UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2008
or
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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FOR THE TRANSITION PERIOD FROM
TO
Commission File Number: 001-33054
TRUBION PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
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DELAWARE
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52-2385898
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(State or other jurisdiction of incorporation or organization)
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(IRS Employer Identification No.)
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2401 FOURTH AVENUE, SUITE 1050
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SEATTLE, WASHINGTON
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98121
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(Address of registrants principal executive offices)
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(Zip Code)
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(206) 838-0500
(Telephone number, including area code)
N/A
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
þ
Yes
o
No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
a non-accelerated filer, or a smaller reporting company.
See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer
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Accelerated filer
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Non-accelerated filer
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(Do not check if a smaller reporting company)
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Smaller Reporting Company
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act).
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Yes No
þ
The number of shares of the registrants common stock, $0.001 par value, outstanding as of
August 1, 2008 was 17,857,799.
TRUBION PHARMACEUTICALS, INC.
INDEX
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TRUBION PHARMACEUTICALS, INC.
BALANCE SHEETS
(In thousands, except share and par value)
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June 30, 2008
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December 31, 2007
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(unaudited)
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ASSETS
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Current assets:
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Cash and cash equivalents
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$
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12,738
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$
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41,827
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Investments
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52,704
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36,688
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Receivable from collaboration
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3,096
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4,237
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Prepaid expenses
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1,021
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1,224
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Total current assets
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69,559
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83,976
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Property and equipment, net
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10,456
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11,163
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Other assets
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21
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35
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Total assets
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$
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80,036
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$
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95,174
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LIABILITIES AND STOCKHOLDERS EQUITY
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Current liabilities:
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Accounts payable
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$
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621
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$
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1,031
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Accrued liabilities
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3,879
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3,337
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Accrued compensation
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1,743
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2,022
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Current portion of notes payable
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2,247
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2,426
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Current portion of deferred rent
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180
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180
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Current portion of deferred revenue
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5,848
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5,848
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Total current liabilities
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14,518
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14,844
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Non-current portion of notes payable
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6,485
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7,567
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Non-current portion of deferred rent
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225
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315
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Non-current portion of deferred revenue
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16,082
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19,006
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Interest rate swap liability
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156
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129
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Commitments and contingencies
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Stockholders equity:
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Preferred stock, $0.001 par value per share;
shares authorized 5,000,000 at June 30,
2008 and December 31, 2007; issued and
outstanding none at June 30, 2008 and
December 31, 2007
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Common stock, $0.001 par value per share;
shares authorized 150,000,000 at June 30,
2008 and December 31, 2007; issued and
outstanding 17,857,799 at June 30, 2008
and 17,792,170 at December 31, 2007
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18
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18
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Additional paid-in capital
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122,263
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120,471
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Deferred stock-based compensation
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(61
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)
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(294
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)
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Accumulated other comprehensive income (loss)
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(140
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)
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28
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Accumulated deficit
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(79,510
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)
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(66,910
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Total stockholders equity
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42,570
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53,313
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Total liabilities and stockholders equity
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$
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80,036
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$
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95,174
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See accompanying notes
3
TRUBION PHARMACEUTICALS, INC.
STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(unaudited)
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Three Months Ended
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Six Months Ended
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June 30,
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June 30,
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2008
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2007
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2008
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2007
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Revenue:
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Collaboration revenue
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$
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4,468
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$
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4,980
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$
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8,431
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$
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9,815
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Operating expenses:
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Research and development
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8,390
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10,733
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15,905
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19,324
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General and administrative
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3,025
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2,719
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5,998
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5,074
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Total operating expenses
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11,415
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13,452
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21,903
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24,398
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Loss from operations
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(6,947
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(8,472
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(13,472
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(14,583
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Interest income
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480
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1,205
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1,215
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2,462
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Interest expense
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(165
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(188
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(343
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(353
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Net loss
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$
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(6,632
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$
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(7,455
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$
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(12,600
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$
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(12,474
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Basic and diluted net loss per share
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$
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(0.37
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$
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(0.42
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$
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(0.71
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$
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(0.71
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Shares used in computation of basic and diluted net loss per share
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17,851
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17,635
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17,841
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17,601
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See accompanying notes
4
TRUBION PHARMACEUTICALS, INC.
STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
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Six Months Ended
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June 30,
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2008
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2007
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Operating activities:
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Net loss
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$
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(12,600
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$
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(12,474
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Adjustments to reconcile net loss to net cash used in operating activities:
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Depreciation and amortization expense
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1,648
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1,411
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Net amortization of discount on investments
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(94
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)
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(56
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Non-cash stock-based compensation expense
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1,944
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1,706
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Amortization of debt discount
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8
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12
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Changes in operating assets and liabilities:
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Receivable from collaboration
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1,141
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1,373
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Prepaid expenses and other assets
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217
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255
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Accounts payable
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(410
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)
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(415
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Accrued liabilities and compensation
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263
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(1,710
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)
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Deferred revenue
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(2,924
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)
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(4,000
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)
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Deferred rent
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(90
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)
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(90
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)
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Net cash used in operating activities
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(10,897
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)
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(13,988
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)
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Investing activities:
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Purchases of property and equipment
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(941
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(2,777
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)
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Purchases of investments
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(47,372
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)
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(40,567
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Maturities of investments
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31,309
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46,030
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Net cash provided by (used in) investing activities
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(17,004
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)
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2,686
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Financing activities:
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Proceeds from issuance of notes payable
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1,516
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Payments on notes payable
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(1,269
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)
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(451
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Proceeds from exercise of stock options
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81
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110
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Net cash provided by (used in) financing activities
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(1,188
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)
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1,175
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Net decrease in cash and cash equivalents
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(29,089
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)
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(10,127
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)
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Cash and cash equivalents at beginning of period
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41,827
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56,414
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Cash and cash equivalents at end of period
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$
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12,738
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$
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46,287
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Supplemental disclosure information:
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Cash paid for interest
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$
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342
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$
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341
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See accompanying notes
5
TRUBION PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS
(unaudited)
1. Summary of Significant Accounting Policies
Basis of Presentation
The balance sheet at December 31, 2007 has been derived from the audited financial statements
at that date, but does not include all of the information and footnotes required by U.S. generally
accepted accounting principles, or GAAP, for complete financial statements. The accompanying
unaudited financial statements have been prepared in accordance with accounting principles
generally accepted in the United States for interim financial information and with the instructions
to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not contain all of the
information and footnotes required for complete financial statements. In the opinion of management,
the accompanying unaudited financial statements reflect all adjustments, which include only normal
recurring adjustments, necessary to present fairly our interim financial information.
The accompanying unaudited financial statements and notes to financial statements should be
read in conjunction with the audited financial statements and related notes thereto, which are
included in our annual report on Form 10-K for the year ended December 31, 2007, or the 2007 Form
10-K.
Use of Estimates
Our financial statements have been prepared in accordance with U.S. GAAP. The preparation of
these financial statements requires us to make estimates and judgments in certain circumstances
that affect the reported amounts of assets, liabilities, revenues and expenses, and related
disclosure of contingent assets and liabilities. In preparing these financial statements, our
management has made its best estimates and judgments of certain amounts included in the financial
statements, giving due consideration to materiality. On an ongoing basis, we evaluate our
estimates, including those related to revenue recognition, fair values of assets, income taxes,
clinical trial, manufacturing and legal accruals, and other contingencies. Management bases its
estimates on historical experience and on various other assumptions that it believes to be
reasonable under the circumstances. Actual results could differ from these estimates.
Reclassifications
We have made certain reclassifications to the prior years financial statements and notes to
conform to the current year presentation. These reclassifications related to the non-cash
amortization of discount on investments from investing activities and operating activities and the
presentation of cash flows from the purchase and maturity on investments within investing
activities. For the six months ended June 30, 2007 this reclassification had an immaterial impact
on cash used in operating activities and cash used in investing activities and also reduced both
purchases and maturities of investments. These reclassifications did not affect our financial
position, net loss or net cash flows for the periods presented.
Recently Adopted Accounting Pronouncements
In September 2006 the Financial Accounting Standards Board, or FASB, released Statement of
Financial Accounting Standards No. 157,
Fair Value Measurements,
or SFAS 157, which is effective
for fiscal years beginning after November 15, 2007. We adopted the provisions of SFAS 157 as of
January 1, 2008, with respect to our financial assets and liabilities only. The adoption of SFAS
157 did not have a material impact on our financial position, results of operations and cash flows.
SFAS 157 defines fair value, establishes a framework for measuring fair value under GAAP, and
expands disclosures about fair value measurements. In November 2007, the FASB agreed to a one-year
deferral of the effective date for non-financial assets and liabilities that are recognized or
disclosed at fair value on a nonrecurring basis. We are currently assessing the portion of the
pronouncement covered by the deferral.
In February 2007 the FASB issued SFAS No. 159,
The Fair Value Option for Financial Assets and
Financial Liabilities,
or SFAS 159. SFAS 159 allows an entity the irrevocable option to elect fair
value for the initial and subsequent measurement for specified financial assets and liabilities on
a contract-by-contract basis. We adopted the provisions of SFAS 159 effective January 1,
6
2008 without choosing to elect to measure certain financial assets or liabilities at fair
value that were not previously measured at fair value. Thus there was no impact to our results or
operations or financial condition upon adoption.
In June 2007 the Emerging Issues Task Force, or EITF, reach a final consensus on EITF issue
No. 07-3,
Accounting for Nonrefundable Advance Payments for Goods or Services Received for Use in
Future Research and Development Activities
, or EITF 07-3. EITF 07-3 requires that nonrefundable
advance payments for goods or services that will be used or rendered for future research and
development activities be deferred and capitalized and recognized as an expense as the goods are
delivered or the related services are performed. Effective January 1, 2008, we adopted EITF 07-3.
The adoption did not have a material impact on our results or operations or financial condition.
Recent Accounting Pronouncements
In November 2007, the EITF reached a final consensus on EITF Issue No. 07-1, Accounting for
Collaborative Arrangements Related to the Development and Commercialization of Intellectual
Property (EITF 07-1). EITF 07-1 will require us to disclose the nature and purpose of our
collaborative arrangements in our annual financial statements, our rights and obligations under the
collaborative arrangements, the stage of the underlying endeavors life cycle, our accounting
policies for the arrangements and the income statement classification and amount of significant
financial statement amounts related to the collaborative arrangements. EITF 07-1 will be effective
for fiscal years beginning after December 15, 2008 and will require us to apply it as a change in
accounting principle through retrospective application to all prior periods for all collaborative
arrangements existing as of the effective date. We are currently assessing the impact of EITF 07-1
on our results of operations, cash flows and financial condition.
In May 2008, the FASB issued SFAS No. 162,
The Hierarchy of Generally Accepted Accounting
Principles
, or SFAS 162
.
SFAS 162 identifies the sources of accounting principles and the framework
for selecting the principles used in the preparation of financial statements of nongovernmental
entities that are presented in conformity with GAAP. This statement shall be effective 60 days
following the SECs approval of the Public Company Accounting Oversight Board amendments to AU
Section 411, The Meaning of Present Fairly in Conformity With Generally Accepted Accounting
Principles. The Company does not expect its adoption to have an impact on the accompanying
financial statements.
2. Fair Value Measurements
We
currently measure and record cash equivalents, investment securities considered
available-for-sale and an interest rate swap at fair value in the
accompanying financial
statements. Fair value is defined under Statement of Financial
Accounting Standards No. 157,
Fair
Value Measurements
, or SFAS 157, as the exchange price that would
be received for an asset or paid
to transfer a liability, an exit price, in the principal or most
advantageous market for the asset
or liability in an orderly transaction between market participants on
the measurement date.
Valuation techniques used to measure fair value under SFAS 157 must
maximize the use of observable
inputs and minimize the use of unobservable inputs. SFAS 157
establishes a three-tier fair value
hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include:
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Level 1 Observable inputs for identical assets or liabilities such as quoted prices in active markets;
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Level 2 Inputs other than quoted prices in active markets that are either directly or indirectly observable; and
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Level 3 Unobservable inputs in which little or no market data exists, which are therefore developed by us using
estimates and
assumptions that
reflect those that a market participant would use.
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7
In accordance with SFAS 157, the following table represents our fair value hierarchy for our
financial assets and liabilities measured at fair value on a recurring basis as of June 30, 2008
(in thousands):
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Level 1
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Level 2
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Level 3
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Total
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Assets:
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|
|
|
|
|
|
|
|
|
|
|
|
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Money market funds
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$
|
10,820
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$
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|
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$
|
|
|
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$
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10,820
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Government and agency debt securities
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|
|
|
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22,910
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|
|
|
|
|
|
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22,910
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|
Corporate debt securities
|
|
|
|
|
|
|
31,271
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|
|
|
|
|
|
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31,271
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|
|
|
|
|
|
|
|
|
|
|
|
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Total
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|
$
|
10,820
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|
|
$
|
54,181
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|
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$
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$
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65,001
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|
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|
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|
|
|
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|
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Liabilities:
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap
|
|
$
|
|
|
|
$
|
156
|
|
|
$
|
|
|
|
$
|
156
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
|
|
|
$
|
156
|
|
|
$
|
|
|
|
$
|
156
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash of $0.4 million is not included in our SFAS 157 level hierarchy disclosure as of June 30,
2008.
Unrealized gains and losses on cash equivalents, investments, and our interest rate swap are
included in accumulated other comprehensive income (loss) in the accompanying balance sheets. There
were no realized gains or losses on cash equivalents, investments or our interest rate swap during
the three and six months ended June 30, 2008 and 2007.
SFAS 157 requires separate disclosure of assets and liabilities measured at fair value on a
recurring basis, as documented above, from those measured at fair value on a nonrecurring basis. As
of June 30, 2008, no assets or liabilities are currently measured at fair value on a nonrecurring
basis.
3. Stock-based Compensation
We recorded total share-based compensation expense for the three- and six-month periods ended
June 30, 2008 and 2007 as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
Six months ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Research and development
|
|
$
|
413
|
|
|
$
|
522
|
|
|
$
|
724
|
|
|
$
|
860
|
|
General and administrative
|
|
|
670
|
|
|
|
381
|
|
|
|
1,220
|
|
|
|
846
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,083
|
|
|
$
|
903
|
|
|
$
|
1,944
|
|
|
$
|
1,706
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4. Net Loss Per Share
Basic net loss per share is calculated by dividing net loss by the weighted-average number of
common shares outstanding. Because we report a net loss for the six months ended June 30, 2008 and
2007, diluted net loss per share is the same as basic net loss per share. We have excluded all
outstanding stock options, warrants, and unvested restricted stock from the calculation of diluted
net loss per common share because all such securities are antidilutive to the computation of net
loss per share. Potentially dilutive securities include the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
As of June 30,
|
|
|
2008
|
|
2007
|
|
|
|
Stock options
|
|
|
2,122
|
|
|
|
1,590
|
|
Common shares subject to repurchase
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
2,122
|
|
|
|
1,591
|
|
|
|
|
5. Collaboration Agreement
In December 2005, we entered into a collaboration agreement with Wyeth for the development and
worldwide commercialization of our lead product candidate, TRU-015, and other CD20-directed
therapeutics. We are also collaborating with Wyeth on the development and worldwide
commercialization of certain other product candidates directed to a small number of targets other
than CD20 that have been established pursuant to the agreement. During the remaining term of our
research and development services for Wyeth, Wyeth has the right to replace a limited number of
these targets. These replacement targets are subject to our consent, which we may not unreasonably
withhold. In addition, we have the option to co-promote with Wyeth, on customary terms to be
agreed, CD20-directed therapies in the United States for niche indications. We retain the right to
develop and commercialize, on our own or with others, product candidates directed to all targets
not included within the agreement, including CD37. Unless earlier terminated, the agreement will
remain in effect on a product-by-product basis and on a country-by-country basis until the later of
the date that any such product shall no longer be covered by a valid claim of a U.S. or foreign
patent or application and, generally, ten years after the first commercial sale of any product licensed under the agreement. Wyeth may terminate the
agreement without cause at any time upon 90 days prior written notice.
8
In connection with the agreement, Wyeth paid us a $40 million non-refundable, non-creditable,
up-front fee in January 2006 and purchased directly from us in a private placement, concurrent with
our initial public offering, 800,000 shares of our common stock at the initial public offering
price of $13.00 per share, resulting in net proceeds to us of $10.4 million. Under the agreement,
we provide research services for an initial three-year period ending December 22, 2008 with the
option for Wyeth to extend the service period for two additional one-year periods. Wyeths
financial obligations during the initial research service term include collaborative research
funding commitments of $9.0 million in exchange for such committed research services. This $9.0
million was subject to an increase if the service period was extended beyond three years as well as
annual increases pursuant to percentage changes in the CPI. In June 2008, Wyeth exercised the
first option under the terms of the agreement to extend the research period for an additional
one-year period through December 22, 2009. Under the terms of the research period extension,
Wyeths obligations to us include collaboration research funding commitments of approximately $3.2
million in exchange for committed research services through December 22, 2009.
In addition, Wyeths financial obligations include additional amounts for reimbursement of
agreed-upon external research and development costs and patent costs. Wyeths financial obligations
also include payments of up to $250 million based on the achievement of regulatory and sales
milestones for CD20-directed therapies and payments of up to $535 million based on the achievement
of regulatory and sales milestones for therapies directed to the small number of targets other than
CD20 that have been established pursuant to the agreement. In addition, we will receive royalty
payments in the event of future licensed product sales. The $40 million up-front fee is being
recognized ratably over the estimated term of our substantive contractual obligations under the
agreement and the related research and development service period. The estimated term of the
research and development service period is reviewed and adjusted as additional information becomes
available. The currently estimated term of the research and development service period is six years
and three months.
During the six months ended June 30, 2008 and 2007, we recognized as revenue $8.4 million and
$9.8 million, respectively, for research and development services pursuant to our Wyeth
collaboration. The $8.4 million recognized in the six months ended June 30, 2008 is comprised of
$2.9 million for amortization of the $40 million up-front fee received from Wyeth and $5.5 million
for collaborative research funding from the Wyeth collaboration. The $9.8 million recognized in the
six months ended June 30, 2007 is comprised of $4.0 million for amortization of the $40 million
up-front fee received from Wyeth and $5.8 million for collaborative research funding from the Wyeth
collaboration.
6. Property and Equipment
Property and equipment consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
Lab equipment
|
|
$
|
10,033
|
|
|
$
|
8,874
|
|
Leasehold improvements
|
|
|
6,611
|
|
|
|
6,528
|
|
Computer equipment and software
|
|
|
1,077
|
|
|
|
990
|
|
Furniture and fixtures
|
|
|
447
|
|
|
|
447
|
|
Construction in progress
|
|
|
247
|
|
|
|
638
|
|
|
|
|
|
|
|
|
|
|
|
18,415
|
|
|
|
17,477
|
|
Accumulated depreciation and amortization
|
|
|
(7,959
|
)
|
|
|
(6,314
|
)
|
|
|
|
|
|
|
|
|
|
$
|
10,456
|
|
|
$
|
11,163
|
|
|
|
|
|
|
|
|
9
7. Accrued Liabilities
Accrued liabilities consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
Accrued clinical trials
|
|
$
|
2,386
|
|
|
$
|
1,553
|
|
Accrued professional fees
|
|
|
839
|
|
|
|
941
|
|
Other
|
|
|
654
|
|
|
|
843
|
|
|
|
|
|
|
|
|
|
|
$
|
3,879
|
|
|
$
|
3,337
|
|
|
|
|
|
|
|
|
8. Comprehensive Income (Loss)
Comprehensive loss is comprised of net loss and unrealized gains (losses) on marketable
securities and derivatives. The components of comprehensive loss for the three and six months ended
June 30, 2008 and 2007 were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
Six months ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Net loss
|
|
$
|
(6,632
|
)
|
|
$
|
(7,455
|
)
|
|
$
|
(12,600
|
)
|
|
$
|
(12,474
|
)
|
Net unrealized gains (losses) on securities available-for-sale
|
|
|
(230
|
)
|
|
|
28
|
|
|
|
(141
|
)
|
|
|
20
|
|
Net unrealized losses on cash flow hedges
|
|
|
207
|
|
|
|
|
|
|
|
(27
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
$
|
(6,655
|
)
|
|
$
|
(7,427
|
)
|
|
$
|
(12,768
|
)
|
|
$
|
(12,454
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9. Commitments
We have entered into agreements with Lonza Biologics, or Lonza, and related entities for
certain license rights related to Lonzas manufacturing technology, and for research and
development services. We have reserved future manufacturing capacity from Lonza under pre-specified
terms and conditions. As of June 30, 2008, we had committed to purchase $2.1 million of
manufacturing services from Lonza in 2009. If we terminate reserved future manufacturing capacity
with Lonza without providing adequate notice to Lonza under the agreement, we may incur
cancellation fees.
10. Subsequent Events
We entered into a loan and security agreement with Silicon Valley Bank, or SVB, effective July
25, 2008, the terms of which provide for a $10.0 million debt facility secured by a security
interest in our assets, other than intellectual property, and used $8.5 million of the proceeds
from this debt facility to fully extinguish our obligations with Comerica Bank under our existing
debt facility. In conjunction with extinguishing our obligations under the Comerica debt facility,
we also terminated the Comerica loan and security agreement and related interest rate swap
agreement. We incurred a breakage fee of $165,000 in connection with the termination of the interest rate swap agreement. The full $10.0 million available under the SVB facility was drawn at close and is
payable in fixed equal payments of principal plus interest at a fixed rate of 5.75% based on an
84-month amortization schedule with all principal and accrued
interest due July 25, 2013. The loan
and security agreement contains representations and warranties and affirmative and negative
covenants that are customary for credit facilities of this type.
10
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This quarterly report on
Form 10-Q
contains 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, which are subject to the safe harbor created by those sections.
Forward-looking statements are based on our managements beliefs and assumptions and on information
currently available to them. In some cases you can identify forward-looking statements by terms
such as may, will, should, could, would, expect, plans, anticipates, believes,
estimates, projects, predicts, potential, and similar expressions intended to identify
forward-looking statements. Examples of these statements include, but are not limited to,
statements regarding: the implications of interim or final results of our clinical trials, the
progress of our research programs, including clinical testing, the extent to which our issued and
pending patents may protect our products and technology, our ability to identify new product
candidates, the potential of such product candidates to lead to the development of commercial
products, our anticipated timing for initiation or completion of our clinical trials for any of our
product candidates, our future operating expenses, our future losses, our future expenditures for
research and development, and the sufficiency of our cash resources. Our actual results could
differ materially from those anticipated in these forward-looking statements for many reasons,
including the risks faced by us and described in Part II, Item 1A of this quarterly report on Form
10-Q and our other filings with the Securities and Exchange Commission, or SEC. You should not
place undue reliance on these forward-looking statements, which apply only as of the date of this
quarterly report on
Form 10-Q
. You should read this quarterly report on
Form 10-Q
completely and
with the understanding that our actual future results may be materially different from what we
expect. Except as required by law, we assume no obligation to update these forward-looking
statements, whether as a result of new information, future events, or otherwise.
The following discussion and analysis should be read in conjunction with the unaudited
financial statements and notes thereto included in Part I, Item 1 of this quarterly report on Form
10-Q.
Overview
We are a biopharmaceutical company creating a pipeline of novel protein therapeutic product
candidates to treat autoimmune and inflammatory diseases and cancer. Our mission is to develop a
variety of first-in-class and best-in-class product candidates customized in an effort to optimize
safety, efficacy, and convenience that we believe may offer improved patient experiences. Our
current product candidates are novel small modular immunopharmaceutical, or
SMIP
tm
, therapeutics that target specific antigens on B cells such as CD20 and
CD37, and are designed using our custom drug assembly technology.
Our lead product candidate, TRU-015, has completed a Phase 2b clinical trial for the treatment
of rheumatoid arthritis, or RA. We and our partner, Wyeth, have agreed on the design of the next
clinical trial and patient dosing has commenced. The randomized, parallel, double-blind,
placebo-controlled, dose-regimen finding study will evaluate the safety and efficacy of two dosing
regimens administered to patients with active seropositive RA on a background of methotrexate. This
study has been designed in a way that we believe could be supportive of a registration package with
the federal Food and Drug Administration, or FDA.
In collaboration with us, Wyeth is also developing SBI-087 and other CD20-directed products.
Our next generation CD20-directed product candidate, SBI-087 for RA, builds on our and Wyeths
clinical experience with our lead compound, TRU-015, and is based on our SMIP technology. Our
partner, Wyeth, has filed an investigational new drug, or IND, application for a Phase I study of
SBI-087 for RA, and patient dosing has commenced. In addition to RA, Wyeth intends to pursue
clinical evaluation of SBI-087 in systemic lupus erythematosus, or SLE, and Wyeth has filed an IND.
Our proprietary product candidate, TRU-016, is a novel CD37-targeted therapy for the treatment
of B-cell malignancies, such as chronic lymphocytic leukemia, or CLL, and non-Hodgkins lymphoma,
or NHL. Patient dosing has commenced in a Phase 1/2 clinical trial for patients with CLL. TRU-016
uses a different mechanism of action than CD20-directed therapies. As a result, we believe its
novel design may provide patients with improved therapeutic options and enhance efficacy when used
alone or in combination with chemotherapy and/or CD20-directed therapeutics.
In December 2005 we entered into a collaboration agreement with Wyeth for the development and
worldwide commercialization of TRU-015 and other CD20-directed therapeutics. We are also
collaborating with Wyeth on the development and worldwide commercialization of certain other
product candidates directed to a small number of targets other than CD20 that have been
11
established pursuant to the agreement. During the remaining term of our research services for
Wyeth, Wyeth has the right to replace a limited number of these targets. These replacement targets
are subject to our consent, which we may not unreasonably withhold. In addition, we have the option
to co-promote with Wyeth, on customary terms to be agreed, CD20-directed therapies in the United
States for niche indications. We retain the right to develop and commercialize, on our own or with
others, product candidates directed to all targets not included within the agreement, including
CD37. Unless earlier terminated, our agreement with Wyeth will remain in effect on a
product-by-product basis and on a country-by-country basis until the later of the date that any
such product shall no longer be covered by a valid claim of a U.S. or foreign patent or application
and, generally, ten years after the first commercial sale of any product licensed under the
agreement.
In connection with the agreement, Wyeth paid us a $40 million non-refundable, non-creditable,
up-front fee in January 2006 and purchased directly from us in a private placement, concurrent with
our initial public offering, 800,000 shares of our common stock at the initial public offering
price of $13.00 per share, resulting in net proceeds to us of $10.4 million. Under the agreement,
we provide research services for an initial three-year period ending December 22, 2008 with the
option for Wyeth to extend the service period for two additional one-year periods. Wyeths
financial obligations during the initial research service term include collaborative research
funding commitments of $9.0 million in exchange for such committed research services. This $9.0
million was subject to an increase if the service period was extended beyond three years as well as
annual increases pursuant to percentage changes in the CPI. In June 2008, Wyeth exercised the
first option under the terms of the agreement to extend the research period for an additional
one-year period through December 22, 2009. Under the terms of the research period extension,
Wyeths obligations to us include collaboration research funding commitments of approximately $3.2
million in exchange for committed research services through December 22, 2009.
In addition, Wyeths financial obligations include additional amounts for reimbursement of
agreed-upon external research and development costs and patent costs. Wyeth is also obligated to
make payments of up to $250 million based on the achievement of regulatory and sales milestones for
CD20-directed therapies and payments of up to $535 million based on the achievement of regulatory
and sales milestones for therapies directed to the small number of targets other than CD20 that
have been established pursuant to the agreement. In addition, we will receive royalty payments in
the event of future licensed product sales. Wyeth may terminate the agreement without cause at any
time upon 90 days prior written notice.
Assuming TRU-015 and other product candidates under the collaboration with Wyeth continue to
progress in development, expenses for future clinical trials may be higher than those incurred in
prior clinical trials. These expenses will, however, likely be incurred by Wyeth and expenses
incurred by us, if any, will be substantially offset by reimbursement revenue from Wyeth. In
addition, Wyeth is responsible for a substantial portion of costs related to patent prosecution and
patent litigation for products directed to targets selected by Wyeth pursuant to the collaboration
agreement.
The continued research and development of our product candidates will require significant
additional expenditures, including preclinical studies, clinical trials, manufacturing costs, and
the expenses of seeking regulatory approval. We rely on third parties to conduct a portion of our
preclinical studies, all of our clinical trials and all of the manufacturing of current Good
Manufacturing Process, or cGMP, material. We expect expenditures associated with these activities
to increase in future years as we continue developing our product candidates. Expenditures
associated with our product candidates included in the Wyeth collaboration will be substantially
offset by reimbursement revenue from Wyeth.
We have incurred significant losses since our inception. As of June 30, 2008, our accumulated
deficit was $79.5 million and total stockholders equity was $42.6 million. During the six months
ended June 30, 2008 and 2007, we recognized net losses of $12.6 million and $12.5 million,
respectively. We expect our net losses to increase as we continue our existing preclinical studies,
manufacturing, and clinical trials and expand our research and development efforts. In addition,
revenue may decrease in the future due to the successful transfer to Wyeth of the majority of
clinical development efforts and related costs for product candidates under our collaboration
agreement with Wyeth, resulting in a decline in the associated collaborative research revenue, and
a decline in revenue associated with the amortization of the up-front fee paid by Wyeth over a
longer service period.
We were founded as a limited liability company in the state of Washington in March 1999, and
reincorporated in the state of Delaware in October 2002. To date, we have funded our operations
primarily through the sale of equity securities, strategic alliances, equipment financings, and
government grants.
12
Critical Accounting Policies and Significant Judgments and Estimates
Our managements discussion and analysis of our financial condition and results of operations
are based on our unaudited financial statements, which have been prepared in accordance with U.S.
GAAP. The preparation of these financial statements requires us to make estimates and judgments
that affect the reported amounts of assets and liabilities and the disclosure of contingent assets
and liabilities at the date of the financial statements, as well as reported revenues and expenses
during the reporting periods. We base our estimates on historical experience and on various other
factors that we believe are reasonable under the circumstances. The SEC considers an accounting
policy to be critical if it is important to a companys financial condition and results of
operations, and if it requires the exercise of significant judgment and the use of estimates on the
part of management in its application. We have discussed the selection and development of the
critical accounting policies with the audit committee of our board of directors, and the audit
committee has reviewed our related disclosures in this quarterly report on Form 10-Q. Although we
believe that our judgments and estimates are appropriate, actual results may differ from those
estimates.
Our significant accounting policies are described in Note 1 to our audited financial
statements for the year ended December 31, 2007 in the 2007 Form 10-K. Of our significant
accounting policies, we believe that the following accounting policies relating to revenue
recognition, preclinical study and clinical trial accruals, and stock-based compensation are the
most critical to understanding and evaluating our reported financial results.
Revenue Recognition
We recognize revenue from our collaboration agreement with Wyeth, which consists of
non-refundable, non-creditable up-front fees and license fees, collaborative research funding,
regulatory and sales milestones, and future product royalties. Revenue related to the Wyeth
collaboration is recognized as follows:
Up-Front Fees and License Fees:
Non-refundable, non-creditable up-front fees and license fees
received in connection with collaborative research and development agreements are deferred and
recognized on a straight-line basis over the estimated term of the research and development
service period. The estimated term of the research and development service period is reviewed and
adjusted based on the status of the project against the estimated timeline as additional
information becomes available. We also consider the time frame of our substantive contractual
obligations related to research and development agreements when estimating the term of the
research and development period. Revenue may fluctuate in the future due to adjustments to the
estimated term of the research and development service period. During the third quarter of 2007
the estimated term of the research and development service period was adjusted from five years to
six years and three months due to an extension of the estimated service period for our
obligations to conduct clinical activities under our agreement with Wyeth.
Collaborative Research Funding:
Certain internal and external research and development costs and
patent costs are reimbursed in connection with collaboration agreements. Reimbursed costs are
recognized as revenue in the same period the costs are incurred. Reimbursed costs are subject to
the estimation processes described in the preclinical study, clinical trial and manufacturing
accruals processes described below and are subject to change in future periods when actual
activity is known. To date we have not made any material adjustments to these estimates.
Milestones:
Payments for milestones that are based on the achievement of substantive and at-risk
performance criteria are recognized in full at such time as the specified milestone has been
achieved according to the terms of the agreement. When payments are not for substantive and
at-risk milestones, revenue will be recognized immediately for the proportionate amount of the
payment that correlates to services that have already been rendered, with the balance recognized
on a straight-line basis over the remaining estimated term of the research and development
service period. The basis of the research and development service period is reviewed and adjusted
based on the status of the project against the estimated timeline as additional information
becomes available.
Royalties:
Royalties that are based on reported sales of licensed products and revenues will be
calculated based on contract terms when reported sales are reliably measurable and collectibility
is reasonably assured. To date we have not had any product royalty revenue.
Preclinical Study, Clinical Trial, and Manufacturing Accruals
13
We estimate our preclinical study, clinical trial and manufacturing accrued expenses based on
our estimates of the services received pursuant to contracts with multiple research organizations
and contract manufacturers that conduct, manage, and provide materials for preclinical studies and
clinical trials on our behalf. The financial terms of these agreements vary from contract to
contract and may result in uneven payment flows. Our research and development costs are expensed as
the related goods are delivered or the related services are performed. Preclinical study, clinical
trial, and manufacturing expenses include the following:
|
|
|
fees paid to contract research organizations in connection with preclinical studies;
|
|
|
|
|
fees paid to clinical research organizations and other clinical sites in connection with
clinical trials; and
|
|
|
|
|
fees paid to contract manufacturers in connection with the production of components and
drug materials for preclinical studies and clinical trials.
|
We record accruals for these preclinical study, clinical trial, and manufacturing expenses
based on the estimated amount of work completed. All such costs are included in research and
development expenses based on these estimates. Costs of setting up a preclinical study or clinical
trial are expensed as the related services are performed. Costs related to patient enrollment in
clinical trials are accrued as patients are enrolled in the trial. We monitor patient enrollment
levels and related activities to the extent possible through internal reviews, correspondence, and
discussions with research organizations. If we have incomplete or inaccurate information, we may,
however, underestimate or overestimate activity levels associated with various preclinical studies
and clinical trials at a given point in time. In the event we underestimate, we could record
significant research and development expenses in future periods when the actual activity level
becomes known. To the extent any of these expenses are reimbursable under our collaboration
agreement with Wyeth, we could also record significant adjustments to revenue when the actual
activity becomes known. To date, we have not made any material adjustments to our estimates of
preclinical study and clinical trial expenses. We make good-faith estimates that we believe to be
accurate, but the actual costs and timing of preclinical studies and clinical trials are highly
uncertain, subject to risks, and may change depending on a number of factors, including our
clinical development plan. If any of our product candidates enter Phase 3 clinical trials, the
process of estimating clinical trial costs will become more difficult because the trials will
involve larger numbers of patients and clinical sites.
Stock-Based Compensation
On January 1, 2006 we adopted the fair value recognition provisions of SFAS 123R,
Share-Based
Payment
, which requires the measurement and recognition of compensation expenses for all future
share-based payments made to employees and directors be based on estimated fair values.
Compensation costs for employee stock options granted prior to January 1, 2006 were accounted for
using the options intrinsic value or the difference, if any, between the fair market value of our
common stock and the exercise price of the option.
The fair value of each employee option grant in the six months ended June 30, 2008 and 2007,
respectively, was estimated on the date of grant using the Black-Scholes option pricing model with
the following assumptions:
|
|
|
|
|
|
|
|
|
|
|
Six months ended
|
|
|
June 30,
|
|
|
2008
|
|
2007
|
Risk-free interest rate
|
|
|
2.80%-3.40
|
%
|
|
|
4.62%-4.78
|
%
|
Weighted-average expected life (in years)
|
|
|
6.02
|
|
|
|
6.08
|
|
Expected dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
Expected volatility rate
|
|
|
70%-73
|
%
|
|
|
75
|
%
|
Weighted-average estimated fair value of employee options
|
|
$
|
5.58
|
|
|
$
|
13.43
|
|
For stock options granted to non-employees, the fair value of the stock options is estimated
using the Black-Scholes valuation model. This model utilizes the estimated fair value of common
stock and requires that, at the date of grant, we make assumptions with respect to the expected
life of the option, the volatility of the fair value of our common stock, risk-free interest rates,
and expected dividend yields of our common stock. We have assumed that non-employee stock options
have an expected life of one to ten years and
14
assumed common stock volatility between 65% and 100%. Different estimates of volatility and
expected life of the option could materially change the value of an option and the resulting
expense.
Stock-based compensation expense is recognized over the period of expected service by the
non-employee. As the service is performed, we are required to update these assumptions and
periodically revalue unvested options and make adjustments to the stock-based compensation expense
using the new valuation. These adjustments may result in higher or lower stock-based compensation
expense in the statement of operations than originally estimated or recorded. Ultimately, the final
compensation charge for each option grant to non-employees is unknown until those options have
vested or the performance of services is completed. We expect stock-based compensation expense
associated with non-employee options to fluctuate in the future based on the volatility of our
future stock price.
Results of Operations for the Three Months and Six Months Ended June 30, 2008 and 2007
Revenue
Revenue decreased to $4.5 million in the three months ended June 30, 2008 from $5.0 million in
the three months ended June 30, 2007. Revenue decreased to $8.4 million in the six months ended
June 30, 2008 from $9.8 million in the six months ended June 30, 2007. The three- and six-month
decreases were primarily due to an extension of the recognition of the up-front fee, and a slight
decrease in reimbursement revenue, from the Wyeth collaboration related to the Phase 2b clinical
trial for our lead product candidate, TRU-015, in the treatment of RA. Revenue in the six months
ended June 30, 2008 and 2007 included $2.9 million and $4.0 million, respectively, for amortization
of the $40 million up-front fee. This up-front fee is being deferred and recognized on a
straight-line basis over the estimated term of the research and development service period of six
years and three months. We expect revenue to fluctuate in the future due to the timing of
reimbursed legal and clinical development costs, and the recognition of the associated
collaborative research revenue under the Wyeth collaboration agreement.
Research and Development Expenses
Research and development expenses decreased to $8.4 million in the three months ended June 30,
2008 from $10.7 million in the three months ended June 30, 2007. Research and development expenses
decreased to $15.9 million in the six months ended June 30, 2008 from $19.3 million in the six
months ended June 30, 2007. The three- and six-month decreases were primarily due to lower outside
manufacturing costs for TRU-016, lower lab supply costs and lower contract licensing fees. We
expect research and development expenses to increase in the future due to increased manufacturing
and clinical development costs primarily related to our TRU-016 product candidate, advancement of
our preclinical programs, and product candidate manufacturing costs. Our actual research and
development expenses, however, could differ materially from those anticipated.
At any time, we have many ongoing research projects. Our internal resources, employees, and
infrastructure are not directly tied to any individual research project and are typically deployed
across multiple projects. Through our clinical development programs, we are developing each of our
product candidates in parallel for multiple disease indications, and through our basic research
activities, we are seeking to design potential drug candidates for multiple new disease
indications. Due to the number of ongoing projects and our ability to utilize resources across
several projects, we do not record or maintain information regarding the costs incurred for our
research and development programs on a program-specific basis. In addition, we believe that
allocating costs on the basis of time incurred by our employees does not accurately reflect the
actual costs of a project.
Our research and development activities can be divided into research and preclinical programs
and clinical development programs. The costs associated with research and preclinical programs and
clinical development programs approximate the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
Six months ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Research and preclinical programs
|
|
$
|
5,471
|
|
|
$
|
6,794
|
|
|
$
|
10,491
|
|
|
$
|
11,663
|
|
Clinical development programs
|
|
|
2,919
|
|
|
|
3,939
|
|
|
|
5,414
|
|
|
|
7,661
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total research and development
|
|
$
|
8,390
|
|
|
$
|
10,733
|
|
|
$
|
15,905
|
|
|
$
|
19,324
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15
Research and preclinical program costs consist of costs associated with our product
development efforts, conducting preclinical studies, personnel costs, animal studies, lab supplies,
and indirect costs such as rent, utilities, and depreciation. Clinical development costs consist of
clinical manufacturing costs, clinical trial site and investigator fees, personnel costs, and
indirect costs such as rent, utilities, and depreciation. Clinical development program costs
decreased in 2008 compared to 2007 due to lower outside manufacturing costs for TRU-016 and lower
lab supply costs.
The majority of our research and development programs is at an early stage and may not result
in any approved products. Product candidates that may appear promising at early stages of
development may not reach the market for a variety of reasons. Product candidates may be found to
be ineffective or to cause harmful side effects during clinical trials, may take longer to pass
through clinical trials than had been anticipated, may fail to receive necessary regulatory
approvals, and may prove impracticable to manufacture in commercial quantities at reasonable cost
and with acceptable quality. As part of our business strategy, we may enter into collaborative
arrangements with third parties to complete the development and commercialization of our product
candidates and it is uncertain which of our product candidates may be subject to future
collaborative arrangements. The participation of a collaborative partner may accelerate the time to
completion and reduce the cost to us of a product candidate or it may delay the time to completion
and increase the cost to us due to the alteration of our existing strategy.
As a result of the uncertainties discussed above, the uncertainty associated with clinical
trial enrollments, and the risks inherent in the development process, we are unable to determine
the duration and completion costs of the current or future clinical stages of our product
candidates or when, or to what extent, we will generate revenue from the commercialization and sale
of any of our product candidates. Development timelines, probability of success, and development
costs vary widely. Under our collaboration with Wyeth, we are responsible for completing the Phase
2a and initial Phase 2b clinical trials of TRU-015 for RA. In addition, we are responsible for
conducting clinical studies for TRU-015 niche indications. While we are currently focused on
developing TRU-015 and other product candidates with Wyeth and our TRU-016 product candidate,
together with other product candidates that are outside our collaboration with Wyeth, we will make
determinations as to which programs to pursue and how much funding to direct to each program on an
ongoing basis in response to the scientific and clinical success of each product candidate, as well
as an ongoing assessment as to the product candidates commercial potential. We anticipate
developing additional product candidates, which will also increase our research and development
expenses in future periods. We do not expect any of our current product candidates to be
commercially available in major markets before 2012, if at all.
General and Administrative Expenses
General and administrative expenses increased to $3.0 million in the three months ended June
30, 2008 from $2.7 million in the three months ended June 30, 2007. General and administrative
expenses increased to $6.0 million in the six months ended June 30, 2008 from $5.1 million in the
six months ended June 30, 2008. The three- and six-month increases were primarily due to increased
personnel costs, including an increase in stock compensation expense, and increased professional
fees. We expect our general and administrative expenses to remain relatively stable in 2008. Our
actual general and administrative expenses, however, could differ materially from those
anticipated.
Net Interest Income
Net interest income decreased to $315,000 in the three months ended June 30, 2008 from $1.0
million in the three months ended June 30, 2007. Net interest income decreased to $872,000 in the
six months ended June 30, 2008 from $2.1 million in the six months ended June 30, 2007. The three-
and six-month decreases were primarily the result of a decline in interest rates and a decrease in
our average cash and investment balance in the first six months of 2008 compared to the same period
in 2007. We expect net interest income to decrease in the future as a result of a declining cash
and investment balance.
Liquidity and Capital Resources
To date we have financed our operations primarily through public and private placements of
equity securities, raising net proceeds from equity financing of $109.2 million through June 30,
2008. In January 2006, we received $40 million from Wyeth for the payment of the up-front fee. In
October 2006, we completed our initial public offering of 4,600,000 shares of common stock at a
public offering price of $13.00 per share for gross proceeds of $59.8 million. Net proceeds from
the initial public offering were approximately $52.8 million, after deducting underwriting
discounts and commissions and offering expenses payable by us. We also received net proceeds
16
of $10.4 million from the sale of 800,000 shares of common stock at $13.00 per share in a
private placement to Wyeth concurrent with our initial public offering. We have received additional
funding from asset-based lease financings and interest earned on investments.
As of June 30, 2008 we had $65.4 million in cash, cash equivalents, and short-term
investments, and a $3.1 million receivable from Wyeth for collaborative research funding. Our cash
and investment balances are held in a variety of interest-bearing instruments, including
obligations of United States government agencies, high credit rating corporate borrowers, and money
market accounts. We do not hold auction rate securities within our investment portfolio. Cash in
excess of immediate requirements is invested with regard to liquidity and capital preservation.
Operating Activities:
Net cash used in operating activities in the six months ended June 30,
2008 was $10.9 million compared to $14.0 million in the six months ended June 30, 2007. Net cash
used in operations in the six months ended June 30, 2008 and 2007 was primarily due to
personnel-related costs, clinical trial costs, lab supplies to support our research activities,
legal and professional fees, facilities costs, and administrative costs incurred as a result of
being a publicly traded company. Net cash used in operations in the six months ended June 30, 2007
also included outside manufacturing costs. We expect net cash used in operating activities to
increase in 2008 as we continue to expand our research and clinical activities.
Investing Activities:
Net cash used in investing activities in the six months ended June 30,
2008 was $17.0 million compared to net cash provided by investing activities of $2.7 million in the
six months ended June 30, 2007. Investing activities consist primarily of purchases and maturities
of marketable securities and capital purchases. Purchases of property and equipment were $0.9
million and $2.8 million in the six months ended June 30, 2008 and 2007, respectively. We expect to
continue to make investments in property and equipment in 2008 as we expand our operations;
however, we expect to do so to a lesser extent than in 2007.
Financing Activities:
Net cash used in financing activities was $1.2 million in the six months
ended June 30, 2008 compared to net cash provided by financing activities of $1.2 million in the
six months ended June 30, 2007. In the six months ended June 30, 2008 financing activities
consisted primarily of payments on an equipment financing arrangement of $1.3 million. In the six
months ended June 30, 2007 financing activities consisted primarily of proceeds from an equipment
financing arrangement of $1.5 million.
We entered into a loan and security agreement with Silicon Valley Bank, or SVB, effective July
25, 2008, the terms of which provide for a $10.0 million debt facility secured by a security
interest in our assets, other than intellectual property, and used $8.5 million of the proceeds
from this debt facility to fully extinguish our obligations with Comerica Bank under our existing
debt facility. In conjunction with extinguishing our obligations under the Comerica debt facility,
we also terminated the Comerica loan and security agreement and related interest rate swap
agreement. We incurred a breakage fee of $165,000 in connection with the termination of the interest rate swap agreement. The full $10.0 million available under the facility was drawn at close and is payable in
fixed equal payments of principal plus accrued interest at a fixed rate of 5.75% based on an
84-month amortization schedule with all principal and interest due
July 25, 2013.
The loan and security agreement with Silicon Valley Bank contains representations and
warranties and affirmative and negative covenants that are customary for credit facilities of this
type. The loan and security agreement could restrict our ability to, among other things, sell
certain assets, engage in a merger or change in control transaction, incur debt, pay cash
dividends, and make investments. The loan and security agreement also contains events of default
that are customary for credit facilities of this type, including payment defaults, covenant
defaults, insolvency type defaults, and events of default relating to liens, judgments, material
misrepresentations, and the occurrence of certain material adverse events.
Based on our current operating plans, we believe that our existing capital resources, together
with interest thereon, will be sufficient to meet our financial obligations for at least the next
12 months. The key assumptions underlying this estimate include:
|
|
|
expenditures related to continued preclinical and clinical development of our product
candidates during this period will be within budgeted levels;
|
|
|
|
|
unexpected costs related to the development of our manufacturing capability will not be
material; and
|
|
|
|
|
the hiring of new employees at salary levels consistent with our estimates to support our
operations during this period.
|
17
In light of the numerous risks and uncertainties associated with the development and
commercialization of our product candidates and the extent to which we enter into collaborations
with third parties to participate in their development and commercialization, we are unable to
estimate the amounts of increased capital outlays and operating expenditures associated with
product development. Our future funding requirements will depend on many factors, including:
|
|
|
milestone payments projected to be received under the Wyeth collaboration agreement;
|
|
|
|
|
the scope, rate of progress, results and costs of our preclinical testing, clinical
trials, and other research and development activities;
|
|
|
|
|
the terms and timing of any additional collaborative or licensing agreements that we may
establish;
|
|
|
|
|
the number and characteristics of product candidates that we pursue;
|
|
|
|
|
the cost of preparing, filing, prosecuting, defending, and enforcing any patent claims
and other intellectual property rights;
|
|
|
|
|
the hiring of new employees being at salary levels consistent with our estimates to
support our operations during this period;
|
|
|
|
|
the cost of establishing clinical and commercial supplies of our product candidates;
|
|
|
|
|
the cost, timing, and outcomes of regulatory approvals; and
|
|
|
|
|
the extent to which we acquire or invest in businesses, products, or technologies.
|
We will need to raise additional funds to support our operations, and such funding may not be
available to us on acceptable terms, if at all. If we are unable to raise additional funds when
needed, we may not be able to continue development of our product candidates or we could be
required to delay, scale back, or eliminate some or all of our development programs and other
operations. We may seek to raise additional funds through public or private financing, strategic
partnerships, or other arrangements. Any additional equity financing may be dilutive to
stockholders and debt financing, if available, may involve restrictive covenants. If we raise funds
through collaborative or licensing arrangements we may be required to relinquish, on terms that are
not favorable to us, rights to some of our technologies or product candidates that we would
otherwise seek to develop or commercialize ourselves. Our failure to raise capital when needed may
harm our business and operating results.
As of June 30, 2008, the incremental costs of contractual commitments related to reservation
fees for future manufacturing capacity at Lonza were $2.1 million, all of which are due within the
next 9 months.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our exposure to market risk is primarily confined to our investment securities and changes in
interest rates. The primary objective of our investment activities is to preserve our capital to
fund operations. We also seek to maximize income from our investments without assuming significant
risk. To achieve our objectives, we maintain a portfolio of investments in a variety of securities
of high credit quality. We have no exposure to auction rate securities within our investment
portfolio. The securities in our investment portfolio are not leveraged, are classified as
available for sale and, due to their very short-term nature, are subject to minimal interest rate
risk. We currently do not hedge interest rate exposure on our investment securities. We are also
exposed to potential loss on our interest rate swap agreement due to changes in U.S. interest
rates. We actively monitor changes in interest rates.
We are exposed to potential loss due to changes in interest rates. Our principal interest rate
exposure is due to changes in U.S. interest rates. Instruments with interest rate risk include
investment securities and our interest rate swap instrument. To estimate the potential loss due to
changes in interest rates, we performed a sensitivity analysis using the instantaneous adverse
change in interest rates of 100 basis points across the yield curve. On this basis, we estimate the
potential loss in fair value that would result from a hypothetical 1% (100 basis points) decrease
in interest rates to be $34,000 as of June 30, 2008.
ITEM 4. CONTROLS AND PROCEDURES
18
(a)
Evaluation of disclosure controls and procedures.
Our Chief Executive Officer and our
Chief Financial Officer have reviewed our disclosure controls and procedures prior to the filing of
this quarterly report on Form 10-Q. Based on that review, they have concluded that, as of the end
of the period covered by this quarterly report, these disclosure controls and procedures were, in
design and operation, effective to assure that the required information has been properly recorded,
processed, summarized, and reported to those responsible in order that it may be included in this
quarterly report.
(b)
Changes in internal control over financial reporting.
There have not been any changes in
our internal control over financial reporting during the quarter ended June 30, 2008 that have
materially affected, or are reasonably likely to materially affect, our internal control over
financial reporting.
19
PART II. OTHER INFORMATION
Item 1A. Risk Factors
You should carefully consider the risks described below together with all of the other
information included in this quarterly report on Form 10-Q and the 2007 Form 10-K. The risks and
uncertainties described below are not the only ones facing our company. If any of the following
risks actually occurs, our business, financial condition, or operating results could be harmed. In
such case, the trading price of our common stock could decline, and investors in our common stock
could lose all or part of their investment.
Risks Related to Our Business
Our success depends on the success of our lead product candidate, TRU-015, and we cannot be
certain that it will be safe or effective, complete clinical trials, receive regulatory approval,
or be successfully commercialized.
Although our lead product candidate, TRU-015, has completed a Phase 2b clinical trial for the
treatment of RA, additional clinical trials would be required before we are able to submit a
Biologic License Application, or BLA, to the FDA for approval. The regulatory approval process can
take many years and require the expenditure of substantial resources. In December 2005, we entered
into a collaboration agreement with Wyeth pursuant to which Wyeth is responsible for the regulatory
approval process regarding, and any subsequent commercialization of, TRU-015. In addition to the
risks and uncertainties inherent in the regulatory approval process, Wyeth may not advance the
development and commercialization of TRU-015 as quickly as we would like, if at all. For example,
Wyeth has determined not to pursue TRU-015 for any oncology indications and has discontinued the
TRU-015 Phase 1/2 clinical trial for the treatment of NHL that it had initiated in December 2007.
Clinical trials involving the number of sites and patients required for FDA approval of TRU-015 for
RA may not be successfully completed. If these clinical trials are not completed or their results
do not meet safety and efficacy thresholds required by the FDA, TRU-015 will likely not receive
regulatory approval. Even if TRU-015 receives regulatory approval, it may never be successfully
commercialized. If TRU-015 does not receive regulatory approval or is not successfully
commercialized, we may not be able to generate revenue, become profitable, or continue our
operations.
We depend on our collaborative relationship with Wyeth to develop, manufacture, and commercialize
our lead product candidate, TRU-015, and other selected product candidates.
In December 2005 we entered into a collaboration agreement with Wyeth for the development and
worldwide commercialization of TRU-015 and other therapeutics directed to CD20. We are also
collaborating with Wyeth on the development and worldwide commercialization of certain other
product candidates directed to a small number of targets other than CD20 that have been established
pursuant to the agreement. In addition, we have the option to co-promote with Wyeth, on customary
terms to be agreed, CD20-directed therapies in the United States for niche indications. Although
Wyeth is responsible for developing, manufacturing, and commercializing product candidates directed
to collaboration targets, including CD20, and for the costs associated with such activities, we
were obligated to complete the Phase 2b clinical trial, and are obligated to conduct retreatment
studies in RA, and may be obligated to conduct niche indication registration studies for
CD20-directed therapies. Any future payments, including royalties to us, will depend on the extent
to which we and Wyeth advance product candidates through development and commercialization. Wyeth
may terminate the collaboration relationship, in whole or in part, without cause, by giving 90
days written notice to us. Wyeth also has the right to terminate the agreement, on a
target-by-target basis, upon 60 days written notice, if any safety or regulatory issue arises that
would have a material adverse effect on Wyeths ability to develop, manufacture or commercialize
one or more product candidates.
Our ability to receive any significant revenue from our product candidates covered by the
collaboration agreement depends on the efforts of Wyeth and on our ability to collaborate
effectively. With respect to control over decisions and responsibilities, the collaboration
agreement provides for a research committee and a CD20-directed therapy development committee
consisting of representatives of Wyeth and us. Ultimate decision-making authority as to most
matters within the collaboration, including development plans and timelines, however, is vested in
Wyeth. On March 27, 2008, we announced that Wyeth has determined not to proceed with CD20-directed
therapies for oncology indications, and, as a result, has discontinued clinical development of
TRU-015 for NHL. We also announced that Wyeth no longer intends to evaluate TRU-015 in a Phase 1
study in patients with kidney disease caused by lupus.
20
Wyeth has the right to develop multiple product candidates against the targets licensed to it
under our collaboration. Wyeth has begun clinical development of SBI-087, another CD20-directed
therapy, for RA and has filed an IND for the evaluation of SBI-087 for SLE. If Wyeth later
determines not to continue developing two CD20-directed therapies, Wyeth could decide to
discontinue efforts to further develop TRU-015. SBI-087 is at an earlier stage in clinical
development than TRU-015 and, as a result the time until potential commercialization of a product
resulting from our collaboration with Wyeth, would likely be delayed by a decision by Wyeth to
develop SBI-087 instead of TRU-015, which could adversely affect our business and cause the price
of our common stock to decline.
On January 31, 2008 Wyeth announced that in 2008 it will begin a company-wide program designed
to redefine Wyeths business model to facilitate Wyeths long-term growth, as well as to address
Wyeths short-term fiscal challenges. Although Wyeth has extended the research period under the
collaboration agreement with us through December 22, 2009, we cannot assure you that Wyeth will
continue the collaboration agreement in whole or in part. If Wyeth were to decide, for example, to
discontinue efforts to further develop anti-CD20 therapies, that could adversely affect our
business and cause the price of our common stock to decline.
We cannot assure you that Wyeth will fulfill its obligations under the agreement, or will
develop and commercialize our product candidates as quickly as we would like, if at all. If Wyeth
terminates the agreement or fails to fulfill its obligations under the agreement, we would need to
obtain the capital necessary to fund the development and commercialization of our product
candidates or enter into alternative arrangements with a third party. We could also become involved
in disputes with Wyeth, which could lead to delays in or termination of our development and
commercialization programs and time-consuming and expensive litigation or arbitration. If Wyeth
terminates or breaches its agreement with us, or otherwise fails to complete its obligations in a
timely manner, our collaboration product development programs would be substantially delayed and
the chances of successfully developing or commercializing our collaboration product candidates
would be materially and adversely affected.
If we fail to obtain the capital necessary to fund our operations, we may be unable to develop
our product candidates and we could be forced to share our rights to these product candidates
with third parties on terms that may not be favorable to us.
We need large amounts of capital to support our research and development efforts. If we are
unable to secure capital to fund our operations we will not be able to continue our design and
development efforts, and we might have to enter into collaborations that could require us to share
rights to our product candidates to a greater extent than we currently intend.
To further develop TRU-016 and our preclinical assets, we will need to raise additional funds.
We may seek to sell additional equity or debt securities, or both, or incur other indebtedness. We
may also seek to raise funds through strategic partnerships. The sale of additional equity or debt
securities, if convertible, could result in the issuance of additional shares of our capital stock
and could result in dilution to our stockholders. The incurrence of indebtedness would result in
increased fixed payment obligations and could also result in certain restrictive covenants, such as
limitations on our ability to incur additional debt, limitations on our ability to acquire or
license intellectual property rights, and other operating restrictions that could adversely impact
our ability to conduct our business. In addition, we cannot guarantee that future financing will be
available in sufficient amounts or on terms acceptable to us, if at all. If we are unable to raise
additional capital in sufficient amounts or on terms acceptable to us we will be prevented from
pursuing research and development efforts, which could harm our business prospects and financial
condition and cause the price of our common stock to decline.
We cannot assure you any of our product candidates will be safe or effective, or receive
regulatory approval.
The clinical trials and the manufacturing of our product candidates are, and marketing of our
products will be, subject to extensive and rigorous review and regulation by numerous government
authorities in the United States and in other countries where we intend to test and market our
product candidates. Before obtaining regulatory approvals for the commercial sale of any product
candidate, we must demonstrate through preclinical testing and clinical trials that the product
candidate is safe and effective for use in each target indication. This process can take many years
and require the expenditure of substantial resources, and may include post-marketing studies and
surveillance. To date, we have not successfully demonstrated in clinical trials safety or efficacy
sufficient for regulatory approval. Although our lead product candidate, TRU-015, has completed a
Phase 2b clinical trial for the treatment of RA, additional clinical trials would be required
before we are able to submit a BLA to the FDA for approval. In addition, our proprietary clinical
candidate TRU-016 and our Wyeth collaboration clinical candidate SBI-087 commenced initial clinical
testing in 2008 and as a result
21
we do not yet have any clinical trial results regarding the safety or efficacy of either of
these product candidates. Even if, based on the results of the initial clinical trials for TRU-016
and SBI-087, we in the case of TRU-016, or Wyeth in the case of SBI-087, determine to proceed with
further clinical testing, a number of additional clinical trials will be required before a BLA can
be submitted to the FDA for product approval. The results from preclinical testing and clinical
trials that we have completed may not be predictive of results in future preclinical tests and
clinical trials, and we cannot assure you we will demonstrate sufficient safety and efficacy to
seek or obtain the requisite regulatory approvals. A number of companies in the biotechnology and
pharmaceutical industries have suffered significant setbacks in advanced clinical trials, even
after promising results in earlier trials. All of our other product candidates remain in the
discovery and pre-clinical testing stages. We may also encounter delays or rejections due to
additional government regulation from future legislation, administrative action, or changes in FDA
policy. We cannot assure you regulatory approval will be obtained for any of our product
candidates, and even if the FDA approves a product, the approval will be limited to those
indications covered in the approval. If our current product candidates are not shown to be safe and
effective in clinical trials, the resulting delays in developing other product candidates and
conducting related preclinical testing and clinical trials, as well as the potential need for
additional financing, would have a material adverse effect on our business, financial condition,
and operating results. If we are unable to discover or successfully develop drugs that are
effective and safe in humans and receive regulatory approval, we will not have a viable business.
We do not expect any of our current product candidates to be commercially available in major
markets before 2012, if at all.
We have incurred operating losses in each year since our inception and expect to continue to
incur substantial and increasing losses for the foreseeable future.
We have been engaged in designing and developing compounds and product candidates since 1999
and have not generated any product revenue to date. Our net losses were $12.6 million and $12.5
million in the six months ended June 30, 2008 and 2007, respectively. As of June 30, 2008 we had an
accumulated deficit of $79.5 million. Since inception through June 30, 2008, we have incurred
$116.3 million of research and development expenses. We expect our research and development
expenses to further increase as we continue to design and develop compounds and product candidates.
As a result, we expect to continue to incur substantial and increasing losses for the foreseeable
future. We are uncertain when or if we will be able to achieve or sustain profitability. Failure to
become and remain profitable would adversely affect the price of our common stock and our ability
to raise capital and continue operations. In addition, our net operating loss carryforwards and
credits were substantially exhausted as a result of the payments we received from Wyeth in January
2006 pursuant to our collaboration agreement, and any remaining net operating loss carryforwards
and credits may be subject to an annual limitation due to the change in ownership provisions of
the Internal Revenue Code of 1986, as amended, and similar state law provisions, which would have
an adverse effect on our ability to reduce future tax expenses.
We could be required to pay significant cancellation fees for reserved manufacturing capacity
under our manufacturing agreement with Lonza.
We are party to a Manufacturing Services Agreement effective as of November 21, 2005, with
Lonza under which Lonza provides development and manufacturing services, initially with respect to
TRU-015 but with substitution of other product candidates permitted, including manufacture of
product candidates for use in clinical trials and, upon regulatory approval, for commercial use.
Under this agreement, we reserve future manufacturing runs under pre-specified terms and
conditions. We might desire to cancel a reserved manufacturing run for a number of business
reasons, such as a regulatory action or a preclinical, clinical, or commercial development that
changed our clinical trial schedule. If for any reason we terminate any of these reserved runs
without providing at least 360 days advance notice to Lonza and if Lonza is unable to mitigate its
losses after using reasonable efforts to do so, we will incur cancellation fees of 85% of the cost
to us of the run. In addition, if we terminate any of the reserved runs without providing at least
180 days advance notice to Lonza, and if Lonza is unable to mitigate its losses after using
reasonable efforts to do so, we will incur cancellation fees of 100% of the cost to us of the run.
For example, we currently have a manufacturing run scheduled to occur in less than 180 days and if
we cancel that run and Lonza is unable to find a replacement customer despite its reasonable
efforts to mitigate its losses, we will owe Lonza a cancellation fee of $2.1 million, which could
harm our financial condition.
Any failure or delay in commencing or completing clinical trials for product candidates could
severely harm our business.
Each of our product candidates must undergo extensive preclinical studies and clinical trials
as a condition to regulatory approval. Preclinical studies and clinical trials are expensive and
take many years to complete. To date we have not initiated any Phase 3 clinical
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trials of any product candidate. The commencement and completion of clinical trials for our
product candidates may be delayed by many factors, including:
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our or our collaborators ability to obtain regulatory approval to commence a clinical
trial;
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our or our collaborators ability to manufacture or obtain from third parties materials
sufficient for use in preclinical studies and clinical trials;
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delays in patient enrollment and variability in the number and types of patients
available for clinical trials;
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poor effectiveness of product candidates during clinical trials;
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unforeseen safety issues or side effects;
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governmental or regulatory delays and changes in regulatory requirements, policy, and
guidelines; and
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varying interpretation of data by us, any or all of our collaborators, the FDA, and
similar foreign regulatory agencies.
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It is possible that none of our product candidates will complete the required clinical trials
in any of the markets in which we or our collaborators intend to sell those product candidates.
Accordingly, we or our collaborators may not seek or receive the regulatory approvals necessary to
market our product candidates. Any failure or delay in commencing or completing clinical trials or
obtaining regulatory approvals for product candidates would prevent or delay their
commercialization and severely harm our business and financial condition.
If our SMIP
tm
technology or our product candidates, including TRU-015,
conflict with the rights of others, including Genentech intellectual property rights of which we
are aware, we may not be able to manufacture or market our product candidates, which could have a
material adverse effect on us and on our collaboration agreement with Wyeth.
Our commercial success will depend in part on not infringing the patents or violating the
proprietary rights of third parties. We are aware of intellectual property, including European
patent No. EP-B-1176981, in which Genentech has an ownership interest with claims directed to the
second medical use of an anti-CD20 antibody for the treatment of RA. On August 8, 2006, we filed an
opposition in the European Patent Office to this patent raising objections as to its validity.
We cannot assure you we will be successful in opposing the grant of Genentechs patent.
Subsequent to the submission of our opposition, other parties filed oppositions to the Genentech
patent prior to August 30, 2006, including MedImmune, Inc., Genmab A/S, Centocor, Inc., Glaxo Group
Limited, Serono S.A., and Wyeth. We believe these additional opposition filings will not have a
negative effect on our opposition. Final resolution of the opposition proceedings will likely take
a number of years. In the meantime, the existence of opposition proceedings does not preclude
Genentech from attempting to enforce its patent against third parties, including us and Wyeth.
Glaxo Group Limited and Wyeth also filed actions in the United Kingdom, or UK, to revoke the UK
counterpart of EP-B-1176981. The patent was revoked on May 19, 2008, however we cannot assure you
that the revocation of this patent will have an effect on our opposition of EP-B-1176981.
If the Genentech European patent is not held invalid or limited in scope, and if our
activities are determined to be covered by the patent, we cannot assure you Genentech would be
willing to grant us or Wyeth a license on terms we or they would consider commercially reasonable,
if at all. As a consequence, we and Wyeth could be prevented from manufacturing and marketing
TRU-015 or SBI-087 for the treatment of RA in the designated and extended states of the European
Patent Convention where the patent is validated, which could have a material adverse effect on our
business, financial condition, and operating results. The Genentech European patent claims the
benefit of priority to two U.S. provisional patent applications that are unpublished and the status
of which will remain confidential unless a U.S. patent or patent application claiming priority to
the provisional patent applications publishes. In the event any such corresponding U.S. patent
issues, and if our activities are determined to be covered by such a patent, we cannot assure you
Genentech would be willing to grant us or Wyeth a license on terms we or they would consider
commercially reasonable, if at all, which could prevent us from manufacturing and marketing TRU-015
or SBI-087 for the treatment of RA in the United States, and have a material adverse effect on our
business, financial condition, operating results, and our collaboration with Wyeth.
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Issued patents held by others may limit our ability to develop commercial products. All issued
patents are entitled to a presumption of validity under U.S. laws. If we need licenses to such
patents to permit us to manufacture, develop, or market our product candidates we may be required
to pay significant fees or royalties, and we cannot be certain that we would be able to obtain such
licenses. Competitors or third parties may obtain patents that may cover subject matter we use in
(a) developing the technology required to bring our products to market, (b) producing our products,
or (c) treating patients with our products. We know that others have filed patent applications in
various jurisdictions that relate to several areas in which we are developing products. Some of
these patent applications have already resulted in patents and some are still pending. We may be
required to alter our processes or product candidates, pay licensing fees, or cease activities.
Certain parts of our SMIP product technology, including the current expression system responsible
for the production of the recombinant proteins used in our product candidates and certain nucleic
acids, originated from third-party sources. These third-party sources include academic, government,
and other research laboratories, as well as the public domain. If use of technology incorporated
into or used to produce our product candidates is challenged, or if our processes or product
candidates conflict with patent rights of others, third parties could bring legal actions against
us in Europe, the United States, and elsewhere claiming damages and seeking to enjoin manufacturing
and marketing of the affected products. Additionally, it is not possible to predict with certainty
what patent claims may issue from pending applications. In the United States, for example, patent
prosecution can proceed in secret prior to issuance of a patent. As a result, third parties may be
able to obtain patents with claims relating to our product candidates which they could attempt to
assert against us. Further, as we develop our products, third parties may assert that we infringe
the patents currently held or licensed by them and we cannot predict the outcome of any such
action.
There has been significant litigation in the biotechnology industry over patents and other
proprietary rights, and if we become involved in any litigation it could consume a substantial
portion of our resources, regardless of the outcome of the litigation. If these legal actions are
successful, in addition to any potential liability for damages, we could be required to obtain a
license, grant cross-licenses, and pay substantial royalties in order to continue to manufacture or
market the affected products. We cannot assure you we would prevail in any legal action or that any
license required under a third-party patent would be made available on acceptable terms, if at all.
Ultimately, we could be prevented from commercializing a product or be forced to cease some aspect
of our business operations as a result of claims of patent infringement or violation of other
intellectual property rights, which could have a material adverse effect on our business, financial
condition, and operating results.
If we are unable to obtain, maintain, and enforce our proprietary rights, we may not be able to
compete effectively or operate profitably.
Our success depends in part on obtaining, maintaining, and enforcing our patents and other
proprietary rights, and will depend in large part on our ability to:
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obtain and maintain patent and other proprietary protection for our technology,
processes, and product candidates;
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enforce patents once issued and defend those patents if their enforceability is
challenged;
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preserve trade secrets; and
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operate without infringing the patents and proprietary rights of third parties.
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The degree of future protection for our proprietary rights is uncertain. For example:
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we might not have been the first to make the inventions covered by any of our patents, if
issued, or our pending patent applications;
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we might not have been the first to file patent applications for these inventions;
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others may independently develop similar or alternative technologies or duplicate any of
our technologies;
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it is possible that none of our pending patent applications will result in issued patents
or, if issued, these patents may not be sufficient to protect our technology or provide us
with a basis for commercially viable products, and may not provide us with any competitive
advantages;
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if our pending applications issue as patents, they may be challenged by third parties as
not infringed, invalid, or unenforceable under U.S. or foreign laws;
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if issued, the patents under which we hold rights may not be valid or enforceable; or
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we may develop additional proprietary technologies that are not patentable and that may
not be adequately protected through trade secrets, if, for example, a competitor were to
independently develop duplicative, similar, or alternative technologies.
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The patent position of biotechnology and pharmaceutical firms is highly uncertain and involves
many complex legal and technical issues. There is no clear policy involving the breadth of claims
allowed in patents or the degree of protection afforded under patents. Although we believe our
potential rights under patent applications provide a competitive advantage, we cannot assure you
that patent applications owned by or licensed to us will result in patents being issued or that, if
issued, the patents will give us an advantage over competitors with similar technology, nor can we
assure you we can obtain, maintain, and enforce all ownership and other proprietary rights
necessary to develop and commercialize our product candidates.
Even if any or all of our patent applications issue as patents, others may challenge the
validity, inventorship, ownership, enforceability, or scope of our patents or other technology used
in or otherwise necessary for the development and commercialization of our product candidates.
Further, we cannot assure you any such challenge would not be successful. Moreover, the cost of
litigation to uphold the validity of patents to prevent infringement or to otherwise protect our
proprietary rights can be substantial. If the outcome of litigation is adverse to us, third parties
may be able to use the challenged technologies without payment to us. We cannot assure you our
patents, if issued, will not be infringed or successfully avoided through design innovation.
Intellectual property lawsuits are expensive and would consume time and other resources, even if
the outcome were successful. In addition, there is a risk that a court would decide that our
patents, if issued, are not valid and that we do not have the right to stop the other party from
using the inventions. There is also the risk that, even if the validity of a patent were upheld, a
court would refuse to stop the other party from using the inventions, including on the ground that
its activities do not infringe that patent. If any of these events were to occur, our business,
financial condition, and operating results would be materially adversely affected.
In addition to the intellectual property and other rights described above, we also rely on
unpatented technology, trade secrets, trademarks, and confidential information, particularly when
we do not believe that patent protection is appropriate or available. Trade secrets are difficult
to protect and we cannot assure you others will not independently develop substantially equivalent
information and techniques or otherwise gain access to or disclose our unpatented technology, trade
secrets, and confidential information. In addition, we cannot assure you the steps we take with
employees, consultants, and advisors will provide effective protection of our confidential
information or, in the event of unauthorized use of our intellectual property or the intellectual
property of third parties, provide adequate or effective remedies or protection. We also will rely
on current and future trademarks to establish and maintain recognized brands. If we fail to acquire
and protect such trademarks, our ability to market and sell our products, and therefore our
business, financial condition and operating results, would be materially adversely affected. For
example, in November 2005, Merck KGaA filed a proceeding with the Office of Harmonisation of the
Internal Market opposing our European registration of the trademark TRUBION and seeking to place
certain restrictions on the identification of goods, services, and channels of trade description in
our European trademark registration. Merck claims rights resulting from its prior trademark
registration of TRIBION HARMONIS. We filed a response to the opposition and have commenced
negotiations with Merck regarding the matter. We intend to pursue the opposition vigorously if
negotiations are unsuccessful; however, if we are unable to effectively defend against the
opposition, we may be prohibited from using the TRUBION trademark in certain European Union
jurisdictions, which could have an adverse effect on our ability to promote the Trubion brand in
those jurisdictions.
We rely on third parties to conduct our clinical trials. If these third parties do not perform as
contractually required or otherwise expected, we may not be able to obtain regulatory approval
for or commercialize our product candidates.
We do not currently have the ability to conduct clinical trials and we must rely on third
parties, such as contract research organizations, medical institutions, clinical investigators, and
contract laboratories, to conduct our clinical trials. We have, in the
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ordinary course of business, entered into agreements with these third parties. Nonetheless, we
are responsible for confirming that each of our clinical trials is conducted in accordance with its
general investigational plan and protocol. Moreover, the FDA requires us to comply with regulations
and standards, commonly referred to as good clinical practices, for conducting, recording, and
reporting the results of clinical trials to assure that data and reported results are credible and
accurate and that the trial participants are adequately protected. Our reliance on third parties
does not relieve us of these responsibilities and requirements. If these third parties do not
successfully carry out their contractual duties or regulatory obligations or meet expected
deadlines, if the third parties need to be replaced or if the quality or accuracy of the data they
obtain is compromised due to the failure to adhere to our clinical protocols or regulatory
requirements or for other reasons, our clinical trials may be extended, delayed, suspended, or
terminated, and we may not be able to obtain regulatory approval for our product candidates.
We currently rely on third-party manufacturers to supply our product candidates and will rely on
third-party manufacturers to manufacture our product candidates in commercial quantities, which
could delay or prevent the clinical development and commercialization of our product candidates.
We currently depend on Wyeth for the supply of TRU-015 and SBI-087. We also currently depend
on contract manufacturers for certain biopharmaceutical development and manufacturing services for
TRU-016, our other current product candidate. Any disruption in production, inability of these
third-party manufacturers to produce adequate quantities to meet our needs, or other impediments
with respect to development or manufacturing could adversely affect our ability to successfully
complete clinical trials, delay submissions of our regulatory applications, or adversely affect our
ability to commercialize our product candidates in a timely manner, if at all.
Our product candidates have not yet been manufactured for commercial use. If any of our
product candidates becomes a product approved for commercial sale, in order to supply our or our
collaborators commercial requirements for such an approved product, the third-party manufacturer
may need to increase its manufacturing capacity, which may require the manufacturer to fund capital
improvements to support the scale-up of manufacturing and related activities. The third-party
manufacturer may not be able to successfully increase its manufacturing capacity for such an
approved product in a timely or economic manner, if at all. If any manufacturer is unable to
provide commercial quantities of such an approved product, we will have to successfully transfer
manufacturing technology to a new manufacturer. Engaging a new manufacturer for such an approved
product could require us to conduct comparative studies or utilize other means to determine
bioequivalence of the new and prior manufacturers products, which could delay or prevent our
ability to commercialize such an approved product. If any of these manufacturers is unable or
unwilling to increase its manufacturing capacity or if we are unable to establish alternative
arrangements on a timely basis or on acceptable terms, the development and commercialization of
such an approved product may be delayed or there may be a shortage in supply. Any inability to
manufacture our products in sufficient quantities would seriously harm our business.
Any manufacturer of our product candidates and approved products, if any, must comply with
cGMP requirements enforced by the FDA through its facilities inspection program. These requirements
include quality control, quality assurance, and the maintenance of records and documentation.
Manufacturers of our product candidates and approved products, if any, may be unable to comply with
these cGMP requirements and with other FDA, state, and foreign regulatory requirements. We have
little control over our manufacturers compliance with these regulations and standards. A failure
to comply with these requirements may result in fines and civil penalties, suspension of
production, suspension, or delay in product approval, product seizure or recall, or withdrawal of
product approval. If the safety of any quantities supplied is compromised due to our manufacturers
failure to adhere to applicable laws or for other reasons, we may not be able to obtain regulatory
approval for or successfully commercialize our products, which would seriously harm our business.
If we enter into additional strategic partnerships, such as our relationship with Wyeth, we may
be required to relinquish important rights to and control over the development of our product
candidates or otherwise be subject to terms unfavorable to us.
If we enter into any strategic partnerships, we will be subject to a number of risks,
including:
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we may not be able to control the amount and timing of resources that our strategic
partners devote to the development or commercialization of product candidates;
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strategic partners may delay clinical trials, design clinical trials in a manner with
which we do not agree, provide insufficient funding, terminate a clinical trial or abandon a
product candidate, repeat or conduct new clinical trials, or require a new version of a
product candidate for clinical testing;
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strategic partners may not pursue further development and commercialization of products
resulting from the strategic partnering arrangement or may elect to discontinue research and
development programs;
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strategic partners may not commit adequate resources to the marketing and distribution of
any future products, limiting our potential revenues from these products;
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disputes may arise between us and our strategic partners that result in the delay or
termination of the research, development, or commercialization of our product candidates or
that result in costly litigation or arbitration that diverts managements attention and
consumes resources;
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strategic partners may experience financial difficulties;
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strategic partners may not properly maintain or defend our intellectual property rights
or may use our proprietary information in a manner that could jeopardize or invalidate our
proprietary information or expose us to potential litigation;
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business combinations or significant changes in a strategic partners business strategy
may also adversely affect a strategic partners willingness or ability to complete its
obligations under any arrangement;
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strategic partners could independently move forward with a competing product candidate
developed either independently or in collaboration with others, including our competitors;
and
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strategic partners could terminate the arrangement or allow it to expire, which would
delay the development and may increase the cost of developing our product candidates.
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Our relationship with Wyeth may have a negative effect on our ability to enter into beneficial
relationships with third parties.
In December 2005 we entered into a collaboration agreement with Wyeth for the development and
worldwide commercialization of TRU-015 and other CD20-directed therapeutics. We are also
collaborating with Wyeth on the development and worldwide commercialization of certain other
product candidates directed to a small number of targets other than CD20 that have been established
pursuant to the agreement. Companies other than Wyeth that may be interested in developing products
with us may be less inclined to do so because of our relationship with Wyeth, or because of the
perception that development programs that Wyeth does not participate in are less promising
programs. If our ability to work with present or future strategic partners or collaborators is
adversely affected as a result of our collaboration agreement with Wyeth, our business prospects
may be limited and our financial condition may be adversely affected.
Even if our product candidates receive regulatory approval, they could be subject to restrictions
or withdrawal from the market and we may be subject to penalties if we fail to comply with
regulatory requirements or if we experience unanticipated problems with our products.
Any product candidate for which we receive regulatory approval, together with the
manufacturing processes, post-approval clinical data, and advertising and promotional activities
for such product, will be subject to continued review and regulation by the FDA and other
regulatory agencies. Even if regulatory approval of a product candidate is granted, the approval
may be subject to limitations on the indicated uses for which the product candidate may be marketed
or on the conditions of approval, or contain requirements for costly post-marketing testing and
surveillance to monitor the safety or efficacy of the product candidate. Later discovery of
previously unknown problems with our products or their manufacture, or failure to comply with
regulatory requirements, may result in:
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restrictions on the products or manufacturing processes;
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withdrawal of the products from the market;
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voluntary or mandatory recalls;
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fines;
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suspension of regulatory approvals;
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product seizures; or
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injunctions or the imposition of civil or criminal penalties.
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If we are slow or otherwise unable to adapt to changes in existing regulatory requirements, we
may lose marketing approval for any products that may be approved in the future.
Our product candidates may never achieve market acceptance even if we obtain regulatory
approvals.
Even if we obtain regulatory approvals for the commercial sale of our product candidates, the
commercial success of these product candidates will depend on, among other things, their acceptance
by physicians, patients, third-party payors, and other members of the medical community as a
therapeutic and cost-effective alternative to competing products and treatments. If our product
candidates fail to gain market acceptance, we may be unable to earn sufficient revenue to continue
our business. Market acceptance of, and demand for, any product that we may develop and
commercialize will depend on many factors, including:
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our ability to provide acceptable evidence of safety and efficacy;
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the prevalence and severity of adverse side effects;
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availability, relative cost, and relative efficacy of alternative and competing
treatments;
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the effectiveness of our marketing and distribution strategy;
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publicity concerning our products or competing products and treatments; and
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our ability to obtain sufficient third-party insurance coverage or reimbursement.
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If our product candidates do not become widely accepted by physicians, patients, third-party
payors, and other members of the medical community, our business, financial condition, and
operating results would be materially adversely affected.
Failure to obtain regulatory approval in foreign jurisdictions would prevent us from marketing
our products internationally.
We intend to have our product candidates marketed outside the United States. In order to
market our products in the European Union and many other non-U.S. jurisdictions, we must obtain
separate regulatory approvals and comply with numerous and varying regulatory requirements. To
date, we have not filed for marketing approval of any of our product candidates and may not receive
the approvals necessary to commercialize our product candidates in any market. The approval
procedure varies among countries and can involve additional testing and data review. The time
required to obtain foreign regulatory approval may differ from that required to obtain FDA
approval. The foreign regulatory approval process may include all of the risks associated with
obtaining FDA approval, or may include different or additional risks. We may not obtain foreign
regulatory approvals on a timely basis, if at all. Approval by the FDA does not ensure approval by
regulatory agencies in other countries, and approval by one foreign regulatory authority does not
ensure approval by regulatory agencies in other foreign countries or by the FDA. A failure or delay
in obtaining regulatory approval in one jurisdiction may have a negative effect on the regulatory
approval process in other jurisdictions, including approval by the FDA. The failure to obtain
regulatory approval in foreign jurisdictions could seriously harm our business.
We may incur substantial costs as a result of litigation or other proceedings relating to patent
and other intellectual property rights.
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The cost to us of any litigation or other proceedings relating to intellectual property
rights, even if resolved in our favor, could be substantial. Some of our competitors may be better
able to sustain the costs of complex patent litigation because they have substantially greater
resources. Uncertainties resulting from the initiation and continuation of any litigation could
have a material adverse effect on our ability to continue our operations. Should third parties file
patent applications, or be issued patents claiming technology also claimed by us in pending
applications, we may be required to participate in interference proceedings in the United States
Patent and Trademark Office to determine priority of invention, which could result in substantial
costs to us and an adverse decision as to the priority of our inventions. An unfavorable outcome in
an interference proceeding could require us to cease using the technology or to license rights from
prevailing third parties. We cannot assure you that any prevailing party would offer us a license
or that we could acquire any license made available to us on commercially acceptable terms.
If any products we develop become subject to unfavorable pricing regulations, third-party
reimbursement practices, or healthcare reform initiatives, our business could be harmed.
Our ability to commercialize any product candidate profitably will depend in part on the
extent to which reimbursement for such product candidate and related treatments will be available
from government health administration authorities, private health insurers, or private payors, and
other organizations in the United States and internationally. Even if we succeed in bringing one or
more product candidates to market, these products may not be considered cost-effective, and the
amount reimbursed for any product may be insufficient to allow us to sell it profitably. Because
our product candidates are in the early stages of development, we are unable at this time to
determine their cost-effectiveness and the level or method of reimbursement. There may be
significant delays in obtaining coverage for newly approved products, and coverage may be more
limited than the purposes for which the product candidate is approved by the FDA or foreign
regulatory agencies. Moreover, eligibility for coverage does not mean that any product will be
reimbursed in all cases or at a rate that covers our costs, including research, development,
manufacture, sale, and distribution. Increasingly, the third-party payors who reimburse patients,
such as government and private payors, are requiring that companies provide them with predetermined
discounts from list prices and are challenging the prices charged for medical products. If the
reimbursement we are able to obtain for any product we develop is inadequate in light of our
development and other costs, our business could be harmed.
We face potential product liability exposure, and if successful claims are brought against us, we
may incur substantial liability for a product candidate and may have to limit its
commercialization.
The use of our product candidates in clinical trials and the sale of any products for which we
obtain marketing approval expose us to the risk of product liability claims. Product liability
claims might be brought against us by consumers, health-care providers, pharmaceutical companies,
or others selling our products. If we cannot successfully defend ourselves against these claims, we
will incur substantial liabilities. Regardless of merit or eventual outcome, product liability
claims may result in:
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decreased demand for our product candidates;
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impairment of our business reputation;
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withdrawal of clinical trial participants;
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costs of related litigation;
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substantial monetary awards to patients or other claimants;
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loss of revenues; and
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the inability to commercialize our product candidates.
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Although we currently have product liability insurance coverage for our clinical trials for
expenses or losses, our insurance coverage may not reimburse us or may not be sufficient to
reimburse us for any or all expenses or losses we may suffer. Moreover, insurance coverage is
becoming increasingly expensive and, in the future, we may not be able to maintain insurance
coverage at a reasonable cost or in sufficient amounts to protect us against losses due to liability. We
intend to expand our insurance coverage to include the sale of commercial products if we obtain
marketing approval for our product candidates in development, but we may be unable to obtain
commercially reasonable product liability insurance for any products approved for marketing. On
occasion, large judgments have been awarded in class action lawsuits based on products that had
unanticipated side effects. A successful product liability claim or series of claims brought
against us could cause our stock price to fall and, if judgments exceed our insurance coverage,
could decrease our cash and adversely affect our business.
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We face substantial competition, which may result in others discovering, developing, or
commercializing products before, or more successfully, than we do
Our future success depends on our ability to demonstrate and maintain a competitive advantage
with respect to the design, development, and commercialization of our product candidates. We expect
any product candidate that we commercialize with our collaborative partners, or on our own, will
compete with other products.
Product Candidates for Autoimmune and Inflammatory Diseases.
If approved for the treatment of
RA, we anticipate that our product candidates would compete with other marketed protein
therapeutics for the treatment of RA including: Rituxan® (Genentech, Biogen Idec, and Roche),
Enbrel® (Amgen and Wyeth), Remicade® (JNJ and Schering-Plough), Humira® (Abbott), and Orencia®
(BMS).
Product Candidates for Systemic Lupus Erythematosus.
If approved for the treatment of SLE, our
product candidates may compete with other therapies. We are not aware of any CD37-directed
therapeutics in development or on the market for the treatment of SLE.
Product Candidates for B-cell Malignancies.
If approved for the treatment of CLL, NHL, or
other B-cell malignancies, we anticipate that our product candidates would compete with other
B-cell depleting therapies. While we are not aware of any CD37-directed therapeutics in development
or on the market, other biologic therapies are marketed for the treatment of NHL or CLL or both,
such as Rituxan® /Mabthera® (Genentech, Biogen Idec, and Roche), Zevalin® (Biogen Idec and Schering
AG), Bexxar® (GSK), and Campath® (Genzyme and Schering AG).
Many of our potential competitors have substantially greater financial, technical,
manufacturing, marketing and personnel resources than we have. In addition, many of these
competitors have significantly greater commercial infrastructures than we have. Our ability to
compete successfully will depend largely on our ability to:
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design and develop products that are superior to other products in the market;
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attract and retain qualified scientific, medical, product development, commercial, and
sales and marketing personnel;
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obtain patent and/or other proprietary protection for our processes, product candidates,
and technologies;
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operate without infringing the patents and proprietary rights of third parties;
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obtain required regulatory approvals; and
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successfully collaborate with others in the design, development, and commercialization of
new products.
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Established competitors may invest heavily to quickly discover and develop novel compounds
that could make our product candidates obsolete. In addition, any new product that competes with a
generic market-leading product must demonstrate compelling advantages in efficacy, convenience,
tolerability, and safety in order to overcome severe price competition and to be commercially
successful. If we are not able to compete effectively against our current and future competitors,
our business will not grow, and our financial condition and operating results will suffer.
If we are unable to establish a sales and marketing infrastructure or enter into collaborations
with partners to perform these functions, we will not be able to commercialize our product
candidates.
We currently do not have any internal sales, marketing, or distribution capabilities. In order
to commercialize any of our product candidates that are approved for commercial sale, we must
either acquire or internally develop a sales, marketing, and distribution infrastructure or enter
into collaborations with partners able to perform these services for us. In December 2005 we
entered into a collaboration agreement with Wyeth to develop and commercialize therapeutics
directed to the CD20 protein and other targets. If we do not enter into collaborations with respect
to product candidates not covered by the Wyeth collaboration, or if any of our product candidates
are the subject of collaborations with partners that are not able to commercialize such product
candidates, we will need to
30
acquire or internally develop a sales, marketing, and distribution infrastructure. Factors
that may inhibit our efforts to commercialize our product candidates without partners that are able
to commercialize the product candidates include:
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our inability to recruit and retain adequate numbers of effective sales and marketing
personnel;
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the inability of sales personnel to obtain access to or persuade adequate numbers of
physicians to prescribe our products;
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the lack of complementary products to be offered by sales personnel, which may put us at
a competitive disadvantage relative to companies with more extensive product lines; and
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unforeseen costs and expenses associated with creating a sales and marketing
organization.
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If we are not able to partner with a third party able to commercialize our product candidates,
or are not successful in recruiting sales and marketing personnel or in building a sales,
marketing, and distribution infrastructure, we will have difficulty commercializing our product
candidates, which would adversely affect our business and financial condition.
We rely on highly skilled personnel, and if we are unable to retain or motivate key personnel or
hire qualified personnel, we may not be able to maintain our operations or grow effectively.
Our performance largely depends on the talents and efforts of highly skilled individuals. Our
future success depends on our continuing ability to develop, motivate, and retain qualified
management, clinical, and scientific personnel for all areas of our organization. If we do not
succeed in retaining and motivating our personnel, our existing operations may suffer and we may be
unable to grow effectively.
We may fail to select or capitalize on the most scientifically, clinically, or commercially
promising or profitable product candidates.
We have limited technical, managerial, and financial resources to determine which of our
product candidates should proceed to initial clinical trials, later-stage clinical development, and
potential commercialization, and further, we may make incorrect determinations. Our decisions to
allocate our research and development, management, and financial resources toward particular
product candidates or therapeutic areas may not lead to the development of viable commercial
products and may divert resources from better opportunities. Similarly, our decisions to delay or
terminate drug development programs may also be incorrect and could cause us to miss valuable
opportunities.
If we use biological and hazardous materials in a manner that causes contamination or injury or
violates laws, we may be liable for damages.
Our research and development activities involve the use of potentially harmful biological
materials, as well as hazardous materials, chemicals, and various radioactive compounds. We cannot
completely eliminate the risk of accidental contamination or injury from the use, storage,
handling, or disposal of these materials. In the event of contamination or injury, we could be held
liable for damages that result, and any liability could exceed our resources. We do not maintain
liability insurance coverage for our handling of biological or hazardous materials. We, the third
parties that conduct clinical trials on our behalf, and the third parties that manufacture our
product candidates are subject to federal, state, and local laws and regulations governing the use,
storage, handling, and disposal of these materials and waste products. The cost of compliance with
these laws and regulations could be significant. The failure to comply with any of these laws and
regulations could result in significant fines and work stoppages and may harm our business.
Risks Related to Our Common Stock
The trading price of our common stock may be subject to significant fluctuations and volatility,
and our stockholders may be unable to resell their shares at a profit.
The trading prices of many newly publicly traded companies are highly volatile, particularly
companies such as ours that have limited operating histories. Accordingly, the trading price of our
common stock has been subject to significant fluctuations and may
31
continue to fluctuate or decline. Since our initial public offering, which was completed in
October 2006, the price of our common stock has ranged from an
intra-day low of $3.50 to an
intra-day high of $22.50. Factors that could cause fluctuations in the trading price of our common
stock include the following:
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our ability to develop and market new and enhanced product candidates on a timely basis;
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announcements by us or our collaborators or competitors of new commercial products,
clinical progress or the lack thereof, changes in or terminations of relationships,
significant contracts, commercial relationships, or capital commitments;
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commencement of, or our involvement in, litigation;
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changes in earnings estimates or recommendations by securities analysts;
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changes in governmental regulations or in the status of our regulatory approvals;
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any major change in our board or management;
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quarterly variations in our operating results or those of our collaborators or
competitors;
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general economic conditions and slow or negative growth of our markets; and
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political instability, natural disasters, war, and/or events of terrorism.
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In addition, the U.S. stock market has experienced extreme price and volume fluctuations that
have often been unrelated or disproportionate to the operating performance of trading companies.
Broad market and industry factors may seriously affect the market price of companies stock,
including ours, regardless of actual operating performance. In addition, in the past, following
periods of volatility in the overall market and the market price of a particular companys
securities, securities class action litigation has often been instituted against these companies.
This litigation, if instituted against us, could result in substantial costs and a diversion of our
managements attention and resources.
If securities analysts do not publish research or reports about our business, or if they
downgrade our stock, the price of our stock could decline.
The trading market for our common stock will rely in part on the availability of research and
reports that third-party industry or financial analysts publish about us. There are many large,
publicly traded companies active in the biopharmaceutical industry, which may mean it will be less
likely that we receive widespread analyst coverage. Furthermore, if one or more of the analysts who
do cover us downgrade our stock, our stock price would likely decline. If one or more of these
analysts cease coverage of us, we could lose visibility in the market, which in turn could cause
our stock price to decline.
The concentration of our capital stock ownership with insiders will likely limit your ability to
influence corporate matters.
As of June 30, 2008, our executive officers, directors, current five percent or greater
stockholders, and affiliated entities together beneficially owned approximately 88% of our
outstanding common stock. As a result, these stockholders, acting together, have control over most
matters that require approval by our stockholders, including the election of directors and approval
of significant corporate transactions. Corporate action might be taken even if other stockholders
oppose them. This concentration of ownership might also have the effect of delaying or preventing a
change of control of us that other stockholders may view as beneficial.
Anti-takeover provisions in our charter documents and under Delaware law could make an
acquisition of us, which may be beneficial to our stockholders, more difficult and may prevent
attempts by our stockholders to replace or remove our current management.
Provisions in our certificate of incorporation and bylaws may delay or prevent an acquisition
of us or a change in our management. These provisions include a classified board of directors, a
prohibition on actions by written consent of our stockholders and the ability
32
of our board of directors to issue preferred stock without stockholder approval. In addition,
because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the
Delaware General Corporation Law, which prohibits stockholders owning in excess of 15% of our
outstanding voting stock from merging or combining with us. Although we believe these provisions
collectively provide for an opportunity to receive higher bids by requiring potential acquirers to
negotiate with our board of directors, they would apply even if the offer may be considered
beneficial by some stockholders. In addition, these provisions may frustrate or prevent any
attempts by our stockholders to replace or remove our current management by making it more
difficult for stockholders to replace members of our board of directors, which is responsible for
appointing the members of our management.
Item 4. Submissions of Matters to a Vote of Security Holders
Our annual meeting of stockholders was held on May 28, 2008, beginning at 9:30 a.m. Pacific
time at our offices located at 2401 4th Avenue, Suite 1050, Seattle, Washington 98121.
Stockholders representing a total of 16,783,904 shares of common stock entitled to vote at the
meeting, constituting a quorum, voted to:
(1) Reelect David A. Mann, Samuel R. Saks, M.D., and David Schell, M.D. as Class II
directors for a term that will expire at the annual stockholders meeting to be held in
2011.
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FOR
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WITHHELD
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David A. Mann
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15,085,016
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1,698,888
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Samuel R. Saks, M.D.
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15,085,040
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1,698,864
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David Schnell, M.D.
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15,085,016
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1,698,888
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(2) Ratify the appointment by the audit committee of Ernst & Young LLP as our independent
registered public accounting firm for the fiscal year ending
December 31, 2008.
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FOR
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16,777,951
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AGAINST
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4,310
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ABSTAIN
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1,643
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33
ITEM 6. EXHIBITS
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Exhibit
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Number
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Description
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3.1
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Amended and Restated Certificate of Incorporation (Exhibit 3.1)(A)
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3.2
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Amended and Restated Bylaws (Exhibit 3.2)(A)
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3.3
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Amendment to Amended and Restated Bylaws (Exhibit 3.1)(B)
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4.1
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Form of common stock certificate (Exhibit 4.1)(C)
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4.2
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Amended and Restated Investor Rights Agreement, dated July 13, 2004 (Exhibit 4.2)(A)
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4.3
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Amendment No. 1 to Amended and Restated Investor Rights Agreement, dated December 19, 2005 (Exhibit 4.3)(A)
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10.1
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Amendment to Lease Agreement, dated February 2, 2007, between Trubion Pharmaceuticals, Inc. and Selig Real
Estate Holdings Eight, L.L.C.
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10.2
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Manufacturing Services Agreement, dated as of November 21, 2005, between Trubion Pharmaceuticals, Inc. and
Lonza Biologics, Inc. (Exhibit 10.34) (D)
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10.3
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Novation Agreement, effective as of January 1, 2007, among Trubion Pharmaceuticals, Inc., Lonza Biologics,
Inc. and Lonza Sales AG
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31.1*
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Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
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31.2*
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Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
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32.1*
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Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C § 1350 as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
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(A)
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Incorporated by reference to the designated exhibit to the registrants Registration
Statement on Form S-1 filed with the SEC on June 2, 2006 (File No. 333-134709).
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(B)
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Incorporated by reference to the designated exhibit to the registrants Current Report on
Form 8-K filed with the SEC on April 4, 2007 (File No. 001-33054).
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(C)
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Incorporated by reference to the designated exhibit to the registrants Registration
Statement on Form S-1 filed with the SEC on October 2, 2006 (File No. 333-134709).
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(D)
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Incorporated by reference to the designated exhibit to the registrants Registration
Statement on Form S-1 filed with the SEC on August 18, 2006 (File No. 333-134709).
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*
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Filed herewith.
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34
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: August 7, 2008
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TRUBION PHARMACEUTICALS, INC.
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By:
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/s/ Michelle G. Burris
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Michelle G. Burris
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Senior Vice President and
Chief Financial Officer
(Principal Accounting and Financial Officer)
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35
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