View:
Filed
Pursuant to Rule 424(b)(5)
Registration
No. 333-156997
This
preliminary prospectus supplement relates to an effective registration statement
under the Securities Act of 1933, as amended, but is not complete and may be
changed. This preliminary prospectus supplement and the accompanying
prospectus are not an offer to sell these securities, and we are not soliciting
an offer to buy these securities in any state where the offer or sale is not
permitted.
SUBJECT
TO COMPLETION, DATED OCTOBER 28, 2010
Prospectus
Supplement
(to
Prospectus dated February 13, 2009)
Shares
Common
Stock
We are
offering
shares
of our common stock. Our common stock is listed on the NYSE Amex
under the symbol “PIP.BC.” On October 28, 2010, the last
reported sale price of our common stock on the NYSE Amex was $4.08 per
share.
Investing
in our common stock involves a high degree of risk. Please read “Risk
Factors” beginning on page S-7 of this prospectus supplement, page 4 of the
prospectus and in the documents incorporated by reference into this prospectus
supplement. In particular, we are expecting a ruling shortly on the
motion for summary judgment filed by Siga Technologies, Inc. , or SIGA, which,
if decided against us, could result in the termination of our legal action
against SIGA. Please see “Recent Developments - Status of SIGA
Litigation” and “Risk Factors - Risks Related to Our Financial Condition - Our
complaint against SIGA may not yield a favorable outcome.”
Neither
the Securities and Exchange Commission nor any state securities commission has
approved or disapproved of these securities or determined if this prospectus
supplement or the accompanying prospectus is truthful or
complete. Any representation to the contrary is a criminal
offense.
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Per Share
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Total
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Public
Offering Price
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$ | $ | ||||||
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Underwriting
Discounts and Commissions
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$ | $ | ||||||
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Proceeds
to PharmAthene (Before Expenses)
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$ | $ | ||||||
We have
granted the underwriter an option for a period of 30 days to purchase up to an
additional
shares
of our common stock solely to cover overallotments. If the
underwriter exercises the option in full, the total underwriting discounts and
commissions payable by us will be
$ , and
the total proceeds to us, before expenses, will be
$ . Delivery
of the shares of common stock is expected to be made through the facilities of
the Depository Trust Company on or about October ,
2010.
We also
have retained Noble Financial Group, Inc., or Noble, to act as our financial
advisor in connection with this offering and will pay Noble a financial advisory
fee of
$ in
connection with its services.
Roth
Capital Partners
Prospectus
Supplement dated October , 2010.
Table
of Contents
Page
Prospectus
Supplement
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About
This Prospectus Supplement
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S-ii
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Prospectus
Supplement Summary
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S-1
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The
Offering
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S-5
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Risk
Factors
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S-7
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Special
Note Regarding Forward-Looking Information
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S-21
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Use
of Proceeds
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S-22
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Dividend
Policy
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S-23
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Dilution
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S-23
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Underwriting
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S-25
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Legal
Matters
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S-28
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Experts
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S-28
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Where
You Can Find More Information
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S-28
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Incorporation
of Certain Information by Reference
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S-28
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Page
Prospectus
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TABLE
OF CONTENTS
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i
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ABOUT
THIS PROSPECTUS
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1
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SUMMARY
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1
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RISK
FACTORS
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2
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SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
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15
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USE
OF PROCEEDS
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15
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DESCRIPTION
OF COMMON STOCK
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15
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DESCRIPTION
OF PREFERRED STOCK
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16
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DESCRIPTION
OF WARRANTS
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18
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PLAN
OF DISTRIBUTION
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19
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LEGAL
MATTERS
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21
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EXPERTS
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21
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WHERE
YOU CAN FIND MORE INFORMATION
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21
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INCORPORATION
BY REFERENCE
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21
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You
should rely only on the information contained in or incorporated by reference in
this prospectus supplement, the accompanying prospectus and in any free writing
prospectus that we have authorized for use in connection with this
offering. We have not, and the underwriter has not, authorized anyone
to provide you with different information. If anyone provides you
with different or inconsistent information, you should not rely on
it. We are not, and the underwriter is not, making an offer to sell
these securities in any jurisdiction where the offer or sale is not
permitted. You should assume that the information appearing in this
prospectus supplement, the accompanying prospectus, the documents incorporated
by reference in this prospectus supplement and the accompanying prospectus, and
in any free writing prospectus that we have authorized for use in connection
with this offering, is accurate only as of the date of those respective
documents. Our business, financial condition, results of operations
and prospects may have changed since those dates. You should read
this prospectus supplement, the accompanying prospectus, the documents
incorporated by reference in this prospectus supplement and the accompanying
prospectus, and any free writing prospectus that we have authorized for use in
connection with this offering, in their entirety before making an investment
decision. You should also read and consider the information in the
documents to which we have referred you in the sections of this prospectus
supplement entitled “Where You Can Find More Information” and “Incorporation of
Certain Information by Reference.”
s-i
About
This Prospectus Supplement
This
document is in two parts. The first part is this prospectus
supplement, which describes the terms of this offering of common stock and also
adds to and updates information contained in the accompanying prospectus and the
documents incorporated by reference into this prospectus supplement and the
accompanying prospectus. The second part, the accompanying prospectus
dated February 13, 2009, including the documents incorporated by reference
therein, provides more general information. Generally, when we refer
to “this prospectus,” we are referring to both parts of this document
combined. To the extent there is a conflict between the information
contained in this prospectus supplement, on the one hand, and the information
contained in the accompanying prospectus or in any document incorporated by
reference that was filed with the Securities and Exchange Commission, or SEC,
before the date of this prospectus supplement, on the other hand, you should
rely on the information in this prospectus supplement. If any
statement in one of these documents is inconsistent with a statement in another
document having a later date—for example, a document incorporated by reference
in the accompanying prospectus—the statement in the document having the later
date modifies or supersedes the earlier statement.
Unless
otherwise mentioned or unless the context requires otherwise, all references to
“PharmAthene,” “the Company,” “we,” “us,” “our,” and similar terms refer to
PharmAthene, Inc. and its subsidiaries on a consolidated basis.
This
prospectus supplement, the accompanying prospectus, and the information
incorporated herein and therein by reference include trademarks, service marks
and trade names owned by us or other companies. All trademarks,
service marks and trade names included or incorporated by reference into this
prospectus supplement or the accompanying prospectus are the property of their
respective owners.
s-ii
Prospectus
Supplement Summary
This
summary highlights certain information about us, this offering and selected
information contained elsewhere in or incorporated by reference into this
prospectus supplement and the accompanying prospectus. This summary
is not complete and does not contain all of the information that you should
consider before deciding whether to invest in our common stock. For a
more complete understanding of the Company and this offering, we encourage you
to read and consider carefully the more detailed information in this prospectus
supplement and the accompanying prospectus, including the information
incorporated by reference in this prospectus supplement and the accompanying
prospectus, and the information included in any free writing prospectus that we
have authorized for use in connection with this offering, including the
information referred to under the heading “Risk Factors” in this prospectus
supplement beginning on page S-4.
Business
Summary
We are a
biodefense company engaged in the development and commercialization of medical
countermeasures against biological and chemical weapons. Our current
lead programs are:
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SparVaxTM,
a second generation recombinant protective antigen, or rPA, anthrax
vaccine,
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Valortim®,
a fully human monoclonal antibody (an identical population of highly
specific antibodies produced from a single clone) for the prevention and
treatment of anthrax infection, and
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Countermeasures
for nerve agent poisoning by organophosphate compounds, including nerve
gases and pesticides, whose active ingredient is the recombinant enzyme
(butyrylcholinesterase) (or
“rBChE”).
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Recent
Developments
Conditional
Listing on NYSE Amex
On July
26, 2010, we received a letter from the NYSE Amex, stating that we are not in
compliance with the exchange’s continued listing standards, specifically,
Sections 1003(a)(i), (ii) and (iii) of the NYSE Amex Company Guide, because we
have stockholders’ equity of less than $2.0 million, $4.0 million and $6.0
million and losses from continuing operations and net losses in two of our three
most recent fiscal years, three of our four most recent fiscal years and our
five most recent fiscal years, respectively.
On August
25, 2010, we submitted a plan to the NYSE Amex addressing how we intend to
regain compliance with the continued listing standards by January 26, 2012, the
end of the eighteen-month compliance period under NYSE Amex
rules. Based on the information in our compliance plan and related
discussions with exchange staff, the NYSE Amex determined that we had made a
reasonable demonstration of our ability to regain compliance with Sections
1003(a)(i), (ii) and (iii) of the NYSE Amex Company Guide by January 26, 2012
and that it would continue the listing of our common stock subject to
conditions. The conditions include (a) the requirement to provide
exchange staff with updates on the initiatives included in our compliance plan,
at least once each quarter concurrent with our corresponding periodic SEC
filing, (b) the periodic review of our compliance with the plan by exchange
staff, and (c) the approval of a NYSE Amex management committee prior to any
issuances of additional shares of common stock. We currently believe
that we are in compliance with these conditions. If we do not
show progress consistent with our compliance plan, or we do not meet the
continued listing standards by January 26, 2012, the NYSE Amex could initiate
delisting proceedings. We may appeal any delisting determination
before a listing qualifications panel of the exchange and in turn request a
review of the decision of such panel by the exchange’s Committee on
Securities.
Status
of SIGA Litigation
In March
2010, Siga Technologies, Inc., or SIGA, filed a motion for summary judgment
relating to our lawsuit filed against them in 2006. Oral argument was
held in July 2010 and the court indicated that it would render a decision by the
end of October 2010. If the chancellor rules in favor of SIGA, our
case could be partially or completely dismissed. We cannot assure you
that SIGA will not prevail on its motion for summary judgment or that if the
case eventually proceeds to trial, we will prevail or even recover any costs or
damages.
S-1
Conversion
of Outstanding Convertible Senior Notes
As of the
date of this prospectus supplement, convertible notes in the aggregate principal
amount of approximately $19.3 million, carrying an interest rate of 10% per
annum, are outstanding. These notes are convertible into up to
approximately 8.5 million shares of our common stock (based on principal amount
plus interest through the date of this prospectus supplement). Under the terms
of the notes, each holder converting notes is entitled to receive a number of
shares corresponding to principal and accrued interest through the date of
conversion (plus any accrued and unpaid late charges). In order to
induce holders of our convertible notes to convert their notes into common
stock, we have separately agreed to pay each holder exercising his conversion
right prior to maturity an amount in cash corresponding to the interest
foregone, i.e., the interest the holder would have received between the
conversion date and the maturity date had he held the note through
maturity. Holders of notes in the aggregate principal amount of
approximately
$ million have
irrevocably agreed to convert their notes, subject to and conditioned on the
consummation of this offering. Some of these holders
are affiliates, officers or directors of PharmAthene (or their family
members). Upon conversion, these holders will receive
approximately million
shares of common stock, while approximately
$ million would be paid to them in
cash. If each holder of our convertible senior notes due 2011
converted their notes on the date hereof, we would pay an aggregate of
approximately $1.5 million to the holders representing the interest from the
date of conversion through maturity.
Related
Party Transactions
An
existing investor affiliated with one of our directors has indicated an interest
in purchasing shares of our common stock in this offering under the same terms
as they are offered to the public hereunder.
Certain
of our affiliates, officers and directors (and their family members) own
convertible senior notes due July 2011 and, assuming they convert their notes in
accordance with the procedures outlined above, will be receiving cash payments
from the proceeds of this offering corresponding to the interest foregone, i.e.,
the interest the holders would have received between the conversion date and the
maturity date had they held the note through maturity. These holders,
and the cash payments they will be expected to receive if they convert in
accordance with the above procedures, are:
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Funds
affiliated with MPM
Bioventures: $ . Our
director Steven St. Peter is affiliated with the MPM funds, but is not a
member of the general partners and thus is not deemed to have beneficial
ownership of the shares owned by the MPM
funds.
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Healthcare
Ventures VII, L.P.:
$ . Our
director James Cavanaugh is a general partner of HealthCare Partners VII,
L.P., which is the general partner of HealthCare Ventures VII,
L.P.
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Mary
L.
Pappajohn: $ . Ms.
Pappajohn is the spouse of John Pappajohn, the Chairman of our board of
directors.
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Derace
Schaffer: $ . Dr.
Schaffer is a member of our board of
directors.
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Joel
McCleary: $ . Mr.
McCleary is a member of our board of
directors.
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Eric
Richman: $ . Mr.
Richman is our President and Chief Executive Officer and a member of our
board of directors.
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Argyis
(RJ) Vassiliou:
$ . Mr.
Vassiliou is the son-in-law of Mr.
Pappajohn.
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Ann
Vassiliou Children’s
Trust: $ . Mr.
Vassiliou, the son-in-law of Mr. Pappajohn, is the trustee of this
trust.
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Update
on Nerve Agent Countermeasure Program
In 2006
we entered into a contract with the U.S. Department of Defense (“DoD”) to
develop a medical countermeasure for nerve agent exposure to protect the
warfighter. This program utilizes the recombinant enzyme
butyrylcholinesterase, or “rBChE”, a naturally occurring bioscavenger, as its
active ingredient. Our first generation program for producing rBChE,
which we refer to as Protexia®, utilizes transgenic goats to produce the enzyme
in their milk. We have also been working on a second generation
approach, which we refer to as our Advanced Expression System, or “AES”, that
utilizes a mammalian-cell-based expression system for rBChE.
While the
AES technology is still at an early research stage, if our efforts are
successful, we believe this cell-based approach could have significant
advantages over the transgenic goat-based approach originally developed to
produce Protexia®. Specifically, we believe these advantages could
include:
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An
established manufacturing platform, consistent with those used for other
biotechnology products and with the U.S. government’s recent advanced
manufacturing system
initiative.
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S-2
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Final
product with a pharmacokinetic (PK) profile that more closely resembles
naturally occurring butyrylcholinesterase, or BChE, from human blood
plasma.
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Higher
production yields than a transgenic goat based
approach.
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Substantially
lower costs of production to yield significant savings to our DoD
customer
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A
more traditional regulatory path to FDA
licensure
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Greater
ability to scale up production if demand
increases
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The DoD
has recently informed us that it is deferring a decision on whether to fund
advanced development of Protexia® for the time being, potentially for several
years, due to budget constraints and concerns about potential duration of
protection with the current route of Protexia® administration as compared to the
human blood plasma derived BChE product. DoD has said they need more
data regarding the duration of protection of Protexia® before making a decision
regarding future advanced development funding, and it is unclear at this time
how long and what the cost would be to address their concerns. As such, our
existing September 2006 contract related to Protexia® will not be extended past
its current term, which ends on December 31, 2010.
The
second generation AES approach is more consistent with what the DoD
requirements. We believe the AES could provide a potentially safe and
effective nerve agent countermeasure for the warfighter in a shorter timeframe
and at a more affordable cost than the transgenic goat-based
product. Consequently, we plan to defer the decision on whether to
generate the additional data DoD has requested, pending the results of our work
on the AES.
In
connection with the expiration of our current contract for Protexia®, we will
eliminate our transgenic goat operations and are in discussions with a third
party to establish the capability to initiate production of the transgenic
goat-based product at an FDA-licensed facility if the government decides to
pursue development of this product again in the future. In the fourth
quarter of 2010 and the first half of 2011, we expect to incur a modest amount
of severance and other wind-down costs related to the termination of our
Protexia®-related operations, but have not yet determined whether we will need
to write down the net book value of our Protexia® related assets, and if
required, how much that will be. We expect to complete this analysis
in the fourth quarter 2010.
We are in
advanced discussions with the DoD regarding a new contract to fund on-going
research we have been conducting related to the production of rBChE using our
AES. Based on those discussions, we currently anticipate that DoD will award a
contract to us before the end of 2010 for up to $5.9 million to support this
initial work. We cannot assure you, however, that the contract will be awarded
in this time frame, or at all, or of the specific terms of any such contract.
Also, in September 2010 we submitted a white paper to the DoD for additional
funding of up to approximately $30 million over three years to support further
development of the AES, including process development and manufacture of cGMP
material for non-clinical and clinical testing, IND-enabling safety and toxicity
studies, IND submission, and a Phase I human clinical study. If DoD
approves the white paper, we can submit a formal proposal for funding this
work. If DoD were to accept our proposal and award us such funding,
it would likely not occur before the fourth quarter 2011.
Update
on BARDA performance evaluation
In
response to the performance evaluation for the period April 1, 2009 through
April 30, 2010 we received from BARDA under our current contract for the
advanced development of SparVax™, we have implemented key organizational changes
and information sharing enhancements. We have received positive
feedback from BARDA personnel in recent months. BARDA has also solicited our
input regarding achievements since the last assessment by BARDA and agreed to
provide an interim assessment prior to the end of the year, which we anticipate
will recognize our improved execution.
Update
on Valortim® partial clinical hold
As part
of our investigational plan regarding the partial clinical hold on Valortim®, we
conducted a subcutaneous skin testing study with five subjects, including the
two subjects who had adverse reactions as part of our Valortim®/Ciprofloxacin
study. There were no positive skin test reactions to Valortim® or it
excipients, suggesting that the adverse reactions previously observed were not
likely to be allergic reactions.
We
recently presented this information the Safety Monitoring Committee (SMC) for
Valortim®, which agreed with our plan to propose to FDA an intravenous (IV)
dose-escalation study of Valortim® with a slower infusion rate than that used in
the Valortim®/Ciprofloxacin study. We plan to send our final
investigation plan report, IV dose escalation protocol, and SMC recommendations
to FDA in early November, and believe that we are well-positioned for FDA to
permit us to proceed with the dose escalation study, with dosing of the first
subject scheduled for January
2011.
S-3
We
updated BARDA during the course of our investigation, and the agency has
continued to express interest in Valortim®. We plan to submit a white
paper to BARDA for advanced development funding for Valortim® of up to
approximately $115 million before the end of 2010, and subject to BARDA’s
agreement, submit a formal funding proposal as soon as possible
thereafter.
Appointment
of Eric Richman
On
October 20, 2010, our Board appointed Eric I. Richman to the position of
President and Chief Executive Officer, effective immediately. Mr.
Richman previously served as our President and interim Chief Executive Officer
since May 2010 and was our President and Chief Operating Officer between March
and May 2010. Prior to being appointed President and Chief Operating
Officer, Mr. Richman served as our Senior Vice President, Business Development
and Strategic Planning since joining then-privately-held PharmAthene in
2003.
In
connection with his appointment, Mr. Richman received an option to purchase
125,000 shares of our common stock at an exercise price of $4.20 per share,
which was the closing price of our common stock on the NYSE Amex on the date of
grant. The Board also approved a second grant of an option to
purchase 125,000 shares of our common stock, subject to and conditioned upon the
consummation of this offering. The exercise price will be the closing
price of our common stock on the NYSE Amex on the date that this offering is
consummated. Both sets of options, granted under our 2007 Long-Term
Incentive Compensation Plan, vest in installments of 25% per year, with the
first vesting to occur on the first anniversary of the respective date of
grant.
Company
Information
We were
incorporated under the laws of the State of Delaware as Healthcare Acquisition
Corp., or HAQ, on April 25, 2005, a special purchase acquisition corporation
formed solely to acquire a then-unidentified business. HAQ became a
public company on August 3, 2005. On August 3, 2007, HAQ acquired a
Delaware corporation which at the time was known as “PharmAthene,
Inc.” Effective upon the consummation of this acquisition, HAQ
changed its name from “Healthcare Acquisition Corp.” to “PharmAthene, Inc.” and
former PharmAthene changed its name to “PharmAthene US
Corporation.” Through February 27, 2009, our operations were
conducted by PharmAthene US Corporation. Effective February 27, 2009,
PharmAthene US Corporation was merged with and into PharmAthene, Inc., with
PharmAthene, Inc. being the surviving corporation.
In March
2008, PharmAthene, Inc., through its wholly-owned subsidiary PharmAthene UK
Limited, acquired substantially all the assets and liabilities related to the
biodefense vaccines business of Avecia Biologics Limited.
Our
executive offices are located at One Park Place, Suite 450, Annapolis, Maryland
21401 and our telephone number is 410-269-2600. Our stock trades on
the NYSE Amex under the symbol “PIP.BC.”
Our
website is www.pharmathene.com. We make available free of charge
through our website our annual report on Form 10-K, quarterly reports on Form
10-Q, current reports on Form 8-K, and amendments to those reports filed or
furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act
of 1934, as amended, or the Exchange Act, as soon as reasonably practicable
after we electronically file such material with, or furnish it to, the
SEC. Information contained on our website or that can be accessed
through our website does not constitute part of this prospectus supplement or
the accompanying prospectus.
S-4
The
Offering
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Common
stock offered by us
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shares
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Common
stock to be outstanding immediately after this offering:
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shares
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Use
of Proceeds
We
intend to use the net proceeds from this offering for general corporate
purposes. We intend to redeem, as soon as practicable, all of our
outstanding convertible senior notes due July 2011 that have not been converted
into shares of our common stock prior to their redemption date. In
any event, we expect to have sufficient funds available to repay any remaining
notes at maturity if not previously redeemed. As of the date of
this prospectus supplement, convertible notes in the aggregate principal amount
of approximately $19.3 million, carrying an interest rate of 10% per annum, are
outstanding. These notes are convertible into up to approximately 8.5
million shares of our common stock (based on principal amount plus interest
through the date of this prospectus supplement). Including accrued but unpaid
interest, a total of approximately $21.7 million would be needed to redeem all
of the notes if none of them were converted into shares of our common stock at
or prior to redemption. Under the terms of the notes, each holder
converting notes is entitled to receive a number of shares corresponding to
principal and accrued interest through the date of conversion (plus any accrued
and unpaid late charges). In order to induce holders of our
convertible notes to convert their notes into common stock, we have separately
agreed to pay each holder exercising his conversion right prior to maturity an
amount in cash corresponding to the interest foregone, i.e., the interest the
holder would have received between the conversion date and the maturity date had
he held the note through maturity. Holders of notes in the
aggregate principal amount of approximately
$ million have
irrevocably agreed to convert their notes, subject to and conditioned on the
consummation of this offering. Some of these holders
are affiliates, officers or directors of PharmAthene (or their family
members). Upon conversion, these holders will receive
approximately million
shares of common stock, while approximately
$ million would be paid to them in
cash. A total of approximately
$ million would then be needed to redeem the
remaining notes. If each
holder of our convertible senior notes due 2011 converted their notes on the
date hereof, we would pay an aggregate of approximately $1.5 million to the
holders representing the interest from the date of conversion through
maturity.
General
corporate purposes may also include working capital, research and development
expenses, general and administrative expenses, and capital
expenditures. We may also use a portion of the net proceeds to
acquire or invest in businesses, products and technologies that are
complementary to our own, although we have no present commitments or agreements
for any such transactions. See “Use of Proceeds” on page S-18 of this
prospectus supplement.
Conditional
Listing on NYSE Amex
Our
common stock is listed on the NYSE Amex under the symbol “PIP.BC.”
Risk
Factors
Investing
in our common stock involves a high degree of risk. See “Risk
Factors” beginning on page S-4 of this prospectus supplement.
Outstanding
Shares
The
total number of shares of our common stock outstanding immediately after this
offering is based on 32,748,780 shares outstanding as of
September 30, 2010 (including unvested restricted shares), and excludes as of
that date:
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4,371,448
shares of common stock underlying options outstanding under our 2007
Long-Term Incentive Compensation Plan at a weighted average exercise price
of $2.96 per share;
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5,216,658
shares of common stock underlying warrants outstanding at a weighted
average exercise price of $2.31 per share;
and
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8,496,478
shares of common stock underlying our 10% convertible
notes.
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S-5
Our 2007
Long-Term Incentive Compensation Plan provides for an annual automatic increase
as of the first day of each fiscal year beginning in 2009 and continuing until
2015 equal to the lesser of (i) 1,100,000 shares, (ii) 2.5% of the outstanding
shares of our common stock as of the end of our immediately preceding fiscal
year, and (iii) any lesser number of shares determined by our Board of
Directors; provided, however, that the aggregate number of shares available for
issuance pursuant to such increases shall not exceed a total of 5,700,000
shares.
Except as
otherwise indicated, all information in this prospectus supplement assumes no
exercise by the underwriter of its overallotment
option.
S-6
Risk
Factors
Investing
in our common stock involves a high degree of risk. You should
consider the following risk factors, as well as other information contained or
incorporated by reference in this prospectus supplement and the accompanying
prospectus, before deciding to purchase any shares of our common stock offered
herein. The risks and uncertainties described are not the only ones
we face. Additional risks and uncertainties not presently known to us
or that we currently deem immaterial may also affect our business
operations. If any of these risks occur, our business, financial
condition or results of operations could suffer, the market price of our common
stock could decline and you could lose all or part of your investment in our
common stock.
Risks
Related to Our Financial Condition
We
have a history of losses and negative cash flow, anticipate future losses and
negative cash flow, and cannot provide assurances that we will achieve
profitability.
We have
incurred significant losses since we commenced operations. For the
years ended December 31, 2009, 2008 and 2007 we incurred net losses of
approximately $32.3 million, $36.4 million and $17.7 million respectively and
had an accumulated deficit of approximately $170.6 million at June 30,
2010. Our losses to date have resulted principally from research and
development costs related to the development of our product candidates, general
and administrative costs related to operations, and costs related to the Avecia
Acquisition.
Our
likelihood for achieving profitability will depend on numerous factors,
including success in:
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developing
our existing products and developing and testing new product
candidates;
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continuing
to receive government funding and identifying new government funding
opportunities;
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receiving
regulatory approvals;
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carrying
out our intellectual property
strategy;
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establishing
our competitive position;
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pursuing
third-party collaborations;
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acquiring
or in-licensing products; and
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manufacturing
and marketing products.
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Many of
these factors will depend on circumstances beyond our control. We
cannot guarantee that we will achieve sufficient revenues for
profitability. Even if we do achieve profitability, we cannot
guarantee that we can sustain or increase profitability on a quarterly or annual
basis in the future. If revenues grow more slowly than we anticipate,
or if operating expenses exceed our expectations or cannot be adjusted
accordingly, then our business, results of operations, financial condition and
cash flows will be materially and adversely affected. Because our
strategy includes potential acquisitions of other businesses, acquisition
expenses and any cash used to make these acquisitions will reduce our available
cash.
At June
30, 2010, accounts receivable and other receivables (including unbilled
receivables) totaled approximately $12.9 million primarily due to delays in
billing for services related to the SparVaxTM second
generation anthrax vaccine program. Although we are now current with
our billing of our second generation anthrax vaccine program, a significant
portion of these submitted invoices are still undergoing the review and approval
process prior to being paid. In addition, the bid protest filed by a
third party with the U.S. Government Accountability Office (GAO) in March 2010,
challenging the decision by the U.S. Department of Health and Human Services
(HHS) to enter into the modification to our research and development contract
with BARDA for the development of SparVaxTM, and
resulting “stop-work” order, caused delays in our work under that
modification. The bid protest was ultimately denied, and the related
stop work-order canceled in June 2010. Nevertheless, the protest,
along with the accumulated billing and collection delays, have reduced revenues
and our available cash and cash equivalents during the first six months of
2010. The combination of these two developments reduced our operating
cash flows, which resulted in a need for additional financing to fund our
working capital needs.
S-7
In July
2010, we generated net proceeds of approximately $3.5 million from a registered
direct offering of our equity securities. We currently believe that,
based on the operating cash requirements and capital expenditures expected
through March 2011, and assuming the conversion of convertible notes in the
aggregate principal amount of
$ million concurrently with
the consummation of this offering, the receipt of
$ in net proceeds from this
offering and expected receipts from our government contracts and grants, we will
not require additional funding to continue our current level of operations
through at least December 31, 2011. We may elect to raise additional
capital in 2011 to expand our business and/or strengthen our financial position
or, if our current expectations and estimates about future operating costs prove
to be incorrect, we may need to raise additional capital in 2011 and
beyond.
Furthermore,
under the terms of the Avecia Purchase Agreement we entered into in connection
with the Avecia Acquisition, we are required to pay Avecia (now a subsidiary of
Merck & Co., Inc.) $5 million within 90 days of entering into a multi-year
funded development contract that was to be issued by BARDA under solicitation
number RFP-BARDA-08-15 (or any substitution or replacement thereof) for the
further development of SparVaxTM. RFP-BARDA-08-15
was cancelled by BARDA in December 2009. Accordingly, our obligation
to pay Avecia the $5 million payment would mature only upon our receipt of a
substitution or replacement thereof. We have received funds from
BARDA and other U.S. government agencies under various development agreements
between us and BARDA. Any development contract deemed to be a
substitute or replacement of RFP-BARDA-08-15 could trigger our obligation to
make the $5 million payment under the Avecia Purchase Agreement.
The
continuing turmoil affecting the banking system and financial markets and the
possibility that financial institutions may consolidate or cease operations has
resulted in a tightening in the credit markets, a low level of liquidity in many
financial markets and volatility in fixed income, credit, currency and equity
markets. As a result, there can be no assurances that we will be
successful in obtaining sufficient financing on commercially reasonable terms or
at all. Our requirements for additional capital may be substantial
and will be dependent on many factors, including the success of our research and
development efforts, our ability to commercialize and market products, our
ability to successfully pursue our licensing and collaboration strategy, the
receipt of continued government funding, competing technological and marketing
developments, costs associated with the protection of our intellectual property
and any future change in our business strategy.
To the
extent that we raise additional capital through the sale of securities, the
issuance of those securities or shares underlying such securities would result
in dilution that could be substantial to our stockholders. In
addition, if we incur additional debt financing, a substantial portion of our
operating cash flow may be dedicated to the payment of principal and interest on
such indebtedness, thus limiting funds available for our business
activities.
If
adequate funds are not available, we may be required to curtail significantly
our development and commercialization activities. This would have a
material adverse effect on our business, financial condition and/or results of
operations.
Our
complaint against SIGA may not yield a favorable outcome.
In
December 2006, we filed a complaint against Siga Technologies, Inc., or SIGA, in
the Delaware Chancery Court. The complaint alleges, among other
things, that we have the right to license exclusively development and marketing
rights for SIGA’s drug candidate, SIGA-246, pursuant to a merger agreement
between the parties that was terminated in October 2006. The
complaint also alleges that SIGA failed to negotiate in good faith the terms of
such a license pursuant to the terminated merger agreement. We are
seeking alternatively a judgment requiring SIGA to enter into an exclusive
license agreement with the Company for SIGA-246 in accordance with the terms of
the term sheet attached to the merger agreement or monetary
damages.
In
January 2008, the Delaware Chancery Court issued a ruling denying a motion by
SIGA to dismiss the complaint. SIGA filed a counterclaim
against the Company alleging that we breached our duty to engage in good-faith
negotiations by, among other things, presenting SIGA with a bad-faith initial
proposal for a license agreement that did not contain all necessary terms,
demanding SIGA prepare a complete draft of a partnership agreement and then
unreasonably rejecting that agreement, and unreasonably refusing to consider
economic terms that differed from those set forth in the license agreement term
sheet attached to the merger agreement. SIGA is seeking recovery of
its reliance damages from this alleged breach.
In March
2010, SIGA filed a motion for summary judgment relating to our
lawsuit. Oral argument was held in July 2010 and the court indicated
that it would render a decision by the end of October 2010. If the
chancellor rules in favor of SIGA, our case could be partially or completely
dismissed. We cannot assure you that SIGA will not prevail on its
motion for summary judgment or that if the case eventually proceeds to trial, we
will prevail or even recover any costs or damages.
S-8
Risks
Related to Product Development and Commercialization
If
we cannot maintain successful licensing arrangements and collaborations, enter
into new licensing arrangements and collaborations, or effectively accomplish
strategic acquisitions, our ability to develop and commercialize a diverse
product portfolio could be limited and our ability to compete may be
harmed.
A key
component of our business strategy is the in-licensing of compounds and products
developed by other pharmaceutical and biotechnology companies or academic
research laboratories.
For
example, we have an agreement with Medarex to develop Valortim®, a fully human
monoclonal antibody product designed to protect against and treat inhalation
anthrax. Under the agreement with Medarex, we will be entitled to a
variable percentage of profits derived from sales of Valortim®, if any,
depending, in part, on the amount of our investment. In addition, we
have entered into licensing and research and development agreements with a
number of other parties and collaborators. There can be no assurances
that the research and development conducted pursuant to these agreements will
result in revenue generating product candidates. If our suppliers,
vendors, licensors, or other collaboration partners experience financial
difficulties as a result of the weak economy, or if they are acquired as part of
the current wave of consolidations in the pharmaceutical industry (such as, for
example, with the acquisitions of Medarex by Bristol Myers Squibb and Diosynth’s
parent company by Merck & Co., Inc. in 2009 and of Avecia’s CMO subsidiary
(Avecia Biologics) by Merck & Co., Inc. in 2010), their priorities or our
working relationship with them might change. As a result, they might
shift resources away from the research, development and/or manufacturing efforts
intended to benefit our products, which could lead to significant delays in our
development programs and potential future sales. In addition, we
currently only have a research license from our partner for the work on the AES
for rBChE. There can be no assurance that we will be able to secure
exclusive rights from our collaborator to develop and commercialize this
technology. Finally, our current licensing, research and development,
and supply agreements may expire and may not be renewable or could be terminated
if we do not meet our obligations. For example, our license agreement
from DSTL for certain technology related to RypVaxTM
requires that we diligently pursue development of this product candidate to
maintain exclusive rights to the technology. Our existing contract
with the U.S. government for the development of RypVaxTM has
been wound down, and we may decide not to continue with development efforts at a
level necessary to meet this requirement, since we do not anticipate that the
U.S. government will provide additional funding in the future for or procure
RypVaxTM.
If we are
not able to identify new licensing opportunities or enter into other licensing
arrangements on acceptable terms, we may be unable to develop a diverse
portfolio of products. For our future collaboration efforts to be
successful, we must first identify partners whose capabilities complement and
integrate well with ours. We face, and will continue to face,
significant competition in seeking appropriate
collaborators. Collaboration arrangements are complex and time
consuming to negotiate, document and implement. We may not be
successful in our efforts to establish and implement collaborations or other
similar arrangements. The terms of any collaboration or other
arrangements that we establish may not be favorable to
us. Furthermore, technologies to which we gain access may prove
ineffective or unsafe or our partners may prove difficult to work with or less
skilled than we originally expected. In addition, any past
collaborative successes are no indication of potential future
success.
We may
also pursue strategic acquisitions to further our development and
commercialization efforts. To achieve the anticipated benefits of an
acquisition, we must integrate the acquired company’s business, technology and
employees in an efficient and effective manner. The successful
combination of companies in a rapidly changing biodefense industry may be more
difficult to accomplish than in other industries. The combination of
two companies requires, among other things, integration of the companies’
respective technologies and research and development efforts. We
cannot assure you that any integration will be accomplished smoothly or
successfully. The difficulties of integration are increased by the
need to coordinate geographically separated organizations and address possible
differences in corporate cultures and management philosophies. The
integration of certain operations will require the dedication of management
resources that may temporarily distract attention from the day-to-day operations
of the combined companies. The business of the combined companies may
also be disrupted by employee retention uncertainty and lack of focus during
integration. The inability of management to integrate successfully
the operations of the two companies, in particular, to integrate and retain key
scientific personnel, or the inability to integrate successfully two technology
platforms, could have a material adverse effect on our business, results of
operations and financial condition.
S-9
We
have not commercialized any products or recognized any revenues from
sales. All of our product candidates are still under development, and
there can be no assurance of successful commercialization of any of our
products.
We have
not commercialized any products or recognized any revenues from product
sales. In general, our research and development programs are at early
stages. There can be no assurances that one or more of our future
product candidates will not fail to meet safety standards in human testing, even
if those product candidates are found to be effective in animal
studies. To develop and commercialize biodefense treatment and
prophylactic product candidates, we must provide the FDA and foreign regulatory
authorities with human clinical and non-clinical animal data that demonstrate
adequate safety and effectiveness. To generate these data, we will
have to subject our product candidates to significant additional research and
development efforts, including extensive non-clinical studies and clinical
testing. We cannot be sure that our approach to drug discovery will
be effective or will result in the development of any drug. Even if
our product candidates are successful when tested in animals, such success would
not be a guarantee of the safety or effectiveness of such product candidates in
humans.
Research
and development efforts in the biodefense industry are time-consuming and
subject to delays. Even if we initially receive positive early-stage
pre-clinical or clinical results, such results may not be indicative of results
that could be anticipated in the later stages of drug
development. Delays in obtaining results in our non-clinical studies
and clinical testing can occur for a variety of reasons, such as slower than
anticipated enrollment by volunteers in the trials, adverse events related to
the products, failure to comply with Good Clinical Practices, unforeseen safety
issues, unsatisfactory results in trials, perceived defects in the design of
clinical trials, changes in regulatory policy as well as for reasons detailed in
“—Necessary Reliance on the Animal Rule in Conducting Trials is Time-Consuming
and Expensive.”
Any delay
or adverse clinical event arising during any of our clinical trials could force
us to conduct additional clinical trials in order to obtain approval from the
FDA and other regulatory bodies. Our development costs will increase
substantially if we experience material delays in any clinical trials or if we
need to conduct more or larger trials than planned.
If delays
are significant, or if any of our products do not prove to be safe, pure, and
potent (including efficacy) or do not receive required regulatory approvals, we
may have to abandon the product altogether and will be unable to recognize
revenues from the sale of that product. In addition, our
collaborative partners may not be able to conduct clinical testing or obtain
necessary approvals from the FDA or other regulatory authorities for any product
candidates jointly developed by us and our partners. If we fail to
obtain required governmental approvals, we and our collaborative partners will
experience delays in, or be precluded from, marketing products developed through
them or, as applicable, their research.
Necessary
Reliance on the Animal Rule in Conducting Trials is Time-Consuming and
Expensive.
As
further described in our annual report on Form 10-K for the year ended December
31, 2009 under “Business—U.S. Government Regulatory Pathway—General”, to obtain
FDA approval for our biological warfare defense products under current FDA
regulations, we are required to utilize animal model studies for efficacy and
provide animal and human safety data under the “Animal Rule.” For
many of the biological and chemical threats, animal models are not yet
available, and as such we are developing, or will have to develop, appropriate
animal models, which is a time-consuming and expensive research
effort. Further, we may not be able to sufficiently demonstrate the
animal correlation to the satisfaction of the FDA, as these corollaries are
difficult to establish and are often unclear. The FDA may decide that
our data are insufficient for approval and require additional preclinical,
clinical or other studies, refuse to approve our products, or place restrictions
on our ability to commercialize those products. Further, other
countries do not, at this time, have established criteria for review and
approval of these types of products outside their normal review process; i.e.,
there is no “Animal Rule” equivalent, and consequently there can be no assurance
that we will be able to make a submission for marketing approval in foreign
countries based on such animal data.
Additionally,
few facilities in the U.S. and internationally have the capability to test
animals with anthrax, plague, nerve agents, or other lethal biotoxins or
chemical agents or otherwise assist us in qualifying the requisite animal
models. We have to compete with other biodefense companies for access
to this limited pool of highly specialized resources. We therefore
may not be able to secure contracts to conduct the testing in a predictable
timeframe or at all.
S-10
Even
if we succeed in commercializing our product candidates, they may not become
profitable and manufacturing problems or side effects discovered at later stages
can further increase costs of commercialization.
We cannot
assure you that any drugs resulting from our research and development efforts
will become commercially available. Even if we succeed in developing
and commercializing our product candidates, we may never generate sufficient or
sustainable revenues to enable us to be profitable. Even if
effective, a product that reaches market may be subject to additional clinical
trials, changes to or re-approvals of our manufacturing facilities or a change
in labeling if we or others identify side effects or manufacturing problems
after a product is on the market. This could harm sales of the
affected products and could increase the cost and expenses of commercializing
and marketing them. It could also lead to the suspension or
revocation of regulatory approval for the products.
We and
our CMOs will also be required to comply with the applicable FDA current Good
Manufacturing Practice, or cGMP, regulations. These regulations
include requirements relating to quality control and quality assurance as well
as the corresponding maintenance of records and
documentation. Manufacturing facilities are subject to inspection by
the FDA. These facilities must be approved to supply licensed
products to the commercial marketplace. We and our contract
manufacturers may not be able to comply with the applicable cGMP requirements
and other FDA regulatory requirements. Should we or our contract
manufacturers fail to comply, we could be subject to fines or other sanctions or
could be precluded from marketing our products. In particular, we
have engaged a new contract manufacturer, Diosynth, to replace Avecia to
manufacture bulk drug substance for SparVaxTM and are
engaged in a technology transfer process to this new contract
manufacturer. Diosynth has not manufactured this bulk drug substance
before. There can be no assurance that we will be successful in our
technology transfer efforts or that this new contract manufacturer will be able
to manufacture sufficient amounts of cGMP quality bulk drug substance necessary
for us to meet our obligations to the U.S. government.
We may
also fail to fully realize the potential of Valortim® and of our co-development
arrangement with Medarex (which was acquired by Bristol Myers Squibb in 2009),
our partner in the development of Valortim ®, which would have an adverse effect
upon our business. We have completed only one Phase I clinical trial
for Valortim ® with our development partner, Medarex, at this
point. As discussed in “—Risks Related to Our Dependence on U.S.
Government Contracts” most of our immediately foreseeable future revenues are
contingent upon grants and contracts from the U.S. government and we may not
achieve sufficient revenues from these agreements to attain
profitability. In the fourth quarter of 2009, the FDA placed our
Phase I clinical trial of Valortim ® and ciprofloxacin on partial clinical hold,
pending the results of our investigation of the potential causes for adverse
reactions observed in two subjects dosed in the trial. BARDA has
advised us that until satisfactory resolution of this issue and the partial
clinical hold is lifted it will not act on our request for additional advanced
development funding for Valortim® under BAA-BARDA-09-34. It is
unclear at this time if the FDA will agree with the recommendation of the SMC to
take Valortim® off partial clinical hold. Further, while we plan to submit a
white paper prior to the end of 2010 to BARDA for additional advanced
development funding for Valortim®, there can be no assurance that BARDA will ask
us to make a formal funding proposal or , if the proposal is made, will award
additional funding.
Before we
may begin selling any doses of Valortim®, we will need to conduct more
comprehensive safety trials in a significantly larger group of human
subjects. We will be required to expend a significant amount to
finalize manufacturing capability through a contract manufacturer to provide
material to conduct the pivotal safety and efficacy trials. If our
contract manufacturer is unable to produce sufficient quantities at a reasonable
cost, or has any other obstacles to production, then we will be unable to
commence these required clinical trials and studies. Even after we
expend sufficient funds to complete the development of Valortim® and if and when
we enter into an agreement to supply Valortim® to the U.S. government, we will
be required to share any and all profits from the sale of products with our
partner in accordance with a pre-determined formula.
We
may become subject to product liability claims, which could reduce demand for
our product candidates or result in damages that exceed our insurance
coverage.
We face
an inherent risk of exposure to product liability suits in connection with our
product candidates being tested in human clinical trials or sold
commercially. We may become subject to a product liability suit if
any product we develop causes injury, or if treated individuals subsequently
become infected or suffer adverse effects from our
products. Regardless of merit or eventual outcome, product liability
claims may result in decreased demand for a product, injury to our reputation,
withdrawal of clinical trial volunteers, and loss of revenues.
In
addition, if a product liability claim is brought against us, the cost of
defending the claim could be significant and any adverse determination may
result in liabilities in excess of our insurance coverage. Although
our anthrax countermeasures are covered under the general immunity provisions of
the U.S. Public Readiness and Emergency Preparedness Act (the “Public Readiness
Act”), there can be no assurance that the U.S. Secretary of Health and Human
Services will make other declarations in the future that cover any of our other
product candidates or that the U.S. Congress will not act in the future to
reduce coverage under the Public Readiness Act or to repeal it
altogether. For further discussion of that act, see “—Legislation
limiting or restricting liability for medical products used to fight
bioterrorism is new, and we cannot be certain that any such protection will
apply to our products or if applied what the scope of any such coverage will
be. Additionally, we are considering applying for indemnification
under the U.S. Support Anti-terrorism by Fostering Effective Technologies
(SAFETY) Act of 2002 which preempts and modifies tort laws so as to limit the
claims and damages potentially faced by companies who provide certain
“qualified” anti-terrorism products. However, we cannot be certain
that we will be able to obtain or maintain coverage under the SAFETY Act or
adequate insurance coverage on acceptable terms, if at all.
S-11
Risks
Related to Our Dependence on U.S. Government Contracts
All
of our immediately foreseeable future revenues are contingent upon grants and
contracts from the U.S. government and we may not achieve sufficient revenues
from these agreements to attain profitability.
For the
foreseeable future, we believe our main customer will be national governments,
primarily the U.S. government. Substantially all of our revenues to
date have been derived from grants and U.S. government
contracts. There can be no assurances that existing government
contracts will be renewed or that we can enter into new contracts or receive new
grants to supply the U.S. or other governments with our products. The
process of obtaining government contracts is lengthy and
uncertain. In addition, the U.S. government is in the process of
reviewing the public health emergency countermeasure enterprise. It
is anticipated that the review will include recommendations for how the U.S
government structures and oversees the research, development, procurement,
stockpiling and dispensing of countermeasures as well as how the enterprise is
funded. The implications of the review are not known at this time,
however, it could impact existing and anticipated contract
opportunities.
If the
U.S. government makes significant contract awards to our competitors, rather
than to us, for the supply to the U.S. emergency stockpile, our business will be
harmed and it is unlikely that we will ultimately be able to supply that
particular treatment or product to foreign governments or other third
parties. Further, changes in government budgets and agendas, cost
overruns in our programs, or advances by our competitors, may result in a
decreased and de-prioritized emphasis on, or termination of, government
contracts that support the development and/or procurement of the biodefense
products we are developing. Funding is subject to Congressional
appropriations generally made on an annual basis even for multi-year contracts.
More generally, due to the current economic downturn, the accompanying fall in
tax revenues and the U.S. government’s efforts to stabilize the economy, the
U.S. government may be forced or choose to reduce or delay spending in the
biodefense field or eliminate funding of certain programs altogether, which
could decrease the likelihood of future government contract awards or that the
government would procure products from us. Future funding levels for
two of our key government customers, BARDA and DoD, for the advanced development
and procurement of medical countermeasures are uncertain, and may be subject to
budget cuts as the U.S. Congress and the President look to reduce the nation’s
budget deficit.
For
example, while RFP-BARDA-08-15 for an rPA vaccine for the SNS initially
indicated that the government would make an award by September 26, 2008, the
award was delayed multiple times and ultimately canceled in December
2009. Furthermore, the U.S. government has selected a plague vaccine
product candidate from a competitor for advanced development funding, and we do
not anticipate that the U.S. government will provide additional funding in the
future for or procure RypVaxTM. Given
the limited future prospects for RypVaxTM at this
time, we and the U.S. government agreed to a reduction to the scope of work that
resulted in early wind down of all activities under our existing RypVaxTM
contract.
Furthermore,
due to U.S. Department of Defense, or DoD, budget constraints and concerns about
potential duration of protection with the current route of Protexia®
administration, the DoD has informed us that our existing September 2006
contract will not be extended past its current term, which ends on December 31,
2010. As a result of DoD’s decision not to continue funding Protexia®
development at this time, we are in the process of closing down our
Protexia®-related operations and will incur wind-down costs in the fourth
quarter of 2010 and the first half of 2011. These costs are not
likely to be reimbursed by the government. Further, it is possible
that we may have to write down the net book value of our Protexia®-related
assets, an amount that is not yet known. We expect to complete this
analysis in the fourth quarter 2010.
We are in
advanced discussions with the DoD regarding funding on-going research we have
been conducting related to the production of rBChE using an advanced mammalian
cell-based expression system. This work is still at an early research
stage and there can be no assurance that it will result in a safe and effective
FDA-licensed product. There can also be no assurance that DoD will
award us funding to support work on this mammalian cell-based expression
system.
S-12
Further,
BARDA has expressed concerns regarding our performance from April 1, 2009
through April 30, 2010 under our contract for the development of SparVaxTM. If
we are unable to perform adequately under this contract, we may be at increased
risk that BARDA will curtail our activities under, or terminate, that
contract.
In the
fourth quarter of 2009, the FDA placed our phase I clinical trial of Valortim®
and ciprofloxacin on partial clinical hold, pending the results of our
investigation of the potential causes for adverse reactions observed in two
subjects dosed in the trial. As a consequence, BARDA advised us that
until satisfactory resolution of this issue and the partial clinical hold is
lifted it would not act on our request for additional advanced development
funding for Valortim® under BAA-BARDA-09-34. In April 2010 BARDA
informed us of its belief that it is not practical at this point to resume
negotiations under the current proposal and encouraged us to submit a new white
paper for Valortim® under Board Agency Announcement,
BARDA-CBRN-BAA-10-100-SOL-00012, if and when FDA agrees to permit us to
reinitiate a Valortim® iv administration clinical trial
program. BARDA will request a formal proposal to provide additional
funding for this program, and what the effects of any delay in potential future
funding of the program will be on the overall Valortim® development
timeline.
Also, the
pricing under our fixed price government contracts is based on estimates of the
time, resources and expenses required to perform those contracts. If
our estimates are not accurate, we may not be able to earn an adequate return or
may incur a loss under these contracts.
U.S.
government agencies have special contracting requirements that give them the
ability to unilaterally control our contracts.
U.S.
government contracts typically contain unilateral termination provisions for the
government and are subject to audit and modification by the government at its
sole discretion, which will subject us to additional risks. These
risks include the ability of the U.S. government unilaterally to:
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suspend
or prevent us for a set period of time from receiving new contracts or
extending existing contracts based on violations or suspected violations
of laws or regulations;
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terminate
our contracts, including if funds become unavailable or are not provided
to the applicable governmental
agency;
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reduce
the scope and value of our
contracts;
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audit
and object to our contract-related costs and fees, including allocated
indirect costs;
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control
and potentially prohibit the export of our
products;
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claim
rights to products, including intellectual property, developed under the
contract;
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change
certain terms and conditions in our contracts;
and
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cancel
outstanding RFP solicitations (as was the case with RFP-BARDA-08-15) or
BAAs.
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The U.S.
government will be able to terminate any of its contracts with us either for its
convenience or if we default by failing to perform in accordance with the
contract schedule and terms. Termination-for-convenience provisions
generally enable us to recover only our costs incurred or committed, settlement
expenses, and profit on the work completed prior to
termination. Termination-for-default provisions do not permit these
recoveries and would make us liable for excess costs incurred by the U.S.
government in procuring undelivered items from another source.
For
example, earlier this year, NIAID raised concerns regarding performance under
our existing three year, $13.2 million contract with them related to our
third-generation anthrax vaccine program, with project delays and contract
management noted as key areas of concern. Through March 31, 2010 we
had recognized approximately $1.6 million in revenue under this
contract. In April 2010, NIAID notified us that the agency is
considering terminating the contract, possibly for default. In June
2010, we entered into a modification to this contract with NIAID, which closed
out the contract as part of a no-cost settlement between us and
NIAID.
Due to
the current economic downturn, the accompanying fall in tax revenues, and the
U.S. government’s efforts to stabilize the economy, the U.S. government may be
forced or choose to reduce or delay spending in the biodefense field or
eliminate funding of certain programs altogether, which could decrease the
likelihood of future government contract awards, the likelihood that the
government will exercise its right to extend any of its existing contracts with
us and/or the likelihood that the government would procure products from
us.
S-13
The
U.S. government’s determination to award any contracts may be challenged by an
interested party, such as another bidder, at the GAO or in federal
court. If such a challenge is successful, a contract award may be
re-evaluated and terminated.
The laws
and regulations governing the procurement of goods and services by the U.S.
government provide procedures by which other bidders and other interested
parties may challenge the award of a government contract. If we are
awarded a government contract, such challenges or protests could be filed even
if there are not any valid legal grounds on which to base the
protest. If any such protests are filed, the government agency may
decide, and in certain circumstances will be statutorily required, to suspend
our performance under the contract while such protests are being considered by
the GAO or the applicable federal court, thus potentially delaying delivery of
goods and services and payment. In addition, we could be forced to
expend considerable funds to defend any potential award. If a protest
is successful, the government may be ordered to terminate our contract and
re-evaluate bids. The government could even be directed to award a
potential contract to one of the other bidders. For example, in March
2010, a third-party filed a bid protest with the GAO challenging the February
2010 decision of the HHS to modify its existing research and development
contract with us for the development of SparVax. In March 2010 HHS
suspended performance under the modification pursuant to the automatic stay
provisions of the FAR, pending a decision by the GAO on the
protest. While the bid protest was ultimately denied, and the related
HHS “stop work” order canceled in June 2010, the protest contributed to a
reduction in revenues and cash and cash equivalents over the period that work
could not be performed under the modification. In addition, we
incurred unexpected general and administrative expenses to intervene in the
protest.
Our
business is subject to audit by the U.S. government and a negative audit could
adversely affect our business.
U.S.
government agencies such as the Defense Contract Audit Agency, or the DCAA,
routinely audit and investigate government contractors. These
agencies review a contractor’s performance under its contracts, cost structure
and compliance with applicable laws, regulations and standards.
The DCAA
also reviews the adequacy of, and a contractor’s compliance with, its internal
control systems and policies, including the contractor’s purchasing, property,
estimating, compensation and management information systems. Any
costs found to be improperly allocated to a specific contract will not be
reimbursed, while such costs already reimbursed must be refunded. If
an audit uncovers improper or illegal activities, we may be subject to civil and
criminal penalties and administrative sanctions, including:
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termination
of contracts;
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forfeiture
of profits;
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suspension
of payments;
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fines;
and
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suspension
or prohibition from conducting business with the U.S.
government.
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In
addition, we could suffer serious reputational harm if allegations of
impropriety were made against us.
Laws
and regulations affecting government contracts make it more costly and difficult
for us to successfully conduct our business.
We must
comply with numerous laws and regulations relating to the formation,
administration and performance of government contracts, which can make it more
difficult for us to retain our rights under these contracts. These
laws and regulations affect how we conduct business with government
agencies. Among the most significant government contracting
regulations that affect our business are:
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the
Federal Acquisition Regulation, or FAR, and agency-specific regulations
supplemental to the Federal Acquisition Regulation, which comprehensively
regulate the procurement, formation, administration and performance of
government contracts;
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the
business ethics and public integrity obligations, which govern conflicts
of interest and the hiring of former government employees, restrict the
granting of gratuities and funding of lobbying activities and incorporate
other requirements such as the Anti-Kickback Act, the Procurement
Integrity Act, the False Claims Act and Foreign Corrupt Practices
Act;
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export
and import control laws and regulations;
and
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S-14
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laws,
regulations and executive orders restricting the use and dissemination of
information classified for national security purposes and the exportation
of certain products and technical
data.
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Foreign
governments typically also have laws and regulations governing contracts with
their respective agencies. These foreign laws and regulations affect
how we and our customers conduct business and, in some instances, impose added
costs on our business. Any changes in applicable laws and regulations
could restrict our ability to maintain our existing contracts and obtain new
contracts, which could limit our ability to conduct our business and materially
adversely affect our revenues and results of operations.
Risks
Related to Dependence on or Competition From Third Parties
Because
we depend on clinical research centers and other contractors for clinical and
non-clinical testing, including testing under the Animal Rule, and for certain
research and development activities, the results of our clinical trial,
non-clinical animal efficacy studies, and research and development activities
are largely beyond our control.
The
nature of clinical trials and our business strategy of outsourcing substantially
all of our research and development and manufacturing work require that we rely
on clinical research centers and other contractors to assist us with research
and development, clinical and non-clinical testing (including animal efficacy
studies under the Animal Rule), patient enrollment and other
activities. As a result, our success depends largely on the success
of these third parties in performing their responsibilities. Although
we prequalify our contractors and believe that they are fully capable of
performing their contractual obligations, we cannot directly control the
adequacy and timeliness of the resources and expertise that they apply to these
activities. Furthermore, we have to compete with other biodefense
companies for access to this limited pool of highly specialized
resources. If our contractors do not perform their obligations in an
adequate and timely manner or we are unable to enter into contracts with them
because of prior commitments to our competitors, the pace of clinical or
non-clinical development, regulatory approval and commercialization of our
product candidates could be significantly delayed and our prospects could be
adversely affected.
We
depend on third parties to manufacture, package and distribute compounds for our
product candidates and key components for our product candidates. The
failure of these third parties to perform successfully could harm our
business.
We do not
have any of our own manufacturing facilities. We have therefore
utilized, and intend to continue utilizing, third parties to manufacture,
package and distribute our product candidates and key components of our product
candidates. Any material disruption in manufacturing could cause a
delay in our development programs and potential future
sales. Furthermore, certain compounds, media, or other raw materials
used to manufacture our drug candidates are available from any one or a limited
number of sources. Any delays or difficulties in obtaining key
components for our product candidates or in manufacturing, packaging or
distributing our product candidates could delay clinical trials and further
development of these potential products. Additionally, the third
parties we rely on for manufacturing and packaging are subject to regulatory
review, and any regulatory compliance problems with these third parties could
significantly delay or disrupt our commercialization activities.
Finally,
third-party manufacturers, suppliers and distributors, like most companies, have
been adversely affected by the credit crisis and weakening of the global economy
and as such may be more susceptible to being acquired as part of the current
wave of consolidations in the pharmaceutical industry. It has, for
example, become challenging for companies to secure debt capital to fund their
operations as financial institutions have significantly curtailed their lending
activities. If our third-party suppliers continue to experience
financial difficulties as a result of weak demand for their products or for
other reasons and are unable to obtain the capital necessary to continue their
present level of operations or are acquired by others, they may have to reduce
their activities and/or their priorities or our working relationship with them
might change. A material deterioration in their ability or
willingness to meet their obligations to us could cause a delay in our
development programs and potential future sales and jeopardize our ability to
meet our obligations under our contracts with the government or other third
parties.
S-15
We
face, and likely will continue to face, competition from companies with greater
financial, personnel and research and development resources. Our
commercial opportunities will be reduced or eliminated if our competitors are
more successful in the development and marketing of their products.
The
biopharmaceutical industry is characterized by rapid and significant
technological change. Our success will depend on our ability to
develop and apply our technologies in the design and development of our product
candidates and to establish and maintain a market for our product
candidates. There are many organizations, both public and private,
including major pharmaceutical and chemical companies, specialized biotechnology
firms, universities and other research institutions engaged in developing
pharmaceutical and biotechnology products. Many of these
organizations have substantially greater financial, technical, intellectual
property, research and development, and human resources than we
have. Competitors may develop products or other technologies that are
more effective than any that we are developing or may obtain FDA approval for
products more rapidly. As noted above in “—Most of our immediately
foreseeable future revenues are contingent upon grants and contracts from the
U.S. government and we may not achieve sufficient revenues from these agreements
to attain profitability,” the U.S. government has selected a plague vaccine
product candidate from a competitor for advanced development
funding.
If we
commence commercial sales of products, we still must compete in the
manufacturing and marketing of such products, areas in which we have limited
experience. Many of these organizations also have manufacturing
facilities and established marketing capabilities that would enable such
companies to market competing products through existing channels of
distribution. Our commercial opportunities will be reduced or
eliminated if our competitors develop and market products that:
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are
more effective;
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have
fewer or less severe adverse side
effects;
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are
more adaptable to various modes of
dosing;
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obtain
orphan drug exclusivity that blocks the approval of our application for
seven years;
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are
easier to administer; or
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are
less expensive than the products or product candidates that we are, or in
the future will be, developing.
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While the
regulatory climate for generic versions of biological products approved under a
Biologics License Application (or a BLA) in the United States remains uncertain,
and currently there is no formalized mechanism by which the FDA can approve a
generic version of an approved biological product, Federal legislation has been
introduced to establish a legal pathway for the approval of generic versions of
approved biological products. If enacted, the legislation will impact
the revenue projections for our products.
Even if
we are successful in developing effective products, and obtain FDA and other
regulatory approvals necessary for commercializing them, our products may not
compete effectively with other successful products. Our competitors
may succeed in developing and marketing products either that are more effective
than those that we may develop, alone or with our collaborators, making our
products obsolete, or that are marketed before any products that we develop are
marketed.
Risks
Related to Political and Social Factors
Political
or social factors may delay or impair our ability to market our products and our
business may be materially adversely affected.
Products
developed to treat diseases caused by, or to combat the threat of, bioterrorism
will be subject to changing political and social environments. The
political and social responses to bioterrorism have been
unpredictable. Political or social pressures may delay or cause
resistance to bringing our products to market or limit pricing of our products,
which would harm our business.
Risks
Related to Intellectual Property
Our
commercial success will be affected significantly by our ability (i) to obtain
and maintain protection for our proprietary technology and that of our licensors
and collaborators and (ii) not to infringe on patents and proprietary rights of
third parties.
The
patent position of biotechnology firms generally is highly uncertain and
involves complex legal and factual questions, and, therefore, validity and
enforceability cannot be predicted with certainty. To date, no
consistent policy has emerged regarding the breadth of claims allowed in
biotechnology patents. We currently hold two U.S. patents, have five
pending U.S. patent applications, and have a limited number of foreign patents
and pending international and foreign patents applications. In
addition, we have rights under numerous other patents and patent applications
pursuant to exclusive and non-exclusive license arrangements with licensors and
collaborators. However, there can be no assurance that patent
applications owned or licensed by us will result in patents being issued or that
the patents, whether existing or issued in the future, will afford protection
against competitors with similar technology. Any conflicts resulting
from third-party patent applications and patents could significantly reduce the
coverage of the patents owned, optioned by or licensed to us or our
collaborators and limit our ability or that of our collaborators to obtain
meaningful patent protection.
S-16
Further,
our commercial success will depend significantly on our ability to operate
without infringing the patents and proprietary rights of third
parties. We are aware of one U.S. patent covering recombinant
production of an antibody and a license may be required under such patent with
respect to Valortim ®, which is a monoclonal antibody and uses recombinant
reproduction of antibodies. Although the patent owner has granted
licenses under such patent, we cannot provide any assurances that we will be
able to obtain such a license or that the terms thereof will be
reasonable. If we do not obtain such a license and if a legal action
based on such patent was to be brought against us or our distributors, licensees
or collaborators, we cannot provide any assurances that we or our distributors,
licensees or collaborators would prevail or that we have sufficient funds or
resources to defend such claims.
We are
aware of one granted U.S. patent directed to pegylated
butyrylcholinesterase. Protexia® includes a pegylated
butyrylcholinesterase. If a license is required under such patent, we
believe that the patent owner is willing to grant such a license; however, we
cannot provide any assurances that, if needed, such a license will be granted or
that the terms thereof will be reasonable. We are also aware of
pending applications directed to pegylated butyrylcholinesterase and if a patent
is issued from such an application, we may be required to obtain a license
thereunder or obtain alternative technology. We cannot provide any
assurances that licenses will be available or that the terms thereof will be
reasonable or that we will be able to develop alternative
technologies. If we do not obtain a license under any patent directed
to pegylated butyrylcholinesterase and if a legal action based on such patent
was to be brought against us or our distributors, licensees or collaborators, we
cannot provide any assurances that we or our distributors, licensees or
collaborators would prevail or that we have sufficient funds or resources to
defend such claims.
The costs
associated with establishing the validity of patents, of defending against
patent infringement claims of others and of asserting infringement claims
against others is expensive and time consuming, even if the ultimate outcome is
favorable. An outcome of any patent prosecution or litigation that is
unfavorable to us or one of our licensors or collaborators may have a material
adverse effect on us. The expense of a protracted infringement suit,
even if ultimately favorable, would also have a material adverse effect on
us.
We
furthermore rely upon trade secrets protection for our confidential and
proprietary information. We have taken measures to protect our
proprietary information; however, these measures may not provide adequate
protection to us. We have sought to protect our proprietary
information by entering into confidentiality agreements with employees,
collaborators and consultants. Nevertheless, employees, collaborators
or consultants may still disclose our proprietary information, and we may not be
able to meaningfully protect our trade secrets. In addition, others
may independently develop substantially equivalent proprietary information or
techniques or otherwise gain access to our trade secrets.
Risks
Related to Regulatory Approvals and Legislation
Our
use of hazardous materials and chemicals requires us to comply with regulatory
requirements which may result in significant costs and expose us to potential
liabilities.
Our
research and development involves the controlled use of hazardous materials and
chemicals. We are subject to federal, state, local and foreign laws
governing the use, manufacture, storage, handling and disposal of such
materials. We will not be able to eliminate the risk of accidental
contamination or injury from these materials. In the event of such an
accident, we could be forced to pay significant damages or fines, and these
damages could exceed our resources and any applicable insurance
coverage. In addition, we may be required to incur significant costs
to comply with regulatory requirements in the future.
Legislation
limiting or restricting liability for medical products used to fight
bioterrorism is new, and we cannot be certain that any such protection will
apply to our products or if applied what the scope of any such coverage will
be.
The U.S.
Public Readiness Act was signed into law in December 2005 and creates general
immunity for manufacturers of countermeasures, including security
countermeasures (as defined in Section 319F-2(c)(1)(B) of that act), when the
U.S. Secretary of Health and Human Services issues a declaration for their
manufacture, administration or use. The declaration is meant to
provide general immunity from all claims under state or federal law for loss
arising out of the administration or use of a covered
countermeasure. Manufacturers are excluded from this protection in
cases of willful misconduct. Although our anthrax countermeasures
have been covered under the general immunity provisions of the Public Readiness
Act since October 1, 2008, there can be no assurance that the Secretary of
Health and Human Services will make other declarations in the future that would
cover any of our other product candidates or that the U.S. Congress will not act
in the future to reduce coverage under the Public Readiness Act or to repeal it
altogether.
S-17
Upon a
declaration by the Secretary of Health and Human Services, a compensation fund
would be created to provide “timely, uniform, and adequate compensation to
eligible individuals for covered injuries directly caused by the administration
or use of a covered countermeasure.” The “covered injuries” to which
the program applies are defined as serious physical injuries or
death. Individuals are permitted to bring a willful misconduct action
against a manufacturer only after they have exhausted their remedies under the
compensation program. A willful misconduct action could be brought
against us if an individual(s) has exhausted their remedies under the
compensation program which thereby could expose us to
liability. Furthermore, there is no assurance that the Secretary of
Health and Human Services will issue under this act a declaration to establish a
compensation fund. We may also become subject to standard product
liability suits and other third party claims if products we develop which fall
outside of the Public Readiness Act cause injury or if treated individuals
subsequently become infected or otherwise suffer adverse effects from such
products.
We
are required to comply with certain export control laws, which may limit our
ability to sell our products to non-U.S. persons and may subject us to
regulatory requirements that may delay or limit our ability to develop and
commercialize our products.
Our
product candidates are subject to the Export Administration Regulations, or EAR,
administered by the U.S. Department of Commerce and are, in certain instances
(such as regarding aspects of our nerve agent countermeasure product candidates)
subject to the International Traffic in Arms Regulations, or ITAR, administered
by the U.S. Department of State. EAR restricts the export of dual-use
products and technical data to certain countries, while ITAR restricts the
export of defense products, technical data and defense services. The
U.S. government agencies responsible for administering EAR and ITAR have
significant discretion in the interpretation and enforcement of these
regulations. Failure to comply with these regulations can result in
criminal and civil penalties and may harm our ability to enter into contracts
with the U.S. government. It is also possible that these regulations
could adversely affect our ability to sell our products to non-U.S.
customers.
Risks
Related to Personnel
We
depend on our key technical and management personnel, and the loss of these
personnel could impair the development of our products.
We rely,
and will continue to rely, on our key management and scientific staff, all of
whom are employed at-will. The loss of key personnel or the failure
to recruit necessary additional qualified personnel could have a material
adverse effect on our business and results of operations. There is
intense competition from other companies, research and academic institutions and
other organizations for qualified personnel. We may not be able to
continue to attract and retain the qualified personnel necessary for the
development of our business. If we do not succeed in retaining and
recruiting necessary personnel or developing this expertise, our business could
suffer significantly.
In
particular, as noted above in “Even if we succeed in commercializing our product
candidates, they may not become profitable and manufacturing problems or side
effects discovered at later stages can further increase costs of
commercialization ,” we are transferring the manufacturing process for the bulk
rPA drug substance from Avecia in the United Kingdom to Diosynth, a U.S.-based
contract manufacturer. There can be no assurance that we will be able
to recruit and hire the necessary staff in the U.S. to complete the transfer of
the manufacturing process in a timely and cost effective manner.
Biotechnology
companies often become subject to claims that they or their employees wrongfully
used or disclosed alleged trade secrets of the employees’ former
employers. Such litigation could result in substantial costs and be a
distraction to our management.
As is
commonplace in the biotechnology industry, we employ individuals who were
previously employed at other biotechnology or pharmaceutical companies,
including at competitors or potential competitors. Although no claims
against us are currently pending, we may be subject to claims that we or our
employees have inadvertently or otherwise used or disclosed trade secrets or
other proprietary information of their former employers. Litigation
may be necessary to defend against these claims. Even if we are
successful in defending against these claims, litigation could result in
substantial costs and distract management.
S-18
Risks
Related to This Offering and Our Common Stock
If
we are unable to make progress with respect to our plan to regain compliance
with the minimum stockholders’ equity requirements imposed by the NYSE Amex
within the required timeframes, our common stock could be delisted from trading,
which could limit investors’ ability to make transactions in our common stock
and subject us to additional trading restrictions.
Our
common stock is listed on the NYSE Amex, a national securities exchange, which
imposes continued listing requirements with respect to listed
shares. In July 2010, we received a letter from the NYSE Amex,
stating that we are not in compliance with the exchange’s continued listing
standards, specifically, Sections 1003(a)(i), (ii) and (iii) of the NYSE Amex
Company Guide, because we have stockholders’ equity of less than $2.0 million,
$4.0 million and $6.0 million and losses from continuing operations and net
losses in two of our three most recent fiscal years, three of our four most
recent fiscal years and our five most recent fiscal years,
respectively.
On August
25, 2010, we submitted a plan to the NYSE Amex addressing how we intend to
regain compliance with the continued listing standards by January 26, 2012, the
end of the eighteen-month compliance period under NYSE Amex
rules. Based on the information in our compliance plan and related
discussions with exchange staff, the NYSE Amex determined that we had made a
reasonable demonstration of our ability to regain compliance with Sections
1003(a)(i), (ii) and (iii) of the NYSE Amex Company Guide by January 26, 2012
and that it would continue the listing of our common stock subject to
conditions. The conditions include (a) the requirement to provide
exchange staff with updates on the initiatives included in our compliance plan,
at least once each quarter concurrent with our corresponding periodic SEC
filing, (b) the periodic review of our compliance with the plan by exchange
staff, and (c) the approval of a NYSE Amex management committee prior to any
issuances of additional shares of common stock. If we do not show
progress consistent with our compliance plan, or we do not meet the continued
listing standards by January 26, 2012, the NYSE Amex could initiate delisting
proceedings.
Furthermore,
if we fail to satisfy any other continued listing standard, such as the
requirement that issuers have more than 300 public shareholders, or that the
aggregate market value of shares publicly held be more than $1,000,000, the NYSE
Amex may also decide to initiate delisting proceedings.
If our
securities are delisted from trading on the NYSE Amex and we are not able to
list our securities on another exchange or to have them quoted on Nasdaq, our
securities could be quoted on the OTC Bulletin Board or on the “pink
sheets”. As a result, we could face significant adverse consequences
including:
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a
limited availability of market quotations for our
securities;
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a
determination that our common stock is a “penny stock” which will require
brokers trading in our common stock to adhere to more stringent rules and
possibly result in a reduced level of trading activity in the secondary
trading market for our securities;
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a
limited amount of news and analyst coverage for us;
and
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a
decreased ability to issue additional securities (including pursuant to
our universal shelf registration statement on Form S-3) or obtain
additional financing in the future.
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Our
management team will have broad discretion over the use of the net proceeds from
this offering.
Our
management will use their discretion to direct the net proceeds from this
offering. Although a portion of the net proceeds will be used
to satisfy our obligations under our convertible notes as described in “Use of
Proceeds”, including obligations to certain of our directors, officers and other
affiliates, we expect that a significant portion of the net proceeds will be
available for general corporate purposes. General corporate
purposes may include working capital, research and development expenses, general
and administrative expenses, capital expenditures and future
acquisitions. See “Use of Proceeds” on page S-18 of this prospectus
supplement. Our management’s judgments may not result in positive
returns on your investment and you will not have an opportunity to evaluate the
economic, financial or other information upon which our management bases its
decisions.
S-19
Investors
in this offering will experience immediate and substantial
dilution.
The
public offering price of the securities offered pursuant to this prospectus
supplement is substantially higher than the net tangible book value per share of
our common stock. Therefore, if you purchase shares of common stock
in this offering, you will incur immediate and substantial dilution in the net
tangible book value per share of common stock from the price per share that you
pay for the common stock. In addition, the conversion of our outstanding
convertible notes will cause additional dilution because the conversion price of
such notes is lower than the price per share that you pay for the common
stock. Furthermore, if the holders of outstanding options or warrants
exercise those options or warrants at prices below the public offering price,
you will incur further dilution. See the section entitled “Dilution”
for a more detailed discussion of the dilution you will incur if you purchase
common stock in this offering.
Our
stock price is volatile, and you may not be able to resell your shares at or
above the offering price.
The
market price of our common stock has been, and we expect will continue to be,
subject to significant volatility. The value of our common stock may
decline regardless of our operating performance or prospects. Factors
affecting our market price include:
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our
perceived prospects;
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variations
in our operating results and whether we have achieved key business
targets;
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changes
in, or our failure to meet, revenue
estimates;
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changes
in securities analysts’ buy/sell
recommendations;
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differences
between our reported results and those expected by investors and
securities analysts;
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announcements
of new contracts by us or our
competitors;
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reaction
to any acquisitions, joint ventures or strategic investments announced by
us or our competitors; and
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general
economic, political or stock market
conditions.
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Shares
that we may issue in the future in connection with certain capital-raising
transactions and shares available for future issuance upon conversion and
exercise of convertible notes, warrants and options could dilute our
shareholders, including the investors in this offering, and depress the market
price of our common stock.
We have
filed a shelf registration statement on Form S-3, which was declared effective
on February 12, 2009 in connection with a sale from time to time of common
stock, preferred stock or warrants or any combination of those securities,
either individually or in units, in one or more offerings for up to $50,000,000
(inclusive of the gross proceeds from this offering, and our July 2010, April
2010 and March 2009 registered offerings). Assuming this offering is
consummated, we expect to file a new universal shelf registration statement in
the future. Raising capital in this or other manners may depress the
market price of our stock, and any such financing(s) will dilute our existing
shareholders.
In
addition, as of September 30, 2010 we had outstanding options to purchase
approximately 4.4 million shares of common stock. Additional shares
are reserved for issuance under our 2007 Long-Term Incentive Compensation
Plan. Our stock options are generally exercisable for ten years, with
a significant portion exercisable either immediately or beginning one year after
the date of the grant.
Furthermore,
our senior convertible notes in the aggregate principal amount of $19.3 million
due July 2011 are convertible at approximately $2.54 per share into
approximately 8.5 million shares of our common stock (based on the current
principal amount plus interest through the date of this prospectus supplement),
and the accompanying warrants are exercisable for up to approximately 2.6
million shares of common stock at $2.50 per share. Under the terms of
the notes, each holder converting notes is entitled to receive a number of
shares corresponding to principal and accrued interest through the date of
conversion (plus any accrued and unpaid late charges). In addition,
we have agreed to pay each holder exercising his conversion right prior to
maturity an amount in cash corresponding to the interest foregone, i.e., the
interest the holder would have received between the conversion date and the
maturity date had he held the note through maturity. Holders of notes
in the aggregate principal amount of at approximately
$ million
have agreed to convert their notes, with the conversion subject to and
conditioned on the consummation of this offering. Assuming such holders
convert their notes, a total of
approximately shares
of common stock will be issued to such holders. Any such conversions
will dilute the equity interest of our stockholders.
S-20
Finally,
as of September 30, the Company had issued and outstanding additional warrants
to purchase up to an additional approximately 5.2 million shares of common
stock.
The
issuance or even the expected issuance of a large number of shares of our common
stock upon conversion or exercise of the securities described above could
depress the market price of our stock and the issuance of such shares will
dilute the stock ownership of our existing shareholders. Shares that
we may issue in the future in connection with certain capital-raising
transactions and shares available for future issuance upon conversion and
exercise of convertible notes, warrants and options could dilute our
shareholders and depress the market price of our common stock.
We
can give no assurances that we will ever pay dividends.
We have
not paid any dividends on our common stock in 2009, 2008 or 2007 and do not
intend to declare any dividends in the foreseeable future. While
subject to periodic review, our current policy is to retain all earnings, if
any, primarily to finance our future growth. We make no assurances
that we will ever pay dividends, cash or otherwise. Whether we pay
any dividends in the future will depend on our financial condition, results of
operations, and other factors that we will consider.
Special
Note Regarding Forward-Looking Information
This
prospectus supplement and the accompanying prospectus and the information
incorporated by reference herein and therein contain 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 (the “Exchange
Act”). This information may involve known and unknown risks,
uncertainties and other factors that are difficult to predict and may cause our
actual results, performance or achievements to be materially different from
future results, performance or achievements expressed or implied by any
forward-looking statements. These risks, uncertainties and other
factors include, but are not limited to, risk associated with the
following:
|
·
|
the
reliability of the results of the studies relating to human safety and
possible adverse effects resulting from the administration of the
Company’s product candidates,
|
|
·
|
Our
any inability to perform adequately under our contract for the development
of SparVaxTM,
|
|
·
|
unexpected
funding delays and/or reductions or elimination of U.S. government funding
for one or more of our development programs, or delays in collecting
accounts receivable under our U.S. government
contracts,
|
|
·
|
the
award of government contracts to our competitors or delays caused by third
parties challenging government contract awards to
us,
|
|
·
|
unforeseen
safety issues,
|
|
·
|
challenges
related to the development, technology transfer, scale-up, and/or process
validation of manufacturing processes for our product
candidates,
|
|
·
|
unexpected
determinations that these product candidates prove not to be effective
and/or capable of being marketed as
products,
|
|
·
|
challenges related to the
implementation of our NYSE Amex compliance
plan,
|
as well
as risks detailed under the caption “Risk Factors” in this prospectus supplement
and the accompanying prospectus and in our other reports filed with the U.S.
Securities and Exchange Commission (the “SEC”) from time to time
hereafter. Forward-looking statements describe management’s current
expectations regarding our future plans, strategies and objectives and are
generally identifiable by use of the words “may,” “will,” “should,” “expect,”
“anticipate,” “estimate,” “believe,” “intend,” “project,” “potential”
or “plan” or the negative of these words or other variations on these words or
comparable terminology. Such statements include, but are not limited
to:
|
·
|
statements
about potential future government contract or grant
awards,
|
|
·
|
potential
payments under government contracts or
grants,
|
|
·
|
potential
regulatory approvals,
|
|
·
|
future
product advancements,
|
S-21
|
·
|
anticipated
financial or operational results,
and
|
|
·
|
expected
benefits from our acquisition of the biodefense vaccines business (“Avecia
Acquisition”) from Avecia Biologics Limited and certain of its affiliates
(“Avecia”) in April 2008.
|
Forward-looking
statements are based on assumptions that may be incorrect, and we cannot assure
you that the projections included in the forward-looking statements will come to
pass.
You are
cautioned not to place undue reliance on these forward-looking statements, which
speak only as of the date of this document. Except to the extent
required by applicable laws and regulations, we undertake no obligation to
update these forward-looking statements to reflect events or circumstances after
the date of this document or to reflect the occurrence of unanticipated
events. Although we undertake no obligation to revise or update any
forward-looking statements, whether as a result of new information, future
events or otherwise, you are advised to consult any additional disclosures that
we may make directly to you or through reports that we, in the future, may file
with the SEC, including Annual Reports on Form 10-K, Quarterly Reports on Form
10-Q and Current Reports on Form 8-K.
All
forward-looking statements included herein are expressly qualified in their
entirety by the cautionary statements contained or referred to elsewhere in this
prospectus supplement or in the accompanying prospectus.
Use
of Proceeds
We
estimate that the net proceeds to us from the sale of common shares to be
offered by this prospectus supplement will be approximately
$
million, or approximately
$
million if the underwriter exercises in full its option to purchase
additional shares of common stock, after deducting the estimated underwriting
discounts and commissions and our estimated expenses of this
offering.
We intend
to use the net proceeds from this offering for general corporate
purposes. We intend to redeem, as soon as practicable, all of our
outstanding convertible senior notes due July 2011 that have not been converted
into shares of our common stock prior to their redemption date. In
any event, we expect to have sufficient funds available to repay any remaining
notes at maturity if not previously redeemed. As of the date of
this prospectus supplement, convertible notes in the aggregate principal amount
of approximately $19.3 million, carrying an interest rate of 10% per annum, are
outstanding. These notes are convertible into up to approximately 8.5
million shares of our common stock (based on principal amount plus interest
through the date of this prospectus supplement). Including accrued but unpaid
interest, a total of approximately $21.7 million would be needed to redeem all
of the notes if none of them were converted into shares of our common stock at
or prior to redemption. Under the terms of the notes, each holder
converting notes is entitled to receive a number of shares corresponding to
principal and accrued interest through the date of conversion (plus any accrued
and unpaid late charges). In order to induce holders of our
convertible notes to convert their notes into common stock, we have separately
agreed to pay each holder exercising his conversion right prior to maturity an
amount in cash corresponding to the interest foregone, i.e., the interest the
holder would have received between the conversion date and the maturity date had
he held the note through maturity. Holders of notes in the
aggregate principal amount of approximately
$ million have
irrevocably agreed to convert their notes, subject to and conditioned on the
consummation of this offering. Some of these holders
are affiliates, officers or directors of PharmAthene (or their family
members). Upon conversion, these holders will receive
approximately million
shares of common stock, while approximately
$ million would be paid to them in
cash. A total of approximately
$ million would then be needed to redeem the
remaining notes. If each
holder of our convertible senior notes due 2011 converted their notes on the
date hereof, we would pay an aggregate of approximately $1.5 million to the
holders representing the interest from the date of conversion through
maturity.
General
corporate purposes may also include working capital, research and development
expenses, general and administrative expenses, and capital
expenditures. We may also use a portion of the net proceeds to
acquire or invest in businesses, products and technologies that are
complementary to our own, although we have no present commitments or agreements
for any such transactions. The amounts and timing of our actual
expenditures for each purpose may vary significantly depending upon numerous
factors, including the actual amount of proceeds we receive from this offering,
the status of our research and product-development efforts, regulatory
approvals, competition and economic or other conditions. As of the
date of this prospectus supplement, we cannot specify with certainty all of the
particular uses for the net proceeds to us from this
offering. Accordingly, our management will have broad discretion in
the application of these proceeds. Pending application of the net
proceeds as described above, we intend to temporarily invest the proceeds in
short and long-term interest bearing instruments.
S-22
Related
Party Transactions
An
existing investor affiliated with one of our directors has indicated an interest
in purchasing shares of our common stock in this offering under the same terms
as they are offered to the public hereunder.
Certain
of our affiliates, officers and directors (and their family members) own
convertible senior notes due July 2011 and, assuming they convert their notes in
accordance with the procedures outlined above, will be receiving cash payments
from the proceeds of this offering corresponding to the interest foregone, i.e.,
the interest the holders would have received between the conversion date and the
maturity date had they held the note through maturity. These holders,
and the cash payments they will be expected to receive if they convert in
accordance with the above procedures, are:
|
·
|
Funds
affiliated with MPM
Bioventures: $ . Our
director Steven St. Peter is affiliated with the MPM funds, but is not a
member of the general partners and thus is not deemed to have beneficial
ownership of the shares owned by the MPM
funds.
|
|
·
|
Healthcare
Ventures VII, L.P.:
$ . Our
director James Cavanaugh is a general partner of HealthCare Partners VII,
L.P., which is the general partner of HealthCare Ventures VII,
L.P.
|
|
·
|
Mary
L.
Pappajohn: $ . Ms.
Pappajohn is the spouse of John Pappajohn, the Chairman of our board of
directors.
|
|
·
|
Derace
Schaffer: $ . Dr.
Schaffer is a member of our board of
directors.
|
|
·
|
Joel
McCleary: $ . Mr.
McCleary is a member of our board of
directors.
|
|
·
|
Eric
Richman: $ . Mr.
Richman is our President and Chief Executive Officer and a member of our
board of directors.
|
|
·
|
Argyis
(RJ) Vassiliou:
$ . Mr.
Vassiliou is the son-in-law of Mr.
Pappajohn.
|
|
·
|
Ann
Vassiliou Children’s
Trust: $ . Mr.
Vassiliou, the son-in-law of Mr. Pappajohn, is the trustee of this
trust.
|
Dividend
Policy
To date,
we have paid no cash dividends to our stockholders and we do not intend to pay
cash dividends in the foreseeable future.
Dilution
If you
purchase our common stock in this offering, your interest will be diluted to the
extent of the difference between the offering price per share and our pro forma
net tangible book value per share of our common stock after this offering and
the conversion of convertible notes in connection with this
offering. Our net tangible book value as of June 30, 2010 was
approximately $(12.8) million, or $(0.43) per share. Net
tangible book value per share is determined by dividing our total tangible
assets, less total liabilities, by the number of shares of our common stock
outstanding as of June 30, 2010. Dilution in net tangible book
value per share represents the difference between the amount per share paid by
purchasers of shares of common stock in this offering and the net tangible book
value per share of our common stock immediately after this
offering.
S-23
Assuming
that holders of notes in the aggregate principal amount of
$ million convert their
notes as described under “Use of Proceeds” above, our pro forma net tangible
book value as of June 30, 2010 would have been approximately
$ million, or
$ per
share. In the event that the holders of the remaining convertible
notes convert the notes into shares of common stock, investors in this offering
will incur additional dilution. After giving effect to the expected sale of
shares
of our common stock in this offering at the public offering price of
$ per
share, after deducting the estimated underwriting discounts and commissions and
estimated offering expenses payable by us and after giving effect to the
conversion
of $ million of
convertible notes into our common stock in connection with this offering, our
pro forma as adjusted net tangible book value as of June 30, 2010 would
have been approximately
$ million,
or
$ per
share. This represents an immediate increase in net tangible book
value of
$ per
share to existing stockholders and immediate dilution in net tangible book value
of
$ per
share to investors purchasing our common stock in this offering at the public
offering price. The following table illustrates this dilution on a
per share basis:
|
Public
offering price per share
|
|
|
$
|
|
||
|
Net
tangible book value per share as of June 30, 2010
|
|
$
|
(12.8)
|
|
||
|
Increase
in net tangible book value per share attributable to the conversion of
notes in the aggregate principal amount of approx.
$ million
|
$
|
|||||
|
Pro
forma net tangible book value per share as of June 30, 2010 after giving
effect to such conversion
|
$
|
|||||
|
Increase
in net tangible book value per share attributable to this
offering
|
|
$
|
|
|
||
|
Pro
forma as adjusted net tangible book value per share as of June 30,
2010 after giving effect to such conversion and this
offering
|
|
|
$
|
|
||
|
Dilution
in net tangible book value per share to new investors
|
|
|
$
|
|
If the
underwriter exercises in full its option to purchase
additional shares of common stock at the public offering price of
$ per
share, the pro forma as adjusted net tangible book value would be
$ per
share, representing an increase in net tangible book value of
$ per
share to existing stockholders and immediate dilution in net tangible book value
of $ per
share to investors purchasing our common stock in this offering at the public
offering price.
The
discussion and table above are based on 29,984,190 shares outstanding as of June
30, 2010 (including unvested restricted shares), and exclude as of that
date:
|
|
·
|
5,488,183
shares of common stock underlying options outstanding under our 2007
Long-Term Incentive Compensation Plan at a weighted average exercise price
of $3.20 per share;
|
|
|
·
|
3,893,443
shares of common stock underlying warrants outstanding at a weighted
average exercise price of $2.54 per
share;
|
|
|
·
|
8,302,467
shares of common stock underlying our 10% convertible
notes.
|
Our 2007
Long-Term Incentive Compensation Plan provides for an annual automatic increase
as of the first day of each fiscal year beginning in 2009 and continuing until
2015 equal to the lesser of (i) 1,100,000 shares, (ii) 2.5% of the outstanding
shares of our common stock as of the end of our immediately preceding fiscal
year, and (iii) any lesser number of shares determined by our Board of
Directors; provided, however, that the aggregate number of shares available for
issuance pursuant to such increases shall not exceed a total of 5,700,000
shares.
To the
extent options or warrants outstanding as of June 30, 2010 have been or may
be exercised or other shares are issued, there may be further dilution to new
investors. In addition, we may choose to raise additional capital due
to market conditions or strategic considerations even if we believe we have
sufficient funds for our current or future operating plans. To the
extent that additional capital is raised through the sale of equity or
convertible debt securities, the issuance of these securities could result in
further dilution to our stockholders.
S-24
Underwriting
We have
entered into an underwriting agreement with Roth Capital Partners, LLC with
respect to the shares of common stock subject to this offering. Subject to
certain conditions, we have agreed to sell to the underwriters, and the
underwriters have agreed to purchase, the number of shares of common stock
provided below opposite their respective names.
|
Underwriters
|
|
Number of Shares
|
|
Roth
Capital Partners, LLC
|
|
|
|
|
||
|
Total
|
||
The
underwriter is offering the shares of common stock subject to its acceptance of
the shares of common stock from us and subject to prior sale. The
underwriting agreement provides that the obligation of the underwriter to pay
for and accept delivery of the shares of common stock offered by this prospectus
supplement and the related prospectus is subject to the approval of certain
legal matters by its counsel and to certain other conditions. The
underwriter is obligated to take and pay for all of the shares of common stock
if any such shares are taken. However, the underwriter is not
required to take or pay for the shares of common stock covered by the
underwriter’s over-allotment option described below.
Over-Allotment
Option
We have
granted the underwriter an option, exercisable for 30 days from the date of this
prospectus, to purchase up to an aggregate of
additional shares of common stock to cover over-allotments, if any, at the
public offering price set forth on the cover page of this prospectus supplement,
less underwriting discounts and commissions. The underwriter may
exercise this option solely for the purpose of covering over-allotments, if any,
made in connection with the offering of the shares of common stock offered
hereby. If the underwriter exercises this option, the underwriter
will be obligated, subject to certain conditions, to purchase the additional
shares specified in the notice of exercise.
Commission
and Expenses
The
underwriter has advised us that they propose to offer the shares of common stock
to the public at the initial public offering price set forth on the cover page
of this prospectus supplement and to certain dealers at that price less a
concession not in excess of $ per share. The
underwriter may allow, and certain dealers may reallow, a discount from the
concession not in excess of $ per share to certain
brokers and dealers. After this offering, the initial public offering
price, concession and reallowance to dealers may be changed by the
underwriter. No such change shall change the amount of proceeds to be
received by us as set forth on the cover page of this prospectus
supplement. The shares of common stock are offered by the underwriter
as stated herein, subject to receipt and acceptance by it and subject to its
right to reject any order in whole or in part. The underwriter has
informed us that it does not intend to confirm sales to any accounts over which
it exercises discretionary authority.
S-25
The
following table shows the underwriting discounts and commissions payable to the
underwriter by us in connection with this offering. Such amounts are
shown assuming both no exercise and full exercise of the underwriters’
over-allotment option to purchase shares.
|
Fee
per share
|
Total
Without Exercise of Over-Allotment
|
Total
With Exercise of Over-Allotment
|
||||
|
Public
offering price
|
$
|
$
|
$
|
|||
|
Discount
|
$
|
$
|
$
|
__________________________
We
estimate that expenses payable by us in connection with the offering of our
common stock, other than the underwriting discounts and commissions referred to
above, will be approximately
$ . We
have agreed to reimburse the underwriter for certain out-of-pocket expenses not
to exceed $15,000 for all expenses other than attorneys fees and expenses and
$40,000 for the underwriter’s attorneys fees and expenses.
We have also engaged Noble to serve as
our non-exclusive financial advisor in connection with the offering of the
securities contemplated hereby and will pay Noble a financial advisory fee of
approximately $ , assuming all of the
securities offered hereby are sold, payable on the closing date of the
transaction to which this prospectus supplement relates.
In no event shall the total
compensation payable to the underwriter and any other member of the Financial
Industry Regulatory Authority, Inc. or independent broker-dealer (including any
financial advisor) in connection with the sale of the common stock offered
hereby (including any expense reimbursement) exceed 8% of the gross proceeds
received by the Company from the sale of the securities offered
hereby.
Indemnification
We have
agreed to indemnify the underwriter against certain liabilities, including
liabilities under the Securities Act of 1933, as amended, or the Securities Act,
and liabilities arising from breaches of representations and warranties
contained in the underwriting agreement, or to contribute to payments that the
underwriter may be required to make in respect of those
liabilities.
Lock-up
Agreements
We have
agreed, subject to limited exceptions, for a period of 30 days after the date of
the underwriting agreement, not to offer, sell, contract to sell, pledge, grant
any option to purchase, make any short sale or otherwise dispose of, directly or
indirectly any shares of common stock or any securities convertible into or
exchangeable for our common stock either owned as of the date of the
underwriting agreement or thereafter acquired without the prior written consent
of the underwriter. This 30-day period may be extended if
(1) during the last 17 days of the 180-day period, we issue an earnings
release or material news or a material event regarding us occurs or
(2) prior to the expiration of the 180-day period, we announce that we will
release earnings results during the 16-day period beginning on the last day of
the 30-day period, then the period of such extension will be 18-days, beginning
on the issuance of the earnings release or the occurrence of the material news
or material event. If after any announcement described in clause
(2) of the preceding sentence, we announce that we will not release
earnings results during the 16-day period, the lock-up period shall expire the
later of the expiration of the 30-day period and the end of any extension of
such period made pursuant to clause (1) of the preceding
sentence. The underwriter may, in its sole discretion and at any time
or from time to time before the termination of the lock-up period, without
notice, release all or any portion of the securities subject to the
lock-up.
Electronic
Distribution
The
prospectus supplement and the related prospectus may be made available in
electronic format on websites or through other online services maintained by the
underwriter, or by an affiliate. Other than this prospectus
supplement and the related prospectus in electronic format, the information on
the underwriter’s website and any information contained in any other website
maintained by the underwriter is not part of this prospectus supplement, the
related prospectus or the registration statement of which this prospectus
supplement and the related prospectus forms a part, has not been approved and/or
endorsed by us or the underwriter in its capacity as underwriter, and should not
be relied upon by investors.
S-26
Price
Stabilization, Short Positions and Penalty Bids
In
connection with the offering the underwriter may engage in stabilizing
transactions, over-allotment transactions, syndicate covering transactions and
penalty bids in accordance with Regulation M under the Exchange
Act:
|
|
·
|
Stabilizing
transactions permit bids to purchase the underlying security so long as
the stabilizing bids do not exceed a specified
maximum.
|
|
|
·
|
Over-allotment
involves sales by the underwriter of shares in excess of the number of
shares the underwriter is obligated to purchase, which creates a syndicate
short position. The short position may be either a covered short position
or a naked short position. In a covered short position, the number of
shares over-allotted by the underwriter is not greater than the number of
shares that it may purchase in the over-allotment option. In a naked short
position, the number of shares involved is greater than the number of
shares in the over-allotment option. The underwriter may close out any
covered short position by either exercising its over-allotment option
and/or purchasing shares in the open
market.
|
|
|
·
|
Syndicate
covering transactions involve purchases of shares of the common stock in
the open market after the distribution has been completed in order to
cover syndicate short positions. In determining the source of shares to
close out the short position, the underwriter will consider, among other
things, the price of shares available for purchase in the open market as
compared to the price at which it may purchase shares through the
over-allotment option. If the underwriter sells more shares than could be
covered by the over-allotment option, a naked short position, the position
can only be closed out by buying shares in the open market. A naked short
position is more likely to be created if the underwriter is concerned that
there could be downward pressure on the price of the shares in the open
market after pricing that could adversely affect investors who purchase in
the offering.
|
|
|
·
|
Penalty
bids permit the underwriter to reclaim a selling concession from a
syndicate member when the common stock originally sold by the syndicate
member is purchased in a stabilizing or syndicate covering transaction to
cover syndicate short positions.
|
These
stabilizing transactions, syndicate covering transactions and penalty bids may
have the effect of raising or maintaining the market price of our common stock
or preventing or retarding a decline in the market price of the common stock. As
a result, the price of our common stock may be higher than the price that might
otherwise exist in the open market. Neither we nor the underwriter makes any
representation or prediction as to the direction or magnitude of any effect that
the transactions described above may have on the price of the common stock. In
addition, neither we nor the underwriter makes any representations that the
underwriter will engage in these stabilizing transactions or that any
transaction, once commenced, will not be discontinued without
notice.
Listing
and Transfer Agent
Our
common stock is listed on the NYSE Amex and trades under the symbol
“PIP.BC.” The transfer agent of our common stock is Continental Stock
Transfer & Trust Company.
Other
The
underwriter and/or its affiliates have provided, and may in the future provide,
various investment banking and other financial services for us for which
services it has received and, may in the future receive, customary
fees.
S-27
Legal
Matters
SNR
Denton US LLP, New York, New York will pass upon the validity of the issuance of
the common stock offered by this prospectus supplement and the accompanying
prospectus. Lowenstein Sandler PC, Roseland, New Jersey, is acting as
counsel for the underwriter in connection with various matters related to the
securities offered hereby.
Experts
Ernst
& Young LLP, independent registered public accounting firm, has audited our
consolidated financial statements included in our Annual Report on Form 10-K for
the year ended December 31, 2009 as set forth in their report, which is
incorporated by reference in this prospectus supplement and elsewhere in the
registration statement. Our financial statements are incorporated by
reference in reliance on Ernst & Young LLP’s report, given on their
authority as experts in accounting and auditing.
Where
You Can Find More Information
We have
filed with the SEC a registration statement on Form S-3 (File
No. 333-156997), of which this prospectus supplement and the accompanying
prospectus are a part, under the Securities Act, to register the shares of
common stock offered by this prospectus supplement. However, this
prospectus supplement and the accompanying prospectus do not contain all of the
information contained in the registration statement and the exhibits and
schedules to the registration statement. We encourage you to
carefully read the registration statement and the exhibits and schedules to the
registration statement.
As a
public company, we are required to file annual, quarterly and current reports,
proxy statements and other information with the SEC. You may read and
copy any of our materials on file with the SEC at the SEC’s Public Reference
Room at 100 F Street, N.E., Washington, D.C. 20549. Our filings are
available to the public over the Internet at the SEC’s website at
http://www.sec.gov. Please call the SEC at 1-800-SEC-0330 for further
information on the Public Reference Room.
Incorporation
of Certain Information by Reference
The SEC
allows us to “incorporate by reference” in this prospectus supplement the
information in other documents that we file with the SEC, which means that we
can disclose important information to you by referring you to those
documents. The information incorporated by reference is considered to
be a part of this prospectus and may subsequently be updated and superseded as
described below. We incorporate by reference in this prospectus the
documents listed below and any future filings that we may make with the SEC
under Sections 13(a), 13(c), 14, or 15(d) of the Exchange Act prior to the
termination of the offering under this prospectus. We are not,
however, incorporating by reference any documents or portions thereof, whether
specifically listed below or filed by us in the future, that are not deemed
“filed” with the SEC, including information “furnished” pursuant to Items 2.02
or 7.01 of Form 8-K.
We
incorporate by reference the following documents we have filed, or may file,
with the SEC:
|
·
|
our
Annual Report on Form 10-K for the year ended December 31, 2009, as
amended by Form 10-K/A filed on April 30, 2010 (File Nos.
001-32587);
|
|
·
|
our
Quarterly Reports on Form 10-Q for the quarters ended March 31, 2010 and
June 30, 2010 (File Nos.
001-32587);
|
|
·
|
our
Current Reports on Form 8-K or 8-K/A filed with the SEC on February 26,
March 30, April 8, April 13, May 6, May 21, May 24, June 29, July 2, July
20, July 23 (except for the information furnished pursuant to Item 7.01),
July 23, July 30 and October 26, 2010 (File Nos.
001-32587);
|
|
·
|
our
Definitive Proxy Statement filed with the SEC on May 24, 2010, including
any amendments or supplements filed for the purpose of updating same;
and
|
S-28
|
·
|
the
description of our securities set forth in the Definitive Proxy Statement
filed with the SEC on July 16, 2007, on page 159 under the caption
“Description of Securities.”
|
We make
available free of charge through our website at www.pharmathene.com our press
releases and all of the documents that we are required to file electronically
with the SEC, including all amendments thereto, as soon as reasonably practical
after they are electronically filed with, or furnished to, the
SEC. Our website also contains our Code of Ethics. The
information on our website is not part of nor incorporated by reference into
this prospectus.
In
addition, we will provide, without charge to each person, including any
beneficial owner, to whom this prospectus is delivered, upon written or oral
request of such person, a copy of any or all of the documents incorporated by
reference in this prospectus other than exhibits, unless such exhibits
specifically are incorporated by reference into such documents or this
prospectus. Requests for such documents should be addressed in
writing or by telephone to: PharmAthene, Inc., One Park Place, Suite 450,
Annapolis, MD 21401, (410) 269-2600, Attn: General Counsel.
Any
statement contained in this prospectus supplement and the accompanying
prospectus or in any document incorporated or deemed to be incorporated by
reference in this prospectus supplement or the accompanying prospectus will be
deemed to have been modified or superseded to the extent that a statement
contained in this prospectus supplement or the accompanying prospectus or in any
other document we subsequently file with the SEC that also is incorporated or
deemed to be incorporated by reference in this prospectus supplement or the
accompanying prospectus modifies or supersedes the original
statement. Any statement so modified or superseded will not be
deemed, except as so modified or superseded, to be a part of this prospectus
supplement or the accompanying prospectus.
You
should rely only on the information provided in and incorporated by reference
into this prospectus supplement and the accompanying prospectus. We
have not authorized anyone else to provide you with different
information. You should not assume that the information in this
prospectus supplement or the accompanying
prospectus is accurate as of any date other than the date on the front cover of
these documents.
S-29
Registration
No. 333-156997
Rule 424(b)(4)
Prospectus
PROSPECTUS
$50,000,000
Common
Stock
Preferred
Stock
Warrants
From
time to time, we may offer and sell common stock, preferred stock or warrants or
any combination of securities described in this prospectus, either individually
or in units, in one or more offerings. The aggregate public offering price of
the securities offered by this prospectus will not exceed
$50 million.
This
prospectus provides you with a general description of the securities that we may
offer. Each time we offer securities, we will provide a supplement to this
prospectus that will contain more specific information about the terms of that
offering, including the prices at which those securities will be sold. We may
also add, update or change in the prospectus supplement any of the information
contained in this prospectus.
Our
common stock is listed on the NYSE Alternext US under the symbol "PIP." On
February 11, 2009, the last reported sale price per share of our common
stock on that exchange was $2.41. Some of our warrants are listed on the NYSE
Alternext US under the symbol "PIP.WS." On February 11, 2009, the last
reported sale price of these warrants on that exchange was $0.09.
Investing in our securities involves
certain risks. You should carefully read both this prospectus and the applicable
prospectus supplement, as well as any documents incorporated by reference in
this prospectus and/or the applicable prospectus supplement, before you make
your investment decision. See "Risk Factors" beginning on page 3 and in
other documents that are incorporated by reference in this
prospectus.
This prospectus may not be used to
sell any of our securities unless accompanied by a prospectus
supplement.
The
securities offered by this prospectus may be sold directly by us to investors,
through agents designated from time to time or to or through one or more
underwriters or dealers or in other manners as set forth under the heading "Plan
of Distribution." In addition, each time we offer securities, the supplement to
this prospectus applicable to such offering will provide the specific terms of
the plan of distribution for such offering and the net proceeds that we expect
to receive from such offering.
The
aggregate market value of our outstanding common stock held by non-affiliates is
$29,126,276 based on 26,312,322 shares of outstanding common stock, of which
12,289,568 are held by non-affiliates, and a per share price of $2.37 based on
the closing sale price of our common stock on January 26, 2009. We have not
offered any securities pursuant to General Instruction I.B.6. of
Form S-3 during the prior 12 calendar month period that ends on and
includes the date of this prospectus.
Neither the Securities and Exchange
Commission nor any state securities commission has approved or disapproved of
these securities or determined if this prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
The date
of this prospectus is February 13, 2009.
TABLE
OF CONTENTS
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SUMMARY
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1
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RISK
FACTORS
|
3
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SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
|
18
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USE
OF PROCEEDS
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19
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DESCRIPTION
OF COMMON STOCK
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19
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DESCRIPTION
OF PREFERRED STOCK
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19
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DESCRIPTION
OF WARRANTS
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22
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PLAN
OF DISTRIBUTION
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24
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LEGAL
MATTERS
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25
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EXPERTS
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25
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WHERE
YOU CAN FIND MORE INFORMATION
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25
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INCORPORATION
BY REFERENCE
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26
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i
ABOUT
THIS PROSPECTUS
You
should rely only on the information contained or incorporated by reference in
this prospectus and any applicable prospectus supplements. We have not
authorized any other person to provide you with different information. If anyone
provides you with different or inconsistent information, you should not rely on
it. We are not making an offer to sell these securities in any jurisdiction
where the offer or sale is not permitted. You should assume that the information
in this prospectus is accurate as of the date appearing on the front cover of
this prospectus only and that information contained in any prospectus supplement
or document incorporated by reference in this prospectus is only accurate as of
the date of such prospectus supplement or document. Our business, financial
condition, results of operations and prospects may have subsequently
changed.
This
prospectus is part of a registration statement that we filed with the Securities
and Exchange Commission, or SEC, to register an indeterminable number of shares
of common stock, preferred stock and warrants as may from time to time be
offered for sale, either individually or in units, at indeterminate prices (up
to an aggregate maximum offering price for all such securities of
$50 million), using a "shelf" registration process. By using a shelf
registration statement, we may offer and sell from time to time in one or more
offerings the securities described in this prospectus.
This
prospectus provides you with some of the general terms that may apply to an
offering of our securities. Each time we sell securities under this shelf
registration we will provide a prospectus supplement that will contain specific
information about the terms of that specific offering, including the number and
price per security (or exercise price) of the securities to be offered and sold
in that offering and the specific manner in which such securities may be
offered. The prospectus supplement may also add to, update or change any of the
information contained in this prospectus. If there is an inconsistency between
the information in this prospectus and a prospectus supplement, you should rely
on the information in the prospectus supplement.
You
should carefully read both this prospectus and the applicable prospectus
supplement, as well as any documents incorporated by reference in this
prospectus (as described under the heading "Incorporation by Reference") and/or
the applicable prospectus supplement, before you make your investment decision.
The information incorporated by reference includes important business and
financial information about us that is not included nor delivered with this
document. This information is available without charge on the SEC's website
at
www.sec.gov or upon written or oral request to
PharmAthene, Inc., One Park Place, Suite 450, Annapolis, MD 21401,
(410) 269-2600.
Unless
specifically noted otherwise, as used throughout this prospectus, "the Company",
"PharmAthene", "we", "us" or "our" refers to the business of the combined
company after the merger with Former PharmAthene and to the business of Former
PharmAthene prior to the Merger, and "HAQ" refers to the business of Healthcare
Acquisition Corp. prior to the Merger. The phrase "this prospectus" refers to
this prospectus and any applicable prospectus supplement, unless the context
otherwise requires. Whenever we refer to "you" or "yours", we mean the persons
to whom offers are made under this prospectus.
SUMMARY
PharmAthene
is a biodefense company engaged in the development and commercialization of
medical countermeasures against biological and chemical weapons. In addition to
our own efforts, we collaborate with pharmaceutical companies to support
clinical development of product candidates. We currently have five product
candidates in various stages of development:
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•
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SparVax™—a
second generation recombinant protective antigen ("rPA") anthrax
vaccine,
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•
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Valortim®,
a fully human monoclonal antibody (an identical population of highly
specific antibodies produced from a single clone) for the prevention and
treatment of anthrax infection,
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•
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Protexia®,
which mimics a natural bioscavenger for the treatment or prevention of
nerve agent poisoning by organophosphate compounds, including nerve gases
and pesticides,
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•
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RypVax™—a
recombinant dual antigen vaccine for pneumonic and bubonic plague ("rYP"),
and
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•
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a
third generation rPA anthrax
vaccine.
|
For
the next several years, we believe our main customer will be national
governments, primarily the U.S. Government. Currently, the U.S. Government may,
at its discretion, purchase critical biodefense products for the U.S. Strategic
National Stockpile prior to FDA approval based on Emergency Use Authorization
enabled under the Project Bioshield legislation. On an ongoing basis, we monitor
notices for requests for proposal, grants and other potential sources of
government funding that could potentially support the development and
commercialization of our product candidates. Nevertheless, changes in government
budgets, priorities and agendas as well as political pressures could result in a
reduction in overall government financial support for the biodefense sector in
general and/or specifically the product candidates we are developing. Our
existing contracts with the government typically contain provisions that permit
the government unilaterally to cancel or reduce the scope of these contracts.
(For further information, see "Risk Factors—Risks Related to Our Business—U.S.
government agencies have special contracting requirements which give them the
ability to unilaterally control our contracts.") As a result, further
development of our product candidates and ultimate product sales to the
government could be delayed or stopped altogether.
Our
executive offices are located at One Park Place, Suite 450, Annapolis,
Maryland 21401 and our telephone number is (410) 269-2600.
2
RISK
FACTORS
Investing in our securities involves
risks. In addition to the other information in this prospectus and any
prospectus supplement, you should carefully consider the following risks before
making an investment decision. The risks and uncertainties described below are
not the only ones we face. Additional risks and uncertainties not presently
known to us or that we currently consider immaterial may also impair our
business operations. If any of the following risks actually occur, our business
and financial results could be harmed. In that case, the trading price of our
common stock could decline. You should also refer to the information set forth
in our other filings with the SEC, including our most recent annual report on
Form 10-K or quarterly report on Form 10-Q, as the case may be, and in
any applicable prospectus supplement.
Risks
Related to Our Business
If
we do not receive the award by the U.S. Department of Health and Human Services
for an rPA anthrax vaccine, our operations may decline and we may be placed at a
competitive disadvantage.
On
February 29, 2008, the U.S. Department of Health and Human Services (DHHS)
issued a formal Request for Proposal (RFPBARDA-0801 5) for an "Anthrax
Recombinant Protective Antigen (rPA) Vaccine for the Strategic National
Stockpile", which includes a requisition for 25 million doses of an rPA
anthrax vaccine. We submitted a response to this solicitation on July 31,
2008. While the original solicitation indicated that an award would be made by
December 31, 2008, DHHS subsequently delayed the award date because, among
other things, of a protest filed by a bidder that had been eliminated from
further consideration under the solicitation. The U.S. General Accounting Office
subsequently denied that protest, and based on correspondence we have received
from DHHS, we believe that an award may be made in the first quarter of 2009.
Nevertheless, there can be no assurance that DHHS will not again extend the time
line for issuing an award.
We
are currently aware of at least one bidder for the award with substantially
greater financial and other resources, manufacturing capabilities and
commercialization capabilities than we have. If we fail to receive the award for
the rPA anthrax vaccine, we could be forced to abandon or severely curtail our
efforts with respect to our lead product candidate, SparVax™, which, in turn,
could lead to a decline in our operations and place us at a competitive
disadvantage. We have been engaged in discussions with DHHS with respect to our
ability to satisfy the requirements of the RFP. DHHS has requested additional
information that if not determined by them to be satisfactory could result in
our elimination from consideration for a procurement.
It
is expected that PharmAthene will incur net losses and negative cash flow for
the foreseeable future, and we cannot guarantee that we will achieve
profitability; therefore, our business, results of operations and financial
condition may be materially adversely affected.
We
have incurred significant losses since we commenced operations. For the fiscal
year ended December 31, 2007, the Company incurred an operating loss of
approximately $16.5 million and had an accumulated deficit of approximately
$87.4 million at December 31, 2007. For the nine months ended
September 30, 2008, the Company incurred an operating loss of approximately
$30.5 million and had an accumulated deficit of approximately
$118.6 million at September 30, 2008. The Company's losses to date
have resulted principally from research and development costs related to the
development of its product candidates, general and administrative costs related
to its operations, and costs related to the Avecia Acquisition.
3
As
a result of our continuing losses and the Avecia Acquisition, we may need to
seek additional financing. Our available cash and cash equivalents at
September 30, 2008 was approximately $10.1 million. However, at
September 30, 2008, we had outstanding debt to noteholders of approximately
$12.9 million, approximately $6.0 million outstanding under our credit
facility and, in connection with the Avecia Acquisition, we have agreed to pay
$7 million upon the earlier of the consummation of a financing transaction
in which we receive gross proceeds of not less than $15 million or eighteen
months after the closing of the acquisition. Accordingly, to the extent that our
losses continue at the current level, if we do not access sufficient additional
funding through contracts and grants with the U.S. or foreign governments and we
do not defer or renegotiate repayment of the outstanding Notes, we will need to
engage in one or more additional financing transactions by no later than
August 3, 2009, the current maturity date of the Notes. The current turmoil
affecting the banking system and financial markets and the possibility that
financial institutions may consolidate or cease operations has resulted in a
tightening in the credit markets, a low level of liquidity in many financial
markets, and extreme volatility in fixed income, credit, currency and equity
markets. As a result, there can be no assurances that we will be successful in
obtaining sufficient financing on commercially reasonable terms or at
all.
We
expect that PharmAthene will incur substantial losses for the foreseeable future
as a result of increases in its research and development costs, including costs
associated with conducting preclinical testing, clinical trials and regulatory
compliance activities.
The
Company's likelihood for achieving profitability will depend on numerous
factors, including success in:
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•
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developing
and testing new product candidates;
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•
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carrying
out the Company's intellectual property
strategy;
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•
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establishing
the Company's competitive position;
|
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•
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pursuing
third-party collaborations;
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•
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acquiring
or in-licensing products;
|
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•
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receiving
regulatory approvals;
|
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•
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manufacturing
and marketing products; and
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•
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continuing
to receive government funding and identifying new government funding
opportunities.
|
Many
of these factors will depend on circumstances beyond our control. We cannot
guarantee that we will achieve sufficient revenues for profitability. Even if we
do achieve profitability, we cannot guarantee that we can sustain or increase
profitability on a quarterly or annual basis in the future. If revenues grow
slower than we anticipate, or if operating expenses exceed our expectations or
cannot be adjusted accordingly, then our business, results of operations,
financial condition and cash flows will be materially and adversely
affected.
Because
our strategy might include acquisitions of other businesses, acquisition
expenses and any cash used to make these acquisitions will reduce our available
cash.
In
consideration for the Avecia Acquisition, we agreed to pay Avecia the
following:
|
•
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$10 million
at the time of the consummation of the acquisition;
plus
|
|
•
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an
additional $7 million payable upon the earlier to occur of
(a) the completion of a financing transaction in which PharmAthene
receives gross proceeds of not less than $15 million and
(b) eighteen months after the consummation of the Avecia Acquisition,
which payment is secured by a letter of credit;
plus
|
4
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•
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additional
contingent amounts payable upon the occurrence of certain events as
follows:
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•
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$3 million
upon the entry by PharmAthene into a multi-year funded contract or series
of contracts with the US Department of Defense (or other agency or
representative or sub-contractor of the US government) or the Defence
Science Technology Laboratory, an agency of the UK Ministry of Defence (or
any other agency or representative or sub-contractor of the US or UK
government) for the further development of Avecia's pneumonic and bubonic
plague ("rYP") vaccine, RypVax™, with a total committed aggregate value in
excess of $30 million; and
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•
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$10 million
upon the entry by PharmAthene into a multi-year funded contract with the
US Department of Defense (or other agency or representative or
sub-contractor of the US Government) for the further development of the
RypVax™ rYP vaccine, as a result of (a) a Resources Allocation
Decision of the Resource Allocation Review Board and the Resource
Allocation Advisory Committee of the US Department of Defense or
(b) some other similar substantial funding in excess of
$150 million (including the value of any option elements within such
contract); and
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•
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$5 million
upon the entry by PharmAthene into a multi-year funded development
contract to be issued by the Biological Advanced Research and Development
Authority (part of the US Department of Health and Human Services) under
solicitation number RFP-BARDA-08-1 5 for the further development of
Avecia's anthrax (rPA) vaccine, SparVax™;
and
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•
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$5 million
upon the entry by PharmAthene into a contract or contracts for the supply
of rPA vaccine, SparVax™, into the Strategic National Stockpile;
and
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•
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2.5%
of net sales (as defined under the Purchase Agreement) of rPA vaccine,
SparVax™, made by PharmAthene to the US Government within the period of
ten years from the consummation of the Avecia Acquisition after the first
25 million doses; and
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•
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1%
of net sales (as defined under the Purchase Agreement) of third generation
anthrax vaccine made by PharmAthene to the US Government within the period
of ten years from the consummation of the Avecia
Acquisition.
|
PharmAthene
is a party to a $10 million secured credit facility bearing interest at an
annual rate of 11.5% evidenced by the Loan Agreement with the Lenders which
required consent of the Lenders to the Avecia Acquisition. Consequently,
PharmAthene obtained the consent of its Lenders to the acquisition and entered
into the Loan Modification Agreement, in connection with which PharmAthene
maintains, at a segregated account at the Lenders unrestricted and unencumbered
cash or cash equivalents in the amount of at least one and one-quarter times the
principal amount of its obligations outstanding to the Lenders.
As
a result of the Avecia Acquisition and the Loan Modification Agreement, we have
less available cash to use for operations, working capital or additional
acquisitions, and may be required to raise additional capital or debt financing
for same. Our inability to raise additional capital or to obtain adequate
financing, if necessary, would result in the need to reduce the pace of
implementing our business objectives and could be materially harmful to our
business, which would force us to curtail or cease our business operations. As a
consequence, our stock price could fall.
PharmAthene
is in various stages of product development and there can be no assurance of
successful commercialization.
PharmAthene
has not commercialized any products or recognized any revenues from product
sales. In general, our research and development programs are at early stages. To
obtain FDA approval for our biological warfare defense products under current
FDA regulations, the Company will be required to perform two animal model
studies for efficacy and provide animal and human safety data. The Company's
other products will be subject to the relevant approval guidelines under FDA
requirements, which include a number of phases of testing in humans. Even if
PharmAthene initially receives positive early stage pre-clinical or clinical
results, such results may not be indicative of similar results that could be
anticipated in the later stages of drug development.
5
Our
drug candidates will require significant additional research and development
efforts, including extensive pre-clinical and clinical testing and regulatory
approval, prior to commercial sale. We cannot be sure that our approach to drug
discovery will be effective or will result in the development of any drug. In
addition, applicable laws, regulations, and policies may change, and our
products may be subject to new legislation or regulations that may delay or
suspend research and development. PharmAthene cannot assure you that any drugs
resulting from our research and development efforts will be commercially
available. Even if we succeed in developing and commercializing our product
candidates, the Company may never generate sufficient or sustainable revenues to
enable us to be profitable. Furthermore, even if our product candidates are
successful when tested in animals, such success would not be a guarantee of the
effectiveness and safety of such product candidates in humans. There can be no
assurances that one or more of the Company's future product candidates would not
fail to meet safety standards in human testing, even if those product candidates
were found to be effective in animal studies. There can be no assurances that
any such product candidates will prove to be effective in humans.
Most
of PharmAthene's immediately foreseeable future revenues are contingent upon
grants and contracts from the US Government and collaborative and license
agreements and the Company may not achieve sufficient revenues from these
agreements to attain profitability.
Until
and unless PharmAthene successfully markets a product, our ability to generate
revenues will largely depend on our ability to enter into additional
collaborative agreements, strategic alliances, research grants, contracts and
license agreements with third parties, including, without limitation, the US
Government and branches and agencies thereof, and maintain the agreements we
currently have in place. Substantially all of the revenues of the Company to
date have been derived from grants and government contracts, primarily with the
US Government. There can be no assurances that existing government contracts
will be renewed or that we can enter into new contracts or receive new grants.
For example, our existing contracts for the advanced development of plague
vaccine, RypVax™, expires in the first half of 2009, and future government
funding for this development program remains uncertain at this time.
Furthermore, under the terms of our 2006 contract with the DoD regarding
Protexia®, the DoD may elect not to continue development assistance of this
nerve agent countermeasure after initial funding of $41 million has been
received, or, if it does so elect to continue funding and we meet all
development milestones, it may nevertheless choose not to procure any doses of
Protexia® under the procurement portion of the contract.
The
Company has an agreement with Medarex, Inc., to develop Valortim®, a fully
human monoclonal antibody product designed to protect against and treat
inhalation anthrax. Under the agreement with Medarex, the Company will be
entitled to a variable percentage of profits derived from sales of Valortim®, if
any, depending, in part, on the amount of its investment. In addition, the
Company has entered into licensing and research and development agreements with
a number of other parties and collaborators. There can be no assurances that the
research and development conducted pursuant to these agreements will result in
product candidates capable of generating revenues for the
Company.
6
PharmAthene
may need additional capital in the future. If additional capital is not
available or not available on commercially reasonable terms, the Company may be
forced to delay or curtail the development of our product
candidates.
PharmAthene's
requirements for additional capital may be substantial and will depend on many
other factors, including:
|
•
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continued
funding by the DoD and other branches and agencies of the US
Government;
|
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•
|
payments
received under present or future collaborative partner
agreements;
|
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•
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continued
progress of research and development of the Company's
products;
|
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•
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the
Company's ability to license compounds or products from
others;
|
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•
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costs
associated with protecting the Company's intellectual property
rights;
|
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•
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development
of marketing and sales capabilities;
and
|
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•
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market
acceptance of the Company's
products.
|
To
the extent PharmAthene's capital resources are insufficient to meet future
capital requirements, it will have to raise additional funds to continue the
development of our product candidates. To the extent that our losses continue at
the current level, if we do not access sufficient additional funding through
contracts and grants with the US or foreign governments and we do not defer or
renegotiate repayment of the outstanding Notes, we will need to engage in one or
more additional financing transactions by no later than August 3, 2009, the
current maturity date of the Notes. The current turmoil affecting the banking
system and financial markets and the possibility that financial institutions may
consolidate or cease operations has resulted in a tightening in the credit
markets, a low level of liquidity in many financial markets, and extreme
volatility in fixed income, credit, currency and equity markets. As a result,
there can be no assurances that we will be successful in obtaining sufficient
financing on commercially reasonable terms or at all. To the extent the Company
raises additional capital through the sale of securities, the issuance of those
securities could result in dilution which may be substantial to the Company's
stockholders. In addition, if the Company incurs additional debt financing, a
substantial portion of our operating cash flow may be dedicated to the payment
of principal and interest on such indebtedness, thus limiting funds available
for the Company's business activities. If adequate funds are not available, the
Company may be required to curtail significantly our development and
commercialization activities.
Drug
development is an expensive and uncertain process, and delay or failure can
occur at any stage of PharmAthene's development process, increasing our
development costs and/or adversely affecting the commercial prospects of our
product candidates.
To
develop and commercialize biodefense treatment and drug candidates, the Company
must provide the FDA and foreign regulatory authorities with clinical and
non-clinical data that demonstrate adequate safety and effectiveness. This
involves engaging in clinical trials, which is a lengthy and expensive process,
the outcome of which is uncertain. Because humans are not normally exposed to
anthrax, nerve agents, plague, smallpox or other lethal biotoxins or chemical
agents and it would be unethical to expose humans to such, effectiveness of the
Company's biodefense product candidates cannot be demonstrated in humans, but
instead, under the FDA's "Animal Rule" (see Code of Federal Regulations (21 CFR
601 Subpart H)), can be demonstrated, in part, by utilizing animal models.
This effect has to be demonstrated in more than one animal species expected to
be predictive of a response in humans, but an effect in a single animal species
may be acceptable if that animal model is sufficiently well-characterized for
predicting a response in humans. The animal study endpoint must be clearly
related to the desired benefit in humans and the information obtained from
animal studies allows selection of an effective dose in humans.
7
For
many of the biological and chemical threats, the animal models are not
available, and as such the Company will have to develop appropriate animal
models, a time-consuming research effort. Further, we may not be able to
sufficiently demonstrate the animal correlation to the satisfaction of the FDA,
as these correlates are difficult to establish and are often unclear. FDA may
decide that our data are insufficient for approval and require additional
preclinical, clinical or other studies, refuse to approve our products, or place
restrictions on our ability to commercialize those products. Finally, other
countries do not, at this time, have established criteria for review and
approval of these types of products outside their normal review process,
i.e. there is no "Animal Rule" equivalent in countries other than the
United States, and consequently there can be no assurance that we will be able
to make a submission for marketing approval in foreign countries based on such
animal data.
Delays
in obtaining results can occur for a variety of reasons such as slower than
anticipated enrollment by volunteers in the trials, adverse events related to
the products and unsatisfactory results of any trial. Any delay or adverse
clinical event arising during any of our clinical trials could force the Company
to abandon a product altogether or to conduct additional clinical trials in
order to obtain approval from the FDA and other regulatory bodies. The Company's
development costs will increase substantially if it experiences material delays
in any clinical trials or if it needs to conduct more or larger trials than
planned.
Additionally,
few facilities in the US and internationally have the capability to test animals
with anthrax, plague, nerve agents, or other lethal biotoxins or chemical agents
or otherwise assist us in qualifying the requisite animal models. We have to
compete with other biodefense companies for access to this limited pool of
highly specialized resources as well. As such, PharmAthene may not be able to
secure contracts to conduct the testing in a predictable timeframe or at all.
Further, if delays are significant, or if any of the Company's products do not
prove to be safe, pure, and potent (including efficacy) or do not receive
required regulatory approvals, the Company will be unable to recognize revenues
from the sale of products, and the commercial prospects for our product
candidates will be adversely affected.
Even
if the Company completes the development of our nerve agent, plague and anthrax
products, if the Company fails to obtain contracts to supply products to the US
or foreign governments or the US or foreign governments do not purchase
sufficient quantities of our products, PharmAthene may be unable to generate
sufficient revenues to continue operations.
For
the next several years, we believe our main customer will be national
governments, primarily the U.S. Government. The US Government has undertaken
commitments to help secure improved countermeasures against bioterrorism
including the stockpiling of treatments and vaccines for anthrax, plague and
nerve agents through the SNS and other military stockpiling efforts. However,
the process of obtaining government contracts is lengthy and uncertain and the
Company will have to compete with other companies for each contract. There can
be no assurances that the Company will be awarded any contracts to supply the US
or other governments with our products as such awards may be made, in whole or
in part, to the Company's competitors. If the US Government makes significant
future contract awards for the supply of our emergency stockpile to
PharmAthene's competitors, the Company's business will be harmed, and it is
unlikely that the Company will ultimately be able to supply that particular
treatment or product to foreign governments or other third parties.
Further,
changes in government budgets and agendas may result in a decreased and
de-prioritized emphasis on procuring the biodefense products PharmAthene is
developing. In addition, government contracts typically contain provisions that
permit cancellation in the event that funds become unavailable to the
governmental agency. If the US or foreign governments make significant future
contract awards to the Company's competitors to the exclusion of the Company or
otherwise fail to purchase the Company's products, it is unlikely that the
Company will ultimately be able to commercialize
that particular treatment or product or that it will be able to generate
sufficient revenues to continue operations.
8
Due
to the current economic downturn and the US Government's efforts to stabilize
the economy, the US Government may be forced or choose to reduce or delay
spending in the biodefense field, which could decrease the likelihood of future
government contract awards or that the government would procure products from
us.
US
Government agencies have special contracting requirements which give them the
ability to unilaterally control our contracts.
PharmAthene
anticipates that our primary sales will be to the US Government. US Government
contracts typically contain unfavorable termination provisions and are subject
to audit and modification by the government at its sole discretion, which will
subject the Company to additional risks. These risks include the ability of the
US Government to unilaterally:
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suspend
or prevent the Company for a set period of time from receiving new
contracts or extending existing contracts based on violations or suspected
violations of laws or
regulations;
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terminate
PharmAthene's contracts;
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reduce
the scope and value of PharmAthene's
contracts;
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audit
and object to the Company's contract-related costs and fees, including
allocated indirect costs;
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control
and potentially prohibit the export of the Company's products;
and
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change
certain terms and conditions in the Company's
contracts.
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The
US Government will be able to terminate any of its contracts with the Company
either for its convenience or if the Company defaults by failing to perform in
accordance with the contract schedule and terms. Termination for convenience
provisions would generally enable the Company to recover only the Company's
costs incurred or committed, settlement expenses, and profit on the work
completed prior to termination. Termination for default provisions do not permit
these recoveries and would make the Company liable for excess costs incurred by
the US Government in procuring undelivered items from another
source.
Due
to the current economic downturn and the US Government's efforts to stabilize
the economy, the US Government may be forced or choose to reduce or delay
spending in the biodefense field, which could decrease the likelihood that the
government will exercise its right to extend any of its existing contracts with
us or to procure products from us.
PharmAthene
may fail to fully realize the potential of Valortim® and of our co-development
arrangement with our partner in the development of Valortim® which would have an
adverse affect upon our business.
PharmAthene
and our development partner have completed the first Phase I clinical trial
for Valortim® without any reported adverse reactions. However, before we may
begin selling any doses of Valortim®, we will need to conduct a more
comprehensive Phase I trial in a significantly larger group of human
subjects. The Company will be required to expend a significant amount to scale
up manufacturing capability through a contract manufacturer in order to conduct
the more extensive clinical trials. If the Company's contract manufacturer is
unable to produce sufficient quantities at a reasonable cost, or has any other
obstacles to production, such as violative manufacturing, then the Company will
be unable to commence the clinical trials necessary to begin marketing
Valortim®.
Even
after the Company expends sufficient funds to complete the development of
Valortim® and when and if it enters into an agreement to supply Valortim® to the
US Government, it will be required to share any
and all profits from the sale of products with our partner in accordance with a
pre-determined formula.
9
Because
we depend on clinical research centers and other contractors for clinical and
non-clinical testing, including testing under the Animal Rule, and for certain
research and development activities, the results of our clinical trials,
non-clinical animal efficacy studies, and such research and development
activities are largely beyond our control.
The
nature of clinical trials and our business strategy of outsourcing substantially
all of our research and development work require that we rely on clinical
research centers and other contractors to assist us with research and
development, clinical and non- clinical testing (including animal efficacy
studies under the FDA's "Animal Rule"), patient enrollment and other activities.
As a result, our success depends largely on the success of these third parties
in performing their responsibilities. Although we pre-qualify our contractors
and believe that they are fully capable of performing their contractual
obligations, we cannot directly control the adequacy and timeliness of the
resources and expertise that they apply to these activities. Furthermore, we
have to compete with other biodefense companies for access to this limited pool
of highly specialized resources. If our contractors do not perform their
obligations in an adequate and timely manner or we are unable to enter into
contracts with them because of prior commitments to our competitors, the pace of
clinical or non-clinical development, regulatory approval and commercialization
of our drug candidates could be significantly delayed and our prospects could be
adversely affected.
We
depend on third parties to manufacture, package and distribute compounds for our
product candidates and the failure of these third parties to perform
successfully or our inability to find suitable manufacturing sites could harm
our business.
We
have utilized, and intend to continue utilizing, third parties to manufacture,
package and distribute our product candidates. We do not have any manufacturing
facilities. Any material disruption in manufacturing could cause a delay in our
development programs and potentially future sales. Furthermore, certain
compounds, media, or other raw materials used to manufacture our drug candidates
are available from one or a limited number of sources. Any delays or
difficulties in obtaining key components for our product candidates or in
manufacturing, packaging or distributing our product candidates could delay
clinical trials and further development of these potential
products.
Additionally,
the third parties we rely on for manufacturing and packaging are subject to
regulatory review, and any regulatory compliance problems with these third
parties (for instance, their inability to meet strict manufacturing
specifications) could significantly delay or disrupt our commercialization
activities. Similarly, if such third parties have capacity limitations, we may
not be able to manufacture and commercialize our products at the rate we would
otherwise deem desirable.
If
PharmAthene cannot enter into new licensing arrangements, our ability to develop
a diverse product portfolio could be limited and our ability to compete would be
harmed.
A
key component of the Company's business strategy is in-licensing compounds and
products developed by other pharmaceutical and biotechnology companies or
academic research laboratories. Competition for promising compounds or products
can be intense. If the Company is not able to identify new licensing
opportunities or enter into other licensing arrangements on acceptable terms, it
may be unable to develop a diverse portfolio of products.
Our
plan to use collaborations to leverage our capabilities and to grow in part
through the strategic acquisition of other companies and technologies may not be
successful if we are unable to integrate our partners' capabilities or the
acquired companies with our operations or if our partners' capabilities do not
meet our expectations.
10
As
part of our strategy, we intend to continue to evaluate strategic partnership
opportunities and consider acquiring complementary technologies and businesses.
In order for our future collaboration efforts to be successful, we must first
identify partners whose capabilities complement and integrate well with ours.
Technologies to which we gain access may prove ineffective or unsafe. Our
current agreements that grant us access to such technology may expire and may
not be renewable or could be terminated if we or our partners do not meet our
obligations. These agreements are subject to differing interpretations, and we
and our partners may not agree on the appropriate interpretation of specific
requirements. Our partners may prove difficult to work with or less skilled than
we originally expected. In addition, any past collaborative successes are no
indication of potential future success.
In
order to achieve the anticipated benefits of an acquisition, we must integrate
the acquired company's business, technology and employees in an efficient and
effective manner. The successful combination of companies in a rapidly changing
biodefense industry may be more difficult to accomplish than in other
industries. The combination of two companies requires, among other things,
integration of the companies' respective technologies and research and
development efforts. We cannot assure you that this integration will be
accomplished smoothly or successfully. The difficulties of integration are
increased by the need to coordinate geographically separated organizations and
address possible differences in corporate cultures and management philosophies.
The integration of certain operations will require the dedication of management
resources which may temporarily distract attention from the day-to-day
operations of the combined companies. The business of the combined companies may
also be disrupted by employee retention uncertainty and lack of focus during
integration. The inability of management to integrate successfully the
operations of the two companies, in particular, to integrate and retain key
scientific personnel, or the inability to integrate successfully two technology
platforms, could have a material adverse effect on our business, results of
operations and financial condition.
PharmAthene
faces, and likely will continue to face, competition from companies with greater
financial, personnel and research and development resources. Our commercial
opportunities will be reduced or eliminated if our competitors are more
successful in the development and marketing of their products.
The
biopharmaceutical industry is characterized by rapid and significant
technological change. The Company's success will depend on our ability to
develop and apply our technologies in the design and development of our product
candidates and to establish and maintain a market for our product candidates.
There also are many companies, both public and private, including major
pharmaceutical and chemical companies, specialized biotechnology firms,
universities and other research institutions engaged in developing
pharmaceutical and biotechnology products. Many of these companies have
substantially greater financial, technical, intellectual property, research and
development, and human resources than we have. Competitors may develop products
or other technologies that are more effective than any that are being developed
by the Company or may obtain FDA approval for products more
rapidly.
If
the Company commences commercial sales of products, we still must compete in the
manufacturing and marketing of such products, areas in which we have limited
experience. Many of these companies also have manufacturing facilities and
established marketing capabilities that would enable such companies to market
competing products through existing channels of distribution. The Company's
commercial opportunities will be reduced or eliminated if our competitors
develop and market products for any of the harmful effects that it targets
that:
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are
more effective;
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have
fewer or less severe adverse side
effects;
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are
more adaptable to various modes of
dosing;
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11
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obtain
orphan drug exclusivity that blocks the approval of our application for
seven years;
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are
easier to administer; or
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are
less expensive than the products or product candidates the Company will be
developing.
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Further,
the regulatory climate for generic versions of biological products approved
under a Biological License Application (BLA) in the U.S. remains uncertain.
Currently, there is no formalized mechanism by which the FDA can approve a
generic version of an approved biological product. Federal legislation has been
introduced to establish a legal pathway for the approval of generic versions of
approved biological products. If enacted, the legislation will impact the
revenue projections for our products.
Even
if the Company is successful in developing effective products, and obtains FDA
and other regulatory approvals necessary for commercializing them, our products
may not compete effectively with other successful products. Our competitors may
succeed in developing and marketing products either that are more effective than
those that PharmAthene may develop, alone or with our collaborators, making our
products obsolete, or that are marketed before any products that the Company
develops are marketed.
Companies
that are developing products that would compete with the Company's products
include: Avant Immunotherapeutics, Inc., which has vaccine programs for
agents of biological warfare, including plague and anthrax; Human Genome
Sciences, Inc., Elusys Therapeutics, Inc. and Avanir
Pharmaceuticals, Inc., all of which are developing monoclonal antibodies as
anthrax treatments. Other competitors of the Company include: Emergent
Biosolutions Inc., BioSante Pharmaceuticals, Inc., Dynport Vaccine
Company, LLC and Ligocyte Pharmaceuticals, Inc.
Political
or social factors may delay or impair PharmAthene's ability to market our
products and our business may be materially adversely affected.
Products
developed to treat diseases caused by, or to combat the threat of, bioterrorism
will be subject to changing political and social environments. The political and
social responses to bioterrorism have been unpredictable. Political or social
pressures may delay or cause resistance to bringing the Company's products to
market or limit pricing of our products, which would harm the Company's
business.
The
US Government's determination to award any contracts to the Company may be
challenged by an interested party, such as another bidder, at the General
Accounting Office or in federal court. If such a challenge is successful, a
contract may be terminated.
The
laws and regulations governing the procurement of goods and services by the US
Government provide procedures by which other bidders and other interested
parties may challenge the award of a government contract. In the event that the
Company is awarded a government contract, such protests could be filed even if
there are not any valid legal grounds on which to base the protest. If any such
protests are filed, the government agency may decide to suspend the Company's
performance under the contract while such protests are being considered by the
General Accounting Office or the applicable federal court, thus potentially
delaying delivery of goods and services and payment. In addition, the Company
could be forced to expend considerable funds to defend any potential award. If a
protest is successful, the government may be ordered to terminate the Company's
contract at our convenience and reselect bids. The government could even be
directed to award a potential contract to one of the other
bidders.
12
Legal
and Regulatory Risks of Development Stage Biotechnology Companies
PharmAthene's
commercial success will be affected significantly by our ability to obtain
protection for our proprietary technology and that of our licensors and
collaborators and not infringe the patents and proprietary rights of third
parties.
The
patent position of biotechnology firms generally is highly uncertain and
involves complex legal and factual questions. To date, no consistent policy has
emerged regarding the breadth of claims allowed in biotechnology patents.
PharmAthene currently holds two US patents, has three pending US patent
applications, and has a limited number of international patents pending. In
addition, we have rights under numerous other patents and patent applications
pursuant to exclusive and non-exclusive license arrangements with licensors and
collaborators. However, there can be no assurance that patent applications owned
or licensed by the Company will result in patents being issued or that the
patents, existing or issued in the future, will afford protection against
competitors with similar technology. Any conflicts resulting from third-party
patent applications and patents could significantly reduce the coverage of the
patents owned, optioned by or licensed to the Company or our collaborators and
limit the ability of the Company or that of our collaborators to obtain
meaningful patent protection.
Further,
the commercial success of PharmAthene will depend significantly on our ability
to operate without infringing the patents and proprietary rights of third
parties. The Company is aware of one US patent covering recombinant production
of an antibody. Although PharmAthene believes that Valortim®, which is a
monoclonal antibody and uses recombinant reproduction of antibodies, does not
infringe any valid claim of such patent, the Company cannot provide any
assurances that if a legal action based on such patent was to be brought against
the Company or our distributors, licensees or collaborators, that the Company or
our distributors, licensees or collaborators would prevail or that PharmAthene
has sufficient funds or resources to defend such claims. The Company is also
aware of pending applications directed to pegylated butyrylcholinesterase.
Protexia® incorporates butyrylcholinesterase. If patents are issued to third
parties that cover Protexia® or other products, PharmAthene, our licensors or
collaborators may be legally prohibited from researching, developing or
commercializing such products or be required to obtain licenses to these patents
or to develop or obtain alternative technology. The Company, our licensors
and/or our collaborators may be legally prohibited from using patented
technology, may not be able to obtain any license to the patents and
technologies of third parties on acceptable terms, if at all, or may not be able
to obtain or develop alternative technologies.
The
costs associated with establishing the validity of patents, of defending against
patent infringement claims of others and of asserting infringement claims
against others is expensive and time consuming, even if the outcome is
favorable. An outcome of any patent prosecution or litigation that is
unfavorable to PharmAthene or one of our licensors or collaborators may have a
material adverse effect on the Company. The expense of a protracted infringement
suit, even if ultimately favorable, would also have a material adverse effect on
the Company.
Any
inability to protect PharmAthene's intellectual property could harm our
competitive position and adversely affect our business.
PharmAthene's
success will depend, in part, on our ability to obtain patents and maintain
adequate protection of other intellectual property for our technologies and
products in the US and other countries. If the Company does not adequately
protect our intellectual property, competitors may be able to use our
technologies and erode or negate our competitive advantages. Further, the laws
of some foreign countries will not protect the Company's proprietary rights to
the same extent as the laws of the U.S., and the Company may encounter
significant problems in protecting our proprietary rights in these foreign
countries.
13
The
patent positions of pharmaceutical and biotechnology companies, including the
Company's patent positions, involve complex legal and factual questions and,
therefore, validity and enforceability cannot be predicted with certainty.
Patents may be challenged, deemed unenforceable, invalidated or circumvented.
PharmAthene will be able to protect our proprietary rights from unauthorized use
by third parties only to the extent that it covers our proprietary technologies
with valid and enforceable patents or that it effectively maintains such
proprietary technologies as trade secrets. The Company will apply for patents
covering our technologies and product candidates as it deems appropriate.
PharmAthene may fail to apply for patents on important technologies or products
in a timely fashion, or at all, and in any event, the applications the Company
files may be challenged and may not result in issued patents. Any future patents
the Company obtains may not be sufficiently broad to prevent others from
practicing our technologies or from developing competing products. Furthermore,
others may independently develop similar or alternative technologies or design
around the Company's patented technologies. In addition, if challenged, the
Company's patents may be declared invalid. Even if valid, the Company's patents
may fail to provide it with any competitive advantages.
PharmAthene
relies upon trade secrets protection for our confidential and proprietary
information. The Company has taken measures to protect our proprietary
information; however, these measures may not provide adequate protection to the
Company. The Company has sought to protect their proprietary information by
entering into confidentiality agreements with employees, collaborators and
consultants. Nevertheless, employees, collaborators or consultants may still
disclose the companies' proprietary information, and the Company may not be able
to meaningfully protect our trade secrets. In addition, others may independently
develop substantially equivalent proprietary information or techniques or
otherwise gain access to the Company's trade secrets.
PharmAthene's
use of hazardous materials and chemicals require it to comply with regulatory
requirements which may result in significant costs and expose PharmAthene to
potential liabilities.
PharmAthene's
research and development involves the controlled use of hazardous materials and
chemicals. The Company is subject to federal, state, local and foreign laws
governing the use, manufacture, storage, handling and disposal of such
materials. The Company will not be able to eliminate the risk of accidental
contamination or injury from these materials. In the event of such an accident,
the Company could be held liable for significant damages or fines, and these
damages could exceed our resources and any applicable insurance coverage. In
addition, the Company may be required to incur significant costs to comply with
regulatory requirements in the future.
PharmAthene
may become subject to product liability claims, which could reduce demand for
our product candidates or result in damages that exceed our insurance
coverage.
PharmAthene
faces an inherent risk of exposure to product liability suits in connection with
our product candidates being tested in human clinical trials or sold
commercially. The Company may become subject to a product liability suit if any
product it develops causes injury, or if treated individuals subsequently become
infected or otherwise suffer adverse effects from our products. Regardless of
merit or eventual outcome, product liability claims may result in decreased
demand for a product, injury to the Company's reputation, withdrawal of clinical
trial volunteers and loss of revenues.
If
a product liability claim is brought against the Company, the cost of defending
the claim could be significant and any adverse determination may result in
liabilities in excess of our insurance coverage. Additionally, the Company will
be applying for indemnification under the Support Anti-terrorism by Fostering
Effective Technologies Act of 2002 which preempts and modifies tort laws so as
to limit the claims and damages potentially faced by companies who provide
certain "qualified" anti-terrorism products. However, the Company cannot be
certain that it will be able to obtain or maintain adequate insurance coverage
on acceptable terms, if at all.
14
Legislation
limiting or restricting liability for medical products used to fight
bioterrorism is new, and PharmAthene cannot be certain that any such protection
will apply to all of our products and, therefore, PharmAthene could become
subject to product liability suits and other third party claims if such
protections do not apply.
The
Public Readiness and Emergency Preparedness Act ("Public Readiness Act") was
signed into law in December 2005 and creates general immunity for manufacturers
of countermeasures, including security countermeasures (as defined in
Section 31 9F-2(c) (1)(B) of that act), when the Secretary of Defense
issues a declaration for their manufacture, administration or use. The
declaration is meant to provide general immunity from all claims under state or
federal law for loss arising out of the administration or use of a covered
countermeasure. Manufacturers are excluded from this protection in cases of
willful misconduct.
Upon
a declaration by the Secretary of Health and Human Services, a compensation fund
is created to provide "timely, uniform, and adequate compensation to eligible
individuals for covered injuries directly caused by the administration or use of
a covered countermeasure." There is no assurance, however, that the Secretary of
Health and Human Services will issue such a declaration. The "covered injuries"
to which the program applies are defined as serious physical injuries or death.
Individuals are permitted to bring a willful misconduct action against a
manufacturer only after they have exhausted their remedies under the
compensation program. A willful misconduct action could be brought against us if
one or more individuals have exhausted their remedies under the compensation
program, which thereby could expose us to liability. PharmAthene may also become
subject to standard product liability suits and other third party claims if its
products fall outside of the scope of the Public Readiness Act cause injury or
if treated individuals subsequently become infected or otherwise suffer adverse
effects from such products.
PharmAthene
may be subject to claims that it or our employees wrongfully used or disclosed
alleged trade secrets of the employees' former employers. Such litigation could
result in substantial costs and be a distraction to our management.
As
is commonplace in the biotechnology industry, the Company employs individuals
who were previously employed at other biotechnology or pharmaceutical companies,
including their competitors or potential competitors. Although no claims against
the Company are currently pending, the Company may be subject to claims that
these employees or it have inadvertently or otherwise used or disclosed trade
secrets or other proprietary information of their former employers. Litigation
may be necessary to defend against these claims. Even if the Company is
successful in defending against these claims, litigation could result in
substantial costs and be a distraction to management.
If
we experience delays in obtaining regulatory approvals, or are unable to obtain
or maintain regulatory approvals, PharmAthene may be unable to commercialize any
products.
The
Company will need to conduct a substantial amount of additional preclinical and
clinical research and development before any US or foreign regulatory authority
will approve any of our products. In addition, the Company's product candidates
will be subject to extensive and rigorous government regulation. Results of the
Company's research and development activities may indicate that our potential
products are unsafe or ineffective. In this case, regulatory authorities will
not approve them. Even if approved, the Company's products may not be
commercially successful. If the Company fails to develop and commercialize our
products, it may be forced to curtail or cease operations.
In
addition, the commencement and rate of completion of clinical trials for the
Company's products may be delayed by many factors, including:
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lack
of efficacy during the clinical trials in
animals;
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unsatisfactory
results of any clinical trial;
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failure
to comply with Good Clinical
Practices;
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unforeseen
safety issues;
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slower
than expected rate of patient recruitment;
or
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government
or regulatory delays.
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Delays
in obtaining regulatory approvals may:
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adversely
affect the commercialization of any products that the Company or our
collaborative partners develop;
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impose
costly procedures on the Company or our collaborative
partners;
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diminish
any competitive advantages that the Company or our collaborative partners
may attain; and
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adversely
affect the Company's receipt of revenues or
royalties.
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The
results from preclinical testing and early clinical trials are often not
predictive of results obtained in later clinical trials. Although a new product
may show promising results in initial clinical trials, it may subsequently prove
unfeasible or impossible to generate sufficient safety and efficacy data to
obtain necessary regulatory approvals. Data obtained from preclinical and
clinical studies are susceptible to varying interpretations, which may delay,
limit or prevent regulatory approval. In addition, the Company may encounter
regulatory delays or rejections as a result of many factors, including results
that do not support our claims, perceived defects in the design of clinical
trials and changes in regulatory policy during the period of product
development. The Company's business, financial condition, prospects and results
of operations may be materially adversely affected by any delays in, or
termination of, our clinical trials or a determination by the FDA that the
results of the Company's trials are inadequate to justify regulatory
approval.
Any
required approvals, once obtained, may be suspended or revoked. Further, if the
Company fails to comply with applicable FDA and other regulatory requirements at
any stage during the regulatory process, it may encounter difficulties
including:
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delays
in clinical trials or
commercialization;
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product
recalls or seizures;
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suspension
of production and/or distribution;
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revocation
of previously approved marketing applications;
and
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injunctions,
civil penalties and criminal
prosecutions.
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PharmAthene' s
collaborative partners may not be able to conduct clinical testing or obtain
necessary approvals from the FDA or other regulatory authorities for any product
candidates. If we fail to obtain required governmental approvals, we or our
collaborative partners will experience delays in, or be precluded from,
marketing products developed through it or, as applicable, their
research.
PharmAthene and our
contract manufacturers will also be required to comply with the applicable FDA
current Good Manufacturing Practice ("cGMP") regulations. These regulations
include requirements relating to quality control and quality assurance as well
as the corresponding maintenance of records and documentation. Manufacturing
facilities are subject to inspection by the FDA. These facilities must be
approved before the Company will be able to use them in commercial manufacturing
of our products. The Company and our contract manufacturers may not be able to
comply with the applicable cGMP requirements and other FDA regulatory
requirements. If the Company and our contract manufacturers
fail to comply, we could be subject to fines or other sanctions, or be precluded
from marketing our products.
16
PharmAthene
may be required to perform additional clinical trials or change the labeling of
our products if we or others identify side effects after our products are on the
market. Such events could harm sales of the affected products.
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If
the Company or others identify side effects after any of our products are
on the market, or if manufacturing problems
occur:
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regulatory
approval may be revoked;
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reformulation
of the affected products, additional clinical trials, or changes in
labeling of the Company's products may be
required;
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changes
to or re-approvals of the Company's manufacturing facilities may be
required;
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sales
of the affected products may drop
significantly;
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the
Company's reputation in the marketplace may suffer;
and
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lawsuits,
including class action suits, may be brought against the
Company.
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Any
of the above occurrences could harm or prevent sales of the affected products or
could increase the costs and expenses of commercializing and marketing these
products.
Risks
Related to PharmAthene's Common Stock
Shares
that we may issue in the future in connection with certain capital-raising
transactions and shares available for future issuance upon conversion and
exercise of convertible notes, warrants and options could dilute our
shareholders and depress the market price of our common stock.
We
will seek to raise additional capital and may do so at any time through various
financing alternatives, including the sale of shares of common or preferred
stock, or notes or warrants convertible into or exercisable for shares of common
or preferred stock. Raising capital in this manner may depress the market price
of our stock and any such financing will dilute the stock ownership of our
existing shareholders.
In
addition, as of September 30, 2008, we had outstanding options to purchase
approximately 3.6 million shares of common stock. Additional shares are
reserved for issuance under our 2007 Long-Term Incentive Compensation Plan. Our
stock options are generally exercisable for ten years, with a significant
portion exercisable either immediately or beginning one year after the date of
the grant. As of September 30, 2008, we had outstanding debt to noteholders
of approximately $12.9 million in the form of convertible notes, which are
convertible at $10 per share. As of September 30, 2008, we had outstanding
warrants exercisable for 9,726,000 shares of common stock. Most of these
warrants are exercisable at $6.00 per share and expire in July 2009. The
issuance or even the expected issuance of a large number of shares of our common
stock upon conversion or exercise of the securities described above could
depress the market price of our stock and the issuance of such shares will
dilute the stock ownership of our existing shareholders.
NYSE
Alternext US may delist the Company's securities from trading which could limit
investors' ability to make transactions in our securities and subject us to
additional trading restrictions.
The Company's common stock
and certain warrants are listed on the NYSE Alternext US (formerly the American
Stock Exchange, or AMEX), a national securities exchange, which imposes
continued listing requirements with respect to listed shares. If we fail to
satisfy one or more of the requirements, such as the policy that issuers that
have had losses in their five most recent fiscal years have
stockholders' equity of at least $6,000,000, that issuers have more than 300
public shareholders, or that the aggregate market value of shares publicly held
be more than $1,000,000, NYSE Alternext US may decide to delist our common
stock. If the NYSE Alternext US delists the Company's securities from trading on
its exchange and we are not able to list our securities on another exchange or
to have them quoted on Nasdaq, the Company's securities could be quoted on the
OTC Bulletin Board, or "pink sheets". As a result, we could face significant
adverse consequences including:
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a
limited availability of market quotations for our
securities;
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a
determination that the Company's common stock is a "penny stock" which
will require brokers trading in the Company's common stock to adhere to
more stringent rules and possibly resulting in a reduced level of trading
activity in the secondary trading market for the Company's
securities;
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a
limited amount of news and analyst coverage for the Company;
and
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a
decreased ability to issue additional securities or obtain additional
financing in the future.
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SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This
prospectus and other documents we file with the SEC contain 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. This information may involve known and unknown risks, uncertainties and
other factors (including but not limited to those identified below and in the
section "Risk Factors" herein) that are difficult to predict and may cause our
actual results, performance or achievements to be materially different from
future results, performance or achievements expressed or implied by any
forward-looking statements. Forward-looking statements describe management's
current expectations regarding our future plans, strategies and objectives and
are generally identifiable by use of the words "may," "will," "should,"
"expect," "anticipate," "estimate," "believe," "intend," "project," "potential"
or "plan" or the negative of these words or other variations on these words or
comparable terminology. Such statements include, but are not limited to,
statements about potential future government contract or grant awards, potential
payments under government contracts or grants, potential regulatory approvals,
future product advancements, anticipated financial or operational results and
expected benefits from our acquisition of the biodefense vaccines business
("Avecia Acquisition") from Avecia Biologics Limited and certain of its
affiliates ("Avecia"). Forward-looking statements are based on assumptions that
may be incorrect, and we cannot assure you that the projections included in the
forward-looking statements will come to pass. Our actual results could differ
materially from those expressed or implied by the forward-looking statements as
a result of various factors, including, but not limited to risk associated with
the reliability of the results of the studies relating to human safety and
possible adverse effects resulting from the administration of the Company's
product candidates, unexpected funding delays and/or reductions or elimination
of U.S. government funding for one or more of the Company's development
programs, including without limitation our bid related to SparVax™ under the
DHHS Request for Proposals for an Anthrax Recombinant Protective Antigen (rPA)
Vaccine for the Strategic National Stockpile, the award of government contracts
to our competitors, unforeseen safety issues, challenges related to the
development, scale-up, and/or process validation of manufacturing processes for
our product candidates, unexpected determinations that these product candidates
prove not to be effective and/or capable of being marketed as products, as well
as risks detailed from time to time in PharmAthene's Forms 10-K and 10-Q
under the caption "Risk Factors" and in its other reports filed with the U.S.
Securities and Exchange Commission (the "SEC").
We
have based the forward-looking statements included in this prospectus on
information available to us on the date of this prospectus, and we assume no
obligation to update any such forward-looking statements. Although we undertake
no obligation to revise or update any forward-looking statements, whether as a
result of new information, future events or otherwise, you are advised to
consult any additional disclosures that we may make directly to you or through
reports that we, in the future, may file with the SEC, including Annual Reports
on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on
Form 8-K.
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USE
OF PROCEEDS
We
will retain broad discretion over the use of net proceeds from the sale of our
securities offered hereby. Except as may be otherwise described in a prospectus
supplement, we currently anticipate using the net proceeds, if any, for the
satisfaction of existing obligations and for general working capital. We may
engage in discussions with respect to the possible acquisition of pharmaceutical
products and businesses that are complementary to our own. As of the date of
this prospectus, we have no specific plans or commitments with respect to any
acquisition. We cannot assure you that we will complete any acquisitions or
that, if completed, any acquisition will be successful.
Pending
the application of such proceeds, we may invest the proceeds in short-term,
interest bearing, investment-grade marketable securities or money market
obligations.
DESCRIPTION
OF COMMON STOCK
The
Company is currently authorized to issue 100,000,000 shares of common stock, par
value $.0001 per share. As of January 26, 2009, there were 26,312,322
shares of common stock outstanding. The Company's stockholders are entitled to
one vote for each share held of record on all matters to be voted on by
stockholders except as otherwise provided by law or in any preferred stock
designation. The Company's stockholders have no conversion, preemptive or other
subscription rights and there are no sinking fund or redemption provisions
applicable to the common stock.
There
is no cumulative voting with respect to the election of directors, with the
result that the holders of a plurality of the shares voting at the election of
directors can elect all of the directors then up for election. The holders of
common stock are entitled to receive dividends when, as and if declared by our
Board of Directors out of funds legally available therefor. In the event of
liquidation, dissolution or winding up of the Company, the holders of common
stock are entitled to share in all assets remaining which are available for
distribution to them after payment of liabilities and after provision has been
made for each class of stock, if any, having preference over the common
stock.
The
Company's Amended and Restated Certificate of Incorporation provides that the
Board of Directors number no more than eight members, three of whom are
appointed by the holders of our 8% Convertible Notes.
Transfer
Agent
The
transfer agent and registrar for the common stock is Continental Stock
Transfer & Trust Company, New York, New York.
DESCRIPTION
OF PREFERRED STOCK
The
Company is currently authorized to issue 1,000,000 shares of preferred stock,
par value $0.0001 per share. As of the date of this prospectus, we had no shares
of preferred stock outstanding.
Under
our amended and restated certificate of incorporation, as amended, our board of
directors is expressly granted authority to issue shares of preferred stock, in
one or more series, and to fix for each series such voting powers, full or
limited, and such designations, preferences and relative, participating,
optional or other special rights and such qualifications, limitations or
restrictions as it may determine in the resolution or resolutions providing for
the issue of such series (to which we also refer as a "preferred stock
designation") and as may be permitted by the Delaware General Corporation Law.
The number of authorized shares of preferred stock may be increased or decreased
(but not below the number of shares of preferred stock then outstanding) by the
affirmative vote of the holders of a majority of the voting power of all of the
then outstanding shares of our capital stock entitled to vote generally in the
election of directors, voting together as a single class, without a separate
vote of the holders of the preferred stock, or any series of preferred stock,
unless a vote of any such holders is required pursuant to any preferred stock
designation.
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This
section describes the general terms of our preferred stock to which any
prospectus supplement may relate. A prospectus supplement will describe the
terms relating to any preferred stock to be offered by us in greater detail, and
may provide information that is different from this prospectus. If the
information in the prospectus supplement with respect to the particular
preferred stock being offered differs from this prospectus, you should rely on
the information in the prospectus supplement. A copy of our certificate of
incorporation, as amended, has been incorporated by reference from our filings
with the SEC as an exhibit to the registration statement. A certificate of
designations will specify the terms of the preferred stock being offered, and
will be filed or incorporated by reference from a report that we file with the
SEC.
The
rights and terms relating to any new series of preferred stock could adversely
affect the voting power or other rights of the holders of the common stock or
could be utilized, under certain circumstances, as a method of discouraging,
delaying or preventing a change in control of the Company.
The
following description of our preferred stock, together with any description of
our preferred stock in a prospectus supplement summarizes the material terms and
provisions of the preferred stock that we may sell under this prospectus. We
urge you to read the applicable prospectus supplement(s) related to the
particular series of preferred stock that we sell under this prospectus and to
the actual terms and provisions contained in our certificate of incorporation
(certificate of designations) and bylaws, each as amended from time to
time.
Terms
Our
board of directors will fix the rights, preferences, privileges, qualifications
and restrictions of the preferred stock of each series that we sell under this
prospectus and applicable prospectus supplements in the certificate of
designations relating to that series. We will incorporate by reference into the
registration statement of which this prospectus is a part the form of any
certificate of designations that describes the terms of the series of preferred
stock we are offering before the issuance of the related series of preferred
stock. This description of the preferred stock in the certificate of
designations and any applicable prospectus supplement may include:
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the
number of shares of preferred stock to be issued and the offering price of
the preferred stock;
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the
title and stated value of the preferred
stock;
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dividend
rights, including dividend rates, periods, or payment dates, or methods of
calculation of dividends applicable to the preferred
stock;
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whether
dividends will be cumulative or non-cumulative, and if cumulative the date
from which distributions on the preferred stock shall
accumulate;
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right
to convert the preferred stock into a different type of
security;
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voting
rights, if any, attributable to the preferred
stock;
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rights
and preferences upon our liquidation or winding up of our
affairs;
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terms
of redemption;
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preemption
rights, if any;
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the
procedures for any auction and remarketing, if any, for the preferred
stock;
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the
provisions for a sinking fund, if any, for the preferred
stock;
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any
listing of the preferred stock on any securities
exchange;
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the
terms and conditions, if applicable, upon which the preferred stock will
be convertible into our common stock, including the conversion price (or
manner of calculation thereof);
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a
discussion of federal income tax considerations applicable to the
preferred stock, if material;
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the
relative ranking and preferences of the preferred stock as to dividend or
other distribution rights and rights if we liquidate, dissolve or wind up
our affairs;
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any
limitations on issuance of any series of preferred stock ranking senior to
or on a parity with the series of preferred stock being offered as to
distribution rights and rights upon the liquidation, dissolution or
winding up or our affairs; and
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any
other specific terms, preferences, rights, limitations or restrictions of
the preferred stock.
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Rank
As
set forth in the applicable supplement to this prospectus, shares of our
preferred stock may rank, with respect to payment of distributions and rights
upon our liquidation, dissolution or winding up, and allocation of our earnings
and losses:
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senior
to all classes or series of our common stock, and to all of our equity
securities ranking junior to the preferred
stock;
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equally
with all equity securities issued by us, the terms of which specifically
provide that these equity securities rank on a parity, or equally, with
the preferred stock; or
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junior
to all equity securities issued by us, the terms of which specifically
provide that these equity securities rank senior to the preferred
stock.
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Distributions
Subject
to any preferential rights of any outstanding stock or series of stock, our
preferred shareholders may be entitled to receive distributions, when and as
authorized by our board of directors, out of legally available funds, and share
pro rata based on the number of shares of preferred stock, common stock and
other equity securities outstanding.
Voting
Rights
As
indicated in the applicable supplement to this prospectus, and as otherwise
required under Delaware law, holders of our preferred stock may or may not have
voting rights.
Liquidation
Preference
As
indicated in the applicable supplement to this prospectus, upon the voluntary or
involuntary liquidation, dissolution or winding up of our affairs, then, before
any distribution or payment shall be made to the holders of any common stock or
any other class or series of stock ranking junior to the preferred stock in our
distribution of assets upon any liquidation, dissolution or winding up, the
holders of each series of our preferred stock may be entitled to receive, after
payment or provision for payment of our debts and other liabilities, out of our
assets legally available for distribution to shareholders, liquidating
distributions in the amount of the liquidation preference per share (set forth
in the applicable supplement to this prospectus), plus an amount, if applicable,
equal to all distributions accrued and unpaid thereon (which shall not include
any accumulation in respect of unpaid distributions for prior distribution
periods if the preferred stock does not have a cumulative distribution). After
payment of the full amount of the liquidating distributions to which they may be
entitled, the holders of preferred stock may have no right or claim to any of
our remaining assets. In the event that, upon our voluntary or involuntary
liquidation, dissolution or winding up, the legally available assets are
insufficient to pay the amount of the liquidating distributions on all of our
outstanding preferred stock and the corresponding amounts payable on all of our
stock of other classes or series of equity security ranking on a parity with the
preferred stock in the distribution of assets upon liquidation, dissolution or
winding up, then the holders of our preferred stock and all other such classes
or series of equity securities may share ratably in the distribution of assets
in proportion to the full liquidating distributions to which they would
otherwise be respectively entitled.
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If
the liquidating distributions are made in full to all holders of preferred
stock, our remaining assets may be distributed among the holders of any other
classes or series of equity security ranking junior to the preferred stock upon
our liquidation, dissolution, or winding up, according to their respective
rights and preferences and in each case according to their respective number of
shares of stock.
Conversion
Rights
The
terms and conditions, if any, upon which shares of any series of preferred stock
are convertible into, such as common stock, debt securities, warrants or units
consisting of one or more of such securities will be set forth in the applicable
supplement to this prospectus. These terms will include the amount and type of
security into which the shares of preferred stock are convertible, the
conversion price (or manner of calculation thereof), the conversion period,
provisions as to whether conversion will be at the option of the holders of the
preferred stock or us, the events, if any, requiring an adjustment of the
conversion price and provisions, if any, affecting conversion in the event of
the redemption of that preferred stock.
Redemption
If
so provided in the applicable supplement to this prospectus, our preferred stock
will be subject to mandatory redemption or redemption at our option, in whole or
in part, in each case upon the terms, at the times and at the redemption prices
set forth in such supplement to this prospectus.
DESCRIPTION
OF WARRANTS
The
following description, together with the additional information we may include
in any applicable prospectus supplements, summarizes the material terms and
provisions of the warrants that we may offer under this prospectus. While the
terms we have summarized below will apply generally to any warrants that we may
offer under this prospectus, we will describe the particular terms of any series
of warrants in more detail in the applicable prospectus supplement. The terms of
any warrants offered under a prospectus supplement may differ from the terms
described below.
We
will file as exhibits to the registration statement of which this prospectus is
a part, or will incorporate by reference from another report that we file with
the SEC, the form of warrant agreement, which may include a form of warrant
certificate, that describes the terms of the particular series of warrants we
are offering before the issuance of the related series of warrants. The
following summary of material provisions of the warrants and the warrant
agreements are subject to all the provisions of the warrant agreement and
warrant certificate applicable to a particular series of warrants. We urge you
to read the applicable prospectus supplements related to the particular series
of warrants that we sell under this prospectus, as well as the complete warrant
agreements and warrant certificates that contain the terms of the
warrants.
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General
We
will describe in the applicable prospectus supplement the terms relating to
warrants being offered including:
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the
offering price and aggregate number of warrants
offered;
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if
applicable, the designation and terms of the securities with which the
warrants are issued and the number of warrants issued with each such
security or each principal amount of such
security;
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if
applicable, the date on and after which the warrants and the related
securities will be separately
transferable;
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in
the case of warrants to purchase common stock or preferred stock, the
number of shares of common stock or preferred stock, as the case may be,
purchasable upon the exercise of one warrant and the price at which these
shares may be purchased upon such
exercise;
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the
terms of any rights to redeem or call the
warrants;
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any
provisions for changes to or adjustments in the exercise price or number
of securities issuable upon exercise of the
warrants;
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the
dates on which the right to exercise the warrants will commence and
expire;
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the
manner in which the warrant agreements and warrants may be
modified;
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federal
income tax consequences of holding or exercising the warrants, if
material;
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the
terms of the securities issuable upon exercise of the warrants;
and
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any
other specific terms, preferences, rights or limitations of or
restrictions on the warrants.
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Before
exercising their warrants, holders of warrants will likely not have any of the
rights of holders of the securities purchasable upon such exercise, including,
in the case of warrants to purchase common stock or preferred stock, the right
to receive dividends, if any, or payments upon our liquidation, dissolution or
winding up of our affairs or to exercise voting rights, if any.
Exercise
of Warrants
Each
warrant will entitle the holder to purchase the securities that we specify in
the applicable prospectus supplement at the exercise price that we describe in
the applicable prospectus supplement. Unless we otherwise specify in the
applicable prospectus supplement, holders of the warrants may exercise the
warrants at any time up to the specified time on the expiration date that we set
forth in the applicable prospectus supplement. After the close of business on
the expiration date, unexercised warrants will become void.
Holders
of the warrants may exercise the warrants by delivering the warrant certificate
representing the warrants to be exercised together with specified information,
and paying the required amount to the warrant agent in immediately available
funds, as provided in the applicable prospectus supplement. We intend to set
forth in any warrant agreement and in the applicable prospectus supplement the
information that the holder of the warrant will be required to deliver to the
warrant agent.
Upon receipt of the
required payment and any warrant certificate or other form required for exercise
properly completed and duly executed at the corporate trust office of the
warrant agent or any other office indicated in the applicable prospectus
supplement, we will issue and deliver the securities purchasable upon such
exercise. If fewer than all of the warrants represented by the warrant or
warrant certificate are exercised, then we will issue a new warrant or warrant
certificate for the remaining amount of warrants. If we
so indicate in the applicable prospectus supplement, holders of the warrants may
surrender securities as all or part of the exercise price for warrants.
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PLAN
OF DISTRIBUTION
We
may sell the securities covered by this prospectus from time to time.
Registration of our securities covered by this prospectus does not mean,
however, that those securities will necessarily be offered or sold.
We
may sell the securities through one or more underwriters or dealers in a public
offering and sale by them, through agents and/or directly to one or more
investors. We may sell the securities from time to time in one or more
transactions at a fixed price or prices, which may be changed from time to time,
at market prices prevailing at the times of sale, at prices related to such
prevailing market prices, or at negotiated prices. For each offering of
securities hereunder, we will describe the method of distribution of such
securities in a prospectus supplement. The prospectus supplements will describe
the terms of the offerings of the securities, including:
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The
name or names of any underwriters, if
any;
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The
purchase price of our securities and the proceeds we will receive from the
sale;
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Any
overallotment options under which underwriters may purchase additional
securities from us;
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Any
agency fees or underwriting discounts and other items constituting agents'
or underwriters' compensation;
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Any
public offering price;
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Any
discounts or concessions allowed or reallowed or paid to dealers;
and
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Any
securities exchange or market on which our common stock or other
securities may be listed.
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Only
underwriters named in the prospectus supplement are underwriters of the
securities offered by that prospectus supplement.
If
underwriters are used in the sale, they will acquire the securities for their
own account and may resell the securities from time to time in one or more
transactions at a fixed public offering price. The obligations of the
underwriters to purchase the securities will be subject to the conditions set
forth in the applicable underwriting agreement. We may offer the securities to
the public through underwriting syndicates represented by managing underwriters
or by underwriters without a syndicate. Subject to certain conditions, the
underwriters may be obligated to purchase all the securities offered by the
prospectus supplement. Any public offering price and any discounts or
concessions allowed or reallowed or paid to dealers may change from time to
time. We may use underwriters with whom we have a material relationship. We will
describe in the prospectus supplement, naming the underwriter, the nature of any
such relationship. We may sell securities directly or through agents we
designate from time to time. We will name any agent involved in the offering and
sale of securities and we will describe any commissions we will pay the agent in
the prospectus supplement. Unless the prospectus supplement states otherwise,
any such agent will act on a best-efforts basis for the period of its
appointment.
We
may authorize agents or underwriters to solicit offers by certain types of
institutional investors to purchase securities from us at the public offering
price set forth in the prospectus supplement pursuant to delayed delivery
contracts providing for payment and delivery on a specified date in the future.
We will describe the conditions to these contracts and the commissions we must
pay for solicitation of these contracts in the prospectus
supplement.
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We
may provide underwriters and agents with indemnification against civil
liabilities related to this offering, including liabilities under the Securities
Act of 1933, as amended, or Securities Act, or contribution with respect to
payments that the underwriters or agents may make with respect to such
liabilities.
Any
preferred stock we offer will represent a new issue of securities with no
established trading market. Any underwriters may make a market in these
securities, but will not be obligated to do so and may discontinue any market
making at any time without notice. We cannot guarantee the liquidity of the
trading markets for these securities.
Any
underwriter may engage in overallotment, stabilizing transactions, short
covering transactions and penalty bids in accordance with Regulation M
under the Securities Exchange Act of 1934, as amended, or Exchange Act.
Overallotment involves sales in excess of the offering size, which create a
short position. Stabilizing transactions permit bids to purchase the underlying
security so long as the stabilizing bids do not exceed a specified maximum.
Short covering transactions involve purchase of the securities in the open
market after the distribution is completed to cover short positions. Penalty
bids permit the underwriters to reclaim a selling concession from a dealer when
the securities originally sold by the dealer is purchased in a covering
transaction to cover short positions. Those activities may cause the price of
the securities to be higher than it would otherwise be. If commenced, the
underwriters may discontinue any of these activities at any time.
We
make no representation or prediction as to the direction or magnitude of any
effect that any of the foregoing activities may have on the price of our common
stock or, if applicable, the price for any of our other securities. For a
description of these activities, see the information under the heading
"Underwriting" or "Plan of Distribution" in the applicable prospectus
supplement.
Underwriters,
broker-dealers or agents who may become involved in the sale of our securities
may engage in transactions with and perform other services for us in the
ordinary course of their business for which they receive compensation.
LEGAL
MATTERS
Sonnenschein
Nath & Rosenthal, LLP, New York, New York, will pass upon the
validity of the securities offered pursuant to this prospectus and counsel named
in the applicable prospectus supplement will pass upon the validity of such
securities for any underwriters, dealers or agents.
EXPERTS
Ernst &
Young LLP, independent registered public accounting firm, has audited our
consolidated financial statements included in our Annual Report on
Form 10-K for the year ended December 31, 2007 as set forth in their
report, which is incorporated by reference in this prospectus and elsewhere in
the registration statement. Our financial statements are incorporated by
reference in reliance on Ernst & Young LLP's report, given on
their authority as experts in accounting and auditing.
WHERE
YOU CAN FIND MORE INFORMATION
We
are subject to the informational reporting requirements of the Exchange Act and
file annual, quarterly and special reports, proxy statements and other
information with the SEC. You may read and copy any materials we file with the
SEC at the SEC's Public Reference Room located at 100 F Street, N.E.,
Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further
information on the Public Reference Room. You may also access filed documents at
the SEC's website at
www.sec.gov.
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INCORPORATION
BY REFERENCE
We
are incorporating by reference important business and financial information
about us that we file with the SEC. Any information that we incorporate by
reference is considered part of this prospectus. Information that we file with
the SEC at a later date pursuant to Sections 13(a), 13(c), 14 or 15(d) of
the Securities Exchange Act of 1934, and prior to the termination of the
offering, shall be deemed to be incorporated by reference in the registration
statement and to be part thereof from the date of filing of such information and
automatically adds to, updates or supersedes the information listed
below.
We
incorporate by reference the following documents we have filed, or may file,
with the SEC:
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our
Annual Report on Form 1 0-K/A for the year ended December 31,
2007 (File No. 001-32587);
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our
Annual Report on Form 10-K for the year ended December 31, 2007
(File No. 001-32587);
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our
Quarterly Reports on Form 10-Q for the quarters ended March 31,
2008, June 30, 2008 and September 30, 2008 and on
Form 10-Q/A for the quarter ended June 30, 2008 (File
No. 001-32587);
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our
Current Reports on Form 8-K and/or 8-K/A filed with the SEC on
March 14, 2008, March 26, 2008, April 8, 2008, May 2,
2008, June 18, 2008, June 19, 2008, July 16, 2008,
October 1, 2008, October 6, 2008 and January 27,
2009;
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our
Definitive Proxy Statement filed with the SEC on May 15, 2008,
including any amendments or supplements filed for the purpose of updating
same;
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all
documents filed by us with the SEC under Section 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this prospectus and before the
termination of this offering; and
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the
description of our common stock contained in our registration statement on
Form 8-A filed with the SEC on July 27, 2005, including any
amendments or reports filed for the purpose of updating such description,
including the description of the Company's securities set forth in the
Definitive Proxy Statement filed with the SEC on July 16, 2007, on
page 159 under the caption "Description of
Securities."
|
To
the extent that any information contained in any Current Report on
Form 8-K, or any exhibit thereto, is furnished to, rather than filed with,
the SEC, such information or exhibit is specifically not incorporated by
reference in this prospectus.
We
make available free of charge through our website atwww.pharmathene.com our press
releases and all of the documents that we are required to file electronically
with the SEC, including all amendments thereto, as soon as reasonably practical
after they are electronically filed with, or furnished to, the SEC. Our website
also contains our Code of Ethics. The information on our website is not part of
nor incorporated by reference into this prospectus. You may also read and copy
any materials we file with the SEC at the SEC's Public Reference Room at
100 F Street, N.E., Washington, D.C. 20549. You may obtain information on
the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.
The SEC also maintains an Internet site that contains reports, proxy and
information statements, and other information regarding issuers, like
PharmAthene, that file electronically with the SEC at http://www.sec.gov
..
In
addition, we will provide, without charge to each person, including any
beneficial owner, to whom this prospectus is delivered, upon written or oral
request of such person, a copy of any or all of the documents incorporated by
reference in this prospectus other than exhibits, unless such exhibits
specifically are incorporated by reference into such documents or this
prospectus. Requests for such documents should be addressed in writing or by
telephone to: PharmAthene, Inc., One Park Place, Suite 450, Annapolis,
MD 21401, (410) 269-2600.
26
2,785,714
Shares of Common Stock
Warrants to Purchase up to
1,323,214 Shares of Common Stock
PROSPECTUS SUPPLEMENT
July 20, 2010
Roth
Capital Partners