANDAs, filed in
2004 and in 2005, before the first quarter of 2006, if at all,
and all approvals will come after patents and/or exclusivities
expire and after some of our competitors have already obtained
approval.
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Our proprietary drug candidates may not be more effective,
safer or more cost efficient than competing drugs and otherwise
may not have any competitive advantage, which could hinder our
ability to successfully commercialize our drug
candidates. |
Drugs produced by other companies are currently on the market
for each disease type we are pursuing. Even if one or more of
our drug candidates ultimately received FDA approval, our drug
candidates may not have better efficacy in treating the target
indication than a competing drug, may not have a more favorable
side-effect profile than a competing drug, may not be more cost
efficient to manufacture or apply, or otherwise
25
may not demonstrate a competitive advantage over competing
therapies. Accordingly, even if FDA approval is obtained for one
or more of our drug candidates, they may not gain acceptance by
the medical field or become commercially successful.
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Price and other competitive pressures may make the
marketing and sale of our generic drugs not commercially
feasible and not profitable. |
The generic drug market in the United States is extremely
competitive, characterized by many participants and constant
downward price pressure on generic drug products. Consequently,
margins are continually reduced and it is necessary to
continually introduce new products to achieve and maintain
profitability. We have only obtained regulatory approval for one
of our generic drug candidates. While we have entered into
agreements with third parties to manufacture the drug products
for us, given the price volatility of the generic market, we
believe it is imprudent to enter into definitive agreements on
transfer prices with the manufacturers of our generic drug
product candidates prior to FDA approval, and we do not expect
to do so until we receive FDA approval and are ready to begin
selling the generic drug products. Our ability to compete
effectively in the generic drug market depends largely on our
ability to obtain transfer price agreements that ensure a supply
of our generic drug products at favorable prices. Even if we
obtain regulatory approval to market one or more generic drug
candidates in the United States, we may not be able to complete
a transfer price arrangement with the manufacturers of the drug
candidates that will allow us to market any generic drug
products in the United States on terms favorable to us, or at
all.
Also, if we fail to obtain approval of our ANDAs from the FDA in
a timely manner, preferably before the patent and any additional
exclusivity granted by the FDA to the branded drug product
expire, our profitability will be significantly affected due to
the significant price erosion caused by the typically large
number of the generic companies entering the market. The
U.S. patent and pediatric exclusivity for Cipro®, the
branded form of our generic drug product ciprofloxacin, had both
expired by June 2004. We received approval from the FDA of our
ANDA for ciprofloxacin tablets in September 2004, however,
fifteen other companies have received FDA approval to market
generic versions of ciprofloxacin tablets, and we have observed
a significant reduction in the market price for ciprofloxacin
since June 2004. The patents and all exclusivities for our four
ophthalmic products and our one undisclosed product have
previously expired, and a number of other companies are
currently selling their own generic versions of the products. In
addition, we did not obtain approval of our ANDAs for
fluconazole tablets and carboplatin injection prior to the
expirations in July and October 2004, respectively, of the
patents and exclusivities granted by the FDA to the
corresponding branded products. Consequently, our ability to
achieve a profit may be significantly harmed as we have observed
significant reductions in the market prices for these products
as well. The patents for sumatriptan succinate injection, the
generic version of Imitrex®, marketed by GlaxoSmithKline,
for which we filed an ANDA with paragraph IV certification
in October 2004, have not yet expired. On February 18,
2005, GlaxoSmithKline filed suit in U.S. federal court to
prevent us from proceeding with the commercialization of our
generic product which action formally initiates our challenge of
the patent listed by GlaxoSmithKline in connection with
Imitrex® injection. For information regarding the risks of
this litigation, please see the next risk factor below.
In addition to competitive pressures related to price, we may
face opposition from the producers of the branded versions of
the generic drugs for which we obtain approval. Branded
pharmaceutical companies have aggressively sought to prevent
generic competition, including the extensive use of litigation.
In addition, many branded pharmaceutical companies increasingly
have used state and federal legislative and regulatory means to
delay generic competition. These efforts have included:
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pursuing new patents for existing products which may be granted
just before the expiration of one patent, which could extend
patent protection for a number of years or otherwise delay the
launch of generics; |
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using the citizen petition process, a process by which any
person can submit a petition to the Commissioner of the FDA to
issue, amend or revoke a regulation or order or take or refrain
from taking any other administrative action, to request
amendments to FDA standards; |
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seeking changes to the United States Pharmacopoeia, an
organization which publishes industry recognized compendia of
drug standards; and |
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attaching patent extension amendments to non-related federal
legislation. |
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We may not be successful in expanding our generic drug
distribution capabilities in the United States, our only target
market for generic drugs, which would limit our ability to grow
our generic drug business. |
Many of our competitors have substantial, established direct and
indirect distribution channels. We have not yet undertaken the
marketing and distribution of a generic drug product ourselves
and we currently have no direct sales and marketing organization
and our limited sales and marketing resources are devoted to
establishing and enhancing our third party distribution
relationships.
We have established a relationship with a distributor for the
distribution of ciprofloxacin; and commenced distribution of
ciprofloxacin tablets during the fourth quarter of 2004. The
long-term success in the marketing of our generic drugs will
depend in part on our drug distribution capabilities in the
U.S., our only target market for generic drugs. We may not be
successful in expanding our existing distribution channel,
establishing new, additional distribution channels or
establishing a direct generic drug marketing capability
sufficient to effectively and successfully compete in the
generic drug market.
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We may not be successful in establishing additional
generic drug supply relationships, which would limit our ability
to grow our generic drug business. |
Long-term success in the marketing of generic drugs depends in
part on our ability to expand and enhance our existing
relationships and establish new relationships for supplying
generic drug products. We do not presently intend to focus our
research and development efforts on developing active
pharmaceutical ingredients or the dosage form for generic drugs.
In addition, we currently have no capacity to manufacture
generic drug products and do not intend to spend our capital
resources to develop the capacity to do so. Therefore, we must
rely on relationships with other companies to supply our generic
drug products. We may not be successful in expanding or
enhancing our existing relationships or in securing new
relationships. If we fail to expand our existing relationships
or secure new relationships, our ability to expand our generic
drug business will be harmed.
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Our supply of drug products will be dependent upon the
production capabilities of our supply sources, which may limit
our ability to meet demand for our products and ensure
regulatory compliance. |
We have no internal manufacturing capacity for our drug product
candidates, and therefore, we have entered into agreements with
third-party manufacturers to supply us with our drug products,
subject to further agreement on pricing for particular drug
products. Consequently, we will be dependent on our
manufacturing partners for our supply of drug products. Some of
these manufacturing facilities are located outside the United
States. The manufacture of drug products, including the
acquisition of compounds used in the manufacture of the finished
drug product, may require considerable lead times. Further, with
regard to our generic drug products, sales of a new generic drug
product may be difficult to forecast. We will have little or no
control over the production process. Accordingly, while we do
not currently anticipate shortages of supply, there could arise
circumstances in which market demand for a particular generic
product could outstrip the ability of our supply source to
timely manufacture and deliver the product, thereby causing us
to lose sales.
Reliance on a third-party manufacturers entails risks to which
we would not be subject if we manufactured products ourselves,
including reliance on the third party for regulatory compliance
and adhering to FDA’s current Good Manufacturing Practices,
or cGMP, requirements, the possible breach of the manufacturing
agreement by the third party because of factors beyond our
control and the possibility of termination or non-renewal of the
agreement by the third party, based on its own business
priorities, at a time that is costly or inconvenient for us.
Before we can obtain marketing approval for our product
candidates, our supplier’s manufacturing facilities must
pass an FDA pre-approval inspection. In order to obtain
approval, all of the facility’s manufacturing methods,
equipment and processes must comply with cGMP requirements. The
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cGMP requirements govern all areas of record keeping, production
processes and controls, personnel and quality control. Any
failure of our third party manufacturers or us to comply with
applicable regulations, including an FDA pre-approval inspection
and cGMP requirements, could result in sanctions being imposed
on us, including fines, injunctions, civil penalties, failure of
regulatory authorities to grant marketing approval of our
products, delay, suspension or withdrawal of approvals, license
revocation, seizures or recalls of product, operation
restrictions and criminal prosecutions, any of which could
significantly and adversely affect our business.
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GlaxoSmithKline filed suit in U.S. federal court
asserting that Spectrum has infringed their patent for
Imitrex® injection by filing our ANDA for sumatriptan
injection, the generic form of Imitrex® injection. This
challenge may prevent us from commercializing sumatriptan until
after the patent has expired and may require us to incur
substantial expense and the significant effort of technical and
management personnel. |
On February 18, 2005, GlaxoSmithKline filed suit in
U.S. federal court to prevent us from proceeding with the
commercialization of our generic form of sumatriptan injection.
Since patent litigation has been initiated, the FDA will not
approve our ANDA until the earlier of (1) 30 months
from the GlaxoSmithKline’s receipt of our notice of ANDA
acceptance (the 30-month stay) or (2) the issuance of a
final non-appealed, or non-appealable court decision finding the
Imitex® patent invalid, unenforceable or not infringed. If
the patent is found to be infringed by the filing of our ANDA,
GlaxoSmithKline could seek an injunction to block the launch of
our generic product until the patent expires. This would
prohibit us from obtaining the 180-day marketing exclusivity
afforded by the FDA to companies who are the first to file an
ANDA with a paragraph IV certification for a generic
equivalent to a brand name product. We believe we are the first
to file the ANDA for sumatriptan injection.
Our defense against the charge of infringement by
GlaxoSmithKline could require us to incur substantial legal
expense and to divert significant effort of our technical and
management personnel away from their regular activities in our
business, which could substantially hinder our ability to
conduct, advance and grow our business.
Risks Related to Our Industry
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Rapid technological advancement may render our drug
candidates obsolete before we recover expenses incurred in
connection with their development. As a result, certain drug
products may never become profitable. |
The pharmaceutical industry is characterized by rapidly evolving
technology. Technologies under development by other
pharmaceutical companies could result in treatments for diseases
and disorders for which we are developing our own treatments.
Several other companies are engaged in research and development
of compounds that are similar to our research. A competitor
could develop a new technology, product or therapy that has
better efficacy, a more favorable side-effect profile or is more
cost effective than one or more of our drug candidates and
thereby cause our drug candidate to become commercially
obsolete. Some drug candidates may become obsolete before we
recover the expenses incurred in their development. As a result,
such products may never become profitable.
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Competition for patients in conducting clinical trials may
prevent or delay product development and strain our limited
financial resources. |
Many pharmaceutical companies are conducting clinical trials in
patients with the disease indications that our drug candidates
target. As a result, we must compete with them for clinical
sites, physicians and the limited number of patients who fulfill
the stringent requirements for participation in clinical trials.
Also, due to the confidential nature of clinical trials, we do
not know how many of the eligible patients may be enrolled in
competing studies and consequently not available to us. Our
clinical trials may be delayed or terminated due to the
inability to enroll enough patients to complete our clinical
trials. Patient enrollment depends on many factors, including
the size of the patient population, the nature of the trial
protocol, the proximity of patients to
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clinical sites and the eligibility criteria for the study. The
delay or inability to meet planned patient enrollment may result
in increased costs and delays or termination of the trial, which
could have a harmful effect on our ability to develop products.
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We may not be successful in obtaining regulatory approval
to market and sell our proprietary or generic drug
candidates. |
Before our proprietary drug candidates can be marketed and sold,
regulatory approval must be obtained from the FDA and comparable
foreign regulatory agencies. We must demonstrate to the FDA and
other regulatory authorities in the United States and abroad
that our product candidates satisfy rigorous standards of safety
and efficacy. We will need to conduct significant additional
research, pre-clinical testing and clinical testing, before we
can file applications with the FDA for approval of our product
candidates. The process of obtaining FDA and other regulatory
approvals is time consuming, expensive, and difficult to design
and implement. The review and approval, or denial, process for
an application can take years. The FDA, or comparable foreign
regulatory agencies, may not timely, or ever, approve an
application. Among the many possibilities, the FDA may require
substantial additional testing or clinical trials or find our
drug candidate is not sufficiently safe or effective in treating
the targeted disease. This could result in the denial or delay
of product approval. Our product development costs will increase
if we experience delays in testing or approvals. Further, a
competitor may develop a competing drug or therapy that impairs
or eliminates the commercial feasibility of our drug candidates.
In order to obtain approval for our generic drug candidates, we
will need to scientifically demonstrate that our drug product is
safe and bioequivalent to the innovator drug. Bioequivalency may
be demonstrated by comparing the generic drug candidate to the
innovator drug product in dosage form, strength, route of
administration, quality, performance characteristics and
intended use. We plan to use our management’s experience
with the regulatory approval process in the United States to
prepare, file and prosecute appropriate Abbreviated New Drug
Applications, or ANDAs, for our current and future generic drug
candidates. Since 2003 we have filed nine ANDAs with the FDA. In
September 2004, we received approval from the FDA to market
ciprofloxacin tablets in the United States. We intend to file
additional ANDAs in the foreseeable future. The FDA may not
agree that our safety and bioequivalency studies provide
sufficient support for approval. This could result in denial or
delay of FDA approval of our generic products. Generic drugs
generally have a relatively short window in which they can be
profitable before other manufacturers introduce competing
products that impose downward pressure on prices and reduce
market share for other versions of the generic drug.
Consequently, delays in obtaining FDA approval may also
significantly impair our ability to compete.
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Our failure to comply with extensive governmental
regulation to which we are subject may delay or prevent approval
of our product candidates and may subject us to
penalties. |
The FDA and comparable agencies in foreign countries impose many
requirements on the introduction of new drugs through lengthy
and detailed clinical testing and data collection procedures,
and other costly and time consuming compliance procedures. These
requirements apply to every stage of the clinical trial process
and make it difficult to estimate when any of our drug
candidates will be available commercially, if at all. While we
believe that we are currently in compliance with applicable FDA
regulations, if we, our partners, or contract research
organizations fail to comply with the regulations applicable to
our clinical testing, the FDA may delay, suspend or cancel our
clinical trials, or the FDA might not accept the test results.
The FDA, an institutional review board at our clinical trial
sites, our third-party investigators, any comparable regulatory
agency in another country, or we, may suspend
clinical trials at any time if the trials expose subjects
participating in such trials to unacceptable health risks.
Further, human clinical testing may not show any current or
future product candidate to be safe and effective to the
satisfaction of the FDA or comparable regulatory agencies or the
data derived from the clinical tests may be unsuitable for
submission to the FDA or other regulatory agencies.
Once we submit a drug candidate for commercial sale approval,
the FDA or other regulatory agencies may not issue their
approvals on a timely basis, if at all. If we are delayed or
fail to obtain these approvals, our
29
business and prospects may be significantly damaged. Even if we
obtain regulatory approval for our product candidates, we, our
partners, our manufacturers, and other contract entities will
continue to be subject to extensive requirements by a number of
national, foreign, state and local agencies. These regulations
will impact many aspects of our operations, including testing,
research and development, manufacturing, safety, effectiveness,
labeling, storage, quality control, adverse event reporting,
record keeping, approval, advertising and promotion of our
future products. Failure to comply with applicable regulatory
requirements could, among other things, result in:
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fines; |
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changes in advertising; |
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revocation or suspension of regulatory approvals of products; |
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product recalls or seizures; |
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delays, interruption, or suspension of product distribution,
marketing and sale; |
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civil or criminal sanctions; and |
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refusals to approve new products. |
The later discovery of previously unknown problems with our
products may result in restrictions of the product candidate,
including withdrawal from manufacture. In addition, the FDA may
revisit and change its prior determinations with regard to the
safety and efficacy of our future products. If the FDA’s
position changes, we may be required to change our labeling or
to cease manufacture and marketing of the challenged products.
Even prior to any formal regulatory action, we could voluntarily
decide to cease the distribution and sale or recall any of our
future products if concerns about their safety or effectiveness
develop.
In their regulation of advertising, the FDA and the Federal
Trade Commission from time to time issue correspondence alleging
that some advertising or promotional practices are false,
misleading or deceptive. The FDA has the power to impose a wide
array of sanctions on companies for such advertising practices,
and the receipt of correspondence from the FDA alleging these
practices could result in any of the following:
|
|
|
| |
• |
incurring substantial expenses, including fines, penalties,
legal fees and costs to comply with the FDA’s requirements; |
| |
| |
• |
changes in the methods of marketing and selling products; |
| |
| |
• |
taking FDA-mandated corrective action, which may include placing
advertisements or sending letters to physicians, rescinding
previous advertisements or promotions; and |
| |
| |
• |
disruption in the distribution of products and loss of sales
until compliance with the FDA’s position is obtained. |
If we were to become subject to any of the above requirements,
it could be damaging to our reputation, and our business
condition could be adversely affected.
Physicians may prescribe pharmaceutical products for uses that
are not described in a product’s labeling or differ from
those tested by us and approved by the FDA. While such
“off-label” uses are common and the FDA does not
regulate physicians’ choice of treatments, the FDA does
restrict a manufacturer’s communications on the subject of
off-label use. Companies cannot actively
promote FDA-approved pharmaceutical products for off-label
uses, but they may disseminate to physicians articles published
in peer-reviewed journals. If our promotional activities fail to
comply with the FDA’s regulations or guidelines, we may be
subject to warnings from, or enforcement action by, the FDA.
|
|
|
Legislative or regulatory reform of the healthcare system
and pharmaceutical industry may hurt our ability to sell our
products profitably or at all. |
In both the United States and certain foreign jurisdictions,
there have been and may continue to be a number of legislative
and regulatory proposals to change the healthcare system and
pharmaceutical industry in
30
ways that could impact upon our ability to sell our products
profitably. For example, sales of our products will depend in
part on the availability of reimbursement from third-party
payers such as government health administration authorities,
private health insurers, health maintenance organizations
including pharmacy benefit managers and other health
care-related organizations. Both the federal and state
governments in the United States and foreign governments
continue to propose and pass new legislation, rules and
regulations designed to contain or reduce the cost of health
care. As an example, the Medicare Prescription Drug, Improvement
and Modernization Act of 2003, the Medicare Modernization Act,
was recently enacted. This legislation provides a new Medicare
prescription drug benefit beginning in 2006 and mandates other
reforms. Also, the passage of the Medicare Modernization Act
reduces reimbursement for certain drugs used in the treatment of
cancer. Although we cannot predict the full effects on our
business of the implementation of this new legislation, it is
possible that the new benefit, which will be managed by private
health insurers, pharmacy benefit managers and other managed
care organizations, will result in decreased reimbursement for
prescription drugs, which may further exacerbate industry-wide
pressure to reduce the prices charged for prescription drugs.
This could harm our ability to market our products and generate
revenues.
It is also possible that other proposals will be adopted. As a
result of the new Medicare prescription drug benefit, or any
other proposals, we may determine to change our current manner
of operation which could harm our ability to operate our
business efficiently. Existing regulations that affect the price
of pharmaceutical and other medical products may also change
before any of our products are approved for marketing. Cost
control initiatives could decrease the price that we receive for
any of our products we are developing. In addition, third-party
payers are increasingly challenging the price and
cost-effectiveness of medical products and services. Significant
uncertainty exists as to the reimbursement status of newly
approved pharmaceutical products. Our products may not be
considered cost effective, or adequate third-party reimbursement
may not be available to enable us to maintain price levels
sufficient to realize a return on our investments.
In addition, new court decisions, FDA interpretations, and
legislative changes have modified the rules governing
eligibility for and the timing of 180-day market exclusivity
periods, a period of marketing exclusivity that the FDA may
grant to an ANDA applicant who is the first to file a legal
challenge to patents of branded drugs. We believe we were the
first to file an ANDA for sumatriptan succinate injection, the
generic form of GlaxoSmithKline’s Imitrex® injection,
and are currently in litigation with GlaxoSmithKline regarding
the patent that covers this product. However, it is difficult to
predict the effects such changes may have on our business or our
current case. Any changes in FDA regulations, procedures, or
interpretations may make ANDA approvals of generic drugs more
difficult or otherwise limit the benefits available to us
through the granting of 180-day marketing exclusivity. If we are
not able to exploit the 180-day exclusivity period for our
sumatriptan succinate injection ANDA or one of our generic
product candidates that we were first to file, for any reason,
our product may not gain market share, which could materially
adversely affect our results of operations.
As part of the Medicare Modernization Act, companies are now
required to file with the Federal Trade Commission and the
Department of Justice certain types of agreements entered into
between branded and generic pharmaceutical companies related to
the manufacture, marketing and sale of generic versions of
branded drugs. This new requirement could affect the manner in
which generic drug manufacturers resolve intellectual property
litigation and other disputes with branded pharmaceutical
companies, and could result generally in an increase in
private-party litigation against pharmaceutical companies. The
impact of this new requirement, and the potential private-party
lawsuits associated with arrangements between brand name and
generic drug manufacturers, is uncertain and could adversely
affect our business.
Additional government regulations, legislation, or policies may
be enacted which could prevent or delay regulatory approval of
our product candidates. We cannot predict the likelihood, nature
or extent of adverse government action that may arise from
future legislation or administrative action, either in the
United States or abroad. If we are not able to maintain
regulatory compliance, we might not be permitted to market our
products and our business could suffer.
31
|
|
|
If we are unable to adequately protect our technology or
enforce our patents, our business could suffer. |
Our success with proprietary products that we develop will
depend, in part, on our ability to obtain and maintain patent
protection for these products. We currently have a number of
U.S. and foreign patents issued and pending. We cannot be sure
that we will receive patents for any of our pending patent
applications or any patent applications we may file in the
future. If our pending and future patent applications are not
approved or, if approved, if such patents are not upheld in a
court of law, it may reduce our ability to competitively exploit
our patented products. Also, such patents may or may not provide
competitive advantages for their respective products or they may
be challenged or circumvented by our competitors, in which case
our ability to commercially exploit these products may be
diminished.
We also rely on trade secret protection and contractual
protections for our unpatented, confidential and proprietary
technology. Trade secrets are difficult to protect. While we
enter into proprietary information agreements with our
employees, consultants and others, these agreements may not
successfully protect our trade secrets or other confidential and
proprietary information. It is possible that these agreements
will be breached, or that they will not be enforceable in every
instance, and that we will not have adequate remedies for any
such breach. It is also possible that our trade secrets will
become known or independently developed by our competitors.
If we are unable to adequately protect our technology, trade
secrets or proprietary know-how, or enforce our patents, our
business, financial condition and prospects could suffer.
|
|
|
Intellectual property rights are complex and uncertain and
therefore may subject us to infringement claims. |
The patent positions related to our proprietary and generic drug
candidates are inherently uncertain and involve complex
legal and factual issues. Although we are not aware of any
infringement by any of our drug candidates on the rights of any
third party, there may be third party patents or other
intellectual property rights relevant to our drug candidates of
which we are not aware. Third parties may assert patent or other
intellectual property infringement claims against us with
respect to our proprietary drug candidates or our generic drug
products. This could draw us into costly litigation as well as
result in the loss of our use of the intellectual property that
is critical to our business strategy.
|
|
|
Intellectual property litigation is increasingly common
and increasingly expensive and may result in restrictions on our
business and substantial costs, even if we prevail. |
Patent and other intellectual property litigation is becoming
more common in the pharmaceutical industry. Litigation is
sometimes necessary to defend against or assert claims of
infringement, to enforce our patent rights, to protect trade
secrets or to determine the scope and validity of proprietary
rights of third parties. Other than the lawsuit filed against us
by GlaxoSmithKline related to our ANDA for sumatriptan
injection, currently no third party has asserted that we are
infringing upon their patent rights or other intellectual
property, nor are we aware or believe that we are infringing
upon any third party’s patent rights or other intellectual
property. We may, however, be infringing upon a third
party’s patent rights or other intellectual property, and
litigation asserting such claims might be initiated in which we
would not prevail or we would not be able to obtain the
necessary licenses on reasonable terms, if at all. All such
litigation, whether meritorious or not, as well as litigation
initiated by us against third parties, is time consuming and
very expensive to defend or prosecute and to resolve. In
addition, if we infringe the intellectual property rights of
others, we could lose our right to develop, manufacture or sell
our products or could be required to pay monetary damages or
royalties to license proprietary rights from third parties. An
adverse determination in a judicial or administrative proceeding
or a failure to obtain necessary licenses could prevent us from
manufacturing or selling our products, which could harm our
business, financial condition and prospects.
If our competitors prepare and file patent applications in the
United States that claim technology we also claim, we may have
to participate in interference proceedings required by the
Patent and Trademark Office to determine priority of invention,
which could result in substantial costs, even if we ultimately
prevail. Results of interference proceedings are highly
unpredictable and may result in us having to try to obtain
licenses in order to continue to develop or market certain of
our drug candidates.
32
|
|
|
We may be subject to product liability claims, and may not
have sufficient product liability insurance to cover any such
claims, which may expose us to substantial liabilities. |
We may be exposed to product liability claims from patients who
participate in our clinical trials or from consumers of our
products. Although we currently carry product liability
insurance in the amount of at least $3 million in the
aggregate, it is possible that this coverage will be
insufficient to protect us from future claims.
Further, we may not be able to maintain our existing insurance
or obtain or maintain additional insurance on acceptable terms
for our clinical and commercial activities or that such
additional insurance would be sufficient to cover any potential
product liability claim or recall. Failure to maintain
sufficient insurance coverage could have a material adverse
effect on our business, prospects and results of operations if
claims are made that exceed our coverage.
|
|
|
The use of hazardous materials in our research and
development efforts imposes certain compliance costs on us and
may subject us to liability for claims arising from the use or
misuse of these materials. |
Our research and development efforts involved and may involve
the use of hazardous materials, including biological materials,
chemicals and radioactive materials. We are subject to federal,
state and local laws and regulations governing the storage, use
and disposal of these materials and some waste products. We
believe that our safety procedures for the storage, use and
disposal of these materials comply with the standards prescribed
by federal, state and local regulations. However, we cannot
completely eliminate the risk of accidental contamination or
injury from these materials. If there were to be an accident, we
could be held liable for any damages that result, which could
exceed our financial resources. We currently maintain insurance
coverage for injuries resulting from the hazardous materials we
use, and for pollution clean up and removal; however, future
claims may exceed the amount of our coverage. Currently the
costs of complying with federal, state and local regulations are
not significant, and consist primarily of waste disposal
expenses.
Risks Related to Our Stock
|
|
|
There are a substantial number of shares of our common
stock eligible for future sale in the public market. The sale of
these shares could cause the market price of our common stock to
fall. Any future equity issuances by us may have dilutive and
other effects on our existing stockholders. |
As of March 1, 2005, there were approximately
15.3 million shares of our common stock outstanding, and in
addition, security holders held options, warrants and preferred
stock which, if exercised or converted, would obligate us to
issue up to approximately 10 million additional shares of
common stock. A substantial number of those shares, when we
issue them upon conversion or exercise, will be available for
immediate resale in the public market. In addition, we have
filed a shelf registration statement that allows us to sell up
to $100 million of our securities, some or all of which may
be shares of our common stock or securities convertible into or
exercisable for shares of our common stock, and all of which
would be available for immediate resale in the market. We may
issue and sell all of these securities within two years after
January 24, 2005, the date of the effectiveness of the
registration statement. If we were to sell the full
$100 million available under the registration statement as
common stock at a price equal to the current market price of our
common stock as of the date of the effectiveness of the
registration statement, we would issue approximately
16.0 million new shares of our common stock. The market
price of our common stock could fall as a result of resales of
any of these shares of common stock due to the increased number
of shares available for sale in the market.
We have financed our operations, and for the foreseeable future
we expect to continue to finance a substantial portion of our
operating cash requirements, primarily by issuing and selling
our common stock or securities convertible into or exercisable
for shares of our common stock. Any issuances by us of equity
securities may be at or below the prevailing market price of our
common stock and may have a dilutive impact on our other
stockholders. These issuances would also cause our net income,
if any, to decrease or our loss per share to decrease in future
periods. As a result, the market price of our common stock could
drop.
33
|
|
|
The market price and volume of our common stock fluctuate
significantly and could result in substantial losses for
individual investors. |
The stock market from time to time experiences significant price
and volume fluctuations that are unrelated to the operating
performance of particular companies. These broad market
fluctuations may cause the market price and volume of our common
stock to decrease. In addition, the market price and volume of
our common stock is highly volatile. Factors that may cause the
market price and volume of our common stock to decrease include
fluctuations in our results of operations, timing and
announcements of our technological innovations or new products
or those of our competitors, FDA and foreign regulatory actions,
developments with respect to patents and proprietary rights,
public concern as to the safety of products developed by us or
others, changes in health care policy in the United States and
in foreign countries, changes in stock market analyst
recommendations regarding our common stock, the pharmaceutical
industry generally and general market conditions. In addition,
the market price and volume of our common stock may decrease if
our results of operations fail to meet the expectations of stock
market analysts and investors. While a decrease in market price
could result in direct economic loss for an individual investor,
low trading volume could limit an individual investor’s
ability to sell our common stock, which could result in
substantial economic loss as well. During 2004, the price of our
common stock ranged between $3.92 and $10.13, and the daily
trading volume was as high as 1,391,800 shares and as low
as 9,900 shares. During 2005 through March 1, 2005,
the price of our common stock has ranged between $5.82 and
$7.00, and the daily trading volume has been as high as
360,200 shares and as low as 25,700 shares.
|
|
|
Provisions of our charter, bylaws and stockholder rights
plan may make it more difficult for someone to acquire control
of us or replace current management even if doing so would
benefit our stockholders, which may lower the price an acquirer
or investor would pay for our stock. |
Provisions of our certificate of incorporation, as amended, and
bylaws may make it more difficult for someone to acquire control
of us or replace our current management. These provisions
include:
|
|
|
| |
• |
the ability of our board of directors to amend our bylaws
without stockholder approval; |
| |
| |
• |
the inability of stockholders to call special meetings; |
| |
| |
• |
the ability of members of the board of directors to fill
vacancies on the board of directors; |
| |
| |
• |
the inability of stockholders to act by written consent, unless
such consent is unanimous; |
| |
| |
• |
the establishment of advance notice requirements for nomination
for election to our board of directors or for proposing matters
that can be acted on by stockholders at stockholder meetings. |
These provisions may make it more difficult for stockholders to
take certain corporate actions and could delay, discourage or
prevent someone from acquiring our business or replacing our
current management, even if doing so would benefit our
stockholders. These provisions could limit the price that
certain investors might be willing to pay for shares of our
common stock.
In December 2000, we adopted a stockholder rights plan pursuant
to which we distributed rights to purchase units of our
Series B junior participating preferred stock. The rights
become exercisable upon the earlier of ten days after a person
or group of affiliated or associated persons has acquired 20% or
more of the outstanding shares of our common stock or ten
business days after a tender offer has commenced that would
result in a person or group beneficially owning 20% or more of
our outstanding common stock. These rights could delay or
discourage someone from acquiring our business, even if doing so
would benefit our stockholders. We currently have no
stockholders who own 20% or more of the outstanding shares of
our common stock.
|
|
|
We do not anticipate declaring any cash dividends on our
common stock. |
We have never declared or paid cash dividends on our common
stock and do not plan to pay any cash dividends in the near
future. Our current policy is to retain all funds and any
earnings for use in the operation and expansion of our business.
34
Our corporate administrative offices are located in a two-story
34,320 square foot facility containing office and
laboratory space, constructed for us in Irvine, California. The
lease on this facility was renewed effective July 1,
2004 for a five-year period through June 30, 2009, at an
average base monthly rental rate of approximately $33,000 over
the five-year term, plus taxes, insurance and common area
maintenance. At the end of the lease term we have one five-year
renewal option. This facility is suitable and adequate to
undertake our current and anticipated future operations.
Currently we have sub-leased, through November 2007,
approximately half the facility consisting of laboratory space.
We also lease a small administrative office in Zurich,
Switzerland on an expense-sharing basis. The financial and other
terms of this lease are not material to our business.
|
|
| Item 3. |
Legal Proceedings |
|
|
|
Sumatriptan succinate injection Paragraph IV
Litigation |
In October 2004, we filed with the FDA an ANDA for sumatriptan
succinate injection 6mg/0.5mL, seeking approval to engage
in the commercial manufacture, sale, and use of the sumatriptan
succinate injection product in the United States. Sumatriptan
succinate is marketed by GlaxoSmithKline under the brand name
Imitrex® and is used for the acute treatment of migraine
attacks with or without aura and the acute treatment of cluster
headache episodes in adults.
GlaxoSmithKline has two patents for sumatriptan succinate
injection listed in the FDA’s Orange Book, which is the
FDA’s listing of approved drug products. The exclusivity
afforded the patents listed in the Orange Book for Imitrex®
injection expire on June 28, 2007 and February 6,
2009, in each case including extensions for pediatric
exclusivity. Our ANDA includes a paragraph IV certification
that the later to expire patent associated with
GlaxoSmithKline’s Imitrex® injection, is invalid,
unenforceable and/or or will not be infringed by our generic
product candidate.
On February 18, 2005, GlaxoSmithKline filed a lawsuit
against us in the United States District Court for the District
of Delaware, alleging infringement of the patent on
Imitrex®. Pursuant to the Hatch-Waxman Act, the FDA is
stayed for 30 months from approving our ANDA until the
earlier of a final, non-appealed or non-appealable court
decision finding the patent invalid, unenforceable or not
infringed or the expiration of the 30 month stay. The
30 month stay began running when GlaxoSmithKline filed suit
in federal court alleging patent infringement of their Orange
Book-listed patent. Often more than one company will file an
ANDA that includes a paragraph IV certification. However,
the Hatch-Waxman Act provides that such subsequent ANDA
applications will not be approved until 180 days after the
earlier of (1) the date of the first commercial marketing
of the first-filed ANDA applicant’s generic drug or
(2) the date of a decision of a court in an action holding
the relevant patent invalid, unenforceable, or not infringed.
Thus, the Hatch-Waxman Act effectively grants the first-filed
ANDA holder 180 days of marketing exclusivity for the
generic product. We believe that our ANDA was the first filed
ANDA in connection with sumatriptan succinate
injection 6mg/0.5mL. If the patent is found to be infringed
by the filing of our ANDA, GlaxoSmithKline could seek an
injunction to block the launch of our generic product until the
patent expires.
While it is not possible to determine with any degree of
certainty the ultimate outcome of the foregoing legal
proceedings, we believe that we have substantial and meritorious
basis with respect to our Paragraph IV challenge of
GlaxoSmithKline patent for sumatriptan succinate
injection 6mg/0.5mL.
We are sometimes involved in matters of litigation that we
consider ordinary routine litigation incidental to our business.
We are not aware of any pending litigation matters that will
materially affect our financial statements.
35
|
|
| Item 4. |
Submission of Matters to a Vote of Security Holders |
No matters were submitted to a vote of security holders during
the quarter ended December 31, 2004.
PART II
|
|
| Item 5. |
Market for Registrant’s Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity
Securities |
As of March 1, 2005 there were 15,326,484 shares of
common stock outstanding and 378 shareholders of record. On
March 1, 2005, the closing sale price of our common stock
was $6.66 per share.
Our common stock is traded on the NASDAQ National Market under
the symbol “SPPI.” The high and low sale prices of our
common stock reported by NASDAQ during each quarter ended in
2004 and 2003 were as follows:
| |
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|
|
|
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|
|
|
|
| |
|
High | |
|
Low | |
| |
|
| |
|
| |
|
Year 2004
|
|
|
|
|
|
|
|
|
| |
Quarter Ended
|
|
|
|
|
|
|
|
|
| |
|
March 31
|
|
$ |
10.13 |
|
|
$ |
7.53 |
|
| |
|
June 30
|
|
$ |
8.50 |
|
|
$ |
5.15 |
|
| |
|
September 30
|
|
$ |
7.64 |
|
|
$ |
3.92 |
|
| |
|
December 31
|
|
$ |
6.68 |
|
|
$ |
5.10 |
|
|
Year 2003
|
|
|
|
|
|
|
|
|
| |
Quarter Ended
|
|
|
|
|
|
|
|
|
| |
|
March 31
|
|
$ |
2.40 |
|
|
$ |
1.66 |
|
| |
|
June 30
|
|
$ |
6.40 |
|
|
$ |
1.90 |
|
| |
|
September 30
|
|
$ |
10.37 |
|
|
$ |
3.57 |
|
| |
|
December 31
|
|
$ |
8.60 |
|
|
$ |
5.42 |
|
The high and low sales prices of our common stock reported by
NASDAQ reflect inter-dealer prices, without retail mark-ups,
markdowns or commissions, and may not represent actual
transactions.
We have never paid cash dividends on our common stock and we do
not intend to pay cash dividends in the foreseeable future. We
currently intend to retain our earnings, if any, to finance
future growth.
|
|
|
Unregistered Sales of Equity Securities |
In connection with a private placement transaction in August
2003, we issued warrants exercisable through August 2008. Since
our last current report, a warrant was exercised for the
purchase of 19,654 shares of our common stock for cash
consideration of $93,356. We believe the sale of the shares was
exempt from registration under the Securities Act of 1933 (the
“Act”) pursuant to Section 4(2) of the Act. We
made no solicitation in connection with the exercise of the
warrant; we obtained representations from the holder regarding
its status as an accredited investor; and the holder had access
to adequate information about Spectrum in order to make an
informed investment decision. No underwriting discounts or
commissions were paid in conjunction with the issuances.
36
|
|
| Item 6. |
Selected Financial Data |
The following table presents our selected financial data.
Financial data for the years ended December 31, 2004, 2003
and 2002 and as of December 31, 2004 and 2003 has been
derived from our audited financial statements included elsewhere
in this Form 10-K, and should be read in conjunction with
those financial statements and accompanying notes and with
“Item 7. — Management’s Discussion and
Analysis of Financial Condition and Results of Operations.”
Financial data for the years ended December 31, 2001 and
2000 and as of December 31, 2002, 2001 and 2000 has been
derived from our audited financial statements not included
herein.
37
CONSOLIDATED FINANCIAL INFORMATION
(In thousands, except Share data)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Statement of Operations Data |
|
|
|
|
|
|
|
|
|
|
| for the Years Ended December 31: |
|
2004 | |
|
2003 | |
|
2002 | |
|
2001 | |
|
2000 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Revenues
|
|
$ |
258 |
|
|
$ |
1,000 |
|
|
$ |
2,371 |
|
|
$ |
41 |
|
|
$ |
- |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Cost of product sold
|
|
$ |
123 |
|
|
$ |
– |
|
|
$ |
– |
|
|
$ |
– |
|
|
$ |
– |
|
| |
Research and development
|
|
|
6,954 |
|
|
|
3,683 |
|
|
|
11,706 |
|
|
|
20,611 |
|
|
|
38,767 |
|
| |
General and administrative
|
|
|
5,096 |
|
|
|
5,049 |
|
|
|
3,691 |
|
|
|
5,475 |
|
|
|
4,352 |
|
| |
Stock-based charges
(see supplement below)
|
|
|
885 |
|
|
|
2,573 |
|
|
|
1,431 |
|
|
|
2,105 |
|
|
|
755 |
|
| |
Restructuring expenses
|
|
|
– |
|
|
|
163 |
|
|
|
3,050 |
|
|
|
– |
|
|
|
– |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(12,800 |
) |
|
|
(10,468 |
) |
|
|
(17,507 |
) |
|
|
(28,150 |
) |
|
|
(43,874 |
) |
|
Other income (expense)
|
|
|
514 |
|
|
|
78 |
|
|
|
(127 |
) |
|
|
315 |
|
|
|
(2,553 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$ |
(12,286 |
) |
|
$ |
(10,390 |
) |
|
$ |
(17,634 |
) |
|
$ |
(27,835 |
) |
|
$ |
(46,427 |
) |
| |
Basic and diluted net loss per share
|
|
$ |
(0.98 |
) |
|
$ |
(4.83 |
) |
|
$ |
(12.34 |
) |
|
$ |
(36.50 |
) |
|
$ |
(109.25 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Cash Dividends on common stock
|
|
$ |
– |
|
|
$ |
– |
|
|
$ |
– |
|
|
$ |
– |
|
|
$ |
– |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Stock-based charges — Components:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Research and development
|
|
$ |
634 |
|
|
$ |
1,000 |
|
|
$ |
1,020 |
|
|
$ |
– |
|
|
$ |
– |
|
| |
General and administrative
|
|
|
251 |
|
|
|
1,573 |
|
|
|
411 |
|
|
|
2,105 |
|
|
|
755 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Total stock based charges
|
|
$ |
885 |
|
|
$ |
2,573 |
|
|
$ |
1,431 |
|
|
$ |
2,105 |
|
|
$ |
755 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance Sheet Data at December 31: |
|
2004 | |
|
2003 | |
|
2002 | |
|
2001 | |
|
2000 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Cash, cash equivalents and marketable securities
|
|
$ |
39,206 |
|
|
$ |
26,351 |
|
|
$ |
1,578 |
|
|
$ |
7,157 |
|
|
$ |
11,470 |
|
|
Property and equipment, net
|
|
$ |
687 |
|
|
$ |
560 |
|
|
$ |
802 |
|
|
$ |
4,689 |
|
|
$ |
3,416 |
|
|
Total assets
|
|
$ |
40,758 |
|
|
$ |
27,389 |
|
|
$ |
3,453 |
|
|
$ |
12,825 |
|
|
$ |
15,781 |
|
|
Current liabilities
|
|
$ |
2,666 |
|
|
$ |
3,108 |
|
|
$ |
2,522 |
|
|
$ |
5,212 |
|
|
$ |
5,110 |
|
|
Long-term debt, less current portion
|
|
$ |
– |
|
|
$ |
– |
|
|
$ |
158 |
|
|
$ |
464 |
|
|
$ |
474 |
|
|
Other non-current-liabilities
|
|
$ |
178 |
|
|
$ |
– |
|
|
$ |
101 |
|
|
$ |
362 |
|
|
$ |
87 |
|
|
Minority interest in consolidated subsidiaries
|
|
$ |
24 |
|
|
$ |
– |
|
|
$ |
– |
|
|
$ |
– |
|
|
$ |
7,280 |
|
| |
Total stockholders’ equity
|
|
$ |
37,890 |
|
|
$ |
24,281 |
|
|
$ |
672 |
|
|
$ |
6,787 |
|
|
$ |
2,830 |
|
38
|
|
| Item 7. |
Management’s Discussion and Analysis of Financial
Condition and Results of Operations |
You should read the following discussion of the financial
condition, changes in financial condition and results of our
operations in conjunction with the financial statements and the
notes to those statements included elsewhere in this report. The
discussion in this report contains forward-looking statements
that involve risks and uncertainties, such as statements of our
plans, objectives, expectations and intentions. The cautionary
statements made in this report should be read as applying to all
related forward-looking statements wherever they appear in this
report. Our actual results could differ materially from those
discussed here. Factors that might cause such a difference
include, but are not limited to, those discussed below and
elsewhere, including “Risk Factors”. These factors
include, but are not limited to:
|
|
|
| |
• |
our ability to successfully develop, obtain regulatory approvals
for and market our products; |
| |
| |
• |
our ability to generate and maintain sufficient cash resources
to increase investment in our business; |
| |
| |
• |
our ability to identify new product candidates; |
| |
| |
• |
the timing or results of pending or future clinical trials; |
| |
| |
• |
actions by the FDA and other regulatory agencies; |
| |
| |
• |
demand and market acceptance for our approved products and |
| |
| |
• |
the effect of changing economic conditions. |
Overview
Spectrum Pharmaceuticals, Inc. is a specialty pharmaceutical
company engaged in the business of acquiring, developing and
commercializing prescription drug products for various
indications. While we own patent rights to certain product
candidates, the drug products we are currently developing, which
are focused on the treatment of cancer and other unmet medical
needs, are in-licensed from third parties whereby we acquired
exclusive development and commercialization rights from the
holders of patents for those compounds. We are also actively
engaged in seeking FDA approval for marketing generic versions
of branded drugs whose patent protection is scheduled to expire
in the near-term, or has already expired. In September 2004, the
FDA granted us approval to market ciprofloxacin, the generic
version of the anti-bacterial drug Cipro®, which is
marketed by Bayer.
New drug development is an inherently uncertain, lengthy and
expensive process. We focus our research and development efforts
on clinical stage drug candidates, for which the primary
expenses relate to the conduct of clinical trials necessary to
demonstrate to the satisfaction of the U.S. Food and Drug
Administration, or FDA, and other regulatory authorities in the
United States and other countries, that the products are both
safe and effective in their respective indications and that they
can be produced by a validated consistent manufacturing process.
The number, size, scope and timing of the clinical trials
necessary to bring a product candidate to development completion
and commercialization cannot readily be determined at an early
stage, nor, given the timelines of the trials extending over
periods of years, can future costs be estimated with precision.
While generic drug development is also subject to approval by
regulatory authorities, the costs and timelines of development
completion and commercialization can be significantly shorter,
and compared to new drug development, relatively less uncertain
and less expensive.
Business Outlook
Our primary business focus for 2005, and beyond, will be to
continue to acquire and develop a portfolio of marketable
prescription drug products with a mix of near-term and long-term
revenue potential.
As of the date of filing this report, we have six proprietary
drug product candidates under development: satraplatin,
EOquintm,
elsamitrucin, SPI-153;
RenaZorbtm;
and SPI-1620, and to-date have filed nine ANDAs with the FDA,
including that for ciprofloxacin, which was approved in
September 2004.
39
|
|
|
| |
• |
Funding for satraplatin clinical trials is being borne entirely
by our co-development partner GPC Biotech. We are funding the
Phase 2 clinical trials of EOquin and elsamitrucin; and
plan to fund the development, including clinical trials, of
SPI-153,
RenaZorbtmand
SPI-1620. |
| |
| |
• |
We have eight drug products for which we have ANDAs pending with
the FDA: fluconazole tablets, injectable carboplatin and
sumatriptan succinate, and five other drug products. |
| |
| |
• |
We expect to receive approval by the FDA of our ANDAs for
carboplatin and fluconazole in the first half of 2005. We may
not receive approval for our other pending ANDAs, filed in 2004
and early 2005, before the first quarter of 2006, if at all. |
Our goal is to continue to acquire or license additional
promising drug product candidates for clinical stage
development, and to pursue additional ANDA filings, including
several injectable products, and to have several generic drugs
FDA approved and marketed in the U.S. over the next 5
years. In this regard we are evaluating several general drug
candidates for feasibility. The evaluation of feasibility
includes many factors, including, but not limited to, evaluation
of market potential, competition, potential patent extensions,
and availability of active pharmaceutical ingredients and
manufacturing capacity.
Financial Condition
|
|
|
Liquidity and Capital Resources |
Our current business operations do not generate sufficient
operating cash to finance the clinical development of our drug
product candidates. Our cumulative losses, since inception in
1987, through December 31, 2004, have exceeded
$165 million. We expect to continue to incur significant
additional losses as we implement our growth strategy of
developing marketable drug products for at least the next
several years unless they are offset, if at all, by licensing
revenues under our out-license agreement with GPC Biotech AG and
any profits from the sale of generic products.
We believe that the approximately $39 million in cash, cash
equivalents and marketable securities that we had on hand as of
December 31, 2004, will allow us to fund our current
planned operations for at least the next twelve months. While
anticipated profits from the sale of generic drugs, if we are
successful in generating revenues from generics, may help defray
some of the expenses of operating our business, we believe that
in order to prepare the company for future drug product
acquisition and development, and to capitalize on growth
opportunities, we will, for the foreseeable future, need to
continue to raise funds through public or private financings.
Our operations have historically been financed by the issuance
of capital stock because it is generally difficult to fund
pharmaceutical research and development via borrowings due to
the significant expenses involved, lack of revenues sufficient
to service debt and the significant inherent uncertainty as to
results of research and the timing of those results. In this
regard, while we have no imminent need for additional funding,
we filed a shelf registration statement, in January 2005, that
would enable to raise $100 million, should we elect to do
so.
As described elsewhere in this report, including the “Risk
Factors” section, our drug development efforts are subject
to the considerable uncertainty inherent in any new drug
development. Due to the uncertainties involved in progressing
through clinical trials, and the time and cost involved in
obtaining regulatory approval and in establishing collaborative
arrangements, among other factors, we cannot reasonably estimate
the timing and ultimate aggregate cost of developing each of our
drug product candidates, and are similarly unable to reasonably
estimate when, if ever, we will realize material net cash
inflows from our proprietary drug product candidates.
Accordingly, the following discussion of our current assessment
of the need for cash to fund our operations for at least the
next twelve months may prove too optimistic and our assessment
of expenditures may prove inadequate.
Over the past two years, since the inception of our current
business strategy in August 2002, our expenditures for research
and development and general and administrative expenses,
excluding license acquisition costs, have been largely incurred
on non-product-specific, or indirect, costs such as personnel,
occupancy and other fixed costs representing approximately 80%
of total expenditures. We anticipate that over the next twelve
months, such indirect costs will range between approximately
$8 million and $9 million. In
40
addition, we incur product-specific development costs such as
upfront license fees, milestone payments, active pharmaceutical
ingredient (API), clinical trials, patent search legal costs,
and product liability insurance, among others. The following
describes our current assessment of product specific development
costs for each significant proprietary product, and generics as
a group, currently under development. As we mentioned above,
these costs are subject to uncertainties inherent in new drug
development. In addition, the expenses are not necessarily
cumulative. We may reduce the amount we spend on one product to
shift our cash resources to another product. Therefore, what we
actually spend to develop a particular product may not fall
within the estimated range and the estimated ranges may change
from quarter to quarter based upon changes in priorities or
strategy and/or the results of the development. While we do not
receive any funding from third parties for research and
development we conduct, our estimated costs could be mitigated
should we enter into co-development agreements for any of our
drug product candidates.
|
|
|
| |
• |
Satraplatin: The costs of conducting clinical
trials are being borne entirely by our co-development partner
GPC Biotech. While we have licensed the development of
satraplatin to GPC Biotech, we are not obligated to reimburse
GPC Biotech for development costs they incur or to refund any
license or milestone payments we receive. |
| |
| |
• |
EOquin: Through December 31, 2004, excluding
indirect costs described earlier, we have spent approximately
$1.3 million on the development of EOquin, including
approximately $800,000 during the year ended December 31,
2004. Estimated expenditures for the next twelve months are
subject to considerable uncertainty, and are largely dependent
on the analysis of Phase 2 clinical trial data that is
expected to be available in the first half of 2005. We
anticipate that over the next twelve months we may incur
development costs ranging between approximately
$1.5 million and $3 million. |
| |
| |
• |
Elsamitrucin: Through December 31, 2004,
excluding indirect costs described earlier, we have spent
approximately $900,000 on the development of Elsamitrucin,
including approximately $500,000 during the year ended
December 31, 2004. Estimated expenditures for the next
twelve months are subject to considerable uncertainty, and are
largely dependent on the completion of enrollment in the
Phase 2 clinical trial and positive results. We anticipate
that over the next twelve months we may incur development costs
ranging between approximately $1.5 million and
$3 million. |
| |
| |
• |
SPI-153: Through December 31, 2004, excluding
indirect costs described earlier, we have spent approximately
$1.8 million in cash and equity on the acquisition of
SPI-153. Because we acquired rights to this compound recently,
estimated expenditures for the next twelve months are subject to
considerable uncertainty. Depending on the indications we
develop the product for, we may incur development costs ranging
between approximately $2 million and $5 million over
the next twelve months. |
| |
| |
• |
RenaZorbtm:
In January 2005, we entered into a license agreement with Altair
Nanotechnologies, Inc., whereby we acquired an exclusive
worldwide license to develop and commercialize for all human
therapeutic and diagnostic uses,
RenaZorbtm,
two second-generation lanthanum-based phosphate binding agents,
which utilize Altair’s proprietary lanthanum nanoparticle
technology and have the potential to treat hyperphosphatemia, or
high phosphate levels in blood, in patients with end-stage renal
disease and chronic kidney disease. We paid Altair an upfront
payment of 100,000 shares of restricted Spectrum common
stock and made an equity investment of $200,000 for
38,314 shares of Altair common stock, and are obligated to
make future payments contingent upon the successful achievement
of certain development and regulatory milestones. In addition,
we will pay royalties and sales milestones on net sales, if any,
after marketing approval is obtained from regulatory
authorities. As of the date of this report we are unable to
reliably estimate the development costs for
RenaZorbtm
because we only recently acquired the rights to the compound and
we are still in the early stages of planning for future
development. However, upon successful achievement of one of the
development milestones, which is anticipated to occur in 2005,
we will be obligated to issue Altair 100,000 shares of our
restricted common stock. |
| |
| |
• |
SPI-1620: In February 2005, we entered into a
license agreement with Chicago Labs, Inc., whereby we acquired
an exclusive worldwide license to develop and commercialize
SPI-1620, an endothelinB |
41
|
|
|
| |
|
agonist, which we believe may selectively dilate tumor blood
vessels and thereby selectively increase the delivery of
anti-cancer drugs to cancer tissue, for the prevention and
treatment of cancer. We paid Chicago Labs an upfront fee of
$100,000, and are obligated to make future payments contingent
upon the successful achievement of certain development and
regulatory milestones. In addition, we will pay royalties and
sales milestones on net sales, if any, after marketing approval
is obtained from regulatory authorities. As of the date of this
report we are unable to reliably estimate the development costs
for SPI-1620 because we only recently acquired the rights to the
compound and we are still in the early stages of planning for
future development. |
| |
| |
• |
In addition to the foregoing drug product candidates, we
continually evaluate proprietary products for acquisition. If we
are successful in licensing additional products, our research
and development expenditures would increase. |
| |
| |
• |
While we are contingently obligated to make cash milestone
payments, aggregating approximately $25 million as of
December 31, 2004, under our licensing agreements given the
unpredictability of the results to be derived from those trials,
we believe that it is unlikely that any material cash milestone
payment obligation will be triggered in the next 12 months.
Further, if we reach a milestone, it will likely occur prior to
revenues being generated from the related compound. However, in
connection with the milestone obligations related to one of our
drug product candidates, satraplatin, each of our contingent
future cash payment obligations is generally matched by a
corresponding, greater cash payment milestone obligation of GPC
Biotech to us. |
| |
| |
• |
Generic drugs: Through December 31, 2004, we
have spent approximately $1.7 million on the development of
generic drugs, including costs for products that we anticipate
filing ANDAs for in the future. Over the next twelve months we
expect to incur development costs ranging between
$2 million and $3 million. We do not receive any
funding from third parties for research and development we
conduct for generic products, nor do we pay our generic alliance
partners for any research and development they incur in the
development of ANDAs for regulatory approval. |
Marketing of ciprofloxacin tablets, our first generic drug,
commenced in the fourth quarter of 2004. Fifteen other companies
have received FDA approval to market generic versions of
ciprofloxacin tablets, and we have observed a significant
reduction in the market price for ciprofloxacin tablets since
June 2004, when the pediatric exclusivity for ciprofloxacin
expired. We expect to receive approval by the FDA of our ANDAs
for carboplatin injection and fluconazole tablets in the first
half of 2005. The marketing exclusivity for Bristol Myers
Squibb’s branded form of carboplatin injection expired in
October 2004, and the FDA has granted ANDA approval to five
generic companies, including Pharmachemie, APP, Bedford, Mayne
and Pliva. TEVA Pharmaceuticals, through an agreement with
Bristol Myers Squibb, is currently selling carboplatin injection
produced by Bristol Myers Squibb as a generic drug. The
marketing exclusivity for Pfizer’s branded form of
fluconazole tablets expired in July 2004, and the FDA has
approved generic versions from several companies, including Taro
Pharmaceutical Industries, Mylan, Sandoz, Ranbaxy, IVAX,
Genpharm, Gedeon Richter, TEVA, Torpharm, Roxane and Pliva. We
have observed significant price declines in the marketplace for
each of the foregoing products. Accordingly, given the
competition faced by these products and the fact that we are
still seeking alliances with third parties to assist us in the
marketing and sale of flucanazole tablets and carboplatin
injection, we are unable at this time to reasonably estimate
potential revenues or profits from these generic products in the
foreseeable future.
|
|
|
Net Cash used in Operating activities |
During the years ended December 31, 2004 and 2003, the net
cash used in operations, for research and development and
general and administrative expenses, was approximately
$11.8 million and $6.6 million respectively. The
increase of $5.2 million is primarily due to an increase in
2004 in research and development expenditures of approximately
$3.3 million, combined with a decrease of approximately
$1 million in licensing fee revenue, payment in 2004 of
compensation accrued at December 31, 2003, and increases in
accounts receivable and inventory.
42
|
|
|
Net Cash used in Investing Activities |
As described in our accounting policy for cash, cash equivalents
and marketable securities, we invest our cash in a variety of
investments pending its use in our business. In order to
maximize the interest yield on our investments, we invested in
investments which do not meet the definition of cash
equivalents, and are classified as marketable securities on the
balance sheet. As of December 31, 2004 and 2003, the change
in the carrying amount of marketable securities predominantly
accounted for the net cash used in investing activities during
the years ended December 31, 2004 and 2003, approximately
$34.4 million and $1.3 million, respectively. The
increase of approximately $33.1 million in 2004 was
primarily due to the investment in marketable securities of
excess funds, including the approximately $25 million cash
provided by financing activities during 2004.
|
|
|
Net Cash provided by Financing Activities |
Cash provided by financing activities was approximately
$25 million and $31 million, for the years ended
December 31, 2004 and 2003, respectively. The approximately
$25 million in 2004 was comprised of approximately
$22.6 million from the issuance in April 2004 of
approximately 3.2 million shares of common stock and
warrants to purchase approximately 1.1 million shares of
common stock, plus $2.4 million from the exercise of
options and warrants for approximately 717,000 shares of
our common stock. Offsetting these cash inflows was a
$145,000 payment of our capital lease obligations during
the year.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and
results of operations are based upon our consolidated financial
statements, which have been prepared in accordance with
accounting principles generally accepted in the United States.
The preparation of these financial statements requires us to
make estimates and judgments that affect the reported amounts of
assets, liabilities, revenues and expenses, and related
disclosure of contingent assets and liabilities. On an on-going
basis, we evaluate our estimates, including cash requirements,
from assessing: planned research and development activities and
general and administrative requirements, required clinical trial
activity, market need for our drug candidates and other major
business assumptions.
The SEC defines critical accounting policies as those that are,
in management’s view, most important to the portrayal of
our financial condition and results of operations and most
demanding of our judgment. We consider the following policies to
be critical to an understanding of our consolidated financial
statements and the uncertainties associated with the complex
judgments made by us that could impact our results of
operations, financial position and cash flows.
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States
requires us to make estimates and assumptions that affect the
reported amounts of assets, liabilities, revenues and expenses
and disclosure of contingent obligations in the financial
statements and accompanying notes. Our most significant
assumptions are employed in estimates used in estimating
stock-based charges, determining values of financial instruments
and accrued obligations, as well as in estimates used in
applying the revenue recognition policy. The estimation process
requires assumptions to be made about future events and
conditions, and as such, is inherently subjective and uncertain.
Actual results could differ materially from our estimates.
In estimating the fair value of stock-based compensation, we use
the Black Scholes Option Pricing Model. We estimate future
volatility based on past volatility of our common stock; and we
estimate the expected length of the option on several criteria,
including the vesting period of the grant, and the expected
volatility. In estimating the fair value of restricted common
stock we issue in connection with licensing transactions, we
apply a discount, for the marketability restrictions, which
discount is calculated after considering past volatility of our
common stock, as well as the term of restriction and the cost of
risk free capital for a period that is comparable with the term
of the restriction on the shares.
43
|
|
|
Cash, Cash Equivalents and Marketable Securities |
Cash, cash equivalents and marketable securities primarily
consist of corporate debt and equity and municipal obligations,
including market auction debt securities, but also include
government agency notes, certificates of deposit, bank checking
and time deposits, and institutional money market funds. We
classify highly liquid short-term investments, with
insignificant interest rate risk and maturities of 90 days
or less at the time of acquisition, as cash and cash
equivalents. Other investments, which do not meet the above
definition of cash equivalents, are classified as either
“held to maturity” or “available-for-sale”
marketable securities, in accordance with the provisions of
Statement No. 115, “Accounting for Certain
Investments in Debt and Equity Securities”. Investments
that we intend to hold for more than one year are classified as
long-term investments.
We own or license all the intellectual property that forms the
basis of our business model. We expense all licensing and patent
application costs as they are incurred.
License fees representing non-refundable payments received upon
the execution of license agreements are recognized as revenue
upon execution of the license agreements where we have no
significant future performance obligations and collectibility of
the fees is assured. Milestone payments, which are generally
based on developmental or regulatory events, are recognized as
revenue when the milestones are achieved, collectibility is
assured, and we have no significant future performance
obligations in connection with the milestones. In those
instances where we have collected fees or milestone payments but
have ongoing future obligations related to the development of
the drug product, revenue recognition is deferred and amortized
ratably over the period of our future obligations.
Revenue from sales of product is recognized upon shipment of
product when title and risk of loss have transferred to the
customer, and provisions for estimates, including promotional
adjustments, price adjustments, returns, and other potential
adjustments are reasonably determinable. Such revenue is
recorded net of such estimated provisions. We state the related
accounts receivable at net realizable value, with any allowance
for doubtful accounts charged to general operating expenses.
Research and development expenses are comprised of the following
types of costs incurred in performing research and development
activities: personnel expenses, facility costs, contract
services, license fees and milestone payments, costs of clinical
trials, laboratory supplies and drug products, and allocations
of corporate costs. We expense all research and development
activity costs in the period incurred.
|
|
|
Accounting for Stock-Based Employee Compensation |
At December 31, 2004, we had three stock-based employee
compensation plans, which are described more fully in
Note 8 to the Financial Statements included in this Annual
Report on Form 10-K. As permitted by FASB Statement
No. 123, “Accounting for Stock-Based
Compensation”, we account for grants pursuant to those
plans under the intrinsic value method described in Accounting
Principles Board (APB) Opinion No. 25,
“Accounting for Stock Issued to Employees”, and
related Interpretations. Under the intrinsic value method, no
stock-based employee compensation cost is recorded when the
exercise price is equal to, or higher than, the market value of
the underlying common stock on the date of grant. We recognize
stock-based compensation expense for all grants to consultants,
and for those grants to employees where the exercise prices are
below the market price of the underlying stock at the
measurement date of the grant.
|
|
|
New Accounting Pronouncements |
In November 2004, the FASB issued Statement No. 151,
“Inventory Costs — an amendment of ARB
No. 43, Chapter 4”. Statement No. 151
requires the current expensing of abnormal production costs, and
44
requires that allocation of fixed production overheads to the
costs of conversion of inventory be based on the normal capacity
of the production facilities. The adoption of Statement
No. 151 is not expected to have any impact on our financial
statements.
In December 2004, the FASB issued Statement No. 123(R),
“Share-Based Payment”. This Statement
eliminates the use of the intrinsic value method described in
Accounting Principles Board (APB) Opinion No. 25,
“Accounting for Stock Issued to Employees”, and
requires a public entity to measure the cost of employee
services received in exchange for an award of equity instruments
based on the grant-date fair value of the award. That cost will
be recognized over the period during which an employee is
required to provide service in exchange for the award. We expect
to adopt the provisions of Statement No. 123(R) when it
becomes a mandatory requirement, currently expected to be
July 1, 2005. The adoption of this statement is expected to
result in significantly higher reported operating expenses in
our future financial statements. Had we adopted the provisions
of Statement No. 123(R) as of January 1, 2004, our
reported loss for the year-ended December 31, 2004 would
have been $2,571,000 higher, or $14,857,000.
In December 2004, the FASB issued Statement No. 153,
“Exchanges of Non-monetary Assets — an amendment
of APB Opinion No. 29”. Statement No. 153
eliminates certain exceptions from the principle that exchanges
of non-monetary assets should be measured based on the fair
value of the assets exchanged. The adoption of Statement
No. 153 is not expected to have any impact on our financial
statements.
Results of Operations
|
|
|
Results of Operations for Fiscal 2004 Compared to Fiscal
2003 |
In 2004, we incurred a net loss of approximately
$12.3 million compared to a net loss of approximately
$10.4 million in 2003. The increase of $1.9 million
was primarily due to an increase of $3.3 million in
research and development expenses including approximately
$1.2 million in cash for the acquisition of an anticancer
drug candidate (SPI-153) and a decrease of $1 million in
licensing revenues from 2003. These increases in net loss were
offset by the non-recurrence in 2004 of a non-cash charge in
2003 of $2.5 million stock options expense, which charge
arose due to timing delays in awarding stock options to
employees as a result of our compliance with state securities
laws during a period where our stock price rose rapidly.
We recorded $258,000 of revenues in 2004 and $1.0 million
revenues in the year ended December 31, 2003. The revenue
in 2004 primarily represents $185,000 of product sales
revenue, recorded from the first shipment of ciprofloxacin,
after receipt of FDA approval in September 2004, and
represents the cash received by us. The cost of the product sold
was $123,000. In view of the competitive market for sales of
ciprofloxacin, we are unable to assess the future revenue
potential of this product. Also, in 2004 we received $73,000
from GPC Biotech under our co-development license
agreement, representing commissions on drug products used by
GPC Biotech in clinical trials. In connection with the
revenue from GPC, we had no performance obligations or incurred
costs. The timing and amount of similar revenues in the future
is neither predictable nor assured. The revenue in 2003 was
derived from the second licensing fee of $1 million under
the licensing agreement with GPC, which became due in September
2003 upon dosing of the first patient in a registrational study.
Future revenues from GPC are dependent upon the occurrence of
milestones specified in the agreement. No milestone event
occurred during 2004.
Research and development expenses increased by $3,271,000, from
$3,683,000 in 2003 to $6,954,000 in 2004, primarily due to a
cash payment of $1.2 million for the up-front licensing fee
for SPI-153; and a $1.6 million increase in drug product
expense as a result of the investigation and development of
additional new products, and increased clinical trials activity
for EOquin and elsamitrucin. Other notable increases in expenses
over the comparative reporting period in 2003, were personnel
costs of $200,000, insurance costs of $200,000, and
patent-related legal expenses of $150,000, which were partially
offset by a reduction in rent expense of $150,000 due to the
termination of a lease on a research facility. These cost
increases are the result of the increasing scope of our
activities, which include the investigation and development of
new prescription drug candidates. We expect continued increases
in research and development expenses in 2005 and beyond as we
develop and expand our product portfolio.
45
General and administrative expenses increased by approximately
$47,000, from $5,049,000 in 2003 to $5,096,000 in 2004,
primarily due to:
|
|
|
| |
• |
Legal and professional fees, excluding financing related fees
charged against the proceeds of the financing, and SEC reporting
and compliance costs increased by approximately $200,000 in 2004
due primarily to the changes in our organization, compliance
with new NASDAQ, SEC and Sarbanes-Oxley Act of 2002 rules and
regulations, and evaluation of business alliances and
opportunities in conjunction with expanding our product
portfolio. |
| |
| |
• |
Personnel costs, excluding the 2003 severance charge of
approximately $500,000, increased by approximately $400,000, due
to the hiring of additional personnel in the past twelve months
to enable us to implement our planned growth. |
| |
| |
• |
Partially offsetting the foregoing increased costs were
reductions in rent expense primarily as a result of a more
favorable facility lease effective July 1, 2004. |
Stock-based charges, which are non-cash charges, decreased by
approximately $1,688,000, from $2,573,000 in 2003 to $885,000 in
2004. The following describe the components of the charges in
2003 and 2004.
|
|
|
| |
• |
$634,000 of the 2004 charge arose from recording the fair value
of 251,896 shares of restricted common stock issued to
Zentaris GmbH in connection with the in-licensing of SPI-153. |
| |
| |
• |
The remainder of the 2004 relates to amortization of the fair
value of warrants granted to consultants, primarily in 2003 and
2004. |
| |
| |
• |
The 2003 charge arose due to timing delays in awarding stock
options to employees as a result of our compliance with state
securities laws during a period where our stock price rose
rapidly. |
We believe the use of stock options and similar equity-based
awards is crucial for an early stage company like ours, as a
means to conserve cash and to retain and motivate
high-performance employees and consultants. We believe that such
equity awards foster an alignment of employee and consultant
interests with those of our stockholders. We expect stock-based
charges to become increasingly significant to us. In December
2004, the FASB issued Statement No. 123(R),
“Share-Based Payment”. The adoption of this
statement will result in significantly higher reported operating
expenses in our future financial statements. Had we adopted the
provisions of Statement No. 123(R) as of January 1,
2004, our stock based charges for 2004 would have been
$2,571,000 higher, or $3,456,000. We intend to adopt the
provisions of Statement No. 123(R) when it becomes a
mandatory requirement, currently expected to be July 1,
2005.
Other income, net for 2004 compared to 2003 increased by
approximately $436,000 primarily due to interest income earned
on significantly higher average cash, cash equivalents and
marketable securities balances and rising short term interest
rates during 2004.
|
|
|
Results of Operations for Fiscal 2003 Compared to Fiscal
2002 |
Revenue for 2003 of $1 million decreased by approximately
$1.4 million as compared to 2002, and was derived from the
second licensing fee of $1 million under the co-development
and licensing agreement with GPC Biotech AG, which
became due in September 2003 upon dosing of the first patient in
a registrational study. Future GPC revenues are dependant
upon the occurrence of milestones specified in the agreement.
Research and development expenses decreased by approximately
$8.0 million, from $11.7 million in 2002 to
$3.7 million in 2003 primarily as a result of the
restructuring, initiated in August 2002, whereby all research
activities related to
Neotrofintm,
functional genomics and neurology were eliminated. In 2003,
research and development expenses included our ongoing clinical
trial for
EOquintm
in the treatment of patients with refractory superficial bladder
cancer, procurement of elsamitrucin supplies for a clinical
trial in patients with non-Hodgkin’s lymphoma and expenses
incurred in connection with the filing of our ANDAs for
ciprofloxacin, carboplatin and fluconazole.
46
General and administrative expenses increased by approximately
$1.3 million, from $3.7 million in 2002 to
$5.0 million in 2003 due primarily to the following factors:
|
|
|
| |
• |
Legal and professional fees increased by approximately $900,000
in 2003 due to the changes in our organization, expenses
incurred in successfully addressing the NASDAQ delisting notice
we received in March 2003, additional expenses for compliance
with California and other state securities laws due to our
listing on the NASDAQ SmallCap Market, compliance with new SEC
and Sarbanes-Oxley Act rules and regulations, and evaluation of
business alliances and opportunities in conjunction with
expanding our product portfolio; |
| |
| |
• |
Employee severance costs included in general and administrative
expense in 2003 of approximately $500,000; |
| |
| |
• |
As a result of the 2002 change in our business plan, and a
dramatic reduction in the scope of our research and development
activities, the allocation of general and administrative costs
to research and development was $1.4 million lower in 2003
as compared to 2002; and |
| |
| |
• |
Offsetting the foregoing increases was an aggregate decrease of
approximately $1.5 million in payroll and occupancy costs,
depreciation and other miscellaneous corporate overhead. |
Stock-based compensation expense of $2,573,000 for 2003
represents non-cash charges as a result of stock awards and
stock options granted to employees and consultants. The use of
options as a means to compensate and retain employees is crucial
for a company like ours. The increase of approximately
$1.2 million in stock-based compensation from
$2.6 million in 2003 as compared to $1.4 million in
2002 was primarily due to timing delays in 2003 in awarding
stock options as a result of our compliance with state
securities laws during a period where our stock price was rising
rapidly.
|
|
|
| |
• |
Stock awards and options granted to employees are accounted for
under APB 25. All of the options granted by us have been
made at fair market values on the dates originally authorized by
the Board of Directors or the Compensation Committee. However,
as described in Note 9 to the consolidated financial
statements, certain grants to employees contemplated by the
Board had later effective grant dates. Accordingly, we recorded
a non-cash stock-based employee compensation expense of
$2,296,000 during 2003. |
| |
| |
• |
In accordance with SFAS 123, we expense the “fair
value” of options granted to consultants. During 2003, we
agreed to issue to a consultant engaged to generate retail
interest in our stock, a warrant to
purchase 130,000 shares of our common stock. The
Black-Scholes value of the warrant, $480,000, is being amortized
over the service period and $276,000 was charged to expense in
2003. |
During 2002, approximately $1 million of stock-based
compensation was charged in connection with the issuance of
common stock and warrants to purchase common stock in settlement
of accounts payable to certain vendors. In addition, during
2002, we recorded compensation expense of $411,000, as a result
of the amortization of deferred compensation costs which were
recorded in 2001 and prior years, when we granted stock options
to employees with exercise prices less than the fair value of
our common stock at the measurement date. The intrinsic values
of the option grants were recorded as deferred compensation and
were amortized to expense over the vesting period, in accordance
with APB 25.
The restructuring charge of $163,000 in 2003 is related to an
adjustment of the realizable value of assets held for sale as of
December 31, 2003.
Other income for 2003 compared to 2002 increased approximately
$200,000 due primarily to the elimination of miscellaneous
expenses associated with the activities related to functional
genomics and neurology.
Off-Balance Sheet Arrangements
None.
47
Contractual and Commercial Obligations
The following table summarizes our contractual and other
commitments, including obligations under a facility lease and
equipment leases, as of December 31, 2004:
Payment Due by Period
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|
|
|
|
|
|
|
|
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Less than | |
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|
After | |
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Total | |
|
1 Year | |
|
1-3 Years | |
|
3-5 Years | |
|
5 Years | |
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|
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|
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|
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|
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|
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|
(In thousands) | |
|
Contractual Obligations(1)
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Lease Obligations(2)
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
Operating Lease Obligations(3)
|
|
$ |
1,980 |
|
|
$ |
368 |
|
|
$ |
897 |
|
|
$ |
715 |
|
|
$ |
— |
|
|
Purchase Obligations(4)
|
|
$ |
3,103 |
|
|
$ |
3,103 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
Contingent Milestone Obligations(5)
|
|
$ |
24,600 |
|
|
$ |
|
|
|
$ |
4,200 |
|
|
$ |
6,900 |
|
|
$ |
13,500 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
29,683 |
|
|
$ |
3,471 |
|
|
$ |
5,097 |
|
|
$ |
7,615 |
|
|
$ |
13,500 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1) |
The table of contractual and commercial obligations excludes
contingent payments that we may become obligated to pay upon the
occurrence of future events whose outcome is not readily
predictable. Such significant contingent obligations are
described below under “Employment Agreements”. |
| |
| (2) |
As of December 31, 2004, we had no capital lease
obligations. |
| |
| (3) |
The operating lease obligations are substantially related to the
facility lease for our corporate office, which extends through
June 2009. |
| |
| (4) |
Purchase Obligations represent the amount of open purchase
orders and contractual commitments to vendors, for products and
services that have not been delivered, or rendered, as of
December 31, 2004. |
| |
| (5) |
Milestone Obligations are payable contingent upon successfully
reaching certain development and regulatory milestones as
further described below under “Licensing Agreements”.
While the amounts included in the table above represent all of
our potential cash milestone obligations as of December 31,
2004, given the unpredictability of the drug development
process, and the impossibility of predicting the success of
current and future clinical trials, the timelines estimated
above do not represent a forecast of when payment milestones
will actually be reached, if at all. Rather, they assume that
all milestones under all of our license agreements are
successfully met, and represent our best estimates of the
timelines. In the event that the milestones are met, we believe
it is likely that the increase in the potential value of the
related drug product will significantly exceed the amount of the
milestone obligation. |
Each of our proprietary drug product candidates is being
developed pursuant to license agreements, which provide us with
exclusive territorial rights to, among other things, develop,
sublicense, and sell the drug product candidates. We are
required to use commercially reasonable efforts to develop the
drug product candidates, are generally responsible for all
development, patent filing and maintenance costs, sales,
marketing and liability insurance costs, and are contingently
obligated to make milestone payments to the licensors if we
successfully reach certain development and regulatory
milestones. In addition, we are obligated to pay royalties and
sales milestones on net sales, if any, after marketing approval
is obtained from regulatory authorities. We have no similar
milestone or other payment obligations in connection with our
generic drug products.
The potential contingent cash milestone obligations, aggregating
approximately $25 million as of December 31, 2004,
under all our licensing agreements are generally tied to
progress through the FDA approval process, which approval
significantly depends on positive clinical trial results. The
following list is typical of milestone events: commencement of
Phase 3 clinical trials, filing of new drug applications in
the United States, Europe and Japan, and the approvals from
those regulatory agencies.
48
Given the unpredictability of the drug development process, it
is not possible to predict the probability of achieving
successful results from the currently on-going clinical trials.
We are, therefore, unable to predict the likelihood of any of
the milestones occurring in the foreseeable future and,
accordingly, the milestone payments represent contingent
obligations, which will be recorded as expense when the
milestone occurs.
If we reach a milestone, it will likely occur prior to revenues
being generated from the related compound. However, in
connection with the milestone obligations related to one of our
drug product candidates, satraplatin, each of our contingent
future cash payment obligations is generally matched by a
corresponding, greater payment milestone obligation of
GPC Biotech to us. In addition, upon successful achievement
of one of the development milestones for
RenaZorbtm
under our licensing agreement with Altair Nanotechnologies,
which is anticipated to occur in 2005, we will be obligated to
issue Altair 100,000 shares of our restricted common stock.
In connection with the research and development of our drug
products, we have entered into contracts with numerous
third-party service providers, such as clinical trial centers,
clinical research organizations, data monitoring centers, and
with drug formulation, development and testing laboratories. The
financial terms of these agreements are varied and generally
obligate us to pay in stages, depending on achievement of
certain events, such as contract execution, reservation of
service or production capacity, actual performance of service,
or the successful accrual and dosing of patients. As of each
period end, we accrue for all non-cancelable installment amounts
that we are likely to become obligated to pay, and charge such
accruals to research and development costs.
We have entered into employment agreements with two of our
Executive Officers, Dr. Shrotriya, Chief Executive Officer,
and Dr. Lenaz, Chief Scientific Officer, expiring
December 31, 2005 and July 1, 2005, respectively. The
employment agreements automatically renew for a one-year term
unless either party gives written notice at least 90 days
prior to the commencement of the next year of such party’s
intent not to renew the agreement. The agreements require each
executive to devote his full working time and effort to the
business and affairs of the Company during the term of the
agreement. The agreements provide for an annual base salary with
annual increases, periodic bonuses and option grants as
determined by the Compensation Committee of our Board of
Directors.
Each officer’s employment may be terminated by us with or
without cause as defined in the agreement. The agreements
provide for certain guaranteed severance payments and benefits
if the officer’s employment is terminated without cause, if
the officer’s employment is terminated due to a change in
control or is adversely affected due to a change in control and
the officer resigns or if the officer decides to terminate his
employment due to a disposition of a significant amount of
assets or business units. The guaranteed severance payment
includes a payment equal to twice the officer’s then
current annual base salary. In addition, all options held by the
officer shall immediately vest and will be exercisable for one
year from the date of termination; provided, however, if the
Board determines that the officer’s employment is being
terminated for the reason that the shared expectations of the
officer and the Board are not being met, in the Board’s
judgment, then the options currently held by the officer will
vest in accordance with their terms for up to one year after the
date of termination, with the right to exercise those options,
when they vest, for approximately thirteen (13) months
after the date of termination. The agreements also provide that,
upon his retirement, all options held by the officer will become
fully vested.
Related Party Transactions
Between November 2002 and November 2003, we had
outsourced the administration, accounting and human resources
functions, and SEC report preparation to McManus Financial
Consulting (MFC) for a monthly fee of $15,000; and all investor
relations activities to McManus & Co. (M&C) for a
monthly fee of
49
$10,000 to $12,000 per month. Between January and
June 2002, MFC also provided services to us at hourly
rates, subject to a minimum annual retainer of $24,000. During
the years ended December 31, 2004, 2003 and 2002, MFC and
M&C received total fees and payments under severance
arrangements amounting to $75,000, $539,000 and $106,000,
respectively. MFC and M&C are co-owned by two of our former
officers, John and Michael McManus, who are also brothers. John
McManus received direct compensation from the Company as Vice
President Finance and Strategic Planning and Assistant Corporate
Secretary; however, Michael McManus received no direct
compensation from us for his services as Controller. In November
2003, John and Michael McManus resigned their positions with the
Company to return to their consulting business to pursue other
opportunities. All payment obligations under these arrangements
terminated in July 2004.
|
|
|
Director and Officer Notes for the Exercise of Equity
Instruments |
As of January 1, 2002, certain of our directors and
officers owed us $616,000 previously loaned to them for the
exercise of stock options or the purchase of stock. During 2002,
we were repaid $391,000, which included all loans to officers.
In February 2003, we agreed to forgive and terminate the
remaining $225,000 and in return, the directors agreed to return
the shares of common stock originally purchased under the loans.
For accounting purposes, this arrangement was considered to be
an uncompleted transaction and therefore, the common stock and
related notes receivable were eliminated as of December 31,
2002.
|
|
| Item 7A. |
Quantitative and Qualitative Disclosures About Market
Risk |
We are exposed to certain market risks associated with interest
rate fluctuations and credit risk on our cash equivalents and
marketable securities, which investments are entered into for
purposes other than trading. The primary objective of our
investment activities is to preserve principal, while at the
same time maximizing yields without significantly increasing
risk. We do not utilize hedging contracts or similar instruments.
Our primary exposures relate to (1) interest rate risk on
our investment portfolio, and (2) credit risk of the
companies’ bonds in which we invest. We manage interest
rate risk on our investment portfolio by matching scheduled
investment maturities with our cash requirements.
Our investments as of December 31, 2004 are primarily in
28 day auction rate notes. Because of our ability to redeem
these investments at par within a 28-day period, changes in
interest rates would have an immaterial effect on the fair value
of these investments. If a 10% change in interest rates were to
have occurred on December 31, 2004, any decline in the fair
value of our investments would not be material. In addition, we
are exposed to certain market risks associated with credit
ratings of corporations whose corporate bonds we have purchased.
If these companies were to experience a significant detrimental
change in their credit ratings, the fair market value of such
corporate bonds may significantly decrease. If these companies
were to default on these corporate bonds, we may lose part or
all of our principal. We believe that we effectively manage this
market risk by diversifying our investments, and selecting
securities that generally have third party insurance coverage in
the event of default by the issuer.
|
|
| Item 8. |
Financial Statements and Supplementary Data |
Our annual consolidated financial statements are included in
Item 15 of this report.
|
|
| Item 9. |
Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure |
None.
50
|
|
| Item 9A. |
Controls and Procedures. |
|
|
| (i) |
Disclosure Controls and Procedures. |
We have established disclosure controls and procedures (as such
terms are defined in Rules 13(a)-15(e) and 15(d)-15(e))
under the Securities Exchange Act of 1934), as amended (the
“Exchange Act”) that are designed to ensure that
information required to be disclosed in our Exchange Act reports
is recorded, processed, summarized and reported within the time
periods specified in the SEC’s rules and forms, and that
such information is accumulated and communicated to our
management, including our Chief Executive Officer (our principal
executive officer) and Vice President Finance (our principal
financial officer), as appropriate, to allow for timely
decisions regarding required disclosure. In designing and
evaluating the disclosure controls and procedures, our
management is required to apply its judgment in evaluating the
cost-benefit relationship of possible controls and procedures.
Our disclosure controls and procedures are designed to provide a
reasonable level of assurance of reaching our desired disclosure
control objectives.
As required by SEC Rule 13a-15(b), we carried out an
evaluation, under the supervision and with the participation of
our management, including our Chief Executive Officer and our
Vice President Finance, of the effectiveness of the design and
operation of our disclosure controls and procedures as of
December 31, 2004, the end of the period covered by this
report (Evaluation Date). Based on the foregoing, our Chief
Executive Officer and Vice President Finance concluded that our
disclosure controls and procedures were effective and were
operating at the reasonable assurance level.
|
|
| (ii) |
Internal Control Over Financial Reporting. |
|
|
| (a) |
Management’s annual report on internal control over
financial reporting. |
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting, as such term
is defined in Exchange Act Rules 13a-15(f).
Our internal control system was designed to provide reasonable
assurance to our management and board of directors regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. Due to the small size
of our company and the limited number of employees, it is not
possible for us to fully segregate duties associated with the
financial reporting process; accordingly, we rely on mitigating
controls to reduce the risks from such lack of segregation of
duties. Further, all internal control systems, no matter how
well designed, have inherent limitations. Therefore, even those
systems determined to be effective can provide only reasonable
assurance with respect to financial statement preparation and
presentation. Because of such inherent limitations, internal
control over financial reporting may not prevent or detect
misstatements. Projections of any evaluation of effectiveness to
future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
Under the supervision and with the participation of our
management, including our principal executive officer and
principal financial officer, we conducted an evaluation of the
effectiveness of our internal control over financial reporting
based on the framework in Internal Control —
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on our
evaluation under the framework in Internal Control —
Integrated Framework, our management concluded that our internal
control over financial reporting was effective as of the
Evaluation Date.
Our management’s assessment of the effectiveness of our
internal control over financial reporting as of the Evaluation
Date has been audited by Kelly & Company, an
independent registered public accounting firm, as stated in
their report which is included herein.
|
|
| (b) |
Attestation report of the registered public accounting
firm. |
The integrated attestation report of Kelly & Company, the
Company’s independent registered public accounting firm, is
set forth on page F-3. Presented below is an extract from
that attestation report as to their audit of management’s
assessment of the effectiveness of our internal control over
financial reporting:
51
“. . . we have audited management’s
assessment, included in the accompanying Management’s
annual report on internal control over financial reporting, that
the Company maintained effective internal control over financial
reporting as of December 31, 2004 based on criteria
established in Internal Control — Integrated Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission (the “COSO criteria”). The
Company’s management is responsible for maintaining
effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over
financial reporting. Our responsibility is to express an opinion
on management’s assessment and an opinion on the
effectiveness of the Company’s internal control over
financial reporting based on our audit. We conducted our audit
of internal control over financial reporting in accordance with
the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was
maintained in all material respects. Our audit of internal
control over financial reporting included obtaining an
understanding of internal control over financial reporting,
evaluating management’s assessment, testing and evaluating
the design and operating effectiveness of internal control, and
performing such other procedures as we consider necessary in the
circumstances. We believe that our audit provides a reasonable
basis for our opinion.
A company’s internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, management’s assessment that Spectrum
Pharmaceuticals, Inc. and Subsidiaries maintained effective
internal control over financial reporting as of
December 31, 2004, is fairly stated, in all material
respects, based on the COSO criteria. Also, in our opinion,
Spectrum Pharmaceuticals, Inc. and Subsidiaries maintained, in
all material respects, effective internal control over financial
reporting as of December 31, 2004, based on the COSO
criteria.”
|
|
| (c) |
Changes in internal control over financial
reporting. |
There was no change in the Company’s internal control over
financial reporting during the Company’s fourth quarter
ended December 31, 2004 that has materially affected, or is
reasonably likely to materially affect, the Company’s
internal control over financial reporting.
|
|
| Item 9B. |
Other Information |
In December 2004, the Compensation Committee of the Board of
Directors approved changes to the annual compensation for the
Company’s board of directors as set forth in
Exhibit 10.42 to this Annual Report on Form 10-K and
is incorporated herein by reference.
52
PART III
|
|
| Item 10. |
Directors and Executive Officers of the Registrant |
The information concerning our directors and executive officers
required under this item is incorporated by reference from our
definitive proxy statement related to our 2005 Annual Meeting of
Stockholders, to be filed pursuant to Regulation 14A, on or
before April 29, 2005 (“2005 Proxy Statement”).
|
|
| Item 11. |
Executive Compensation |
The information required under this item is incorporated by
reference from our 2005 Proxy Statement.
|
|
| Item 12. |
Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters |
The information required under this item is incorporated by
reference from our 2005 Proxy Statement.
|
|
| Item 13. |
Certain Relationships and Related Transactions |
The information required under this item is incorporated by
reference from our 2005 Proxy Statement.
|
|
| Item 14. |
Principal Accountant Fees and Services |
The information required under this item is incorporated by
reference from our 2005 Proxy Statement.
53
PART IV
|
|
| Item 15. |
Exhibits, Financial Statement Schedules and Reports on
Form 8-K |
(a)(1) Consolidated Financial Statements:
| |
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| |
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Page | |
| |
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| |
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F-3 |
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F-5 |
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F-6 |
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|
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F-7 |
|
|
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|
F-8 |
|
|
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|
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F-10 |
|
(a)(2) Financial Statement Schedules: All financial
statement schedules are omitted because they are not applicable
or the required information is included in the Consolidated
Financial Statements or notes thereto.
(a)(3) Exhibits.
| |
|
|
|
|
|
|
| Exhibit No. | |
|
|
|
Description |
| | |
|
|
|
|
| |
3 |
.1 |
|
|
|
Certificate of Incorporation of the Registrant, as filed on
May 7, 1997. (Filed as Exhibit B to the Definitive
Proxy Statement dated May 8, 1997, for the Annual Meeting
of Shareholders of Spectrum Pharmaceuticals Colorado, the
predecessor to Registrant, held on June 17, 1997, as filed
with the Securities and Exchange Commission on May 9, 1997,
and incorporated herein by reference.) |
| |
3 |
.1.1 |
|
|
|
Certificate of Amendment to the Certificate of Incorporation of
the Registrant. (Filed as Exhibit 3.1.1 to Form 10-K, as
filed with the Securities and Exchange Commission on
April 2, 2002, and incorporated herein by reference.) |
| |
3 |
.1.2 |
|
|
|
Certificate of Designation of 5% Series A Preferred Stock
with Conversion Features. (Filed as Exhibit 4.1 to Form
8-K, as filed with the Securities and Exchange Commission on
February 9, 1999, and incorporated herein by reference.) |
| |
3 |
.1.3 |
|
|
|
Certificate of Designation of Rights, Preferences and Privileges
of Series B Junior Participating Preferred Stock of the
Registrant. (Filed as Exhibit 3.1 to Form 8-A12G, as filed
with the Securities and Exchange Commission on December 26,
2000, and incorporated herein by reference.) |
| |
3 |
.1.4 |
|
|
|
Certificate of Designations of the Series C Preferred Stock
of the Registrant. (Filed as Exhibit 4.7 to the
Registration Statement on Form S-3, as amended (No.
333-64432), as filed with the Securities and Exchange Commission
on July 2, 2001, and incorporated herein by reference.) |
| |
3 |
.1.5 |
|
|
|
Certificate of Amendment of Certificate of Incorporation filed
on September 5, 2002 (Filed as Exhibit 4.1 to Form
10-Q for the quarterly period ended September 30, 2002, as
filed with the Securities and Exchange Commission on
November 13, 2002, and incorporated herein by reference.) |
| |
3 |
.1.6 |
|
|
|
Certificate of Designations, Rights and Preference of the
Series D 8% Cumulative Convertible Voting Preferred Stock.
(Filed as Exhibit 3.1 to Form 8-K, as filed with the
Securities and Exchange Commission on May 16, 2003, and
incorporated herein by reference.) |
| |
3 |
.1.7 |
|
|
|
Certificate of Increase. (Filed as Exhibit 3.2 to Form 8-K,
as filed with the Securities and Exchange Commission on
May 16, 2003, and incorporated herein by reference.) |
| |
3 |
.1.8 |
|
|
|
Certificate of Designations, Rights and Preference of the
Series E Convertible Voting Preferred Stock (Filed as
Exhibit 3.1 to Form 8-K, as filed with the Securities
and Exchange Commission on September 30, 2003, and
incorporated herein by reference.) |
54
| |
|
|
|
|
|
|
| Exhibit No. | |
|
|
|
Description |
| | |
|
|
|
|
| |
3 |
.2 |
|
|
|
Form of Amended and Restated Bylaws of the Registrant (Filed as
Exhibit 4.2 to Form 10-Q for the quarterly period ended
September 30, 2002, as filed with the Securities and
Exchange Commission on November 13, 2002, and incorporated
herein by reference.) |
| |
3 |
.2.1 |
|
|
|
Form of Amended and Restated Bylaws of the Registrant. (Filed as
Exhibit 3.1 to Form 10-Q, as filed with the Securities and
Exchange Commission on August 16, 2004, and incorporated
herein by reference.) |
| |
4 |
.1 |
|
|
|
Registration Rights Agreement dated as of April 6, 2000, by
and among the Registrant, Strong River Investments, Inc. and
Montrose Investments Ltd. (Filed as Exhibit 4.2 to Form
8-K, as filed with the Securities and Exchange Commission on
April 21, 2000, and incorporated herein by reference.) |
| |
4 |
.2 |
|
|
|
Class A Warrant issued by the Registrant to Montrose
Investments Ltd., dated as of April 6, 2000. (Filed as
Exhibit 4.4 to Form 8-K, as filed with the Securities and
Exchange Commission on April 21, 2000, and incorporated
herein by reference.) |
| |
4 |
.3 |
|
|
|
Class A Warrant issued by the Registrant to Strong River
Investments, Inc., dated as of April 6, 2000. (Filed as
Exhibit 4.5 to Form 8-K, as filed with the Securities and
Exchange Commission on April 21, 2000, and incorporated
herein by reference.) |
| |
4 |
.4 |
|
|
|
Warrant issued by the Registrant to Brighton Capital, Ltd.,
dated as of April 6, 2000. (Filed as Exhibit 4.16 to
the Registration Statement on Form S-3 (No. 333-37180), as
filed with the Securities and Exchange Commission on
May 16, 2000, and incorporated herein by reference.) |
| |
4 |
.5 |
|
|
|
Registration Rights Agreement dated as of April 28, 2000,
by and among the Registrant, Royal Canadian Growth Fund and
Dlouhy Investments Inc. (Filed as Exhibit 4.2 to Form 8-K,
as filed with the Securities and Exchange Commission on
May 25, 2000, and incorporated herein by reference.) |
| |
4 |
.6 |
|
|
|
Warrant issued by the Registrant to Royal Canadian Growth Fund,
dated as of May 1, 2000. (Filed as Exhibit 4.3 to Form
8-K, as filed with the Securities and Exchange Commission on
May 25, 2000, and incorporated herein by reference.) |
| |
4 |
.7 |
|
|
|
Warrant issued by the Registrant to Dlouhy Investments Inc.,
dated as of May 1, 2000. (Filed as Exhibit 4.4 to Form
8-K, as filed with the Securities and Exchange Commission on
May 25, 2000, and incorporated herein by reference.) |
| |
4 |
.8 |
|
|
|
Registration Rights Agreement dated as of September 21,
2000, by and among the Registrant, Strong River Investments,
Inc. and Montrose Investments Ltd. (Filed as Exhibit 4.4 to
Form 8-K, as filed with the Securities and Exchange Commission
on November 13, 2000, and incorporated herein by reference.) |
| |
4 |
.9 |
|
|
|
Warrant issued by the Registrant to Montrose Investments Ltd.,
dated as of September 21, 2000. (Filed as Exhibit 4.7
to Form 8-K, as filed with the Securities and Exchange
Commission on November 13, 2000, and incorporated herein by
reference.) |
| |
4 |
.10 |
|
|
|
Warrant issued by the Registrant to Strong River Investments,
Inc., dated as of September 21, 2000. (Filed as
Exhibit 4.8 to Form 8-K, as filed with the Securities and
Exchange Commission on November 13, 2000, and incorporated
herein by reference.) |
| |
4 |
.11 |
|
|
|
Registration Rights Agreement dated as of September 29,
2000, by and among the Registrant, Strong River Investments,
Inc. and Montrose Investments Ltd. (Filed as Exhibit 4.12
to Form 8-K, as filed with the Securities and Exchange
Commission on November 13, 2000, and incorporated herein by
reference.) |
| |
4 |
.12 |
|
|
|
Closing Warrant issued by the Registrant to Montrose
Investments, Ltd., dated as of September 29, 2000. (Filed
as Exhibit 4.13 to Form 8-K, as filed with the Securities
and Exchange Commission on November 13, 2000, and
incorporated herein by reference.) |
| |
4 |
.13 |
|
|
|
Closing Warrant issued by the Registrant to Strong River
Investments, Inc., dated as of September 29, 2000. (Filed
as Exhibit 4.14 to Form 8-K, as filed with the Securities
and Exchange Commission on November 13, 2000, and
incorporated herein by reference.) |
| |
4 |
.14 |
|
|
|
Form of Warrants issued by the Registrant to Brighton Capital,
Ltd., dated between September 18, 2000 and May 18,
2001. (Filed as Exhibit 4.32 to Form 10-K, as filed with
the Securities and Exchange Commission on April 2, 2002,
and incorporated herein by reference.) |
55
| |
|
|
|
|
|
|
| Exhibit No. | |
|
|
|
Description |
| | |
|
|
|
|
| |
4 |
.15 |
|
|
|
Rights Agreement, dated as of December 13, 2000, between
the Registrant and U.S. Stock Transfer Corporation, as
Rights Agent, which includes as Exhibit A thereto the form
of Certificate of Designation for the Series B Junior
Participating Preferred Stock, as Exhibit B thereto the
Form of Rights Certificate and as Exhibit C thereto a
Summary of Terms of Stockholder Rights Plan. (Filed as
Exhibit 4.1 to Form 8-A12G, as filed with the Securities
and Exchange Commission on December 26, 2000, and
incorporated herein by reference.) |
| |
4 |
.16 |
|
|
|
Registration Rights Agreement dated as of December 18,
2000, by and between the Registrant and Societe Generale. (Filed
as Exhibit 4.4 to Form 8-K, as filed with the Securities
and Exchange Commission on December 28, 2000, and
incorporated herein by reference.) |
| |
4 |
.17 |
|
|
|
Warrant issued by the Registrant to Societe Generale, dated as
of December 18, 2000. (Filed as Exhibit 4.6 to Form
8-K, as filed with the Securities and Exchange Commission on
December 28, 2000, and incorporated herein by reference.) |
| |
4 |
.18 |
|
|
|
Warrant issued by the Registrant to Brighton Capital, Ltd.,
dated as of December 18, 2000. (Filed as Exhibit 4.36
to Form 10-K, as filed with the Securities and Exchange
Commission on April 2, 2002, and incorporated herein by
reference.) |
| |
4 |
.19 |
|
|
|
Warrant issued by the Registrant to CroMedica Global, Inc.,
dated as of January 25, 2001. (Filed as Exhibit 4.37
to Form 10-K, as filed with the Securities and Exchange
Commission on April 2, 2002, and incorporated herein by
reference.) |
| |
4 |
.20 |
|
|
|
Warrant issued by the Registrant to IAT ReInsurance Syndicate
Ltd., dated as of March 8, 2001. (Filed as
Exhibit 10.2 to Form 8-K, as filed with the Securities and
Exchange Commission on March 14, 2001, and incorporated
herein by reference.) |
| |
4 |
.21 |
|
|
|
Warrant issued by the Registrant to Montrose Investments Ltd.,
dated as of May 18, 2001. (Filed as Exhibit 4.1 to
Form 8-K, as filed with the Securities and Exchange Commission
on May 21, 2001, and incorporated herein by reference.) |
| |
4 |
.22 |
|
|
|
Warrant issued by the Registrant to Strong River Investments,
Inc., dated as of May 18, 2001. (Filed as Exhibit 4.2
to Form 8-K, as filed with the Securities and Exchange
Commission on May 21, 2001, and incorporated herein by
reference.) |
| |
4 |
.23 |
|
|
|
Form of Warrant issued by the Registrant to Gruntal &
Co., L.L.C., dated as of August 10, 2001 (Filed as
Exhibit 4.44 to Form 10-K, as filed with the Securities and
Exchange Commission on April 2, 2002, and incorporated
herein by reference.) |
| |
4 |
.24 |
|
|
|
Form of Warrants issued by the Registrant to Cantor
Fitzgerald & Co, dated as of December 6, 2001 and
December 13, 2001. (Filed as Exhibit A to
Schedule 1 to Exhibit 1.1 to Form 8-K, as filed with
the Securities and Exchange Commission on October 24, 2001,
and incorporated herein by reference.) |
| |
4 |
.25 |
|
|
|
Warrant issued by the Registrant to Jefferies &
Company, Inc., dated as of December 13, 2001. (Filed as
Exhibit 4.46 to Form 10-K, as filed with the Securities and
Exchange Commission on April 2, 2002, and incorporated
herein by reference.) |
| |
4 |
.26 |
|
|
|
Form of Warrant issued by the Registrant to certain purchasers,
dated as of March 13, 2002. (Filed as Exhibit 4.47 to
Form 10-K, as filed with the Securities and Exchange Commission
on April 2, 2002, and incorporated herein by reference.) |
| |
4 |
.27 |
|
|
|
Form of Warrant issued by the Registrant to certain purchasers,
dated as of June 5, 2002. (Filed as Exhibit 4.1 to
Form 8-K, as filed with the Securities and Exchange Commission
on June 7, 2002, and incorporated herein by reference.) |
| |
4 |
.28 |
|
|
|
Form of Warrant issued by the Registrant to certain purchasers,
dated as of June 7, 2002. (Filed as Exhibit 4.1 to
Form 8-K, as filed with the Securities and Exchange Commission
on June 19, 2002, and incorporated herein by reference.) |
| |
4 |
.29 |
|
|
|
Warrant Repurchase Agreement by and between the Registrant and
BNC Bach International, Ltd., dated as of July 31, 2002.
(Filed as Exhibit 10.3 to Form 10-Q for the quarterly
period ended September 30, 2002, as filed with the
Securities and Exchange Commission on November 13, 2002,
and incorporated herein by reference.) |
56
| |
|
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|
|
|
|
| Exhibit No. | |
|
|
|
Description |
| | |
|
|
|
|
| |
4 |
.30 |
|
|
|
Form of Warrant issued by the Registrant to five purchasers,
dated as of November 21, 2002, to purchase up to an
aggregate of 107,870 shares of our common stock. (Filed as
Exhibit 4.1 to Form 8-K, as filed with the Securities and
Exchange Commission on November 26, 2002, and incorporated
herein by reference.) |
| |
4 |
.31 |
|
|
|
Form of Warrant issued by the Registrant to certain purchasers,
dated as of December 13, 2002, to purchase up to an
aggregate of 65,550 shares of our common stock. (Filed as
Exhibit 4.1 to Form 8-K, as filed with the Securities
and Exchange Commission on December 13, 2002, and
incorporated herein by reference.) |
| |
4 |
.32 |
|
|
|
Form of Warrant issued by the Registrant to three purchasers,
dated as of January 16, 2003, to purchase up to an
aggregate of 55,555 shares of our common stock. (Filed as
Exhibit 4.1 to Form 8-K, as filed with the Securities and
Exchange Commission on January 17, 2003, and incorporated
herein by reference.) |
| |
4 |
.33 |
|
|
|
Form of Series D-1 Warrant. (Filed as Exhibit 4.1 to
Form 8-K, as filed with the Securities and Exchange Commission
on May 16, 2003, and incorporated herein by reference.) |
| |
4 |
.34 |
|
|
|
Form of Series D-2 Warrant. (Filed as Exhibit 4.2 to
Form 8-K, as filed with the Securities and Exchange Commission
on May 16, 2003, and incorporated herein by reference.) |
| |
4 |
.35 |
|
|
|
Series D-3 Warrant. (Filed as Exhibit 4.3 to Form 8-K,
as filed with the Securities and Exchange Commission on
May 16, 2003, and incorporated herein by reference.) |
| |
4 |
.36 |
|
|
|
Registration Rights Agreement dated as of May 7, 2003, by
and among the Registrant and the persons listed on
Schedule 1 attached thereto. (Filed as Exhibit 4.4 to
Form 8-K, as filed with the Securities and Exchange Commission
on May 16, 2003, and incorporated herein by reference.) |
| |
4 |
.37 |
|
|
|
Amendment No. 1 to the Rights Agreement dated as of
December 13, 2000 by and between the Registrant and
U.S. Stock Transfer Corporation. (Filed as Exhibit 4.1
to Form 10-Q, as filed with the Securities and Exchange
Commission on August 14, 2003, and incorporated herein by
reference.) |
| |
4 |
.38 |
|
|
|
Registration Rights Agreement dated as of August 13, 2003,
by and among the Registrant and the persons listed on
Schedule 1 attached thereto. (Filed as Exhibit 4.1 to
Form 8-K, as filed with the Securities and Exchange Commission
on August 15, 2003, and incorporated herein by reference.) |
| |
4 |
.39 |
|
|
|
Form of Series 2003-1 Warrant (Filed as Exhibit 4.2 to Form
8-K, as filed with the Securities and Exchange Commission on
August 15, 2003, and incorporated herein by reference.) |
| |
4 |
.40 |
|
|
|
Form of Series E-1 Warrant (Filed as Exhibit 4.1 to
Form 8-K, as filed with the Securities and Exchange Commission
on September 30, 2003, and incorporated herein by
reference.) |
| |
4 |
.41 |
|
|
|
Form of Series E-2 Warrant (Filed as Exhibit 4.2 to
Form 8-K, as filed with the Securities and Exchange Commission
on September 30, 2003, and incorporated herein by
reference.) |
| |
4 |
.42 |
|
|
|
Series E-3 Warrant (Filed as Exhibit 4.3 to Form 8-K,
as filed with the Securities and Exchange Commission on
September 30, 2003, and incorporated herein by reference.) |
| |
4 |
.43 |
|
|
|
Registration Rights Agreement dated as of September 26,
2003, by and among the Registrant and the persons listed on
Schedule 1 attached thereto. (Filed as Exhibit 4.4 to
Form 8-K, as filed with the Securities and Exchange Commission
on September 30, 2003, and incorporated herein by
reference.) |
| |
4 |
.44 |
|
|
|
Investor Rights Agreement, dated as of April 20, 2004, by
and among the Registrant and the persons listed on
Schedule 1 attached thereto. (Filed as Exhibit 4.1 to
Form 8-K, as filed with the Securities and Exchange Commission
on April 23, 2004, and incorporated herein by reference.) |
| |
4 |
.45 |
|
|
|
Form of Warrant, dated as of April 21, 2004. (Filed as
Exhibit 4.2 to Form 8-K, as filed with the Securities and
Exchange Commission on April 23, 2004, and incorporated
herein by reference.) |
| |
4 |
.46 |
|
|
|
Amendment No. 2 to the Rights Agreement dated as of
December 13, 2000 by and between the Registrant and
U.S. Stock Transfer Corporation. (Filed as Exhibit 4.1
to Form 10-Q, as filed with the Securities and Exchange
Commission on May 17, 2004, and incorporated herein by
reference.) |
57
| |
|
|
|
|
|
|
| Exhibit No. | |
|
|
|
Description |
| | |
|
|
|
|
| |
4 |
.47 |
|
|
|
Amendment No. 3 to the Rights Agreement dated as of
December 13, 2000 by and between the Registrant and
U.S. Stock Transfer Corporation. (Filed as Exhibit 4.2
to Form 10-Q, as filed with the Securities and Exchange
Commission on May 17, 2004, and incorporated herein by
reference.) |
| |
4 |
.48 |
|
|
|
Warrant issued by the Registrant to a consultant, dated as of
September 17, 2003. (Filed as Exhibit 4.3 to Form
10-Q, as filed with the Securities and Exchange Commission on
May 17, 2004, and incorporated herein by reference.) |
| |
4 |
.49 |
|
|
|
Warrant issued by the Registrant to a consultant, dated as of
April 21, 2004. (Filed as Exhibit 4.4 to Form 10-Q, as
filed with the Securities and Exchange Commission on
May 17, 2004, and incorporated herein by reference.) |
| |
4 |
.50 |
|
|
|
Form of Warrant, dated as of September 30, 2004. (Filed as
Exhibit 4.1 to Form 10-Q, as filed with the Securities and
Exchange Commission on November 15, 2004, and incorporated
herein by reference.) |
| |
4 |
.51* |
|
|
|
Form of Stock Option Agreement under the 2003 Amended and
Restated Incentive Award Plan. (Filed as Exhibit 10.1 to
Form 8-K, as filed with the Securities and Exchange Commission
on December 17, 2004, and incorporated herein by reference.) |
| |
10 |
.1* |
|
|
|
1991 Stock Incentive Plan. (Filed as Exhibit 10.2 to the
Registration Statement on Form SB-2, as amended (No.
333-05342-LA), and incorporated herein by reference.) |
| |
10 |
.2 |
|
|
|
Industrial Lease Agreement dated as of January 16, 1997,
between the Registrant and the Irvine Company. (Filed as
Exhibit 10.11 to the Form 10-KSB for the fiscal year ended
December 31, 1996, as filed with the Securities and
Exchange Commission on March 31, 1997, and incorporated
herein by reference.) |
| |
10 |
.3* |
|
|
|
Employee Stock Purchase Plan. (Filed as Exhibit 4.1 to the
Registrant’s Registration Statement on Form S-8 (No.
333-54246), and incorporated herein by reference.) |
| |
10 |
.4* |
|
|
|
Amendment 2001-1 to the Employee Stock Purchase Plan effective
as of June 21, 2001. (Filed as Exhibit 10.22 to the
Annual Report on Form 10-K, as amended, as filed with the
Securities and Exchange Commission on April 25, 2001, and
incorporated herein by reference.) |
| |
10 |
.5* |
|
|
|
Executive Employment Agreement for Rajesh C.
Shrotriya, M.D., dated as of December 1, 2000. (Filed
as Exhibit 10.35 to Form 10-K, as filed with the Securities
and Exchange Commission on April 2, 2002, and incorporated
herein by reference.) |
| |
10 |
.6 |
|
|
|
License Agreement dated as of June 29, 2001, by and between
the Registrant and NDDO Research Foundation. (Filed as
Exhibit 10.4 to Form 10-Q, as filed with the Securities and
Exchange Commission on November 14, 2001, and incorporated
herein by reference.) |
| |
10 |
.7 |
|
|
|
License Agreement dated as of August 28, 2001, by and
between the Registrant and Johnson Matthey PLC. (Filed as
Exhibit 10.5 to Form 10-Q, as filed with the
Securities and Exchange Commission on November 14, 2001,
and incorporated herein by reference.) |
| |
10 |
.8 |
|
|
|
License Agreement dated as of October 24, 2001, by and
between the Registrant and Bristol-Myers Squibb Company. (Filed
as Exhibit 10.6 to Form 10-Q, as filed with the Securities
and Exchange Commission on November 14, 2001, and
incorporated herein by reference.) |
| |
10 |
.9 |
|
|
|
Settlement Agreement and Release by and between the Registrant
and Merck Eprova AG dated as of September 30, 2002. (Filed
as Exhibit 10.7 to Form 10-Q for the quarterly period ended
September 30, 2002, as filed with the Securities and
Exchange Commission on November 13, 2002, and incorporated
herein by reference.) |
| |
10 |
.10 |
|
|
|
First Amendment to License Agreement dated August 28, 2001
by and between the Registrant and Johnson Matthey PLC dated as
of September 30, 2002. (Filed as Exhibit 10.8 to Form
10-Q for the quarterly period ended September 30, 2002, as
filed with the Securities and Exchange Commission on
November 13, 2002, and incorporated herein by reference.) |
| |
10 |
.11 |
|
|
|
Co-Development and License Agreement by and between the
Registrant and GPC Biotech AG dated as of September 30,
2002. (Filed as Exhibit 10.9 to Form 10-Q for the quarterly
period ended September 30, 2002, as filed with the
Securities and Exchange Commission on November 13, 2002,
and incorporated herein by reference.) |
58
| |
|
|
|
|
|
|
| Exhibit No. | |
|
|
|
Description |
| | |
|
|
|
|
| |
10 |
.12 |
|
|
|
Letter of Agreement by and between the Registrant and LEKAR
Pharma Limited, dated as of March 26, 2003, for an
investment of $1 million in the Registrant’s common
stock. (Filed as Exhibit 10.48 to Form 10-K, as filed with
the Securities and Exchange Commission on March 28, 2003,
and incorporated herein by reference.) |
| |
10 |
.13 |
|
|
|
Limited Liability Agreement of NeoJB LLC, a Delaware limited
liability company effective as of April 17, 2002. (Filed as
Exhibit 10.1 to Form 10-Q, as filed with the Securities and
Exchange Commission on May 14, 2003, and incorporated
herein by reference.) |
| |
10 |
.14 |
|
|
|
Supply Agreement dated April 16, 2002 by and between J.B.
Chemicals & Pharmaceuticals Ltd. and NeoJB LLC. (Filed
as Exhibit 10.2 to Form 10-Q, as filed with the Securities
and Exchange Commission on May 14, 2003, and incorporated
herein by reference.) |
| |
10 |
.15 |
|
|
|
Management Agreement dated April 16, 2002 by and between
NeoTherapeutics, Inc. and NeoJB LLC. (Filed as Exhibit 10.3
to Form 10-Q, as filed with the Securities and Exchange
Commission on May 14, 2003, and incorporated herein by
reference.) |
| |
10 |
.16 |
|
|
|
Preferred Stock and Warrant Purchase Agreement dated as of
April 29, 2003, by and among the Registrant and the
purchasers listed on Schedule 1 attached thereto. (Filed as
Exhibit 10.1 to Form 8-K, as filed with the Securities and
Exchange Commission on May 16, 2003, and incorporated
herein by reference.) |
| |
10 |
.17 |
|
|
|
Amendment No. 1 of the Preferred Stock and Warrant Purchase
Agreement and Registration Rights Agreement dated as of
May 13, 2003 by and among the Registrant and the persons
listed on Schedule 1B attached thereto. (Filed as
Exhibit 10.2 to Form 8-K, as filed with the Securities and
Exchange Commission on May 16, 2003, and incorporated
herein by reference.) |
| |
10 |
.18* |
|
|
|
Form of Lock-up Agreement. (Filed as Exhibit 10.3 to Form
8-K, as filed with the Securities and Exchange Commission on
May 16, 2003 and incorporated herein by reference.) |
| |
10 |
.19* |
|
|
|
Spectrum Pharmaceuticals, Inc. Amended and Restated 1997 Stock
Incentive Plan. (Filed as Annex A to our Definitive Proxy
Statement, as filed with the Securities and Exchange Commission
on May 16, 2003, and incorporated herein by reference.) |
| |
10 |
.20 |
|
|
|
Common Stock and Warrant Purchase Agreement dated as of
August 13, 2003, by and among the Registrant and the
purchasers listed on Schedule 1 attached thereto. (Filed as
Exhibit 10.1 to Form 8-K, as filed with the Securities and
Exchange Commission on August 15, 2003, and incorporated
herein by reference.) |
| |
10 |
.21 |
|
|
|
Preferred Stock and Warrant Purchase Agreement dated as of
September 26, 2003, by and among the Registrant and the
purchasers listed on Schedule 1 attached thereto. (Filed as
Exhibit 10.1 to Form 8-K, as filed with the Securities and
Exchange Commission on September 30, 2003, and incorporated
herein by reference.) |
| |
10 |
.22* |
|
|
|
Form of Lock-up Agreement (Filed as Exhibit 10.2 to Form
8-K, as filed with the Securities and Exchange Commission on
September 30, 2003, and incorporated herein by reference.) |
| |
10 |
.23 |
|
|
|
Exclusive Supply, Marketing and Distribution Agreement between
Lannett Company, Inc. and the Registrant dated August 15,
2003. (Filed as Exhibit 10.5 to Form 10-Q, as filed with
the Securities and Exchange Commission on November 13,
2003, and incorporated herein by reference.) |
| |
10 |
.24 |
|
|
|
Separation Agreement and General Release dated November 13,
2003 by and between Spectrum and John L. McManus. (Filed as
Exhibit 10.6 to Form 10-Q, as filed with the Securities and
Exchange Commission on November 13, 2003, and incorporated
herein by reference.) |
| |
10 |
.25 |
|
|
|
Separation Agreement and General Release dated November 7,
2003 by and between Spectrum and Michael P. McManus. (Filed as
Exhibit 10.7 to Form 10-Q, as filed with the Securities and
Exchange Commission on November 13, 2003, and incorporated
herein by reference.) |
| |
10 |
.26* |
|
|
|
2003 Stock Incentive Plan. (Filed as Exhibit 10.8 to Form
10-Q, as filed with the Securities and Exchange Commission on
November 13, 2003, and incorporated herein by reference.) |
59
| |
|
|
|
|
|
|
| Exhibit No. | |
|
|
|
Description |
| | |
|
|
|
|
| |
10 |
.27# |
|
|
|
Exclusive Supply, Marketing and Distribution Agreement between
FDC, Ltd. and the Registrant dated November 20, 2003.
(Filed as Exhibit 10.44 to Form 10-K, as filed with the
Securities and Exchange Commission on March 29, 2004, and
incorporated herein by reference). |
| |
10 |
.28* |
|
|
|
Executive Employment Agreement for Luigi Lenaz, M.D., dated
as of October 22, 2001. (Filed as Exhibit 10.45 to
Form 10-K, as filed with the Securities and Exchange Commission
on March 29, 2004, and incorporated herein by reference). |
| |
10 |
.29 |
|
|
|
First Amendment dated March 25, 2004 to Industrial Lease
Agreement dated as of January 16, 1997 by and between the
Registrant and the Irvine Company. (Filed as Exhibit 10.1
to Form 10-Q, as filed with the Securities and Exchange
Commission on May 17, 2004, and incorporated herein by
reference.) |
| |
10 |
.30* |
|
|
|
2003 Amended and Restated Incentive Award Plan. (Filed as
Exhibit 10.2 to Form 10-Q, as filed with the Securities and
Exchange Commission on May 17, 2004, and incorporated
herein by reference.) |
| |
10 |
.31* |
|
|
|
Form of Indemnity Agreement of the Registrant. (Filed as
Exhibit 10.1 to Form 10-Q, as filed with the Securities and
Exchange Commission on August 16, 2004, and incorporated
herein by reference.) |
| |
10 |
.32 |
|
|
|
Settlement Agreement and General Release By and Among NeoGene
Technologies, Inc., the Registrant and The Regents of the
University of California Dated as of March 26, 2004. (Filed
as Exhibit 10.2 to Form 10-Q, as filed with the Securities
and Exchange Commission on August 16, 2004, and
incorporated herein by reference.) |
| |
10 |
.33 |
|
|
|
Common Stock and Warrant Purchase Agreement, dated as of
April 20, 2004, by and among Spectrum and the purchasers
listed on Schedule 1 attached thereto. (Filed as
Exhibit 10.1 to Form 8-K, as filed with the Securities and
Exchange Commission on April 23, 2004, and incorporated by
reference.) |
| |
10 |
.34# |
|
|
|
Co-Development and License Agreement by and between the
Registrant and GPC Biotech AG, dated as of September 30,
2002. (Filed as Exhibit 10.1 to Form 10-Q, as filed with
the Securities and Exchange Commission on November 15,
2004, and incorporated by reference.) |
| |
10 |
.35# |
|
|
|
Diagnostic and Drug Product Manufacturing, Supply and Marketing
Agreement dated as of May 10, 2004 by and between the
Registrant and Shantha Biotechnics Pvt. Ltd. (Filed as
Exhibit 10.2 to Form 10-Q, as filed with the
Securities and Exchange Commission on November 15, 2004,
and incorporated by reference.) |
| |
10 |
.36# |
|
|
|
License and Collaboration Agreement by and between the
Registrant and Zentaris GmbH, dated as of August 12, 2004.
(Filed as Exhibit 10.3 to Form 10-Q, as filed with the
Securities and Exchange Commission on November 15, 2004,
and incorporated by reference.) |
| |
10 |
.37 |
|
|
|
Settlement Agreement and Release by and between the Registrant
and SCO Financial Group, LLC, dated as of September 30,
2004. (Filed as Exhibit 10.4 to Form 10-Q, as filed with
the Securities and Exchange Commission on November 15,
2004, and incorporated by reference.) |
| |
10 |
.38 |
|
|
|
Sublease Agreement dated September 28, 2004 by and between
the Registrant and Concurrent Pharmaceuticals, Inc., and The
Irvine Company. (Filed as Exhibit 10.1 to Form 8-K, as
filed with the Securities and Exchange Commission on
November 8, 2004, and incorporated herein by reference.) |
| |
10 |
.39* |
|
|
|
Form of Stock Option Agreement under the 2003 Amended and
Restated Incentive Award Plan. (As filed as Exhibit 10.1 to
Form 8-K, as filed with the Securities and Exchange Commission
on December 17, 2004, and incorporated herein by reference.) |
| |
10 |
.40# |
|
|
|
License Agreement by and between the Registrant and Altair
Nanomaterials, Inc. and Altair Nanotechnologies, Inc. (Filed as
Exhibit 10.1 to Form 8-K, as filed with the Securities and
Exchange Commission on February 3, 2005, and incorporated
herein by reference.) |
| |
10 |
.41# |
|
|
|
License Agreement by and between the Registrant and Chicago
Labs, Inc. (Filed as Exhibit 10.1 to Form 8-K, as filed
with the Securities and Exchange Commission on February 25,
2005, and incorporated herein by reference.) |
| |
10 |
.42+* |
|
|
|
Summary of Director Compensation. |
60
| |
|
|
|
|
|
|
| Exhibit No. | |
|
|
|
Description |
| | |
|
|
|
|
| |
21+ |
|
|
|
|
Subsidiaries of Registrant. |
| |
23 |
.1+ |
|
|
|
Consent of Kelly & Company. |
| |
31 |
.1+ |
|
|
|
Certification of Chief Executive Officer, pursuant to Rule
13a-14 promulgated under the Exchange Act, as created by
Section 302 of the Sarbanes-Oxley Act of 2002. |
| |
31 |
.2+ |
|
|
|
Certification of Vice President Finance, pursuant to Rule 13a-14
promulgated under the Exchange Act, as created by
Section 302 of the Sarbanes-Oxley Act of 2002. |
| |
31 |
.1+ |
|
|
|
Certification of Chief Executive Officer, pursuant to
18 U.S.C. Section 1350, as created by Section 906
of the Sarbanes-Oxley Act of 2002. |
| |
32 |
.2+ |
|
|
|
Certification of Vice President Finance, pursuant to
18 U.S.C. Section 1350, as created by Section 906
of the Sarbanes-Oxley Act of 2002 |
|
|
| * |
Indicates a management contract or compensatory plan or
arrangement. |
+ Filed herewith
|
|
| # |
Confidential portions omitted and filed separately with the
U.S. Securities and Exchange Commission pursuant to
Rule 24b-2 promulgated under the Securities Exchange Act of
1934, as amended. |
61
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this Annual Report on Form 10-K to be signed on its
behalf by the undersigned, thereunto duly authorized.
|
|
| |
Spectrum Pharmaceuticals,
Inc.
|
|
|
|
| |
By: |
/s/ Rajesh C.
Shrotriya, M.D.
|
|
|
| |
|
| |
Rajesh C. Shrotriya, M.D. |
| |
Chief Executive Officer and President |
Date: March 15, 2005
Pursuant to the requirements of the Securities Exchange Act of
1934, this Annual Report on Form 10-K has been signed below
by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated:
| |
|
|
|
|
|
|
| Signature |
|
Title |
|
Date |
| |
|
|
|
|
| |
/s/ Rajesh C.
Shrotriya, M.D.
Rajesh
C. Shrotriya, M.D. |
|
Chairman of the Board, Chief Executive Officer President and
Director (Principal Executive Officer) |
|
March 15, 2005 |
| |
/s/ Shyam K. Kumaria
Shyam
K. Kumaria |
|
Vice President Finance (Principal Financial and Accounting
Officer) |
|
March 15, 2005 |
| |
/s/ Ann C.
Kessler, Ph.D.
Ann
C. Kessler, Ph.D. |
|
Director |
|
March 15, 2005 |
| |
/s/ Armin M. Kessler
Armin
M. Kessler |
|
Director |
|
March 15, 2005 |
| |
/s/ Stuart M. Krassner,
Sc.D., Psy.D.
Stuart
M. Krassner, Sc.D., Psy.D. |
|
Director |
|
March 15, 2005 |
| |
/s/ Anthony E.
Maida, III
Anthony
E. Maida, III |
|
Director |
|
March 15, 2005 |
| |
/s/ Dilip J.
Mehta, M.D., Ph.D.
Dilip
J. Mehta, M.D., Ph.D. |
|
Director |
|
March 15, 2005 |
| |
/s/ Julius A.
Vida, Ph.D.
Julius
A. Vida, Ph.D. |
|
Director |
|
March 15, 2005 |
62
SPECTRUM PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2004 and 2003 and
For Each of the Three Years in the Period Ended
December 31, 2004
F-1
SPECTRUM PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2004 and 2003 and
For Each of the Three Years in the Period Ended
December 31, 2004
INDEX TO FINANCIAL STATEMENTS
| |
|
|
|
|
|
|
|
|
|
F-3 |
|
|
Financial Statements of Spectrum Pharmaceuticals, Inc. and
Subsidiaries:
|
|
|
|
|
| |
|
|
|
F-5 |
|
| |
|
|
|
F-6 |
|
| |
|
|
|
F-7 |
|
| |
|
|
|
F-8 |
|
|
|
|
|
F-10 |
|
F-2
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of
Spectrum Pharmaceuticals, Inc.
We have completed an integrated audit of Spectrum
Pharmaceuticals, Inc and Subsidiaries’ (the
“Company”) consolidated financial statements and of
Management’s annual report on internal control over
financial reporting as of December 31, 2004 and audits of
its 2003 and 2002 consolidated financial statements in
accordance with the standards of the Public Company Accounting
Oversight Board (United States). Our opinions, based on our
audits, are presented below.
Consolidated Financial Statements
We have audited the consolidated balance sheets of the Company
as of December 31, 2004 and 2003, and the related
consolidated statements of operations, stockholders’ equity
and comprehensive loss and cash flows for each of the three
years in the period ended December 31, 2004. These
financial statements are the responsibility of the
Company’s management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits of these financial statements in
accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we
plan and perform the audits to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit of financial statements includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinions.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Spectrum Pharmaceuticals, Inc. and
Subsidiaries as of December 31, 2004 and 2003, and the
consolidated results of its operations and its cash flows for
each of the three years in the period ended December 31,
2004 in conformity with accounting principles generally accepted
in the United States.
Internal Control Over Financial Reporting
Also, we have audited management’s assessment, included in
the accompanying Management’s annual report on internal
control over financial reporting, that the Company maintained
effective internal control over financial reporting as of
December 31, 2004 based on criteria established in Internal
Control – Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission (the
“COSO criteria”). The Company’s management is
responsible for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness
of internal control over financial reporting. Our responsibility
is to express an opinion on management’s assessment and an
opinion on the effectiveness of the Company’s internal
control over financial reporting based on our audit. We
conducted our audit of internal control over financial reporting
in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable
assurance about whether effective internal control over
financial reporting was maintained in all material respects. Our
audit of internal control over financial reporting included
obtaining an understanding of internal control over financial
reporting, evaluating management’s assessment, testing and
evaluating the design and operating effectiveness of internal
control, and performing such other procedures as we consider
necessary in the circumstances. We believe that our audit
provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company;
F-3
(2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, management’s assessment that Spectrum
Pharmaceuticals, Inc. and Subsidiaries maintained effective
internal control over financial reporting as of
December 31, 2004, is fairly stated, in all material
respects, based on the COSO criteria. Also, in our opinion,
Spectrum Pharmaceuticals, Inc. and Subsidiaries maintained, in
all material respects, effective internal control over financial
reporting as of December 31, 2004, based on the COSO
criteria.
|
|
| |
/s/ Kelly & Company |
| |
|
| |
Kelly & Company |
Costa Mesa, California
February 25, 2005
F-4
Spectrum Pharmaceuticals, Inc. and Subsidiaries
Consolidated Balance Sheets
| |
|
|
|
|
|
|
|
|
|
|
|
| |
|
December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
| |
|
(In thousands, except | |
| |
|
share and per share data) | |
|
ASSETS |
|
Current assets:
|
|
|
|
|
|
|
|
|
| |
Cash and cash equivalents
|
|
$ |
3,241 |
|
|
$ |
24,581 |
|
| |
Marketable securities
|
|
|
35,965 |
|
|
|
1,770 |
|
| |
Accounts receivable
|
|
|
199 |
|
|
|
– |
|
| |
Inventory
|
|
|
224 |
|
|
|
– |
|
| |
Prepaid expenses and other current assets
|
|
|
372 |
|
|
|
413 |
|
| |
|
|
|
|
|
|
| |
|
Total current assets
|
|
|
40,001 |
|
|
|
26,764 |
|
|
Property and equipment, net
|
|
|
687 |
|
|
|
560 |
|
|
Other assets
|
|
|
70 |
|
|
|
65 |
|
| |
|
|
|
|
|
|
|
Total assets
|
|
$ |
40,758 |
|
|
$ |
27,389 |
|
| |
|
|
|
|
|
|
| |
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
Current liabilities:
|
|
|
|
|
|
|
|
|
| |
Accounts payable
|
|
$ |
1,609 |
|
|
$ |
1,538 |
|
| |
Accrued compensation
|
|
|
662 |
|
|
|
1,038 |
|
| |
Accrued clinical study costs
|
|
|
300 |
|
|
|
– |
|
| |
Other accrued expenses
|
|
|
95 |
|
|
|
387 |
|
| |
Capital lease obligations
|
|
|
– |
|
|
|
145 |
|
| |
|
|
|
|
|
|
| |
|
Total current liabilities
|
|
|
2,666 |
|
|
|
3,108 |
|
|
Deferred rent and deposit
|
|
|
178 |
|
|
|
– |
|
| |
|
|
|
|
|
|
|
Total liabilities
|
|
|
2,844 |
|
|
|
3,108 |
|
| |
|
|
|
|
|
|
|
Commitments and contingencies (Note 7)
|
|
|
|
|
|
|
|
|
|
Minority interest
|
|
|
24 |
|
|
|
– |
|
|
Stockholders’ equity:
|
|
|
|
|
|
|
|
|
| |
Preferred stock, par value $0.001 per share,
5,000,000 shares authorized:
|
|
|
|
|
|
|
|
|
| |
|
|
Series B Junior Participating Preferred Stock,
200,000 shares authorized, no shares issued and outstanding
|
|
|
– |
|
|
|
– |
|
| |
|
|
Series D 8% Cumulative Convertible Voting Preferred Stock,
600 shares authorized, stated value $10,000 per share,
aggregate liquidation value $1,884, issued and outstanding 157
and 265 shares at December 31, 2004 and 2003,
respectively
|
|
|
747 |
|
|
|
1,261 |
|
| |
|
|
Series E Convertible Voting Preferred Stock,
2,000 shares authorized, stated value $10,000 per
share, aggregate liquidation value $3,492, issued and
outstanding, 291 and 1,315 shares at December 31, 2004
and 2003, respectively
|
|
|
1,795 |
|
|
|
8,110 |
|
| |
Common stock, par value $0.001 per share,
50,000,000 shares authorized; 14,825,558 and
8,097,927 shares issued and outstanding at
December 31, 2004 and 2003, respectively
|
|
|
15 |
|
|
|
8 |
|
| |
Additional paid-in capital
|
|
|
201,218 |
|
|
|
168,590 |
|
| |
Deferred stock-based compensation
|
|
|
(97 |
) |
|
|
(192 |
) |
| |
Accumulated other comprehensive income, unrealized gain on
available for sale securities
|
|
|
– |
|
|
|
6 |
|
| |
Accumulated deficit
|
|
|
(165,788 |
) |
|
|
(153,502 |
) |
| |
|
|
|
|
|
|
|
Total stockholders’ equity
|
|
|
37,890 |
|
|
|
24,281 |
|
| |
|
|
|
|
|
|
|
Total liabilities and stockholders’ equity
|
|
$ |
40,758 |
|
|
$ |
27,389 |
|
| |
|
|
|
|
|
|
The accompanying notes are an integral part of the financial
statements.
F-5
Spectrum Pharmaceuticals, Inc. and Subsidiaries
Consolidated Statements of Operations
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
(In thousands, except share and per share data) | |
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Licensing fees
|
|
$ |
73 |
|
|
$ |
1,000 |
|
|
$ |
2,371 |
|
| |
Product sales
|
|
|
185 |
|
|
|
– |
|
|
|
– |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
Total revenues
|
|
|
258 |
|
|
|
1,000 |
|
|
|
2,371 |
|
| |
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Cost of product sold
|
|
|
123 |
|
|
|
– |
|
|
|
– |
|
| |
Research and development
|
|
|
6,954 |
|
|
|
3,683 |
|
|
|
11,706 |
|
| |
General and administrative including related party consulting
costs
|
|
|
5,096 |
|
|
|
5,049 |
|
|
|
3,691 |
|
| |
Stock-based charges
|
|
|
885 |
|
|
|
2,573 |
|
|
|
1,431 |
|
| |
Restructuring expenses
|
|
|
– |
|
|
|
163 |
|
|
|
3,050 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
Total operating expenses
|
|
|
13,058 |
|
|
|
11,468 |
|
|
|
19,878 |
|
| |
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(12,800 |
) |
|
|
(10,468 |
) |
|
|
(17,507 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Interest income
|
|
|
519 |
|
|
|
83 |
|
|
|
161 |
|
| |
Interest expense
|
|
|
(3 |
) |
|
|
(17 |
) |
|
|
(123 |
) |
| |
Other income (expense)
|
|
|
2 |
|
|
|
12 |
|
|
|
(165 |
) |
| |
|
|
|
|
|
|
|
|
|
| |
|
Total other income (expense)
|
|
|
518 |
|
|
|
78 |
|
|
|
(127 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Net loss before minority interest in consolidated subsidiary
|
|
|
(12,282 |
) |
|
|
(10,390 |
) |
|
|
(17,634 |
) |
| |
Minority interest in net income of consolidated subsidiary
|
|
|
(4 |
) |
|
|
– |
|
|
|
– |
|
| |
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$ |
(12,286 |
) |
|
$ |
(10,390 |
) |
|
$ |
(17,634 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss per share
|
|
$ |
(0.98 |
) |
|
$ |
(4.83 |
) |
|
$ |
(12.34 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Basic and diluted weighted average common shares
outstanding
|
|
|
12,674,506 |
|
|
|
4,169,374 |
|
|
|
1,429,380 |
|
| |
|
|
|
|
|
|
|
|
|
|
Supplemental Information:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Stock-based charges – components:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Research and development
|
|
$ |
634 |
|
|
$ |
1,000 |
|
|
$ |
1,020 |
|
| |
|
General and administrative
|
|
|
251 |
|
|
|
1,573 |
|
|
|
411 |
|
| |
|
|
|
|
|
|
|
|
|
| |
Total stock-based charges
|
|
$ |
885 |
|
|
$ |
2,573 |
|
|
$ |
1,431 |
|
| |
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the financial
statements.
F-6
Spectrum Pharmaceuticals, Inc. and Subsidiaries
Consolidated Statements of Stockholders’ Equity and
Comprehensive Income (Loss)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated | |
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Notes | |
|
Other | |
|
|
|
|
| |
|
Preferred Stock | |
|
Common Stock | |
|
Additional | |
|
|
|
Receivable | |
|
Comprehensive | |
|
|
|
|
| |
|
| |
|
| |
|
Paid-in | |
|
Deferred | |
|
from | |
|
Income | |
|
Accumulated | |
|
|
| |
|
Shares | |
|
Amount | |
|
Shares | |
|
Amount | |
|
Capital | |
|
Compensation | |
|
Directors | |
|
(Loss) | |
|
Deficit | |
|
Total | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In thousands, except share data) | |
|
Balance at December 31, 2001
|
|
|
– |
|
|
$ |
– |
|
|
|
951,086 |
|
|
$ |
1 |
|
|
$ |
134,683 |
|
|
$ |
(1,890 |
) |
|
$ |
(616 |
) |
|
$ |
87 |
|
|
$ |
(125,478 |
) |
|
$ |
6,787 |
|
| |
Net loss
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(17,634 |
) |
|
|
(17,634 |
) |
| |
Unrealized loss on available-for-sale securities, net
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(81 |
) |
|
|
– |
|
|
|
(81 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(81 |
) |
|
|
(17,634 |
) |
|
|
(17,715 |
) |
| |
Issuance of common stock for cash, net of issuance costs
|
|
|
– |
|
|
|
– |
|
|
|
1,407,607 |
|
|
|
1 |
|
|
|
9,920 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
9,921 |
|
| |
Repurchase of common stock and warrants
|
|
|
– |
|
|
|
– |
|
|
|
(16,000 |
) |
|
|
– |
|
|
|
(143 |
) |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(143 |
) |
| |
Issuance of common stock to vendors for services in settlement
of accounts payable based on the fair value of the stock
|
|
|
– |
|
|
|
– |
|
|
|
383,326 |
|
|
|
1 |
|
|
|
775 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
776 |
|
| |
Issuance of warrants to a vendor based on the fair value of the
services
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
244 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
244 |
|
| |
Expiration of stock options granted
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(1,423 |
) |
|
|
1,423 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
| |
Amortization of deferred compensation and services
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
411 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
411 |
|
| |
Repayment of notes receivable from directors and officers
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
391 |
|
|
|
– |
|
|
|
– |
|
|
|
391 |
|
| |
Termination of notes receivable from directors and officers
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(225 |
) |
|
|
– |
|
|
|
225 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2002
|
|
|
– |
|
|
$ |
– |
|
|
|
2,726,019 |
|
|
$ |
3 |
|
|
$ |
143,831 |
|
|
$ |
(56 |
) |
|
$ |
– |
|
|
$ |
6 |
|
|
$ |
(143,112 |
) |
|
$ |
672 |
|
| |
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
– |
|
|
|
(10,390 |
) |
|
|
(10,390 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
– |
|
|
|
(10,390 |
) |
|
|
(10,390 |
) |
| |
Issuance of Series D Preferred Stock and common stock
warrants, net
|
|
|
600 |
|
|
|
2,856 |
|
|
|
– |
|
|
|
– |
|
|
|
2,300 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
5,156 |
|
| |
Issuance of Series E Preferred Stock and common stock
warrants, net
|
|
|
2,000 |
|
|
|
11,269 |
|
|
|
– |
|
|
|
– |
|
|
|
6,919 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
18,188 |
|
| |
Conversion of Series D Preferred Stock into common stock
|
|
|
(335 |
) |
|
|
(1,595 |
) |
|
|
1,425,532 |
|
|
|
2 |
|
|
|
1,593 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
| |
Conversion of Series E Preferred Stock into common stock
|
|
|
(685 |
) |
|
|
(4,224 |
) |
|
|
1,370,000 |
|
|
|
1 |
|
|
|
4,223 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
| |
Issuance of common stock and warrants for cash, net of issuance
costs
|
|
|
– |
|
|
|
– |
|
|
|
1,211,578 |
|
|
|
1 |
|
|
|
4,536 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
4,537 |
|
| |
Issuance of common stock upon exercise of warrants
|
|
|
– |
|
|
|
– |
|
|
|
1,169,070 |
|
|
|
1 |
|
|
|
3,303 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
3,304 |
|
| |
Issuance of common stock to employees as compensation
|
|
|
– |
|
|
|
– |
|
|
|
105,700 |
|
|
|
– |
|
|
|
547 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
547 |
|
| |
Issuance of common stock upon exercise of employee stock options
|
|
|
– |
|
|
|
– |
|
|
|
61,550 |
|
|
|
– |
|
|
|
173 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
173 |
|
| |
Intrinsic value of stock options granted to employees
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
1,749 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
1,749 |
|
| |
Fair value of warrants and options issued to consultants
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
516 |
|
|
|
(240 |
) |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
276 |
|
| |
Amortization of deferred compensation and services
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
104 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
104 |
|
| |
Recognition of beneficial conversion feature on preferred stock
|
|
|
– |
|
|
|
(8,447 |
) |
|
|
– |
|
|
|
– |
|
|
|
8,447 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
| |
Preferred dividends:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Deemed dividend related to beneficial conversion features on
preferred stock
|
|
|
– |
|
|
|
8,447 |
|
|
|
– |
|
|
|
– |
|
|
|
(8,447 |
) |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
| |
|
Deemed dividend related to issuance costs
|
|
|
– |
|
|
|
1,065 |
|
|
|
– |
|
|
|
– |
|
|
|
(1,065 |
) |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
| |
|
Series D Preferred Stock dividend paid with common stock
|
|
|
– |
|
|
|
– |
|
|
|
28,478 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
| |
|
Series D Preferred Stock dividends paid in cash
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(35 |
) |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(35 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2003
|
|
|
1,580 |
|
|
$ |
9,371 |
|
|
|
8,097,927 |
|
|
$ |
8 |
|
|
$ |
168,590 |
|
|
$ |
(192 |
) |
|
$ |
– |
|
|
$ |
6 |
|
|
$ |
(153,502 |
) |
|
$ |
24,281 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net loss
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(12,286 |
) |
|
|
(12,286 |
) |
| |
Realized loss on available-for-sale securities
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(6 |
) |
|
|
– |
|
|
|
(6 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Total comprehensive loss, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6 |
) |
|
|
(12,286 |
) |
|
|
(12,292 |
) |
| |
Conversion of Series D Preferred Stock into common stock
|
|
|
(108 |
) |
|
|
(514 |
) |
|
|
459,574 |
|
|
|
1 |
|
|
|
513 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
| |
Conversion of Series E Preferred Stock into common stock
|
|
|
(1,024 |
) |
|
|
(6,315 |
) |
|
|
2,048,000 |
|
|
|
2 |
|
|
|
6,313 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
| |
Issuance of common stock for cash, net of issuance costs
|
|
|
– |
|
|
|
– |
|
|
|
3,220,005 |
|
|
|
3 |
|
|
|
22,576 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
22,579 |
|
| |
Fair value of common stock issued in connection with drug license
|
|
|
– |
|
|
|
– |
|
|
|
251,896 |
|
|
|
– |
|
|
|
634 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
634 |
|
| |
Issuance of common stock upon exercise of warrants
|
|
|
– |
|
|
|
– |
|
|
|
516,994 |
|
|
|
1 |
|
|
|
2,020 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
2,021 |
|
| |
Issuance of common stock upon exercise of employee stock options
|
|
|
– |
|
|
|
– |
|
|
|
199,150 |
|
|
|
– |
|
|
|
415 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
415 |
|
| |
Fair value of warrants issued to consultants
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
157 |
|
|
|
(157 |
) |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
| |
Amortization of deferred compensation and services
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
252 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
252 |
|
| |
Series D Preferred Stock dividends paid with common stock
|
|
|
– |
|
|
|
– |
|
|
|
32,012 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2004
|
|
|
448 |
|
|
$ |
2,542 |
|
|
|
14,825,558 |
|
|
$ |
15 |
|
|
$ |
201,218 |
|
|
$ |
(97 |
) |
|
$ |
– |
|
|
$ |
– |
|
|
$ |
(165,788 |
) |
|
$ |
37,890 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the financial
statements.
F-7
Spectrum Pharmaceuticals, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
(In thousands, except share | |
| |
|
and per share data) | |
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$ |
(12,286 |
) |
|
$ |
(10,390 |
) |
|
$ |
(17,634 |
) |
| |
Adjustments to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Non-cash items included in net loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
Depreciation and amortization
|
|
|
173 |
|
|
|
242 |
|
|
|
917 |
|
| |
|
|
Amortization of deferred stock-based compensation
|
|
|
252 |
|
|
|
104 |
|
|
|
411 |
|
| |
|
|
Fair value of common stock issued in connection with drug license
|
|
|
634 |
|
|
|
– |
|
|
|
– |
|
| |
|
|
Minority interest in net income of consolidated subsidiary
|
|
|
4 |
|
|
|
– |
|
|
|
– |
|
| |
|
|
Fair value of common shares and warrants issued to employees and
consultants
|
|
|
– |
|
|
|
823 |
|
|
|
1,020 |
|
| |
|
|
Intrinsic value of stock options granted to employees
|
|
|
– |
|
|
|
1,749 |
|
|
|
– |
|
| |
|
|
Impairment on property and equipment
|
|
|
– |
|
|
|
130 |
|
|
|
2,288 |
|
| |
|
|
Forgiveness of notes to officers and directors
|
|
|
– |
|
|
|
– |
|
|
|
391 |
|
| |
|
|
Impairment on investment in marketable security
|
|
|
– |
|
|
|
– |
|
|
|
51 |
|
| |
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Increase in accounts receivable
|
|
|
(199 |
) |
|
|
– |
|
|
|
– |
|
| |
|
Increase in inventory
|
|
|
(224 |
) |
|
|
– |
|
|
|
– |
|
| |
|
(Increase) decrease in other current assets
|
|
|
(59 |
) |
|
|
76 |
|
|
|
486 |
|
| |
|
(Increase) decrease in other assets
|
|
|
(5 |
) |
|
|
– |
|
|
|
39 |
|
| |
|
Increase (decrease) in accounts payable and accrued expenses
|
|
|
79 |
|
|
|
(89 |
) |
|
|
(2,172 |
) |
| |
|
Increase (decrease) in accrued compensation
|
|
|
(376 |
) |
|
|
836 |
|
|
|
(34 |
) |
| |
|
Increase (decrease) in other non-current liabilities
|
|
|
178 |
|
|
|
(101 |
) |
|
|
(260 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(11,829 |
) |
|
|
(6,620 |
) |
|
|
(14,497 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Purchases of marketable securities
|
|
|
(44,515 |
) |
|
|
(1,704 |
) |
|
|
– |
|
| |
Proceeds from redemption of marketable securities
|
|
|
10,314 |
|
|
|
– |
|
|
|
6,209 |
|
| |
Purchases of property and equipment
|
|
|
(200 |
) |
|
|
– |
|
|
|
(59 |
) |
| |
Proceeds from sale of equipment
|
|
|
– |
|
|
|
390 |
|
|
|
122 |
|
| |
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
(34,401 |
) |
|
|
(1,314 |
) |
|
|
6,272 |
|
| |
|
|
|
|
|
|
|
|
|
F-8
Spectrum Pharmaceuticals, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
(In thousands, except share and | |
| |
|
per share data) | |
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Proceeds from issuance of common stock and warrants, net of
related offering costs and expenses
|
|
$ |
22,579 |
|
|
$ |
4,537 |
|
|
$ |
9,921 |
|
| |
Proceeds from sale of preferred stock, net of issuance costs
|
|
|
– |
|
|
|
23,344 |
|
|
|
– |
|
| |
Proceeds from the exercise of warrants
|
|
|
2,021 |
|
|
|
3,304 |
|
|
|
– |
|
| |
Proceeds from exercise of stock options
|
|
|
415 |
|
|
|
173 |
|
|
|
– |
|
| |
Payments made on capital lease and loan obligations
|
|
|
(145 |
) |
|
|
(320 |
) |
|
|
(653 |
) |
| |
Minority investment in subsidiary
|
|
|
20 |
|
|
|
– |
|
|
|
– |
|
| |
Cash dividends paid on preferred stock
|
|
|
– |
|
|
|
(35 |
) |
|
|
– |
|
| |
Repurchase of common stock and warrants
|
|
|
– |
|
|
|
– |
|
|
|
(143 |
) |
| |
Repayment of notes payable to related parties
|
|
|
– |
|
|
|
– |
|
|
|
(136 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
24,890 |
|
|
|
31,003 |
|
|
|
8,989 |
|
| |
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
(21,340 |
) |
|
|
23,069 |
|
|
|
764 |
|
|
Cash and cash equivalents, beginning of period
|
|
|
24,581 |
|
|
|
1,512 |
|
|
|
748 |
|
| |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$ |
3,241 |
|
|
$ |
24,581 |
|
|
$ |
1,512 |
|
| |
|
|
|
|
|
|
|
|
|
|
Supplemental Cash Flow Information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$ |
3 |
|
|
$ |
17 |
|
|
$ |
130 |
|
|
Income taxes paid
|
|
$ |
1 |
|
|
$ |
1 |
|
|
$ |
1 |
|
|
Schedule of Noncash Investing and Financing
Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of common stock issued in connection with drug license
|
|
$ |
634 |
|
|
|
– |
|
|
|
– |
|
|
Fair value of warrants issued to placement agents
|
|
$ |
542 |
|
|
$ |
1,764 |
|
|
|
– |
|
|
Preferred stock dividends paid with issuance of common stock
|
|
$ |
162 |
|
|
$ |
206 |
|
|
|
– |
|
|
Fair value of warrants issued to consultants for services
|
|
$ |
157 |
|
|
$ |
240 |
|
|
|
– |
|
|
Reclass of equipment previously held-for-sale to fixed assets
|
|
$ |
100 |
|
|
|
– |
|
|
|
– |
|
|
Deemed dividends on beneficial conversion features on preferred
stock
|
|
|
– |
|
|
$ |
8,447 |
|
|
|
– |
|
|
Conversion of preferred stock and convertible debentures into
shares of common stock
|
|
|
– |
|
|
$ |
5,819 |
|
|
|
– |
|
|
Deemed dividends related to preferred stock related to issuance
costs
|
|
|
– |
|
|
$ |
1,065 |
|
|
|
– |
|
|
Retirement of stock options granted to employees below fair
market value
|
|
|
– |
|
|
|
– |
|
|
$ |
1,423 |
|
|
Unrealized loss on marketable securities
|
|
|
– |
|
|
|
– |
|
|
$ |
81 |
|
The accompanying notes are an integral part of the financial
statements.
F-9
Spectrum Pharmaceuticals, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
As of December 31, 2004 and 2003 and
For Each of the Three Years in the Period Ended
December 31, 2004
Spectrum Pharmaceuticals, Inc. (the “Company”) is a
specialty pharmaceutical company engaged in the business of
acquiring, developing and commercializing prescription drug
products for various indications. While we own patent rights to
certain product candidates, the drug products we are currently
developing, which are focused on the treatment of cancer and
other unmet medical needs, are in-licensed from third parties
whereby we acquired exclusive development and commercialization
rights from the patent holders of those compounds. We are also
actively engaged in seeking FDA approval for marketing generic
versions of branded drugs whose patent protection is scheduled
to expire in the near-term, or has already expired. In September
2004, the FDA granted us approval to market ciprofloxacin, the
generic version of the anti-bacterial drug, Cipro®, and we
recorded a sale of this product in the fourth quarter of 2004.
|
|
| 2. |
Summary of Significant Accounting Policies and Estimates |
|
|
|
Principles of Consolidation and Basis of
Presentation |
The consolidated financial statements include the accounts of
the Company and of our wholly owned and majority owned
subsidiaries. As of December 31, 2004, we had three
subsidiaries: NeoJB LLC (NeoJB), 80% owned, organized in
Delaware in April 2002; Spectrum Pharmaceuticals GmbH, wholly
owned, incorporated in Switzerland in April 1997; and NeoGene
Technologies, Inc. (NeoGene), an inactive subsidiary, 88.4%
owned, incorporated in California in October 1999. We have
eliminated all significant intercompany accounts and
transactions.
Since the adoption of our current strategy in August 2002, we
have operated in one business segment, that of acquiring,
developing and commercializing prescription drug products. The
business has not matured to the point that disaggregated segment
information would be meaningful. Accordingly the accompanying
financial statements are reported in the aggregate including all
our activities in one segment.
In September 2002, stockholders approved a reverse split of our
outstanding common stock on the basis of 1 share for each
25 shares of the then outstanding common stock. All share
and per share information presented in these financial
statements has been restated to reflect the 25-for-1 reverse
split.
Certain prior year amounts have been reclassified to conform to
the current year presentation.
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States
requires us to make estimates and assumptions that affect the
reported amounts of assets, liabilities, revenues and expenses
and disclosure of contingent obligations in the financial
statements and accompanying notes. Our most significant
assumptions are employed in estimates used in determining values
of financial instruments and accrued obligations, as well as in
estimates used in applying the revenue recognition policy and
estimating stock-based charges. The estimation process requires
assumptions to be made about future events and conditions, and
as such, is inherently subjective and uncertain. Actual results
could differ materially from our estimates.
|
|
|
Fair Value of Financial Instruments |
The carrying amounts of cash and cash equivalents, marketable
securities, accounts receivable, accounts payable and accrued
liabilities, as reported in the balance sheets, are considered
to approximate fair value given the short term maturity and/or
liquidity of these financial instruments.
F-10
Spectrum Pharmaceuticals, Inc. and Subsidiaries
Notes to the Consolidated Financial
Statements – (Continued)
|
|
|
Cash, Cash Equivalents and Marketable Securities |
Cash, cash equivalents and marketable securities primarily
consist of corporate debt and equity and municipal obligations,
including market auction debt securities, but also include
government agency notes, certificates of deposit, bank checking
and time deposits, and institutional money market funds. We
classify highly liquid short-term investments, with
insignificant interest rate risk and maturities of 90 days
or less at the time of acquisition, as cash and cash
equivalents. Other investments, which do not meet the above
definition of cash equivalents, are classified as either
“held to maturity” or “available-for-sale”
marketable securities, in accordance with the provisions of
Financial Accounting Standards Board (FASB) Statement
No. 115, Accounting for Certain Investments in Debt and
Equity Securities. Investments that we intend to hold for
more than one year are classified as long-term investments.
|
|
|
Concentrations of Credit Risk, Supplier and
Customer |
All of our cash, cash equivalents and marketable securities are
invested at two major financial institutions. To a limited
degree these investments are insured by the Federal Deposit
Insurance Corporation (FDIC) and by third party insurance.
However, these investments are not insured against the
possibility of a complete loss of earnings or principal and are
inherently subject to the credit risk related to the credit
worthiness of the underlying issuer. We believe that such risks
are mitigated because we invest only in investment grade
securities. We have not incurred any significant credit risk
losses related to such investments.
As of December 31, 2004, we had a bank account with a
balance that exceeded the amount insured by the Federal Deposit
Insurance Corporation by $533,000. We believe this concentration
risk is mitigated by the financial strength of the bank that
maintains the account.
During 2004, after FDA approval, we commenced sales of our first
marketed product, ciprofloxacin. Pursuant to our strategic
alliance agreements, described in Note 3, this product can
only be sourced from J.B. Chemicals & Pharmaceuticals
Ltd., and can only be distributed by Lannett Company. Our
marketing rights to ciprofloxacin are limited to sales in the
United States of America.
Inventory is stated at the lower of cost (first-in, first-out
method) or market. As of December 31, 2004, inventory
consisted of raw materials acquired for the purpose of
manufacturing finished drug product for our drug product
candidate carboplatin.
We carry property and equipment at historical cost. Equipment is
depreciated on a straight-line basis over its estimated useful
life (generally 5 to 7 years). Leasehold improvements are
amortized over the shorter of the estimated useful life or lease
term. Maintenance and repairs are expensed as incurred. Major
renewals and betterments that extend the life of the property
are capitalized.
We review long-lived assets, including property and equipment,
for impairment whenever events or changes in business
circumstances indicate that the carrying amount of the assets
may not be fully recoverable. If impairment is indicated, we
reduce the carrying value of the asset to fair value. During the
year ended December 31, 2002, we recorded a fixed asset
impairment charge of $1,669,000, included in the restructuring
charge of $3,050,000 recorded in connection with the termination
of all research efforts related to neurology and functional
genomics research and development.
F-11
Spectrum Pharmaceuticals, Inc. and Subsidiaries
Notes to the Consolidated Financial
Statements – (Continued)
We own or license all the intellectual property that forms the
basis of our business model. We expense all licensing and patent
application costs as they are incurred.
License fees representing non-refundable payments received upon
the execution of license agreements are recognized as revenue
upon execution of the license agreements where we have no
significant future performance obligations and collectibility of
the fees is assured. Milestone payments, which are generally
based on developmental or regulatory events, are recognized as
revenue when the milestones are achieved, collectibility is
assured, and we have no significant future performance
obligations in connection with the milestones. In those
instances where we have collected fees or milestone payments but
have ongoing future obligations related to the development of
the drug product, revenue recognition is deferred and amortized
ratably over the period of our future obligations.
Revenue from sales of product is recognized upon shipment of
product when title and risk of loss have transferred to the
customer, and provisions for estimates, including promotional
adjustments, price adjustments, returns, and other potential
adjustments are reasonably determinable. Such revenue is
recorded net of such estimated provisions. We state the related
accounts receivable at net realizable value, with any allowance
for doubtful accounts charged to general operating expenses.
Research and development expenses are comprised of the following
types of costs incurred in performing research and development
activities: personnel expenses, facility costs, contract
services, license fees and milestone payments, costs of clinical
trials, laboratory supplies and drug products, and allocations
of corporate costs. We expense all research and development
activity costs in the period incurred.
|
|
|
Minority Interest in Consolidated Subsidiary |
Investments by outside parties in our consolidated subsidiary
are recorded as Minority Interest in Consolidated Subsidiary in
our accounts, and stated net after allocation of income and
losses in the subsidiary.
|
|
|
Basic and Diluted Net Loss Per Share |
In accordance with FASB Statement No. 128, Earnings Per
Share, we calculate basic and diluted net loss per share
using the weighted average number of common shares outstanding
during the periods presented, and adjust the amount of net loss,
used in this calculation, for preferred stock dividends declared
during the period.
We incurred net losses in each of the periods presented, and as
such, did not include the effect of potentially dilutive common
stock equivalents in the diluted net loss per share calculation,
as their effect would be anti-dilutive for all periods.
Potentially dilutive common stock equivalents would include the
common stock issuable upon conversion of preferred stock and the
exercise of warrants and stock options that have conversion or
exercise prices below the market value of our common stock at
the measurement date. As of December 31, 2004, 2003 and
2002, such potentially dilutive common stock equivalents
amounted to approximately 10 million, 11 million and
1 million shares, respectively.
F-12
Spectrum Pharmaceuticals, Inc. and Subsidiaries
Notes to the Consolidated Financial
Statements – (Continued)
The following data show the amounts used in computing basic loss
per share for each of the three years in the period ended
December 31, 2004.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
(In thousands, except share and | |
| |
|
per share data) | |
|
Net loss
|
|
$ |
(12,286 |
) |
|
$ |
(10,390 |
) |
|
$ |
(17,634 |
) |
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Preferred dividends paid in cash or stock
|
|
|
(162 |
) |
|
|
(241 |
) |
|
|
– |
|
| |
|
|
|
|
|
|
|
|
|
|
Loss attributable to stockholders before deemed dividend
|
|
|
(12,448 |
) |
|
|
(10,631 |
) |
|
|
(17,634 |
) |
| |
Deemed dividend related to beneficial conversion feature on
preferred stock
|
|
|
– |
|
|
|
(8,447 |
) |
|
|
– |
|
| |
Deemed dividends related to issuance costs
|
|
|
– |
|
|
|
(1,065 |
) |
|
|
– |
|
| |
|
|
|
|
|
|
|
|
|
|
Loss available to common stockholders after consideration of
the deemed dividend used in computing basic loss per share
|
|
$ |
(12,448 |
) |
|
$ |
(20,143 |
) |
|
$ |
(17,634 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Weighted average shares
|
|
|
12,674,506 |
|
|
|
4,169,374 |
|
|
|
1,429,380 |
|
| |
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per share
|
|
$ |
(0.98 |
) |
|
$ |
(4.83 |
) |
|
$ |
(12.34 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
Accounting for Stock-Based Employee Compensation |
At December 31, 2004, we had three stock-based employee
compensation plans, which are described more fully in
Note 9. As permitted by FASB Statement No. 123,
Accounting for Stock-Based Compensation, we account for
grants pursuant to those plans under the intrinsic value method
described in Accounting Principles Board (APB) Opinion
No. 25, Accounting for Stock Issued to Employees,
and related Interpretations. Under the intrinsic value method,
no stock-based employee compensation cost is recorded when the
exercise price is equal to, or higher than, the market value of
the underlying common stock on the date of grant. We recognize
stock-based compensation expense for all grants to consultants
and for those grants to employees where the exercise prices are
below the market price of the underlying stock at the
measurement date of the grant.
F-13
Spectrum Pharmaceuticals, Inc. and Subsidiaries
Notes to the Consolidated Financial
Statements – (Continued)
The following table illustrates the effect on net loss and loss
per share if we had applied the fair value recognition
provisions of FASB Statement No. 123, Accounting for
Stock-Based Compensation, to stock-based employee
compensation, using the straight-line method, for each of the
three years ended December 31, 2004.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
(In thousands, except share | |
| |
|
and per share data) | |
|
Net loss, as reported
|
|
$ |
(12,286 |
) |
|
$ |
(10,390 |
) |
|
$ |
(17,634 |
) |
|
Add: stock-based employee compensation included in the reported
net loss
|
|
|
– |
|
|
|
2,296 |
|
|
|
– |
|
|
Less: total stock-based employee compensation expense determined
under fair value based method for all awards, net of related tax
effect
|
|
|
(2,571 |
) |
|
|
(5,077 |
) |
|
|
(6,094 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Pro forma net loss
|
|
$ |
(14,857 |
) |
|
$ |
(13,171 |
) |
|
$ |
(23,728 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Basic and diluted – as reported
|
|
$ |
(0.98 |
) |
|
$ |
(4.83 |
) |
|
$ |
(12.34 |
) |
| |
|
|
|
|
|
|
|
|
|
| |
Basic and diluted – pro forma
|
|
$ |
(1.18 |
) |
|
$ |
(5.50 |
) |
|
$ |
(16.60 |
) |
| |
|
|
|
|
|
|
|
|
|
We recognize deferred tax assets and liabilities for the future
tax consequences attributable to differences between the
financial statement bases and tax bases of existing assets and
liabilities. However, we have recorded a valuation allowance to
fully offset the net deferred tax assets as of December 31,
2004 and 2003, because realization of such assets is uncertain.
The net loss reflected on our Consolidated Statements of
Operations substantially represents the total comprehensive loss
for the periods presented.
|
|
|
New Accounting Pronouncements |
In November 2004, the FASB issued Statement No. 151,
Inventory Costs-an Amendment of ARB No. 43,
Chapter 4. Statement No. 151 requires the current
expensing of abnormal production costs, and requires that
allocation of fixed production overheads to the costs of
conversion of inventory be based on the normal capacity of the
production facilities. The adoption of Statement No. 151 is
not expected to have any impact on our financial statements.
In December 2004, the FASB issued Statement No. 123(R),
Share-Based Payment. This Statement eliminates the use of
the intrinsic value method described in Accounting Principles
Board (APB) Opinion No. 25, Accounting for Stock
Issued to Employees, and requires an entity to measure the
cost of employee services received in exchange for an award of
equity instruments based on the grant-date fair value of the
award. That cost will be recognized over the period during which
an employee is required to provide service in exchange for the
award. We expect to adopt the provisions of Statement
No. 123(R) when it becomes a mandatory requirement,
currently expected to be July 1, 2005. The adoption of this
statement is expected to result in significantly higher reported
operating expenses in our future financial statements. Had we
adopted the provisions of Statement No. 123(R) as of
January 1, 2004, our reported loss for the year-ended
December 31, 2004 would have been approximately $2,571,000
higher, or $14,857,000, as disclosed above in Note 2,
Accounting for Stock-Based Employee Compensation.
F-14
Spectrum Pharmaceuticals, Inc. and Subsidiaries
Notes to the Consolidated Financial
Statements — (Continued)
In December 2004, the FASB issued Statement No. 153,
Exchanges of Nonmonetary Assets – an Amendment of
APB Opinion No. 29. Statement No. 153 eliminates
certain exceptions from the principle that exchanges of
nonmonetary assets should be measured based on the fair value of
the assets exchanged. The adoption of Statement No. 153 is
not expected to have any impact on our financial statements.
|
|
| 3. |
Products and Strategic Alliances |
As of December 31, 2004, we had four proprietary drug
product candidates under development: satraplatin,
EOquintm,
elsamitrucin, and SPI-153; and through that date had filed seven
Abbreviated New Drug Applications (ANDAs) with the FDA,
including that for ciprofloxacin, which was approved in
September 2004. We are developing our proprietary drug product
candidates for the treatment of a variety of cancers. We are
also active in filing ANDAs with the FDA seeking approval for
marketing generic versions of branded prescription drugs whose
patent protection is scheduled to expire in the near-term, or
has already expired. In addition, we have a few neurology
compounds that we may out-license these compounds to third
parties for further development.
In general, we direct and pay for all aspects of the drug
development process, and consequently incur the risks and
rewards of drug development, which is an inherently uncertain
process. To mitigate such risks we enter into alliances where we
believe that our partners can provide strategic advantage in the
development, manufacturing or distribution of our drugs. In such
situations, the alliance partners may share in the risks and
rewards of the drug development and commercialization. As of
December 31, 2004, we had entered into the following
strategic alliances:
|
|
|
Product Development and Manufacturing |
|
|
|
| |
• |
GPC Biotech AG (GPC): In 2002, in exchange for an
upfront license fee, and future milestones and royalties, we
entered into a Co-Development and License Agreement with GPC for
further development and commercialization of satraplatin. Under
the terms of this agreement, GPC agreed to fully fund the
development expenses for satraplatin. A development committee
with members from both GPC and Spectrum establishes the
development plans for satraplatin. GPC, however, represents a
majority of the committee and the final procedures are
effectively decided and implemented by GPC. We have the ability
to perform additional studies, if so desired, at our expense.
Licensing fees, including upfront fees and milestone payments,
received in 2004, 2003, and 2002 amounted to $73,000, $1,000,000
and $2,000,000, respectively. In addition, during 2003, pursuant
to the license agreement, GPC made an equity investment of
$1,000,000 in 128,370 shares of our common stock at fair
value. We are entitled to additional revenues upon achievement
of specified milestones, which are generally based on
developmental or regulatory events; and royalties, if any, on
worldwide sales of the product. |
| |
| |
• |
J.B. Chemicals & Pharmaceuticals Ltd.
(JBCPL): In 2002, we formed a subsidiary, NeoJB, with
JBCPL, an India based pharmaceutical manufacturer, which has a
minority interest in NeoJB. This subsidiary expects to utilize
the existing manufacturing capabilities of JBCPL to produce
selected oral prescription drug products for marketing in the
United States. Through December 31, 2004, we filed three
ANDAs on behalf of NeoJB. In September 2004, the FDA approved
for marketing ciprofloxacin manufactured by JBCPL. NeoJB
purchases product from JBCPL based on market prices prevailing
at the time of purchase, and at this time does not have
long-term volume or price commitments. |
| |
| |
• |
FDC Limited (FDC): In 2003, we entered into an
agreement with FDC, an India based pharmaceutical manufacturer,
with a view to marketing in the United States certain ophthalmic
drugs manufactured by FDC. Through December 31, 2004, we
have filed two ANDAs pursuant to this alliance. We do not have
long-term volume or price commitments. |
F-15
Spectrum Pharmaceuticals, Inc. and Subsidiaries
Notes to the Consolidated Financial
Statements — (Continued)
|
|
|
| |
• |
Shantha Biotechnics Pvt. Ltd. (Shantha): In 2004,
we entered into an alliance with Shantha, a leading Indian
biopharmaceutical company engaged in the development,
manufacture and commercialization of human healthcare products
produced by recombinant technology for the detection and
treatment of cancer and infectious diseases. We are responsible
for all regulatory, marketing and distribution matters in the
United States for certain products currently marketed by Shantha
elsewhere in the world and certain other products under
development by Shantha. As of December 31, 2004, the
product candidates under consideration for development of ANDAs
include certain oncology biologics and cancer diagnostics, as
well as certain vaccines. However, there are no current
U.S. regulatory guidelines that allow for generic
equivalents to branded biologics to be filed with the FDA using
an abbreviated application and review process. The FDA is
working with the pharmaceutical industry at-large to better
understand the position of the biotech and biopharmaceutical
companies regarding the issue of equivalence of biogenerics to
the branded products and the equivalence of the processes used
to manufacture the active biological ingredient. Until such time
that the FDA adopts clear guidelines covering biogenerics and/or
Congress creates new laws and regulations that would allow for
an abbreviated application, review and approval process for such
biogenerics, we will not be in a position to move forward in the
United States on a number of product candidates covered
under this agreement. |
| |
| |
• |
Zentaris GmbH (Zentaris): In 2004, we entered into
a license agreement with Zentaris, whereby we acquired an
exclusive license to develop and commercialize SPI-153 in North
America (including Canada and Mexico) and India. In addition, we
have a financial interest in any income Zentaris derives from
SPI-153 in Japan. With certain exceptions, we are required to
purchase all finished drug product from Zentaris for the
clinical development of SPI-153 at a set price. The parties will
discuss entering into a joint supply agreement for commercial
supplies of finished drug product. |
| |
| |
• |
Others: In connection with two ANDAs for
sumatriptan and for carboplatin filed with the FDA through
December 31, 2004, we are negotiating commercial supply and
service arrangements with active pharmaceutical ingredient
sources and developmental laboratories with the capacity to
manufacture drug products on a commercial scale, after FDA
approval is received. |
|
|
|
Sales, Marketing and Distribution |
|
|
|
| |
• |
The Lannett Company (Lannett): In 2003, we entered
into a sales and distribution agreement with Lannett, a
Philadelphia based pharmaceutical company engaged in the
marketing and distribution of prescription drugs. Under the
agreement Lannett is our exclusive distributor for ciprofloxacin
tablets in the United States, and we are obligated to distribute
ciprofloxacin tablets only through Lannett. During the
4th quarter of 2004, after receipt of FDA approval, we sold
ciprofloxacin tablets to Lannett. We sell product to Lannett
based on market prices prevailing at the time of sale, and do
not have any long-term volume or price commitments. |
| |
| |
• |
We anticipate entering into additional sales, marketing and
distribution alliances during 2005. |
The following is a brief outline of the products under
development as of December 31, 2004:
Satraplatin: Satraplatin is an orally-administered
chemotherapeutic agent that has an initial indication of
efficacy in treating hormone refractory prostate cancer. As of
December 31, 2004, a Phase 3 clinical trial was
proceeding in accordance with plans. In 2001, we in-licensed
satraplatin from Johnson Matthey PLC. We paid an up-front fee,
and are obligated to pay additional amounts based upon
achievement of milestones and royalties based on any future
sales. In 2002, we out-licensed satraplatin to GPC, as discussed
above. Each of our contingent future cash payment milestone
obligations to Johnson Matthey is generally matched by a
corresponding, greater milestone receivable from GPC Biotech. We
did not have to make any cash payments to Johnson Matthey for
the upfront fees, milestone payments and equity investments we
have received so far from GPC.
F-16
Spectrum Pharmaceuticals, Inc. and Subsidiaries
Notes to the Consolidated Financial
Statements – (Continued)
EOquintm:
EOquin (EO-9), a synthetic prodrug (an inactive drug compound)
which is activated by certain enzymes present in higher amounts
in cancer cells than in normal tissues, is currently being
developed for its initial indication, refractory superficial
bladder cancer. As of December 31, 2004, a Phase 2
clinical trial was proceeding in accordance with plans. In
addition, EO-9 is being evaluated as a radiation sensitizer. In
2001, we in-licensed exclusive worldwide rights to EOquin from
the New Drug Development Office in the Netherlands. We paid an
up-front fee, and are contingently obligated to pay additional
amounts based upon achievement of specified milestones and
royalties based on any future net sales.
Elsamitrucin: Elsamitrucin, an anti-tumor
antibiotic that acts as a dual inhibitor of two key enzymes
involved in DNA replication, topoisomerase I and II, is
currently being developed for its initial indication, refractory
non-Hodgkin’s lymphoma. As of December 31, 2004, a
Phase 2 clinical trial was proceeding in accordance with
plans. In 2001, we in-licensed exclusive worldwide rights to
elsamitrucin from Bristol-Myers Squibb. We paid an up-front fee,
and are contingently obligated to pay additional amounts based
upon achievement of milestones and a royalty based on any future
net sales.
SPI-153: SPI-153, a fourth generation LHRH
(Luteinizing Hormone Releasing Hormone, also known as GnRH or
Gonadotropin Releasing Hormone) antagonist is under evaluation
for its initial indications, hormone-dependent prostate cancer,
and benign prostatic hypertrophy. As of December 31, 2004,
we were evaluating results from clinical research, done by
Zentaris, with a view to continuing that research into
Phase 2. We paid an up-front fee, and are contingently
obligated to pay additional amounts based upon achievement of
milestones and a royalty based on any future net sales.
A summary of marketable securities and short-term investments at
December 31, 2004 and 2003 is as follows:
| |
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
| |
|
(Amounts in thousands) | |
|
Type of investment:
|
|
|
|
|
|
|
|
|
| |
“Held-to-maturity” – bank certificates of
deposits
|
|
$ |
1,015 |
|
|
|
– |
|
| |
“Available-for-sale” – corporate and
municipal bonds
|
|
|
34,950 |
|
|
$ |
1,770 |
|
| |
|
|
|
|
|
|
|
Total marketable securities
|
|
$ |
35,965 |
|
|
$ |
1,770 |
|
| |
|
|
|
|
|
|
“Held-to-maturity” marketable securities are carried
at cost, which approximates fair value because of their
short-term maturities and insignificant interest rate risk.
“Available-for-sale” marketable securities are carried
at fair value, with any unrealized gains and losses included as
a component of accumulated other comprehensive income (loss) in
stockholders’ equity.
Realized gains and losses and declines in value judged to be
other-than-temporary on available-for-sale securities, as well
as interest income and dividends on investments, are included in
other income and expense. Unrealized and realized gains or
losses were not significant as of December 31, 2004 and
2003, or for the three years in the period ended
December 31, 2004.
As of December 31, 2004 and 2003, the maturities of our
“available for sale securities”, primarily 28-day
auction rate notes, was in excess of 10 years. These
securities are classified as current assets based on our intent
and ability to use any and all of these securities as necessary
to satisfy our cash needs as they arise, by redeeming them at
par within a 28-day period.
F-17
Spectrum Pharmaceuticals, Inc. and Subsidiaries
Notes to the Consolidated Financial
Statements – (Continued)
|
|
| 5. |
Property and Equipment |
As of December 31, 2004 and 2003, property and equipment
consisted of:
| |
|
|
|
|
|
|
|
|
|
| |
|
December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
| |
|
(Amounts in thousands) | |
|
Equipment
|
|
$ |
1,411 |
|
|
$ |
1,177 |
|
|
Leasehold improvements
|
|
|
575 |
|
|
|
509 |
|
| |
|
|
|
|
|
|
|
Total property and equipment
|
|
|
1,986 |
|
|
|
1,686 |
|
| |
Less: accumulated depreciation and amortization
|
|
|
(1,299 |
) |
|
|
(1,126 |
) |
| |
|
|
|
|
|
|
|
Property and equipment, net
|
|
$ |
687 |
|
|
$ |
560 |
|
| |
|
|
|
|
|
|
During the year ended December 31, 2002, in connection with
the termination of all research efforts related to neurology and
functional genomics research and development, we classified
certain equipment as held for sale. During 2002 and 2003 we sold
the majority of the equipment. During 2004 we redeployed the
unsold “held for-sale” equipment to productive use.
Accordingly, during 2004, we reclassified to property and
equipment the $100,000 that, as of December 31, 2003, was
classified as held for sale.
For the years ended December 31, 2004, 2003, and 2002, the
Company recorded depreciation expense of $173,000, $242,000, and
$917,000, respectively.
Significant components of the income tax expense are as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
For the Years Ended | |
| |
|
December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
(Amounts in thousands) | |
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Federal
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
| |
State
|
|
$ |
4 |
|
|
$ |
4 |
|
|
$ |
3 |
|
| |
Foreign
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
4 |
|
|
|
4 |
|
|
|
3 |
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Federal
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
| |
State
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
| |
Foreign
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
$ |
4 |
|
|
$ |
4 |
|
|
$ |
3 |
|
| |
|
|
|
|
|
|
|
|
|
The following is a reconciliation from the statutory federal
income tax rate to our effective tax rate for income taxes:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
(Amounts in thousands) | |
|
Computed at statutory tax rate
|
|
$ |
(5,208 |
) |
|
$ |
(4,091 |
) |
|
$ |
(6,172 |
) |
|
Non-utilization of net operating losses
|
|
|
5,208 |
|
|
|
4,091 |
|
|
|
6,172 |
|
| |
|
|
|
|
|
|
|
|
|
|
Tax expense at the effective tax rate
|
|
$ |
– |
|
|
$ |
– |
|
|
$ |
– |
|
| |
|
|
|
|
|
|
|
|
|
F-18
Spectrum Pharmaceuticals, Inc. and Subsidiaries
Notes to the Consolidated Financial
Statements – (Continued)
Significant components of our deferred tax assets and
liabilities as of December 31, 2004 and 2003 are shown
below. A valuation allowance has been recognized to fully offset
the net deferred tax assets as of December 31, 2004 and
2003 as realization of such assets is uncertain.
| |
|
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
| |
|
(Amounts in thousands) | |
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
|
Net operating loss and business credit carryforwards
|
|
$ |
51,214 |
|
|
$ |
47,201 |
|
| |
Depreciation and amortization differences
|
|
|
255 |
|
|
|
275 |
|
| |
|
|
|
|
|
|
| |
|
Total deferred tax assets
|
|
|
51,469 |
|
|
|
47,476 |
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
| |
Depreciation and amortization differences
|
|
|
– |
|
|
|
– |
|
| |
|
|
|
|
|
|
|
Net deferred tax assets
|
|
|
51,469 |
|
|
|
47,476 |
|
| |
Valuation allowance for deferred tax assets
|
|
|
(51,469 |
) |
|
|
(47,476 |
) |
| |
|
|
|
|
|
|
|
Total deferred tax assets
|
|
$ |
– |
|
|
$ |
– |
|
| |
|
|
|
|
|
|
At December 31, 2004 we had federal and California income
tax loss carryforwards of approximately $101 million and
$57 million, respectively. The federal and California tax
loss carryforwards will begin to expire in 2009 and 2005,
respectively. At December 31, 2004 we had research and
development credit carryforwards of approximately
$5 million. The research and development credit
carryforwards will begin to expire in 2007. The Tax Reform Act
of 1986 limits the use of net operating loss and research and
development credit carryforwards in the case of an
“ownership change” of a corporation. We believe an
“ownership change” may have occurred due to our
issuances of equity securities over the past several years. Any
ownership changes, as defined by the tax code, may severely
restrict utilization of our carryforwards to the point that they
may never be utilized. As of December 31, 2004, we had
foreign loss carryforwards of approximately $41 million.
|
|
| 7. |
Commitments and Contingencies |
|
|
|
Facility and Equipment Leases |
As of December 31, 2004 we were obligated under a facility
lease and operating equipment leases. During 2004 we renewed our
facility lease for five years through June 2009, at which time
we will have the option to renew for one additional five-year
term. During 2004, we subleased a portion of our leased facility
for a three year term through September 2007, with a renewal
option through the remaining term of our underlying lease.
Minimum lease requirements for each of the next five years and
thereafter, under the property and equipment operating leases,
are as follows:
| |
|
|
|
|
|
|
|
|
| |
|
Lease | |
|
Sub-Lease | |
| Year Ending December 31: |
|
Commitments | |
|
Commitments | |
| |
|
| |
|
| |
| |
|
Amounts in thousands | |
|
2005
|
|
$ |
368 |
|
|
$ |
216 |
|
|
2006
|
|
|
440 |
|
|
|
225 |
|
|
2007
|
|
|
457 |
|
|
|
171 |
|
|
2008
|
|
|
478 |
|
|
|
– |
|
|
2009
|
|
|
237 |
|
|
|
– |
|
| |
|
|
|
|
|
|
| |
|
$ |
1,980 |
|
|
$ |
612 |
|
| |
|
|
|
|
|
|
F-19
Spectrum Pharmaceuticals, Inc. and Subsidiaries
Notes to the Consolidated Financial
Statements — (Continued)
Rent expense for the years ended December 31, 2004, 2003,
and 2002 amounted to approximately $435,000, $1,058,000 and
$1,382,000, respectively, and was net of sub-lease rent income
of $100,000, $64,000 and $0, respectively.
Each of our proprietary drug product candidates is being
developed pursuant to license agreements, which provide us with
exclusive territorial rights to, among other things, develop,
sublicense, and sell the drug product candidates. We are
required to use commercially reasonable to develop the drug
product candidates, are generally responsible for all
development, patent filing and maintenance costs, sales,
marketing and liability insurance costs, and are contingently
obligated to make milestone payments to the licensors if we
successfully reach certain development and regulatory
milestones. In addition, we are obligated to pay royalties and
sales milestones on net sales, if any, after marketing approval
is obtained from regulatory authorities. We have no similar
milestone or other payment obligations in connection with our
generic drug products.
The potential contingent milestone obligations, aggregating
approximately $25 million as of December 31, 2004,
under all our licensing agreements are generally tied to
progress through the FDA approval process, which approval
significantly depends on positive clinical trial results. The
following list is typical of milestone events: commencement of
Phase 3 clinical trials, filing of new drug applications in
the United States, Europe and Japan, and the approvals from
those regulatory agencies.
Given the unpredictability of the drug development process, it
is not possible to predict the probability of achieving
successful results from the currently on-going clinical trials.
We are, therefore, unable to predict the likelihood of any of
the milestones occurring in the foreseeable future and,
accordingly, the milestone payments represent contingent
obligations, which will be recorded as expense when the
milestone occurs.
If we reach a milestone, it will likely occur prior to revenues
being generated from the related compound. However, in
connection with the milestone obligations related to one of our
drug product candidates, satraplatin, each of our contingent
future payment obligations is generally matched by a
corresponding, greater payment milestone obligation of GPC
Biotech to us. In addition, upon successful achievement of one
of the development milestones for
RenaZorbtm
under our licensing agreement with Altair Nanotechnologies,
which is anticipated to occur in 2005, we will be obligated to
issue Altair 100,000 shares of our restricted common stock.
In connection with the research and development of our drug
products, we have entered into contracts with numerous
third-party service providers, such as clinical trial centers,
clinical research organizations, data monitoring centers, and
with drug formulation, development and testing laboratories. The
financial terms of these agreements are varied and generally
obligate us to pay in stages, depending on achievement of
certain events, such as contract execution, reservation of
service or production capacity, actual performance of service,
or the successful accrual and dosing of patients. As of each
period end, we accrue for all non-cancelable installment amounts
that we are likely obligated to pay.
We have entered into employment agreements with two of our
Executive Officers, Dr. Shrotriya, Chief Executive Officer,
and Dr. Lenaz, Chief Scientific Officer, expiring
December 31, 2005 and July 1, 2005, respectively. The
employment agreements automatically renew for a one-year term
unless either party gives
F-20
Spectrum Pharmaceuticals, Inc. and Subsidiaries
Notes to the Consolidated Financial
Statements – (Continued)
written notice at least 90 days prior to the commencement
of the next year of such party’s intent not to renew the
agreement. The agreements require each executive to devote his
full working time and effort to the business and affairs of the
Company during the term of the agreement. The agreements provide
for an annual base salary with annual increases, periodic
bonuses and option grants as determined by the Compensation
Committee of our Board of Directors.
Each officer’s employment may be terminated by us with or
without cause as defined in the agreement. The agreements
provide for certain guaranteed severance payments and benefits
if the officer’s employment is terminated without cause, if
the officer’s employment is terminated due to a change in
control or is adversely affected due to a change in control and
the officer resigns or if the officer decides to terminate his
employment due to a disposition of a significant amount of
assets or business units. The guaranteed severance payment
includes a payment equal to twice the officer’s then
current annual base salary. In addition, all options held by the
officer shall immediately vest and will be exercisable for one
year from the date of termination; provided, however, if the
Board determines that the officer’s employment is being
terminated for the reason that the shared expectations of the
officer and the Board are not being met, in the Board’s
judgment, then the options currently held by the officer will
vest in accordance with their terms for up to one year after the
date of termination, with the right to exercise those options,
when they vest, for approximately thirteen (13) months after the
date of termination. The agreements also provide that, upon his
retirement, all options held by the officer will become fully
vested.
The following table describes the preferred stock transactions
by series issuance for each of the three years in the period
ended December 31, 2004:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Series D | |
|
Series E | |
|
|
| |
|
Convertible | |
|
Convertible | |
|
|
| |
|
Preferred Stock | |
|
Preferred Stock | |
|
|
| |
|
| |
|
| |
|
|
| |
|
Shares | |
|
Amount | |
|
Shares | |
|
Amount | |
|
Total | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(Amounts in thousands, except share data) | |
|
Balance, December 31, 2001
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
No activity
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2002
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
Issuance of preferred stock and common stock warrants, for cash
|
|
|
600 |
|
|
$ |
2,856 |
|
|
|
2,000 |
|
|
$ |
11,269 |
|
|
$ |
14,125 |
|
|
Conversion of preferred stock into common stock
|
|
|
(335 |
) |
|
|
(1,595 |
) |
|
|
(685 |
) |
|
|
(4,224 |
) |
|
|
(5,819 |
) |
|
Recognition of beneficial conversion features on preferred stock
|
|
|
– |
|
|
|
(2,247 |
) |
|
|
– |
|
|
|
(6,200 |
) |
|
|
(8,447 |
) |
|
Deemed dividend related to beneficial conversion features
|
|
|
– |
|
|
|
2,247 |
|
|
|
– |
|
|
|
6,200 |
|
|
|
8,447 |
|
|
Deemed dividend related to issuance costs
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
1,065 |
|
|
|
1,065 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2003
|
|
|
265 |
|
|
|
1,261 |
|
|
|
1,315 |
|
|
|
8,110 |
|
|
|
9,371 |
|
|
Conversion of preferred stock into common stock
|
|
|
(108 |
) |
|
|
(514 |
) |
|
|
(1,024 |
) |
|
|
(6,315 |
) |
|
|
(6,829 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2004
|
|
|
157 |
|
|
$ |
747 |
|
|
|
291 |
|
|
$ |
1,795 |
|
|
$ |
2,542 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-21
Spectrum Pharmaceuticals, Inc. and Subsidiaries
Notes to the Consolidated Financial
Statements – (Continued)
In December 2000, we adopted a Stockholder Rights Plan and
declared a dividend of one right to purchase shares of our
Series B Junior Participating Preferred Stock
(“Series B Preferred Stock”) for each outstanding
share of common stock, which became 25 rights per share of
common stock following our 25 for one reverse stock split
completed in September 2002. In addition, each share of common
stock issued by us following the adoption of the Stockholders
Rights Plan is accompanied by 25 rights (as adjusted for the
reverse stock split). A right may be exercised under certain
circumstances to purchase one one-hundredth of a share of
Series B Preferred Stock at an exercise price of
$75.00 per right, subject to certain anti-dilution
adjustments. The rights become exercisable if and when a person
(or group of affiliated or associated persons) acquires 20% or
more of our outstanding common stock, or announces an offer that
would result in such person acquiring 20% or more of our
outstanding common stock. Five days after the rights become
exercisable, each right, other than rights held by the person or
group of affiliated persons whose acquisition of more than 20%
of our outstanding common stock caused the rights to become
exercisable, will entitle its holder to buy, in lieu of shares
of Series B Preferred Stock, a number of shares of our
common stock having a market value of twice the exercise price
of the rights. After the rights become exercisable, if we are a
party to certain merger or business combination transactions or
transfers 50% or more of our assets or earnings power (as
defined), each right will entitle its holder to buy a number of
shares of common stock of the acquiring or surviving entity
having a market value of twice the exercise price of the right.
The rights expire on December 13, 2010 and may be redeemed
by us at one tenth of one cent per right at any time up to ten
days after a person has announced that they have acquired 20% or
more of our outstanding common stock. Amendments to this plan
have been made to exclude shares issued pursuant to the
Series D and Series E Preferred Stock offerings in the
determination of an Acquiring Group.
In May 2003, we received gross cash proceeds of $6,000,000 in
exchange for the issuance of 600 shares of our
Series D 8% Cumulative Convertible Voting Preferred Stock
(Series D Preferred Stock), convertible into
2,553,191 shares of common stock, and Series D
Warrants, exercisable for five years, to purchase up to a total
of 1,276,595 shares of our common stock at an exercise
price of $3.00 per share and up to a total of
1,276,595 shares of our common stock at an exercise price
of $3.50 per share. Dividends on the Series D
Preferred Stock are payable quarterly at an annual rate of
8 percent either in cash or shares of our common stock at
our discretion. In addition to cash fees we issued, to placement
agents, five-year warrants to purchase up to a total of
255,319 shares of our common stock at an exercise price of
$3.00 per share. Offering costs of this transaction were
$1,240,000, including cash and equity commissions paid to
placement agents. The fair value of the placement agent
warrants, $396,000, was computed using the Black-Scholes option
pricing model with the following assumptions: dividend yield of
0%; expected volatility of 92.2%; risk free interest rate of
2.9%; and an expected life of five years.
In September 2003, we received gross cash proceeds of
$20,000,000 in exchange for the issuance of 2,000 shares of
our Series E Convertible Voting Preferred Stock
(Series E Preferred Stock), convertible into
4,000,000 shares of common stock, and Series E
Warrants, exercisable for five years, to purchase up to a total
of 2,800,000 shares of our common stock at an exercise
price of $6.50 per share. No dividends are payable on the
Series E Preferred Stock. In addition to cash fees we
issued, to placement agents, five-year warrants to purchase up
to a total of 400,000 shares of our common stock at an
exercise price of $6.50 per share. Offering costs of this
transaction were $3,180,000, including cash and equity
commissions paid to placement agents. The fair value of the
placement agent warrants was estimated to be $1,368,000 using
the Black-Scholes option pricing model with the following
assumptions: dividend yield of 0%; expected volatility of
95.64%; risk free interest rate of 3.2%; and an expected life of
five years. Certain provisions of the Certificate of
Designation, Rights and Preferences of the Series E
Preferred Stock provided, at the option of the holder, a right
to redeem up to one half of the Series E Preferred Stock on
or before January 27, 2004. No stockholder exercised the
redemption right prior to its expiration. Pursuant to certain
provisions of the Certificate of Designation, Rights and
Preferences of the Series E Preferred Stock, we have the
option to redeem all of the unconverted Series E
F-22
Spectrum Pharmaceuticals, Inc. and Subsidiaries
Notes to the Consolidated Financial
Statements – (Continued)
Preferred Stock outstanding at the end of a 20-day trading
period if, among other things, in that period the common stock
of the Company trades above $12.00 per share.
During the year ended December 31, 2003, a deemed dividend
of $8,447,000 was recorded. Such amount, which is a non-cash
transaction impacting equity, represents the beneficial
conversion feature of convertible preferred stock issued with
warrants during the 2003 fiscal year and was computed in
accordance with requirements of Emerging Issues Task Force Issue
No. 00-27, Application of Issue No. 98-5 to Certain
Convertible Instruments.
During the year ended December 31, 2003, the Company
recorded a charge to additional paid-in capital related to the
issuance expenses for preferred stock with redemption features
of $1,065,000. This amount has been treated as a preferred
dividend for the earnings per share calculation.
In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, before any
distribution of assets of the Corporation shall be made to the
common stockholders, the holders of the Series D and
Series E Preferred Stock shall be entitled to receive a
liquidation preference in an amount equal to 120% of the stated
value per share plus any declared and unpaid dividends thereon.
|
|
|
Common Stock Issuances for Cash |
During the three years ended December 31, 2004, we issued
common stock and warrants for cash as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
(Amounts in thousands except share data) | |
|
Shares of common stock
|
|
|
3,220,005 |
|
|
|
1,211,578 |
|
|
|
1,407,607 |
|
|
Weighted average price per share
|
|
$ |
7.75 |
|
|
$ |
3.94 |
|
|
$ |
7.46 |
|
| |
|
|
|
|
|
|
|
|
|
|
Amount of financing
|
|
|
24,955 |
|
|
|
4,771 |
|
|
|
10,502 |
|
| |
Less: Cash offering costs
|
|
|
2,376 |
|
|
|
234 |
|
|
|
581 |
|
| |
|
|
|
|
|
|
|
|
|
|
Proceeds from common stock and warrants issued for cash
|
|
$ |
22,579 |
|
|
$ |
4,537 |
|
|
$ |
9,921 |
|
| |
|
|
|
|
|
|
|
|
|
|
Range of issuance prices on common stock sold
|
|
$ |
7.75 |
|
|
$ |
1.99 to $7.79 |
|
|
$ |
2.00 to $50.00 |
|
| |
|
|
|
|
|
|
|
|
|
|
Warrants issued
|
|
|
1,252,005 |
|
|
|
463,379 |
|
|
|
237,641 |
|
| |
|
|
|
|
|
|
|
|
|
|
Average exercise price per share on warrants
|
|
$ |
10.03 |
|
|
$ |
4.57 |
|
|
$ |
12.55 |
|
| |
|
|
|
|
|
|
|
|
|
In order to comply with certain Nasdaq rules, during the year
ended December 31, 2002 we repurchased 16,000 shares
of common stock and 16,000 warrants for $143,000.
In April 2004, we sold 3,220,005 shares of our common stock
at a purchase price of $7.75 per share and five-year
warrants to purchase up to a total of 1,127,005 shares of
our common stock at an exercise price of $10.00 per share,
for gross proceeds of approximately $24,955,000, before offering
costs of approximately $2,918,000, which includes cash
commissions to placement agents, the fair value of placement
agent warrants to purchase up to a total of 125,000 shares
of our common stock at an exercise price of $10.00 per
share, and the printing and legal costs of the offering. The
fair value of the placement agent warrants, $542,000 charged to
the costs of the offering was estimated using the Black-Scholes
option pricing model with the following assumptions: dividend
yield of 0%; expected volatility of 97.8%; risk free interest
rate of 3.6%; and an expected life of five years.
F-23
Spectrum Pharmaceuticals, Inc. and Subsidiaries
Notes to the Consolidated Financial
Statements – (Continued)
|
|
|
Other Equity Transactions |
In August 2004, in connection with the license agreement with
Zentaris GmbH, we issued 251,896 shares of common stock,
restricted from resale until December 31, 2005, as partial
payment for the upfront license fee. The fair value of the
common stock, $634,000, was charged as a research and
development component of stock-based charges. The fair value was
based on the quoted price of our common stock on the date of the
transaction, less a discount for the restrictions on the
marketability of the stock, which discount (48%) was estimated
using the Black-Scholes option-pricing model with the following
assumptions: dividend yield of 0%; expected volatility of 97.8%;
risk free interest rate of 1.4%; and a 17-month period of
restriction.
During the year ended December 31, 2002, we issued
383,326 shares of common stock and warrants to purchase up
to 161,460 shares of our common stock at an exercise price
of $0.25 per share, in settlement of $1,020,000 payable to
vendors. The warrant was exercised in 2003.
|
|
|
Common Stock Reserved for Future Issuance |
As of December 31, 2004, 10,299,123 shares of common
stock were issuable upon conversion or exercise of rights
granted under prior financing arrangements and stock options and
warrants, as follows:
| |
|
|
|
|
|
Conversion of Series D preferred shares
|
|
|
665,691 |
|
|
Conversion of Series E preferred shares
|
|
|
582,000 |
|
|
Exercise of outstanding stock options
|
|
|
2,370,026 |
|
|
Exercise of outstanding warrants
|
|
|
6,561,789 |
|
|
Investment by an entity affiliated with JBCPL (see below)
|
|
|
119,617 |
|
| |
|
|
|
|
Total shares of common stock reserved for future issuances
|
|
|
10,299,123 |
|
| |
|
|
|
In 2002, in conjunction with the formation of NeoJB, we granted
a five-year warrant to JBCPL to purchase up to 4,000 shares
of our common stock at an exercise price of $11.25 per
share, equal to the market price of our common stock on the date
of grant. Also, during the year ended December 31, 2003, an
entity affiliated with JBCPL agreed to invest $1,000,000 in
Spectrum. The first $250,000 was invested in 2003, in exchange
for 125,565 shares of our common stock, following
acceptance by the FDA of our ANDA filing for ciprofloxacin.
Investment of the remaining $750,000, which was scheduled for
investment in September 2004, upon receipt of the FDA approval
of the ciprofloxacin ANDA, had been delayed due to the
investor’s compliance with Indian Exchange Control
provisions. In February 2005, we received the $750,000 and
issued 119,617 shares of common stock, based on the closing
price of our common stock on the day prior to the FDA approval.
F-24
Spectrum Pharmaceuticals, Inc. and Subsidiaries
Notes to the Consolidated Financial
Statements – (Continued)
Warrants are typically issued by us to investors as part of a
financing transaction, or in connection with services rendered
by placement agents and outside consultants and expire at
varying dates through April 2009. A summary of our warrant
activity follows:
|
|
|
Warrants Activity, Primarily in Connection with Financing
Transactions |
Warrants are typically issued by the Company to investors as
part of a financing transaction, or in connection with services
rendered by placement agents and outside consultants and expire
at varying dates through April 2009. A summary of warrant
activity follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
|
|
Weighted | |
|
|
|
Weighted | |
|
|
|
Weighted | |
| |
|
Common | |
|
Average | |
|
Common | |
|
Average | |
|
Common | |
|
Average | |
| |
|
Stock | |
|
Exercise | |
|
Stock | |
|
Exercise | |
|
Stock | |
|
Exercise | |
| |
|
Warrants | |
|
Price | |
|
Warrants | |
|
Price | |
|
Warrants | |
|
Price | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Outstanding at beginning of year
|
|
|
5,918,926 |
|
|
$ |
10.10 |
|
|
|
490,060 |
|
|
$ |
65.83 |
|
|
|
103,890 |
|
|
$ |
322.75 |
|
| |
Granted
|
|
|
1,252,005 |
|
|
|
10.03 |
|
|
|
6,601,888 |
|
|
|
4.94 |
|
|
|
408,601 |
|
|
|
8.92 |
|
| |
Exercised
|
|
|
(516,994 |
) |
|
|
4.35 |
|
|
|
(1,169,070 |
) |
|
|
2.83 |
|
|
|
– |
|
|
|
– |
|
| |
Forfeited
|
|
|
(69,140 |
) |
|
|
3.00 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
| |
Expired
|
|
|
(23,008 |
) |
|
|
308.03 |
|
|
|
(3,952 |
) |
|
|
450.12 |
|
|
|
(22,431 |
) |
|
|
19.57 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, at end of year
|
|
|
6,561,789 |
|
|
$ |
9.71 |
|
|
|
5,918,926 |
|
|
$ |
10.10 |
|
|
|
490,060 |
|
|
$ |
65.83 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at the end of year
|
|
|
5,309,784 |
|
|
$ |
9.64 |
|
|
|
5,845,780 |
|
|
$ |
10.24 |
|
|
|
490,060 |
|
|
$ |
65.83 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes information about warrants
outstanding at December 31, 2004:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Weighted | |
|
Weighted | |
|
|
|
Weighted | |
| |
|
Warrants | |
|
Average | |
|
Average | |
|
Warrants | |
|
Average | |
| |
|
Outstanding | |
|
Remaining | |
|
Exercise | |
|
Exercisable | |
|
Exercise | |
| Range of Exercise Price |
|
12/31/04 | |
|
Life | |
|
Price | |
|
12/31/04 | |
|
Price | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
$ 3.00 to $ 5.00
|
|
|
2,154,614 |
|
|
|
3.43 |
|
|
$ |
3.62 |
|
|
|
2,154,614 |
|
|
$ |
3.62 |
|
|
$ 5.01 to $ 10.00
|
|
|
4,254,165 |
|
|
|
3.96 |
|
|
$ |
7.53 |
|
|
|
3,027,160 |
|
|
$ |
6.53 |
|
|
$10.01 to $525.00
|
|
|
153,010 |
|
|
|
0.92 |
|
|
$ |
156.29 |
|
|
|
128,010 |
|
|
$ |
184.56 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
6,561,789 |
|
|
|
|
|
|
|
|
|
|
|
5,309,784 |
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 9. |
Stock-Based Compensation |
We have three stock incentive plans: the 1991 Stock Incentive
Plan (1991 Plan), the 1997 Stock Incentive Plan (1997 Plan) and
the 2003 Amended and Restated Incentive Award Plan (2003 Plan),
(collectively, the Plans). As of December 31, 2004 we are
not granting any more options pursuant the 1991 and 1997 Plans.
The 2003 Plan, authorizes the grant, in conjunction with all of
our other plans, of incentive awards, including stock options,
for the purchase of up to a total of 30% of our issued and
outstanding stock at the time of grant. As of December 31,
2004, approximately 2 million incentive awards were
available for grant under the 2003 Plan.
F-25
Spectrum Pharmaceuticals, Inc. and Subsidiaries
Notes to the Consolidated Financial
Statements – (Continued)
Except as described below, all of the options granted under the
Plans have been made at fair market values on the dates
originally authorized by the Board of Directors, or the
Compensation committee.
A summary of activity, for all Plans, for each of the three
years in the period ended December 31, 2004, is as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
|
|
Weighted | |
|
|
|
Weighted | |
|
|
|
Weighted | |
| |
|
Common | |
|
Average | |
|
Common | |
|
Average | |
|
Common | |
|
Average | |
| |
|
Stock | |
|
Exercise | |
|
Stock | |
|
Exercise | |
|
Stock | |
|
Exercise | |
| |
|
Options | |
|
Price | |
|
Options | |
|
Price | |
|
Options | |
|
Price | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Outstanding at beginning of year
|
|
|
1,401,694 |
|
|
$ |
10.83 |
|
|
|
601,799 |
|
|
$ |
37.27 |
|
|
|
116,679 |
|
|
$ |
168.50 |
|
| |
Granted
|
|
|
1,179,000 |
|
|
$ |
6.15 |
|
|
|
1,093,200 |
|
|
$ |
3.48 |
(1) |
|
|
500,390 |
|
|
$ |
9.48 |
|
| |
Exercised
|
|
|
(199,150 |
) |
|
$ |
2.08 |
|
|
|
(167,250 |
) |
|
$ |
2.57 |
(1) |
|
|
– |
|
|
|
– |
|
| |
Forfeited
|
|
|
(1,630 |
) |
|
$ |
13.12 |
|
|
|
(20,884 |
) |
|
$ |
81.06 |
|
|
|
(9,147 |
) |
|
$ |
116.51 |
|
| |
Expired
|
|
|
(9,888 |
) |
|
$ |
312.71 |
|
|
|
(105,171 |
) |
|
$ |
96.58 |
|
|
|
(6,123 |
) |
|
$ |
148.75 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, at end of year
|
|
|
2,370,026 |
|
|
$ |
7.97 |
|
|
|
1,401,694 |
|
|
$ |
10.83 |
|
|
|
601,799 |
|
|
$ |
37.27 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at end of year
|
|
|
1,282,923 |
|
|
$ |
9.07 |
|
|
|
808,509 |
|
|
$ |
14.60 |
|
|
|
192,733 |
|
|
$ |
101.80 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1) |
Calculations exclude an award of 105,700 shares of common
stock to employees in 2003. |
The following table summarizes information about stock options
outstanding under all plans at December 31, 2004:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Weighted | |
|
Weighted | |
|
|
|
Weighted | |
| |
|
Options | |
|
Average | |
|
Average | |
|
Options | |
|
Average | |
| |
|
Outstanding | |
|
Remaining | |
|
Exercise | |
|
Exercisable | |
|
Exercise | |
| Range of Exercise Price |
|
12/31/04 | |
|
Life | |
|
Price | |
|
12/31/04 | |
|
Price | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
$ 1.00 - $ 2.50
|
|
|
621,250 |
|
|
|
8.30 |
|
|
$ |
1.57 |
|
|
|
621,250 |
|
|
$ |
1.57 |
|
|
$ 2.51 - $ 5.00
|
|
|
446,900 |
|
|
|
8.60 |
|
|
$ |
4.67 |
|
|
|
426,067 |
|
|
$ |
4.69 |
|
|
$ 5.01 - $ 10.00
|
|
|
1,240,780 |
|
|
|
9.48 |
|
|
$ |
6.16 |
|
|
|
179,280 |
|
|
$ |
6.37 |
|
|
$10.01 - $325.00
|
|
|
61,096 |
|
|
|
5.43 |
|
|
$ |
134.03 |
|
|
|
56,326 |
|
|
$ |
133.55 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
2,370,026 |
|
|
|
|
|
|
|
|
|
|
|
1,282,923 |
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the year ended December 31, 2003, we recorded a
non-cash stock-based employee compensation expense of
$2,296,000, primarily because certain grants made in 2003 had
later measurement dates than originally contemplated by the
Board, as described below.
On March 28, 2003 our Board of Directors determined it was
in the best interest of the Company to grant options to certain
of its executives, employees and consultants at $1.99 per
share, the closing sale price of our common stock on
March 28, 2003, in recognition of their services to the
Company during our financial and strategic restructuring and as
an incentive for the completion of the restructuring. Due to
state securities law requirements, not all of these grants could
be made on March 28, 2003. The Board was not able to obtain
clearance to make the grants under state securities law until
September 2003. During the period from March 2003 to September
2003, the fair market value of our stock rose substantially. The
actual grants occurred as follows:
|
|
|
| |
• |
Options to purchase an aggregate of 315,000 shares at an
exercise price of $1.99 per share to certain executive
officers on September 5, 2003. The difference between the
exercise price of the 315,000 executive officer options granted
on September 5, 2003, and the fair market value of our
common stock |
F-26
Spectrum Pharmaceuticals, Inc. and Subsidiaries
Notes to the Consolidated Financial
Statements – (Continued)
|
|
|
| |
|
at that date, amounting to $1,005,000, was expensed during the
year ended December 31, 2003, in accordance with APB
Opinion No. 25. |
| |
| |
• |
Certain employees received an aggregate of 105,700 shares
of common stock in lieu of options. To accomplish this under
state law, rights to purchase were issued that are similar to
options. The employees did not have to pay money for the award
and a charge to expense of $547,000 was recorded based on the
fair market value of the common stock on the date of award. |
In addition, during the year ended December 31, 2003, the
Company recorded a non-cash stock-based employee compensation
expense of $744,000 in connection with the grant of options to
purchase 529,000 shares of the Company’s common stock
in September 2002, subject to stockholder approval.
We apply APB Opinion No. 25 and related interpretations in
accounting for stock options granted to employees, and do not
recognize compensation expense when the exercise price of the
options equals or exceeds the fair market value of the
underlying shares at the date of grant. Directors’ stock
options are treated in the same manner as employee stock options
for accounting purposes. Under Statement No. 123, we are
required to present certain pro forma earnings information
determined as if employee stock options were accounted for under
the fair value method of that statement and is disclosed in
Note 1 to the Consolidated Financial Statements.
The fair value of each option grant is estimated on the date of
grant using the Black-Scholes option pricing model with the
following weighted average assumptions used for grants in 2004,
2003, and 2002, respectively: risk-free interest rates of 3.59%
(2004); 3.16% (2003); and 3.04% (2002), zero expected dividend
yields; expected lives of 5 years; expected volatility of
93.4% (2004); 95.23% (2003); and 118.54% in (2002). The weighted
average fair value of stock options, using the Black-Scholes
option pricing model, that were granted in 2004, 2003, and 2002
was $4.48, $3.50, and $1.45, respectively.
|
|
|
Deferred Stock-based Compensation |
During the years ended December 31, 2004 and 2003, we
issued stock options and warrants to consultants, for services
rendered, at exercise prices equal to or greater than the quoted
price of our common stock on the grant dates. The fair values of
these issuances, recorded as deferred compensation, was
estimated at $157,000 (in 2004) and $516,000 (in 2003),using the
Black-Scholes option pricing model, with the following
assumptions: dividend yield of 0%; expected volatility of 96%
(2004) and 95.64% (2003); risk free interest rate of 3.1%
(2004) and 3.2% (2003); and an expected life of five years;
and is being amortized to expense over the vesting period of the
option.
During the year ended December 31, 2001, we issued stock
options of NeoGene to our employees, with exercise prices less
than the fair market value of NeoGene’s common stock at the
measurement date. The intrinsic value of these option grants
amounting to $2,391,000 was recorded as deferred compensation
and was being amortized to expense over the vesting period, in
accordance with APB Opinion No. 25. During the year ended
December 31, 2002, five of our executive officers that held
NeoGene stock options voluntarily and without any consideration,
agreed to cancel their NeoGene stock options. In addition, the
remaining holders of the options were terminated in connection
with the elimination of research activities at our functional
genomics subsidiary. Therefore, as of December 31, 2002,
there was no deferred compensation remaining related to the
NeoGene.
As a result of the foregoing, we amortized deferred compensation
for the years ended December 31, 2004, 2003 and 2002 by
$252,000, $104,000, and $411,000, respectively.
F-27
Spectrum Pharmaceuticals, Inc. and Subsidiaries
Notes to the Consolidated Financial
Statements – (Continued)
|
|
| 10. |
Restructuring Expenses |
The restructuring charge of $3,050,000 recorded in 2002 related
to the termination of all research efforts related to neurology
and functional genomics research and development, and consisted
of:
|
|
|
| |
• |
A fixed asset impairment charge of $1,669,000 resulting from the
review of the carrying value of our laboratory equipment. An
independent appraiser determined the fair market value of such
laboratory equipment at $619,000 which amount was classified as
Property and Equipment held for sale in the Company’s
balance sheet as of December 31, 2002. The majority of the
laboratory equipment was sold during the year ended
December 31, 2003. The remaining balance of $100,000
represents management’s estimate of the liquidation value
as of December 31, 2003. Adjustments to the carrying value
of impaired assets are included in restructuring charges. |
| |
| |
• |
Severance costs of $763,000 related to termination agreements
with two senior executives, and 21 employees: |
|
|
|
| |
• |
The former Chairman of our Board of Directors, Chief Executive
Officer and Chief Scientific Officer resigned effective
August 16, 2002. In connection with his retirement
agreement, we recognized a charge of approximately $504,000 for
contractually obligated severance benefits. |
| |
| |
• |
The former Senior Vice President Finance, Chief Financial
Officer, Secretary, Treasurer and Director resigned effective
August 21, 2002. In connection with his retirement
agreement we recognized a charge of approximately $200,000 for
contractually obligated severance benefits through
December 31, 2002. |
| |
| |
• |
Severance charge of $59,000 related to termination agreements
with twenty-one research and administrative employees. |
| |
| |
• |
A $312,000 loss on exchange of certain assets in connection with
the settlement of certain payment obligations to the University
of California, Irvine, in connection with the former functional
genomics operations. |
| |
| |
• |
Other restructuring related administrative and legal expenses of
$306,000. |
The restructuring charge of $163,000 in 2003 is related to an
adjustment of the realizable value of assets held for sale as of
December 31, 2003.
|
|
| 11. |
Related Party Transactions |
Between November 2002 and November 2003, we had outsourced the
administration, accounting and human resources functions, and
SEC report preparation to McManus Financial Consulting
(MFC) for a monthly fee of $15,000; and all investor
relations activities to McManus & Co. (M&C) for a
monthly fee of $10,000 to $12,000 per month. Between
January and June 2002, MFC also provided services to us at
hourly rates, subject to a minimum annual retainer of $24,000.
During the years ended December 31, 2004, 2003 and 2002,
MFC and M&C received total fees and payments under severance
arrangements amounting to $75,000, $539,000 and $106,000,
respectively. MFC and M&C are co-owned by two of our former
officers, John and Michael McManus, who are also brothers. John
McManus received direct compensation from the Company as Vice
President Finance and Strategic Planning and Assistant Corporate
Secretary; however, Michael McManus received no direct
compensation from us for his services as Controller. In November
2003, John and Michael McManus resigned their positions with the
Company to return to their consulting business to pursue other
opportunities. All payment obligations under these arrangements
terminated in July 2004.
F-28
Spectrum Pharmaceuticals, Inc. and Subsidiaries
Notes to the Consolidated Financial
Statements – (Continued)
|
|
|
Director and Officer Notes for the Exercise of Equity
Instruments |
As of January 1, 2002, certain of our directors and
officers owed us $616,000 previously loaned to them for the
exercise of stock options or the purchase of stock. During 2002,
we were repaid $391,000, which included all loans to officers.
In February 2003, we agreed to forgive and terminate the
remaining $225,000 and in return, the directors agreed to return
the shares of common stock originally purchased under the loans.
For accounting purposes, this arrangement was considered to be
an uncompleted transaction and therefore, the common stock and
related notes receivable were eliminated as of December 31,
2002.
|
|
| 12. |
Quarterly Financial Information (Unaudited) |
The following is a summary of the unaudited quarterly results of
operations for each of the calendar quarters ended in the
two-year period ended December 31, 2004 (in thousands,
except per share data):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
March 31, | |
|
June 30, | |
|
September 30, | |
|
December 31, | |
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(Amounts in thousands except share and per share data) | |
|
Fiscal 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$ |
– |
|
|
$ |
73 |
|
|
$ |
– |
|
|
$ |
185 |
|
|
Total operating expenses
|
|
$ |
2,217 |
|
|
$ |
2,732 |
|
|
$ |
4,247 |
|
|
$ |
3,862 |
|
|
Net loss
|
|
$ |
(2,168 |
) |
|
$ |
(2,572 |
) |
|
$ |
(4,069 |
) |
|
$ |
(3,477 |
) |
|
Basic and diluted loss per share
|
|
$ |
(0.24 |
) |
|
$ |
(0.20 |
) |
|
$ |
(0.29 |
) |
|
$ |
(0.24 |
) |
|
Shares used in calculation
|
|
|
9,304,000 |
|
|
|
12,767,000 |
|
|
|
14,063,000 |
|
|
|
14,528,000 |
|
|
Fiscal 2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$ |
– |
|
|
$ |
– |
|
|
$ |
1,000 |
|
|
$ |
– |
|
|
Total operating expenses
|
|
$ |
1,698 |
|
|
$ |
1,612 |
|
|
$ |
3,599 |
|
|
$ |
4,559 |
|
|
Net loss
|
|
$ |
(1,697 |
) |
|
$ |
(1,647 |
) |
|
$ |
(2,720 |
) |
|
$ |
(4,326 |
) |
|
Basic and diluted loss per share
|
|
$ |
(0.58 |
) |
|
$ |
(1.27 |
) |
|
$ |
(2.27 |
) |
|
$ |
(0.82 |
) |
|
Shares used in calculation
|
|
|
2,909,000 |
|
|
|
3,117,000 |
|
|
|
3,975,000 |
|
|
|
6,637,000 |
|
On January 28, 2005, we entered into a license agreement
with Altair Nanotechnologies, Inc., whereby we acquired an
exclusive worldwide license to develop and commercialize
RenaZorbtm
(two second-generation lanthanum-based phosphate binding
agents), which utilize Altair’s proprietary lanthanum
nanomaterial technology and have the potential to treat
hyperphosphatemia, i.e., high phosphate levels in blood, in
patients with end-stage renal disease (ESRD) and/or chronic
kidney disease (CKD). We paid Altair an upfront payment of
100,000 shares of restricted Spectrum common stock and made
an equity investment of $200,000 for 38,314 shares of
Altair common stock, and will be obligated to make future
payments contingent upon the successful achievement of certain
development and regulatory milestones. In addition we will pay
royalties on potential net sales, if any, after marketing
approval is obtained from regulatory authorities.
On February 18, 2005, we entered into a license agreement
with Chicago Labs, Inc., whereby we acquired an exclusive
worldwide license to develop and commercialize endothelinB
agonists (which we believe may selectively dilate tumor blood
vessels and thereby selectively increase the delivery of
anti-cancer drugs to cancer tissue) for all cancer related
applications, including treatment of solid tumors. We paid
Chicago Labs, Inc. an upfront fee of $100,000, and are obligated
to make future payments contingent upon the successful
achievement of certain development and regulatory milestones. In
addition we will pay royalties and sales milestones on potential
net sales, if any, after marketing approval is obtained from
regulatory authorities.
On February 18, 2005, GlaxoSmithKline filed a lawsuit
against us in the United States District Court for the District
of Delaware, alleging infringement of the patent on
Imitrex®. This lawsuit was filed as a result of an ANDA
that we filed with the FDA in October 2004 for sumatriptan
succinate injection 6mg/0.5mL, seeking approval to engage
in the commercial manufacture, sale, and use of the sumatriptan
succinate
F-29
Spectrum Pharmaceuticals, Inc. and Subsidiaries
Notes to the Consolidated Financial
Statements – (Continued)
injection product in the United States. Sumatriptan succinate is
marketed by GlaxoSmithKline under the brand name Imitrex®
and is used for the acute treatment of migraine attacks with or
without aura and the acute treatment of cluster headache
episodes in adults. Our ANDA includes a Paragraph IV
certification that the existing patent associated with
GlaxoSmithKline’s Imitrex® injection, is invalid,
unenforceable and/or will not be infringed by our generic
product candidate. While it is not possible to determine with
any degree of certainty the ultimate outcome of these legal
proceedings, we believe that we have substantial and meritorious
basis with respect to our Paragraph IV challenge of the
GlaxoSmithKline patent for sumatriptan succinate
injection 6mg/0.5mL.
F-30
INDEX TO EXHIBITS
| |
|
|
|
|
|
|
| Exhibit No. | |
|
|
|
Description |
| | |
|
|
|
|
| |
3 |
.1 |
|
|
|
Certificate of Incorporation of the Registrant, as filed on
May 7, 1997. (Filed as Exhibit B to the Definitive
Proxy Statement dated May 8, 1997, for the Annual Meeting
of Shareholders of Spectrum Pharmaceuticals Colorado, the
predecessor to Registrant, held on June 17, 1997, as filed
with the Securities and Exchange Commission on May 9, 1997,
and incorporated herein by reference.) |
| |
3 |
.1.1 |
|
|
|
Certificate of Amendment to the Certificate of Incorporation of
the Registrant. (Filed as Exhibit 3.1.1 to Form 10-K, as
filed with the Securities and Exchange Commission on
April 2, 2002, and incorporated herein by reference.) |
| |
3 |
.1.2 |
|
|
|
Certificate of Designation of 5% Series A Preferred Stock
with Conversion Features. (Filed as Exhibit 4.1 to Form
8-K, as filed with the Securities and Exchange Commission on
February 9, 1999, and incorporated herein by reference.) |
| |
3 |
.1.3 |
|
|
|
Certificate of Designation of Rights, Preferences and Privileges
of Series B Junior Participating Preferred Stock of the
Registrant. (Filed as Exhibit 3.1 to Form 8-A12G, as filed
with the Securities and Exchange Commission on December 26,
2000, and incorporated herein by reference.) |
| |
3 |
.1.4 |
|
|
|
Certificate of Designations of the Series C Preferred Stock
of the Registrant. (Filed as Exhibit 4.7 to the
Registration Statement on Form S-3, as amended (No.
333-64432), as filed with the Securities and Exchange Commission
on July 2, 2001, and incorporated herein by reference.) |
| |
3 |
.1.5 |
|
|
|
Certificate of Amendment of Certificate of Incorporation filed
on September 5, 2002 (Filed as Exhibit 4.1 to Form
10-Q for the quarterly period ended September 30, 2002, as
filed with the Securities and Exchange Commission on
November 13, 2002, and incorporated herein by reference.) |
| |
3 |
.1.6 |
|
|
|
Certificate of Designations, Rights and Preference of the
Series D 8% Cumulative Convertible Voting Preferred Stock.
(Filed as Exhibit 3.1 to Form 8-K, as filed with the
Securities and Exchange Commission on May 16, 2003, and
incorporated herein by reference.) |
| |
3 |
.1.7 |
|
|
|
Certificate of Increase. (Filed as Exhibit 3.2 to Form 8-K,
as filed with the Securities and Exchange Commission on
May 16, 2003, and incorporated herein by reference.) |
| |
3 |
.1.8 |
|
|
|
Certificate of Designations, Rights and Preference of the
Series E Convertible Voting Preferred Stock (Filed as
Exhibit 3.1 to Form 8-K, as filed with the Securities
and Exchange Commission on September 30, 2003, and
incorporated herein by reference.) |
| |
3 |
.2 |
|
|
|
Form of Amended and Restated Bylaws of the Registrant (Filed as
Exhibit 4.2 to Form 10-Q for the quarterly period ended
September 30, 2002, as filed with the Securities and
Exchange Commission on November 13, 2002, and incorporated
herein by reference.) |
| |
3 |
.2.1 |
|
|
|
Form of Amended and Restated Bylaws of the Registrant. (Filed as
Exhibit 3.1 to Form 10-Q, as filed with the Securities and
Exchange Commission on August 16, 2004, and incorporated
herein by reference.) |
| |
4 |
.1 |
|
|
|
Registration Rights Agreement dated as of April 6, 2000, by
and among the Registrant, Strong River Investments, Inc. and
Montrose Investments Ltd. (Filed as Exhibit 4.2 to Form
8-K, as filed with the Securities and Exchange Commission on
April 21, 2000, and incorporated herein by reference.) |
| |
4 |
.2 |
|
|
|
Class A Warrant issued by the Registrant to Montrose
Investments Ltd., dated as of April 6, 2000. (Filed as
Exhibit 4.4 to Form 8-K, as filed with the Securities and
Exchange Commission on April 21, 2000, and incorporated
herein by reference.) |
| |
4 |
.3 |
|
|
|
Class A Warrant issued by the Registrant to Strong River
Investments, Inc., dated as of April 6, 2000. (Filed as
Exhibit 4.5 to Form 8-K, as filed with the Securities and
Exchange Commission on April 21, 2000, and incorporated
herein by reference.) |
| |
4 |
.4 |
|
|
|
Warrant issued by the Registrant to Brighton Capital, Ltd.,
dated as of April 6, 2000. (Filed as Exhibit 4.16 to
the Registration Statement on Form S-3 (No. 333-37180), as
filed with the Securities and Exchange Commission on
May 16, 2000, and incorporated herein by reference.) |
| |
|
|
|
|
|
|
| Exhibit No. | |
|
|
|
Description |
| | |
|
|
|
|
| |
4 |
.5 |
|
|
|
Registration Rights Agreement dated as of April 28, 2000,
by and among the Registrant, Royal Canadian Growth Fund and
Dlouhy Investments Inc. (Filed as Exhibit 4.2 to Form 8-K,
as filed with the Securities and Exchange Commission on
May 25, 2000, and incorporated herein by reference.) |
| |
4 |
.6 |
|
|
|
Warrant issued by the Registrant to Royal Canadian Growth Fund,
dated as of May 1, 2000. (Filed as Exhibit 4.3 to Form
8-K, as filed with the Securities and Exchange Commission on
May 25, 2000, and incorporated herein by reference.) |
| |
4 |
.7 |
|
|
|
Warrant issued by the Registrant to Dlouhy Investments Inc.,
dated as of May 1, 2000. (Filed as Exhibit 4.4 to Form
8-K, as filed with the Securities and Exchange Commission on
May 25, 2000, and incorporated herein by reference.) |
| |
4 |
.8 |
|
|
|
Registration Rights Agreement dated as of September 21,
2000, by and among the Registrant, Strong River Investments,
Inc. and Montrose Investments Ltd. (Filed as Exhibit 4.4 to
Form 8-K, as filed with the Securities and Exchange Commission
on November 13, 2000, and incorporated herein by reference.) |
| |
4 |
.9 |
|
|
|
Warrant issued by the Registrant to Montrose Investments Ltd.,
dated as of September 21, 2000. (Filed as Exhibit 4.7
to Form 8-K, as filed with the Securities and Exchange
Commission on November 13, 2000, and incorporated herein by
reference.) |
| |
4 |
.10 |
|
|
|
Warrant issued by the Registrant to Strong River Investments,
Inc., dated as of September 21, 2000. (Filed as
Exhibit 4.8 to Form 8-K, as filed with the Securities and
Exchange Commission on November 13, 2000, and incorporated
herein by reference.) |
| |
4 |
.11 |
|
|
|
Registration Rights Agreement dated as of September 29,
2000, by and among the Registrant, Strong River Investments,
Inc. and Montrose Investments Ltd. (Filed as Exhibit 4.12
to Form 8-K, as filed with the Securities and Exchange
Commission on November 13, 2000, and incorporated herein by
reference.) |
| |
4 |
.12 |
|
|
|
Closing Warrant issued by the Registrant to Montrose
Investments, Ltd., dated as of September 29, 2000. (Filed
as Exhibit 4.13 to Form 8-K, as filed with the Securities
and Exchange Commission on November 13, 2000, and
incorporated herein by reference.) |
| |
4 |
.13 |
|
|
|
Closing Warrant issued by the Registrant to Strong River
Investments, Inc., dated as of September 29, 2000. (Filed
as Exhibit 4.14 to Form 8-K, as filed with the Securities
and Exchange Commission on November 13, 2000, and
incorporated herein by reference.) |
| |
4 |
.14 |
|
|
|
Form of Warrants issued by the Registrant to Brighton Capital,
Ltd., dated between September 18, 2000 and May 18,
2001. (Filed as Exhibit 4.32 to Form 10-K, as filed with
the Securities and Exchange Commission on April 2, 2002,
and incorporated herein by reference.) |
| |
4 |
.15 |
|
|
|
Rights Agreement, dated as of December 13, 2000, between
the Registrant and U.S. Stock Transfer Corporation, as
Rights Agent, which includes as Exhibit A thereto the form
of Certificate of Designation for the Series B Junior
Participating Preferred Stock, as Exhibit B thereto the
Form of Rights Certificate and as Exhibit C thereto a
Summary of Terms of Stockholder Rights Plan. (Filed as
Exhibit 4.1 to Form 8-A12G, as filed with the Securities
and Exchange Commission on December 26, 2000, and
incorporated herein by reference.) |
| |
4 |
.16 |
|
|
|
Registration Rights Agreement dated as of December 18,
2000, by and between the Registrant and Societe Generale. (Filed
as Exhibit 4.4 to Form 8-K, as filed with the Securities
and Exchange Commission on December 28, 2000, and
incorporated herein by reference.) |
| |
4 |
.17 |
|
|
|
Warrant issued by the Registrant to Societe Generale, dated as
of December 18, 2000. (Filed as Exhibit 4.6 to Form
8-K, as filed with the Securities and Exchange Commission on
December 28, 2000, and incorporated herein by reference.) |
| |
4 |
.18 |
|
|
|
Warrant issued by the Registrant to Brighton Capital, Ltd.,
dated as of December 18, 2000. (Filed as Exhibit 4.36
to Form 10-K, as filed with the Securities and Exchange
Commission on April 2, 2002, and incorporated herein by
reference.) |
| |
4 |
.19 |
|
|
|
Warrant issued by the Registrant to CroMedica Global, Inc.,
dated as of January 25, 2001. (Filed as Exhibit 4.37
to Form 10-K, as filed with the Securities and Exchange
Commission on April 2, 2002, and incorporated herein by
reference.) |
| |
4 |
.20 |
|
|
|
Warrant issued by the Registrant to IAT ReInsurance Syndicate
Ltd., dated as of March 8, 2001. (Filed as
Exhibit 10.2 to Form 8-K, as filed with the Securities and
Exchange Commission on March 14, 2001, and incorporated
herein by reference.) |
| |
|
|
|
|
|
|
| Exhibit No. | |
|
|
|
Description |
| | |
|
|
|
|
| |
4 |
.21 |
|
|
|
Warrant issued by the Registrant to Montrose Investments Ltd.,
dated as of May 18, 2001. (Filed as Exhibit 4.1 to
Form 8-K, as filed with the Securities and Exchange Commission
on May 21, 2001, and incorporated herein by reference.) |
| |
4 |
.22 |
|
|
|
Warrant issued by the Registrant to Strong River Investments,
Inc., dated as of May 18, 2001. (Filed as Exhibit 4.2
to Form 8-K, as filed with the Securities and Exchange
Commission on May 21, 2001, and incorporated herein by
reference.) |
| |
4 |
.23 |
|
|
|
Form of Warrant issued by the Registrant to Gruntal &
Co., L.L.C., dated as of August 10, 2001 (Filed as
Exhibit 4.44 to Form 10-K, as filed with the Securities and
Exchange Commission on April 2, 2002, and incorporated
herein by reference.) |
| |
4 |
.24 |
|
|
|
Form of Warrants issued by the Registrant to Cantor
Fitzgerald & Co, dated as of December 6, 2001 and
December 13, 2001. (Filed as Exhibit A to
Schedule 1 to Exhibit 1.1 to Form 8-K, as filed with
the Securities and Exchange Commission on October 24, 2001,
and incorporated herein by reference.) |
| |
4 |
.25 |
|
|
|
Warrant issued by the Registrant to Jefferies &
Company, Inc., dated as of December 13, 2001. (Filed as
Exhibit 4.46 to Form 10-K, as filed with the Securities and
Exchange Commission on April 2, 2002, and incorporated
herein by reference.) |
| |
4 |
.26 |
|
|
|
Form of Warrant issued by the Registrant to certain purchasers,
dated as of March 13, 2002. (Filed as Exhibit 4.47 to
Form 10-K, as filed with the Securities and Exchange Commission
on April 2, 2002, and incorporated herein by reference.) |
| |
4 |
.27 |
|
|
|
Form of Warrant issued by the Registrant to certain purchasers,
dated as of June 5, 2002. (Filed as Exhibit 4.1 to
Form 8-K, as filed with the Securities and Exchange Commission
on June 7, 2002, and incorporated herein by reference.) |
| |
4 |
.28 |
|
|
|
Form of Warrant issued by the Registrant to certain purchasers,
dated as of June 7, 2002. (Filed as Exhibit 4.1 to
Form 8-K, as filed with the Securities and Exchange Commission
on June 19, 2002, and incorporated herein by reference.) |
| |
4 |
.29 |
|
|
|
Warrant Repurchase Agreement by and between the Registrant and
BNC Bach International, Ltd., dated as of July 31, 2002.
(Filed as Exhibit 10.3 to Form 10-Q for the quarterly
period ended September 30, 2002, as filed with the
Securities and Exchange Commission on November 13, 2002,
and incorporated herein by reference.) |
| |
4 |
.30 |
|
|
|
Form of Warrant issued by the Registrant to five purchasers,
dated as of November 21, 2002, to purchase up to an
aggregate of 107,870 shares of our common stock. (Filed as
Exhibit 4.1 to Form 8-K, as filed with the Securities and
Exchange Commission on November 26, 2002, and incorporated
herein by reference.) |
| |
4 |
.31 |
|
|
|
Form of Warrant issued by the Registrant to certain purchasers,
dated as of December 13, 2002, to purchase up to an
aggregate of 65,550 shares of our common stock. (Filed as
Exhibit 4.1 to Form 8-K, as filed with the Securities
and Exchange Commission on December 13, 2002, and
incorporated herein by reference.) |
| |
4 |
.32 |
|
|
|
Form of Warrant issued by the Registrant to three purchasers,
dated as of January 16, 2003, to purchase up to an
aggregate of 55,555 shares of our common stock. (Filed as
Exhibit 4.1 to Form 8-K, as filed with the Securities and
Exchange Commission on January 17, 2003, and incorporated
herein by reference.) |
| |
4 |
.33 |
|
|
|
Form of Series D-1 Warrant. (Filed as Exhibit 4.1 to
Form 8-K, as filed with the Securities and Exchange Commission
on May 16, 2003, and incorporated herein by reference.) |
| |
4 |
.34 |
|
|
|
Form of Series D-2 Warrant. (Filed as Exhibit 4.2 to
Form 8-K, as filed with the Securities and Exchange Commission
on May 16, 2003, and incorporated herein by reference.) |
| |
4 |
.35 |
|
|
|
Series D-3 Warrant. (Filed as Exhibit 4.3 to Form 8-K,
as filed with the Securities and Exchange Commission on
May 16, 2003, and incorporated herein by reference.) |
| |
4 |
.36 |
|
|
|
Registration Rights Agreement dated as of May 7, 2003, by
and among the Registrant and the persons listed on
Schedule 1 attached thereto. (Filed as Exhibit 4.4 to
Form 8-K, as filed with the Securities and Exchange Commission
on May 16, 2003, and incorporated herein by reference.) |
| |
|
|
|
|
|
|
| Exhibit No. | |
|
|
|
Description |
| | |
|
|
|
|
| |
4 |
.37 |
|
|
|
Amendment No. 1 to the Rights Agreement dated as of
December 13, 2000 by and between the Registrant and
U.S. Stock Transfer Corporation. (Filed as Exhibit 4.1
to Form 10-Q, as filed with the Securities and Exchange
Commission on August 14, 2003, and incorporated herein by
reference.) |
| |
4 |
.38 |
|
|
|
Registration Rights Agreement dated as of August 13, 2003,
by and among the Registrant and the persons listed on
Schedule 1 attached thereto. (Filed as Exhibit 4.1 to
Form 8-K, as filed with the Securities and Exchange Commission
on August 15, 2003, and incorporated herein by reference.) |
| |
4 |
.39 |
|
|
|
Form of Series 2003-1 Warrant (Filed as Exhibit 4.2 to Form
8-K, as filed with the Securities and Exchange Commission on
August 15, 2003, and incorporated herein by reference.) |
| |
4 |
.40 |
|
|
|
Form of Series E-1 Warrant (Filed as Exhibit 4.1 to
Form 8-K, as filed with the Securities and Exchange Commission
on September 30, 2003, and incorporated herein by
reference.) |
| |
4 |
.41 |
|
|
|
Form of Series E-2 Warrant (Filed as Exhibit 4.2 to
Form 8-K, as filed with the Securities and Exchange Commission
on September 30, 2003, and incorporated herein by
reference.) |
| |
4 |
.42 |
|
|
|
Series E-3 Warrant (Filed as Exhibit 4.3 to Form 8-K,
as filed with the Securities and Exchange Commission on
September 30, 2003, and incorporated herein by reference.) |
| |
4 |
.43 |
|
|
|
Registration Rights Agreement dated as of September 26,
2003, by and among the Registrant and the persons listed on
Schedule 1 attached thereto. (Filed as Exhibit 4.4 to
Form 8-K, as filed with the Securities and Exchange Commission
on September 30, 2003, and incorporated herein by
reference.) |
| |
4 |
.44 |
|
|
|
Investor Rights Agreement, dated as of April 20, 2004, by
and among the Registrant and the persons listed on
Schedule 1 attached thereto. (Filed as Exhibit 4.1 to
Form 8-K, as filed with the Securities and Exchange Commission
on April 23, 2004, and incorporated herein by reference.) |
| |
4 |
.45 |
|
|
|
Form of Warrant, dated as of April 21, 2004. (Filed as
Exhibit 4.2 to Form 8-K, as filed with the Securities and
Exchange Commission on April 23, 2004, and incorporated
herein by reference.) |
| |
4 |
.46 |
|
|
|
Amendment No. 2 to the Rights Agreement dated as of
December 13, 2000 by and between the Registrant and
U.S. Stock Transfer Corporation. (Filed as Exhibit 4.1
to Form 10-Q, as filed with the Securities and Exchange
Commission on May 17, 2004, and incorporated herein by
reference.) |
| |
4 |
.47 |
|
|
|
Amendment No. 3 to the Rights Agreement dated as of
December 13, 2000 by and between the Registrant and
U.S. Stock Transfer Corporation. (Filed as Exhibit 4.2
to Form 10-Q, as filed with the Securities and Exchange
Commission on May 17, 2004, and incorporated herein by
reference.) |
| |
4 |
.48 |
|
|
|
Warrant issued by the Registrant to a consultant, dated as of
September 17, 2003. (Filed as Exhibit 4.3 to Form
10-Q, as filed with the Securities and Exchange Commission on
May 17, 2004, and incorporated herein by reference.) |
| |
4 |
.49 |
|
|
|
Warrant issued by the Registrant to a consultant, dated as of
April 21, 2004. (Filed as Exhibit 4.4 to Form 10-Q, as
filed with the Securities and Exchange Commission on
May 17, 2004, and incorporated herein by reference.) |
| |
4 |
.50 |
|
|
|
Form of Warrant, dated as of September 30, 2004. (Filed as
Exhibit 4.1 to Form 10-Q, as filed with the Securities and
Exchange Commission on November 15, 2004, and incorporated
herein by reference.) |
| |
4 |
.51* |
|
|
|
Form of Stock Option Agreement under the 2003 Amended and
Restated Incentive Award Plan. (Filed as Exhibit 10.1 to
Form 8-K, as filed with the Securities and Exchange Commission
on December 17, 2004, and incorporated herein by reference.) |
| |
10 |
.1* |
|
|
|
1991 Stock Incentive Plan. (Filed as Exhibit 10.2 to the
Registration Statement on Form SB-2, as amended (No.
333-05342-LA), and incorporated herein by reference.) |
| |
10 |
.2 |
|
|
|
Industrial Lease Agreement dated as of January 16, 1997,
between the Registrant and the Irvine Company. (Filed as
Exhibit 10.11 to the Form 10-KSB for the fiscal year ended
December 31, 1996, as filed with the Securities and
Exchange Commission on March 31, 1997, and incorporated
herein by reference.) |
| |
10 |
.3* |
|
|
|
Employee Stock Purchase Plan. (Filed as Exhibit 4.1 to the
Registrant’s Registration Statement on Form S-8 (No.
333-54246), and incorporated herein by reference.) |
| |
|
|
|
|
|
|
| Exhibit No. | |
|
|
|
Description |
| | |
|
|
|
|
| |
10 |
.4* |
|
|
|
Amendment 2001-1 to the Employee Stock Purchase Plan effective
as of June 21, 2001. (Filed as Exhibit 10.22 to the
Annual Report on Form 10-K, as amended, as filed with the
Securities and Exchange Commission on April 25, 2001, and
incorporated herein by reference.) |
| |
10 |
.5* |
|
|
|
Executive Employment Agreement for Rajesh C.
Shrotriya, M.D., dated as of December 1, 2000. (Filed
as Exhibit 10.35 to Form 10-K, as filed with the Securities
and Exchange Commission on April 2, 2002, and incorporated
herein by reference.) |
| |
10 |
.6 |
|
|
|
License Agreement dated as of June 29, 2001, by and between
the Registrant and NDDO Research Foundation. (Filed as
Exhibit 10.4 to Form 10-Q, as filed with the Securities and
Exchange Commission on November 14, 2001, and incorporated
herein by reference.) |
| |
10 |
.7 |
|
|
|
License Agreement dated as of August 28, 2001, by and
between the Registrant and Johnson Matthey PLC. (Filed as
Exhibit 10.5 to Form 10-Q, as filed with the
Securities and Exchange Commission on November 14, 2001,
and incorporated herein by reference.) |
| |
10 |
.8 |
|
|
|
License Agreement dated as of October 24, 2001, by and
between the Registrant and Bristol-Myers Squibb Company. (Filed
as Exhibit 10.6 to Form 10-Q, as filed with the Securities
and Exchange Commission on November 14, 2001, and
incorporated herein by reference.) |
| |
10 |
.9 |
|
|
|
Settlement Agreement and Release by and between the Registrant
and Merck Eprova AG dated as of September 30, 2002. (Filed
as Exhibit 10.7 to Form 10-Q for the quarterly period ended
September 30, 2002, as filed with the Securities and
Exchange Commission on November 13, 2002, and incorporated
herein by reference.) |
| |
10 |
.10 |
|
|
|
First Amendment to License Agreement dated August 28, 2001
by and between the Registrant and Johnson Matthey PLC dated as
of September 30, 2002. (Filed as Exhibit 10.8 to Form
10-Q for the quarterly period ended September 30, 2002, as
filed with the Securities and Exchange Commission on
November 13, 2002, and incorporated herein by reference.) |
| |
10 |
.11 |
|
|
|
Co-Development and License Agreement by and between the
Registrant and GPC Biotech AG dated as of September 30,
2002. (Filed as Exhibit 10.9 to Form 10-Q for the quarterly
period ended September 30, 2002, as filed with the
Securities and Exchange Commission on November 13, 2002,
and incorporated herein by reference.) |
| |
10 |
.12 |
|
|
|
Letter of Agreement by and between the Registrant and LEKAR
Pharma Limited, dated as of March 26, 2003, for an
investment of $1 million in the Registrant’s common
stock. (Filed as Exhibit 10.48 to Form 10-K, as filed with
the Securities and Exchange Commission on March 28, 2003,
and incorporated herein by reference.) |
| |
10 |
.13 |
|
|
|
Limited Liability Agreement of NeoJB LLC, a Delaware limited
liability company effective as of April 17, 2002. (Filed as
Exhibit 10.1 to Form 10-Q, as filed with the Securities and
Exchange Commission on May 14, 2003, and incorporated
herein by reference.) |
| |
10 |
.14 |
|
|
|
Supply Agreement dated April 16, 2002 by and between J.B.
Chemicals & Pharmaceuticals Ltd. and NeoJB LLC. (Filed
as Exhibit 10.2 to Form 10-Q, as filed with the Securities
and Exchange Commission on May 14, 2003, and incorporated
herein by reference.) |
| |
10 |
.15 |
|
|
|
Management Agreement dated April 16, 2002 by and between
NeoTherapeutics, Inc. and NeoJB LLC. (Filed as Exhibit 10.3
to Form 10-Q, as filed with the Securities and Exchange
Commission on May 14, 2003, and incorporated herein by
reference.) |
| |
10 |
.16 |
|
|
|
Preferred Stock and Warrant Purchase Agreement dated as of
April 29, 2003, by and among the Registrant and the
purchasers listed on Schedule 1 attached thereto. (Filed as
Exhibit 10.1 to Form 8-K, as filed with the Securities and
Exchange Commission on May 16, 2003, and incorporated
herein by reference.) |
| |
10 |
.17 |
|
|
|
Amendment No. 1 of the Preferred Stock and Warrant Purchase
Agreement and Registration Rights Agreement dated as of
May 13, 2003 by and among the Registrant and the persons
listed on Schedule 1B attached thereto. (Filed as
Exhibit 10.2 to Form 8-K, as filed with the Securities and
Exchange Commission on May 16, 2003, and incorporated
herein by reference.) |
| |
10 |
.18* |
|
|
|
Form of Lock-up Agreement. (Filed as Exhibit 10.3 to Form
8-K, as filed with the Securities and Exchange Commission on
May 16, 2003 and incorporated herein by reference.) |
| |
10 |
.19* |
|
|
|
Spectrum Pharmaceuticals, Inc. Amended and Restated 1997 Stock
Incentive Plan. (Filed as Annex A to our Definitive Proxy
Statement, as filed with the Securities and Exchange Commission
on May 16, 2003, and incorporated herein by reference.) |
| |
|
|
|
|
|
|
| Exhibit No. | |
|
|
|
Description |
| | |
|
|
|
|
| |
10 |
.20 |
|
|
|
Common Stock and Warrant Purchase Agreement dated as of
August 13, 2003, by and among the Registrant and the
purchasers listed on Schedule 1 attached thereto. (Filed as
Exhibit 10.1 to Form 8-K, as filed with the Securities and
Exchange Commission on August 15, 2003, and incorporated
herein by reference.) |
| |
10 |
.21 |
|
|
|
Preferred Stock and Warrant Purchase Agreement dated as of
September 26, 2003, by and among the Registrant and the
purchasers listed on Schedule 1 attached thereto. (Filed as
Exhibit 10.1 to Form 8-K, as filed with the Securities and
Exchange Commission on September 30, 2003, and incorporated
herein by reference.) |
| |
10 |
.22* |
|
|
|
Form of Lock-up Agreement (Filed as Exhibit 10.2 to Form
8-K, as filed with the Securities and Exchange Commission on
September 30, 2003, and incorporated herein by reference.) |
| |
10 |
.23 |
|
|
|
Exclusive Supply, Marketing and Distribution Agreement between
Lannett Company, Inc. and the Registrant dated August 15,
2003. (Filed as Exhibit 10.5 to Form 10-Q, as filed with
the Securities and Exchange Commission on November 13,
2003, and incorporated herein by reference.) |
| |
10 |
.24 |
|
|
|
Separation Agreement and General Release dated November 13,
2003 by and between Spectrum and John L. McManus. (Filed as
Exhibit 10.6 to Form 10-Q, as filed with the Securities and
Exchange Commission on November 13, 2003, and incorporated
herein by reference.) |
| |
10 |
.25 |
|
|
|
Separation Agreement and General Release dated November 7,
2003 by and between Spectrum and Michael P. McManus. (Filed as
Exhibit 10.7 to Form 10-Q, as filed with the Securities and
Exchange Commission on November 13, 2003, and incorporated
herein by reference.) |
| |
10 |
.26* |
|
|
|
2003 Stock Incentive Plan. (Filed as Exhibit 10.8 to Form
10-Q, as filed with the Securities and Exchange Commission on
November 13, 2003, and incorporated herein by reference.) |
| |
10 |
.27# |
|
|
|
Exclusive Supply, Marketing and Distribution Agreement between
FDC, Ltd. and the Registrant dated November 20, 2003.
(Filed as Exhibit 10.44 to Form 10-K, as filed with the
Securities and Exchange Commission on March 29, 2004, and
incorporated herein by reference). |
| |
10 |
.28* |
|
|
|
Executive Employment Agreement for Luigi Lenaz, M.D., dated
as of October 22, 2001. (Filed as Exhibit 10.45 to
Form 10-K, as filed with the Securities and Exchange Commission
on March 29, 2004, and incorporated herein by reference). |
| |
10 |
.29 |
|
|
|
First Amendment dated March 25, 2004 to Industrial Lease
Agreement dated as of January 16, 1997 by and between the
Registrant and the Irvine Company. (Filed as Exhibit 10.1
to Form 10-Q, as filed with the Securities and Exchange
Commission on May 17, 2004, and incorporated herein by
reference.) |
| |
10 |
.30* |
|
|
|
2003 Amended and Restated Incentive Award Plan. (Filed as
Exhibit 10.2 to Form 10-Q, as filed with the Securities and
Exchange Commission on May 17, 2004, and incorporated
herein by reference.) |
| |
10 |
.31* |
|
|
|
Form of Indemnity Agreement of the Registrant. (Filed as
Exhibit 10.1 to Form 10-Q, as filed with the Securities and
Exchange Commission on August 16, 2004, and incorporated
herein by reference.) |
| |
10 |
.32 |
|
|
|
Settlement Agreement and General Release By and Among NeoGene
Technologies, Inc., the Registrant and The Regents of the
University of California Dated as of March 26, 2004. (Filed
as Exhibit 10.2 to Form 10-Q, as filed with the Securities
and Exchange Commission on August 16, 2004, and
incorporated herein by reference.) |
| |
10 |
.33 |
|
|
|
Common Stock and Warrant Purchase Agreement, dated as of
April 20, 2004, by and among Spectrum and the purchasers
listed on Schedule 1 attached thereto. (Filed as
Exhibit 10.1 to Form 8-K, as filed with the Securities and
Exchange Commission on April 23, 2004, and incorporated by
reference.) |
| |
10 |
.34# |
|
|
|
Co-Development and License Agreement by and between the
Registrant and GPC Biotech AG, dated as of September 30,
2002. (Filed as Exhibit 10.1 to Form 10-Q, as filed with
the Securities and Exchange Commission on November 15,
2004, and incorporated by reference.) |
| |
|
|
|
|
|
|
| Exhibit No. | |
|
|
|
Description |
| | |
|
|
|
|
| |
10 |
.35# |
|
|
|
Diagnostic and Drug Product Manufacturing, Supply and Marketing
Agreement dated as of May 10, 2004 by and between the
Registrant and Shantha Biotechnics Pvt. Ltd. (Filed as
Exhibit 10.2 to Form 10-Q, as filed with the
Securities and Exchange Commission on November 15, 2004,
and incorporated by reference.) |
| |
10 |
.36# |
|
|
|
License and Collaboration Agreement by and between the
Registrant and Zentaris GmbH, dated as of August 12, 2004.
(Filed as Exhibit 10.3 to Form 10-Q, as filed with the
Securities and Exchange Commission on November 15, 2004,
and incorporated by reference.) |
| |
10 |
.37 |
|
|
|
Settlement Agreement and Release by and between the Registrant
and SCO Financial Group, LLC, dated as of September 30,
2004. (Filed as Exhibit 10.4 to Form 10-Q, as filed with
the Securities and Exchange Commission on November 15,
2004, and incorporated by reference.) |
| |
10 |
.38 |
|
|
|
Sublease Agreement dated September 28, 2004 by and between
the Registrant and Concurrent Pharmaceuticals, Inc., and The
Irvine Company. (Filed as Exhibit 10.1 to Form 8-K, as
filed with the Securities and Exchange Commission on
November 8, 2004, and incorporated herein by reference.) |
| |
10 |
.39* |
|
|
|
Form of Stock Option Agreement under the 2003 Amended and
Restated Incentive Award Plan. (As filed as Exhibit 10.1 to
Form 8-K, as filed with the Securities and Exchange Commission
on December 17, 2004, and incorporated herein by reference.) |
| |
10 |
.40# |
|
|
|
License Agreement by and between the Registrant and Altair
Nanomaterials, Inc. and Altair Nanotechnologies, Inc. (Filed as
Exhibit 10.1 to Form 8-K, as filed with the Securities and
Exchange Commission on February 3, 2005, and incorporated
herein by reference.) |
| |
10 |
.41# |
|
|
|
License Agreement by and between the Registrant and Chicago
Labs, Inc. (Filed as Exhibit 10.1 to Form 8-K, as filed
with the Securities and Exchange Commission on February 25,
2005, and incorporated herein by reference.) |
| |
10 |
.42+* |
|
|
|
Summary of Director Compensation. |
| |
21+ |
|
|
|
|
Subsidiaries of Registrant. |
| |
23 |
.1+ |
|
|
|
Consent of Kelly & Company. |
| |
31 |
.1+ |
|
|
|
Certification of Chief Executive Officer, pursuant to Rule
13a-14 promulgated under the Exchange Act, as created by
Section 302 of the Sarbanes-Oxley Act of 2002. |
| |
31 |
.2+ |
|
|
|
Certification of Vice President Finance, pursuant to Rule 13a-14
promulgated under the Exchange Act, as created by
Section 302 of the Sarbanes-Oxley Act of 2002. |
| |
31 |
.1+ |
|
|
|
Certification of Chief Executive Officer, pursuant to
18 U.S.C. Section 1350, as created by Section 906
of the Sarbanes-Oxley Act of 2002. |
| |
32 |
.2+ |
|
|
|
Certification of Vice President Finance, pursuant to
18 U.S.C. Section 1350, as created by Section 906
of the Sarbanes-Oxley Act of 2002 |
|
|
| * |
Indicates a management contract or compensatory plan or
arrangement. |
+ Filed herewith
|
|
| # |
Confidential portions omitted and filed separately with the
U.S. Securities and Exchange Commission pursuant to
Rule 24b-2 promulgated under the Securities Exchange Act of
1934, as amended. |