This document consists of two parts. The first part is this prospectus supplement, which describes the specific terms of this offering. The
second part, the accompanying prospectus, gives more general information, some of which may not apply to this offering. Generally, when we refer only to the prospectus, we are referring to both parts combined. This prospectus supplement
may add to, update or change information in the accompanying prospectus and the documents incorporated by reference into this prospectus supplement or the accompanying prospectus.
If information in this prospectus supplement is inconsistent with the accompanying prospectus, you should rely on this prospectus supplement.
This prospectus supplement, the accompanying prospectus and the documents incorporated into each by reference include important information about us, the shares being offered and other information you should know before investing in our common
stock.
You should rely on this prospectus supplement, the accompanying prospectus and the information incorporated or deemed to be
incorporated by reference in this prospectus supplement and the accompanying prospectus. We have not, and the underwriter has not, authorized anyone to provide you with information that is in addition to or different from that contained or
incorporated by reference in this prospectus supplement and the accompanying prospectus. We are not, and the underwriter is not, offering to sell these securities in any jurisdiction where the offer or sale is not permitted. You should not assume
that the information contained or incorporated by reference in this prospectus supplement or the accompanying prospectus is accurate as of any date other than as of the date of this prospectus supplement or the accompanying prospectus, as the case
may be, or in the case of the documents incorporated by reference, the date of such documents regardless of the time of delivery of this prospectus supplement and the accompanying prospectus or any sale of our common stock. Our business, financial
condition, liquidity, results of operations and prospects may have changed since those dates.
All references in this prospectus
supplement or the accompanying prospectus to Agenus, Antigenics, the Company, we, us or our mean Agenus Inc. and its subsidiaries, unless we state otherwise or the context
otherwise requires.
RISK FACTORS
Investing in our common stock involves a high degree of risk. You should carefully review the risks and uncertainties described below, in
the accompanying prospectus and in the documents incorporated by reference herein and therein including, but not limited to, the risks included in our Current Report on Form 8-K filed on February 4, 2014. The risks described in these documents
are not the only ones we face, but those that we currently consider to be material. There may be other unknown or unpredictable economic, business, competitive, regulatory or other factors that could have material adverse effects on our future
results. Past financial performance may not be a reliable indicator of future performance and historical trends should not be used to anticipate results or trends in future periods. Please also read carefully the section above entitled
Cautionary Note About Forward-Looking Statements.
Risks Related to the Acquisition
We may fail to consummate the Acquisition.
This offering is not contingent upon the closing of the Acquisition. Our ability to consummate the Acquisition is subject to various closing
conditions. Changes in the terms of the Acquisition will have no effect on your rights as a purchaser of our common stock. Although certain information included in this prospectus supplement generally assumes consummation of the Acquisition, we
cannot assure you that the Acquisition will occur.
The Exchange Agreement contains certain termination rights for both Agenus and 4-AB,
including (i) if the closing does not occur by February 28, 2014 through no fault of the terminating party, (ii) as a result of a governmental or court order preventing the closing, (iii) by a party if the other party has
breached representations, warranties or covenants made in the Exchange Agreement and (iv) by the shareholders of 4-AB in the event of a sale or bankruptcy of Agenus or if our shares are delisted from trading on the Nasdaq prior to closing; and
the Exchange Agreement further provides that, upon termination, Agenus and the shareholders of 4-AB shall remain liable for any breaches of the Exchange Agreement occurring prior to such termination. However, no termination fees will be payable by
either party in the event of a termination of the Exchange Agreement. Currently, the transactions contemplated by the Exchange Agreement are expected to be completed in February 2014. If we fail to close the Acquisition, depending on circumstances,
we could be subject to litigation, including claims for damages.
We have incurred and will continue to incur significant transaction costs in
connection with the Acquisition.
We have incurred and will continue to incur substantial legal, accounting, financial advisory
and/or other costs and our management has devoted considerable time and effort in connection with the Acquisition. If the Acquisition is not completed, we will bear certain fees and expenses associated with the Acquisition without realizing the
anticipated benefits of the Acquisition. These and other fees and expenses may be significant and could have an adverse impact on our operating results.
We may fail to realize the benefits we expect to realize as a result of the Acquisition.
The success of the Acquisition will depend, in part, on our ability to realize the anticipated synergies, business opportunities and growth
prospects from combining the businesses of Agenus and 4-AB. We may never realize these anticipated synergies, business opportunities and growth prospects. Integrating operations will be complex and will require significant efforts and expenditures
on the part of both Agenus and 4-AB. Employees might leave or be terminated because of the Acquisition. Our management might have its attention diverted while trying to integrate operations and corporate and administrative infrastructures. We might
experience increased competition that limits our ability to expand our business, and we might not be able to capitalize on expected business opportunities, including maintaining current collaboration relationships and advancing the development
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of the 4-AB technologies. We may experience difficulties reconciling 4-ABs system of financial reporting, which has been based upon International Financial Reporting Standards, or IFRS, for
small and medium-sized entities, with U.S. Generally Accepted Accounting Principles, or U.S. GAAP. Moreover, assumptions underlying estimates of expected cost savings as a result of the Acquisition may be inaccurate, and general industry and
business conditions might deteriorate. If any of these factors limit our ability to integrate the operations of Agenus and 4-AB successfully or on a timely basis, or to develop the business opportunities that we expect to realize from the
Acquisition, the expectations of future results of operations, including certain cost savings and synergies expected to result from the Acquisition, might not be met.
In addition, Agenus and 4-AB have operated and, until the completion of the Acquisition, will continue to operate, independently. It is
possible that the integration process could result in the loss of key employees, the disruption of each companys ongoing businesses, tax costs or inefficiencies, or inconsistencies in standards, controls, information technology systems,
procedures and policies, any of which could adversely affect our ability to maintain relationships with partners, employees or other third parties or our ability to achieve the anticipated benefits of the Acquisition or could reduce our earnings.
The Acquisition could cause disruptions in the business of 4-AB, which could have an adverse effect on our businesses and financial results.
The announcement and pendency of the Acquisition could cause disruptions in the businesses of 4-AB and Agenus. Specifically:
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4-ABs current and prospective employees might experience uncertainty about their future roles with us following completion of the Acquisition, which might adversely affect our ability to retain key managers and
other employees;
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relationships with 4-ABs collaboration partners may become uncertain as a result of our acquiring ownership of 4-AB; and
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the attention of our and 4-ABs management might be directed toward the completion of the Acquisition.
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4-AB is a privately held company, and is not subject to public reporting requirements, and, as a result, you may not have the information necessary to
evaluate the companys business and financial results.
4-AB is a privately held company organized under the laws of
Switzerland. As such, it has not been subject to financial reporting requirements applicable to public companies, and is not required to prepare and publish audited financial statements in accordance with U.S. GAAP. To date, 4-ABs financial
results have been prepared in accordance with IFRS for small and medium-sized entities. Upon closing of the Acquisition, we will be required to reconcile the 4-AB financial statements to U.S. GAAP, which may result in certain adjustments. Financial
statements of 4-AB on either a standalone basis or on a combined pro forma basis with us will not be available for you to evaluate and consider until after the closing of the Acquisition. As a result, you may not have available to you sufficient
information to evaluate the combined business and financial results of the Acquisition.
Although we have conducted a diligence review of
4-AB, there may be aspects of its business or financial results that may not be well understood by us until we consummate the Acquisition and proceed to integrate 4-ABs operations. Among other matters, although we do not anticipate that we
will incur or assume any liabilities or obligations out of the ordinary course of business in connection with the Acquisition (other than approximately $1 million of obligations relating to transaction-related payments and certain 4-AB indebtedness
totaling approximately $500,000, all of which may be settled in shares of our common stock), we may determine that unknown or unanticipated material liabilities exist after we have taken ownership of 4-AB.
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The issuance of shares of our common stock in the Acquisition would dilute the interest held by our
stockholders prior to the Acquisition.
If the Acquisition is completed, we will issue shares of our common stock to the
shareholders of 4-AB at closing having a fair market value of $10,000,000 (based on the average closing price of our common stock on the Nasdaq for the 30 trading days prior to the closing). If closing of the Acquisition would have occurred on the
date of this prospectus supplement, the number of shares issued to stockholders of 4-AB would have been 3,373,440. In addition, we may be obligated in the future to pay certain contingent milestones payments, payable at our election in cash or
shares of our common stock, that may exceed $40 million. See SummaryThe CompanyPending Acquisition. The issuance of shares of our common stock in connection with the Acquisition would cause a reduction in the relative
percentage interest of our current stockholders in the ownership of our common stock and could have the effect of depressing the market price of our common stock.
Failure to complete the Acquisition could adversely affect our stock price, future business, and financial results.
As a public company, we were required to announce the Acquisition prior to the actual closing of the transaction. As discussed above,
completion of the Acquisition is subject to the satisfaction of various conditions on the part of both parties. There is no assurance that either we or 4-AB will satisfy these conditions. Failure to complete the Acquisition could prevent us from
realizing the anticipated benefits that we might derive from our ownership of 4-AB. We would also remain liable for significant transaction costs, including legal, accounting and related fees. In addition, the market price of our common stock may
reflect various market assumptions as to whether the transaction will occur. Consequently, the completion of, or failure to complete, the Acquisition could result in a significant change in the market price of our common stock.
Additional Risks Related to this Offering
You will experience immediate and substantial dilution in the net tangible book value per share of the common stock you purchase.
Since the price per share of our common stock being offered is substantially higher than the net tangible book value per share of our common
stock, you will suffer substantial dilution in the net tangible book value of the common stock you purchase in this offering. Based on the public offering price of $ per share, if you purchase
units in this offering, you will suffer immediate and substantial dilution of $ per share in the net tangible book value of the common stock. See the section entitled Dilution below
for a more detailed discussion of the dilution you will incur if you purchase common stock in this offering.
You may experience future dilution as
a result of future equity offerings and exercise of outstanding options and nonvested warrants.
In order to raise additional
capital, we may in the future offer additional shares of our common stock or other securities convertible into or exchangeable for our common stock. We cannot assure you that we will be able to sell shares or other securities in any other offering
at a price per share that is equal to or greater than the price per share paid by investors in this offering, and investors purchasing shares or other securities in the future could have rights superior to existing stockholders. The price per share
at which we sell additional shares of our common stock or other securities convertible into or exchangeable for our common stock in future transactions may be higher or lower than the price per share in this offering. As of September 30, 2013,
1,083,734 shares of common stock were reserved for future issuance under our stock option plan. As of that date, there were also options outstanding to purchase 4,164,965 shares of our common stock and warrants outstanding to purchase 3,642,712
shares of our common stock. You will incur dilution upon exercise of any outstanding stock options or warrants. In addition, as described above, we will be obligated to issue shares of our common stock upon the closing of the Acquisition and,
at our election, upon the achievement of certain milestone events in the future.
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Risks Related to our Business
If we incur operating losses for longer than we expect, or we are not able to raise additional capital, we may be unable to continue our operations, or
we may become insolvent.
Our net losses for the nine months ended September 30, 2013, and for the years ended
December 31, 2012, 2011, and 2010, were $24.3 million, $11.3 million, $23.3 million, and $21.9 million, respectively. We expect to incur additional losses over the next several years as we continue research and clinical development of our
technologies and pursue partnering opportunities, regulatory strategies, commercialization, and related activities, and such losses may increase as a result of our acquisition of 4-AB. Furthermore, our ability to generate cash from operations is
dependent on the success of our licensees and collaborative partners, as well as the likelihood and timing of new strategic licensing and partnering relationships and/or successful development and commercialization of vaccines containing QS-21
Stimulon, our Prophage Series vaccines and our other product candidates. From our inception through September 30, 2013, we have incurred net losses totaling $643.3 million.
On September 30, 2013, we had $30.2 million in cash and cash equivalents. We believe that, based on our current plans and activities, our
working capital resources at September 30, 2013, plus anticipated proceeds from this offering and potential proceeds from license, supply, and collaborative agreements will be sufficient to satisfy our liquidity requirements through the first
half of 2015. We expect to attempt to raise additional funds in advance of depleting our funds although additional funding may not be available on favorable terms, or at all. For the nine months ended September 30, 2013, our average monthly
cash used in operating activities was approximately $1.6 million.
We have financed our operations primarily through the sale of equity
and debt securities. In order to finance future operations, we will be required to raise additional funds in the capital markets, through arrangements with collaborative partners, or from other sources. Additional financing may not be available on
favorable terms, or at all. If we are unable to raise additional funds when we need them or if we incur operating losses for longer than we expect, we may not be able to continue some or all of our operations, or we may become insolvent. We also may
be forced to license or sell technologies to others under agreements that allocate to third parties substantial portions of the potential value of these technologies.
There are a number of factors that will influence our future capital requirements, including, without limitation, the following:
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the number and characteristics of the product candidates we pursue;
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the scope, progress, results and costs of researching and developing our future product candidates, and conducting preclinical and clinical trials;
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the timing of, and the costs involved in, obtaining regulatory approvals for our and our licensees product candidates;
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the cost of manufacturing;
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our ability to establish and maintain strategic partnerships, licensing or other arrangements and the financial terms of such agreements;
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the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing our intellectual property rights;
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the costs associated with any successful commercial operations; and
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the timing, receipt and amount of sales of, or royalties on, our future products, if any
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General economic conditions in the United States economy and abroad may have a material adverse effect on our liquidity and financial
condition, particularly if our ability to raise additional funds is impaired. The ability of potential patients and/or health care payers to pay for our products could also be adversely impacted,
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thereby limiting our potential revenue. In addition, any negative impacts from any deterioration in the credit markets on our collaborative partners could limit potential revenue from our product
candidates.
We have significant debt, and we may not be able to make interest or principal payments when due.
In April 2013 we exchanged our 8% senior secured convertible notes due August 2014 (the 2006 Notes), including accrued and unpaid
interest, for $10.0 million in cash, 2,500,000 shares of our common stock, a revenue interest in certain QS-21 Stimulon partnered programs and a royalty interest in HerpV. The $10.0 million cash payment was financed by entering into a Loan and
Security Agreement with Silicon Valley Bank for a $5.0 million loan that bears interest at 6.75% annually (the SVB Loan), and a Note Purchase Agreement with various investors to issue senior subordinated notes in the aggregate principal
amount of $5.0 million with annual interest at 10% (the Subordinated Notes). The SVB Loan is payable in equal monthly installments of approximately $278,000 due monthly beginning November 2013 and ending in April 2015. The Subordinated
Notes are due in April 2015.
Our ability to satisfy our obligations under this indebtedness will depend upon our future performance,
which is subject to many factors, including the factors identified in this Risk Factors section and other factors beyond our control. If we are not able to generate sufficient cash flow from operations in the future to service our
indebtedness, we may be required, among other things, to:
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seek additional financing in the debt or equity markets;
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refinance or restructure all or a portion of our indebtedness;
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sell, out-license, or otherwise dispose of assets; and/or
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reduce or delay planned expenditures on research and development and/or commercialization activities.
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Such measures might not be sufficient to enable us to make principal and interest payments. In addition, any such financing, refinancing, or
sale of assets might not be available on economically favorable terms, if at all.
Other than for the year ended December 31, 2012,
we have had negative cash flows from operations. The net cash provided by operations of $1.0 million for the year ended December 31, 2012 primarily resulted from one-time payments received under amended license agreements and therefore our net
cash provided by operations for the year ended December 31, 2012 is not indicative of future results. For the nine months ended September 30, 2013 and for the years ended December 31, 2011, and 2010, net cash used in operating
activities was $14.0 million, $16.2 million, and $14.8 million, respectively.
Our outstanding debt instruments contain significant restrictive and
affirmative covenants.
The SVB Loan is secured by a lien against substantially all of our assets as well as the assets of our
subsidiary Antigenics Inc., and contains, among other things, a number of restrictions and covenants that limit our ability to:
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incur certain additional indebtedness;
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make certain investments;
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pay dividends other than dividends required pursuant to pre-existing commitments;
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make payments on subordinated indebtedness other than regularly scheduled payments of interest;
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consolidate, merge, sell or otherwise dispose of our assets; and/or
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change our line of business.
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The SVB Loan also specifies a number of events of default (some of which are subject to
applicable cure periods), including, among other things:
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other non-payment defaults;
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certain penalties and judgments from a governmental authority;
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cross-defaults in respect of indebtedness over $50,000; and
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Additionally, any material adverse change with respect to us or our
subsidiary Antigenics Inc., constitutes an event of default. Upon the occurrence of an event of default under the SVB Loan, subject to cure periods in certain circumstances, the Lender may declare all amounts outstanding to be immediately due and
payable and may foreclose upon our assets that secure the SVB Loan. During the continuance of an event of default which does not accelerate the maturity of the SVB Loan, interest will accrue at a default rate equal to the otherwise applicable rate
plus 5%. We may prepay the SVB Loan at any time, in full, subject to certain notice requirements and a prepayment premium equal to 4% of the outstanding principal amount of the SVB Loan.
The Subordinated Notes also include default provisions which allow for the acceleration of the principal payment of the Subordinated Notes in
the event we become involved in certain bankruptcy proceedings, become insolvent, fail to make a payment of principal or (after a grace period) interest on the Subordinated Notes, default on other indebtedness with an aggregate principal balance of
$5 million or more if such default has the effect of accelerating the maturity of such indebtedness, or become subject to a legal judgment or similar order for the payment of money in an amount greater than $5 million if such amount will not be
covered by third-party insurance.
If we default on the SVB Loan or the Subordinated Notes and the repayment of such indebtedness is
accelerated, our liquidity will be materially and adversely affected.
We may not receive anticipated QS-21 Stimulon revenues from our licensees.
With the exception of our HerpV program, we currently rely upon and expect to continue to rely upon third party licensees,
particularly GlaxoSmithKline (GSK) and JANSSEN Alzheimer Immunotherapy (JANSSEN AI), to develop, test, market and manufacture vaccines that utilize our QS-21 Stimulon adjuvant. We expect that we will rely on similar
relationships if we develop new adjuvants in our Saponin Platform.
In return for rights to use QS-21 Stimulon, our licensees have
generally agreed to pay us license fees, milestone payments and royalties on product sales for a minimum of 10 years after commercial launch, with some exceptions. As each licensee controls its own product development process, we cannot predict our
licensees requirements for QS-21 Stimulon in the future or to what extent, if any, they will develop vaccines that use QS-21 Stimulon as an adjuvant. Our licensees may initiate or terminate programs containing QS-21 Stimulon at any time.
Clinical trials being conducted by our licensees, including those being conducted by GSK and JANSSEN AI, may not be successful. The results of these trials and other factors may cause our licensees to terminate programs containing QS-21 Stimulon. In
the event that our licensees develop vaccines using QS-21 Stimulon, there is no guarantee that these products will obtain regulatory approval or, if so approved, will generate significant royalties, if any, or that we will be able to collect
royalties in the future. In addition, where we had previously supplied GSK and JANSSEN AI with all their requirements of QS-21 Stimulon, we have amended our agreements so that they are permitted to manufacture their own QS-21 Stimulon. We are unable
to predict what amount of QS-21 Stimulon, if any, will be purchased from us by other licensees or collaborators in the future. Any inability to receive anticipated QS-21 Stimulon revenues would have a material adverse effect on our business,
financial condition and results of operations.
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In connection with the exchange of our 2006 Notes, we entered into a Revenue Interests Assignment
Agreement with the holders of the 2006 Notes. This agreement granted these holders a contractual right to the proceeds of 20% of our revenue interests from QS-21 Stimulon partnered programs and a 0.5% royalty on net sales of HerpV. Due to
uncertainties surrounding the future revenue stream generated from our licensees, we are unable to predict the precise dollar value reduction in revenue that will result from this agreement to pay the 2006 Note holders their share of the proceeds
from QS-21 Stimulon and HerpV programs. Any reduction in revenues generated from QS-21 Stimulon could have a material adverse effect on our business, financial condition and results of operations.
Our HerpV therapeutic vaccine candidate is in early stage development and we may not be able to successfully develop this candidate.
Based on the results of our Phase 1 clinical trial of HerpV, which includes QS-21 Stimulon, we advanced this product candidate into a Phase 2
trial that measured the effect of vaccination on viral shedding in individuals infected with HSV-2 (genital herpes). In November 2013, we announced that the Phase 2 trial met its primary endpoint, a statistically significant reduction in viral
shedding. Final study results, including booster and immune response data, are expected during the first half of 2014. While our clinical trials to date have yielded positive findings, they were limited in size and scope. There is no guarantee that
future clinical trials will be successful or that a reduction in viral shedding will translate into clinical benefit. In addition, we may not have the resources required to advance the vaccine further and even if we do have such resources, the
success of future clinical trials will be dependent on, upon other things, maintaining sufficient supply of the required investigational materials, enrolling sufficient patients and the adherence of these patients to the study protocol. Our HerpV
development program in general may not be successful or yield a partnering opportunity for us. Furthermore, it is possible that research and discoveries by others will render our product candidate obsolete or noncompetitive.
We may not be able to market and sell vaccines from our Prophage Series.
The probability and timing of submissions and/or approval of Prophage Series vaccines is uncertain.
A Phase 2 trial testing the Prophage Series G-100 vaccine candidate in newly diagnosed glioma has been fully enrolled and patient follow up is
ongoing. While early data from this study have been encouraging, these data may not be supported in later follow-up of patients or in subsequent clinical trials. Separately, the Cancer Therapy Evaluation Program of the National Cancer Institute
opened patient enrollment in a randomized Phase 2 trial of the Prophage Series G-200 vaccine in combination with Avastin
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(bevacizumab) in patients with surgically resectable recurrent glioma.
This trial may not be successful, and even if it is successful, the trial is not intended to provide the necessary evidence of efficacy and/or safety to support biologics license application (BLA) filings.
Due to our lack of resources, our ability to perform additional studies may be limited. In addition, studies may take years to complete and
may fail to support regulatory filings for many reasons. Our Prophage Series vaccines are a novel class of patient-specific (derived from the patients own tumor) oncology therapies, and the U.S. Food and Drug Administration (FDA)
and foreign regulatory agencies, including the European Medicines Agency, which is responsible for product approvals in Europe, and Health Canada, which is responsible for product approvals in Canada, have limited experience in reviewing these types
of therapies. Therefore, product candidates derived from the Prophage Series vaccines may experience high development costs and a long regulatory review process, either of which could delay or prevent commercialization efforts.
If we or our licensee are unable to purify heat shock proteins we may have difficulty successfully initiating or completing clinical trials or
supporting commercial sales. Even if we or our licensees do successfully complete ongoing or future clinical trials or are successful manufacturing any approved products, we may have difficulty generating a sizable market or commercial sales.
Our ability to successfully develop and commercialize the Prophage Series vaccines for a particular cancer depends in part on our,
and following successful technology transfer to NewVac LLC (NewVac), our licensee
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for Oncophage in the Russian Federation and certain other CIS countries, its, ability to purify heat shock proteins from that type of cancer. If we or NewVac experience difficulties in purifying
heat shock proteins for a sufficiently large number of patients in our clinical trials, we may face delays in enrolling sufficient patients and subsequently utilize more internal resources to satisfy enrollment requirements. Manufacturing failures
may also lower the probability of a successful analysis of the data from clinical trials and, ultimately, the ability to obtain regulatory approvals and generate commercial sales. Manufacturing difficulties may also adversely affect NewVacs
ability to commercialize Oncophage in its licensed territory. We have successfully manufactured product across many different cancer types, however, the success rate per indication has varied. We have evolved our manufacturing processes to better
accommodate a wider range of tumor types. Our current manufacturing technologies have been successful in manufacturing product from approximately 92% of the RCC tumors received and approximately 85% of the tumors received from patients enrolled in
Phase 2 clinical trials in glioma. In addition, we may encounter problems with other types of cancer or patients as we expand our research. If we cannot overcome these problems, the number of patients or cancer types that our heat shock protein
product candidates could treat would be limited. In addition, if we commercialize our heat shock protein product candidates, we may not be able to replicate past manufacturing success rates and we may face claims from patients for whom we are unable
to produce a vaccine.
Manufacturing problems or increased demand may cause delays, unanticipated costs, or loss of revenue streams.
If the future clinical or commercial demand for our products or product candidates is substantially greater than we anticipate, our capacity
may not be able to meet product demand. In addition, higher manufacturing loads may result in higher manufacturing failure rates as the operation becomes more complex. We currently manufacture our Prophage Series vaccines in our Lexington, MA
facility. While we believe we will be able to cover demand in the near term, there is no guarantee that we will be able to meet all future or unanticipated increases in demand, and a failure to do so could adversely affect our business. Such demand
may also limit our ability to manufacture product in support of clinical trials, and this could cause a delay or failure in our Prophage Series vaccine development programs. Manufacturing of Prophage Series vaccines is complex, and various factors
could cause delays or an inability to supply vaccine. Deviations in the processes controlling manufacture could result in production failures. Furthermore, we have limited manufacturing resources and there is no assurance that we will be able to
obtain the necessary resources, timely or at all, to meet any increased demand.
Regulatory bodies may require us to make our
manufacturing facility a single product facility. In such an instance, we would no longer have the ability to manufacture products other than Prophage Series vaccines in our current facility.
Except in the case of GSK and JANSSEN AI, we have retained worldwide manufacturing rights for QS-21 Stimulon. We have the right to subcontract
manufacturing for QS-21 Stimulon for our other existing and future QS-21 Stimulon manufacturing and supply needs, and we have a supply agreement with a contract manufacturer for the production of QS-21 Stimulon through September 2014. If we are
not able to renew this agreement we may not be able to supply QS-21 Stimulon to meet future supply obligations on favorable terms or at all. For example, although GSK is a source of QS-21 Stimulon supply for us, their obligation to supply is
for a limited duration, and various factors could impact our decision to exercise this right. In addition, we or our currently contracted suppliers may not have the ability to manufacture commercial grade QS-21 Stimulon.
We currently rely upon and expect to continue to rely upon third parties, potentially including our collaborators or licensees, to produce
materials required to support our product candidates, preclinical studies, clinical trials, and commercial efforts. A number of factors could cause production interruptions at our manufacturing facility or at our contract manufacturers or suppliers,
including equipment malfunctions, labor or employment retention problems, natural disasters, power outages, terrorist activities, or disruptions in the operations of our suppliers. Alternatively, there is the possibility we may have excess
manufacturing capacity if product candidates do not progress as planned.
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There are a limited number of contract manufacturers or suppliers that are capable of
manufacturing our product candidates or the materials used in their manufacture. If we are unable to do so ourselves or to arrange for third-party manufacturing or supply of these product candidates or materials, or to do so on commercially
reasonable terms, we may not be able to complete development of these product candidates or commercialize them ourselves or through our collaborative partners or licensees. Reliance on third-party manufacturers entails risks to which we would not be
subject if we manufactured products ourselves, including reliance on the third party for regulatory compliance, the possibility of breach of the manufacturing agreement by the third party because of factors beyond our control, and the possibility of
termination or non-renewal of the agreement by the third party, based on its own business priorities, at a time that is costly or inconvenient for us.
Biopharmaceutical manufacturing is also subject to extensive government regulation. Components of a finished therapeutic product approved for
commercial sale or used in late-stage clinical trials must be manufactured in accordance with cGMP. These regulations govern manufacturing processes and procedures (including record keeping) and the implementation and operation of quality systems to
control and assure the quality of investigational products and products approved for sale. Our facilities and quality systems and the facilities and quality systems of some or all of our third party contractors must pass a pre-approval inspection
for compliance with the applicable regulations as a condition of regulatory approval of product candidates. In addition, facilities are subject to ongoing inspections, and minor changes in manufacturing processes may require additional regulatory
approvals, either of which could cause us to incur significant additional costs and lose revenue.
Risks associated with doing business
internationally could negatively affect our business.
We have in the past, and may continue to seek, marketing and regulatory
approvals of our product candidates in non-U.S. jurisdictions. For example, our Oncophage vaccine is approved for sale in Russia for the treatment of kidney cancer patients at intermediate risk for disease recurrence, and we have partnered with
NewVac to commercialize this product in the Russian Federation. In addition, should we complete the Acquisition, we will commence research and development operations in Switzerland and Germany. Various risks associated with foreign operations may
impact our success. Possible risks include fluctuations in the value of foreign and domestic currencies, disruptions in the import, export, and transportation of patient tumors and our product, the product and service needs of foreign customers,
difficulties in building and managing foreign relationships, the performance of our licensees or collaborators, geopolitical instability, and unexpected regulatory, economic, or political changes in foreign markets. See Risk Factors- Even if
we receive marketing approval for our product candidates, such product approvals could be subject to restrictions or withdrawals. Regulatory requirements are subject to change.
If we, or our licensees, fail to obtain adequate levels of reimbursement for our product candidates there may be no commercially viable market for these
products, or the commercial potential of these products may be significantly limited.
Public and private insurance programs may
determine that they will not cover our product candidates or the product candidates of our licensees. Government-sponsored health care systems typically pay a substantial share of health care costs, and they may regulate reimbursement levels of
products to control costs. If we or our licensees are unsuccessful in obtaining substantial reimbursement for our product candidates from national or regional funds, we will have to rely on private-pay, which may delay or prevent our launch efforts,
because the ability and willingness of patients to pay for our products is unclear.
We, or our licensees, may not be able to obtain
health insurance coverage of our product candidates, and if coverage is obtained, it may be substantially delayed, or there may be significant restrictions on the circumstances in which the products would be reimbursed. We are unable to predict what
impact any future regulation or third-party payer initiatives relating to reimbursement will have on our sales.
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Our competitors in the biotechnology and pharmaceutical industries may have superior products,
manufacturing capability, selling and marketing expertise and/or financial and other resources.
Our product candidates and the
product candidates in development by our collaborative partners may fail because of competition from major pharmaceutical companies and specialized biotechnology companies that market products, or that are engaged in the development of product
candidates, directed at cancer, infectious diseases and degenerative disorders. Many of our competitors, including large pharmaceutical companies, have greater financial and human resources and more experience than we do. Our competitors may:
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commercialize their product candidates sooner than we commercialize our own;
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develop safer or more effective therapeutic drugs or preventive vaccines and other therapeutic products;
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implement more effective approaches to sales and marketing and capture some of our potential market share;
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establish superior intellectual property positions;
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discover technologies that may result in medical insights or breakthroughs, which render our drugs or vaccines obsolete, possibly before they generate any revenue; or
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adversely affect our ability to recruit patients for our clinical trials.
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There is no
guarantee that our products or product candidates will be able to compete with potential future products being developed by our competitors.
Competitive products in our HerpV program include Valtrex (GSK) and Famvir (Novartis), which are small molecule drugs marketed for treatment
of genital herpes. Other companies are engaged in research and/or clinical development for vaccines for treatment of genital herpes including Genocea and Vical. AiCuris Gmbh is engaged in clinical research of a small molecule drug for treatment of
genital herpes and has completed a Phase 2 trial.
We are aware of compounds that claim to be comparable to QS-21 Stimulon that are being
used in clinical trials. Several other vaccine adjuvants are in development and could compete with QS-21 Stimulon for inclusion in vaccines in development. These adjuvants include, but are not limited to, oligonucleotides, under development by
Pfizer, Idera, Colby, and Dynavax, MF59 under development by Novartis, IC31, under development by Intercell, and MPL, under development by GSK. In the past, we have provided QS-21 Stimulon to other entities under materials transfer arrangements. In
at least one instance, it is possible that this material was used unlawfully to develop synthetic formulations and/or derivatives of QS-21. In addition, companies such as Adjuvance Technologies, Inc. CSL Limited, and Novavax, Inc., as well as
academic institutions and manufacturers of saponin extracts, are developing saponin adjuvants, including derivatives and synthetic formulations. These sources may be competitive with our ability to do future partnering and licensing deals with QS-21
Stimulon.
We are also aware of a third party that manufactures pre-clinical material purporting to be comparable to QS-21 Stimulon. The
claims being made by this third party may create marketplace confusion and have an adverse effect on the goodwill generated by us and our partners with respect to QS-21 Stimulon. Any diminution of this goodwill may have an adverse effect on our
ability to commercialize this technology, either alone or with a third party.
In competition with our Prophage Series product candidates,
Genentech markets Avastin
®
and Eisai and Arbor Pharmaceuticals market Gliadel, both for treatment of recurrent glioma. In addition, TVAX Biomedical and Stemline Therapeutics are developing
immunotherapy candidates (TVI-Brain-1 and SL-701, respectively) for recurrent glioma. Schering Corporation, a subsidiary of Merck, markets Temodar for treatment of patients with newly diagnosed glioma. Other companies are developing vaccine
candidates for the treatment of patients with newly diagnosed glioma, such as Innocell Corp (Immuncell-LC), ImmunoCellular Therapeutics (ICT-107),
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Northwest Biotherapeutics (DC-Vax), Immatics (IMA-950), Activartis Biotech (GBM-Vax) and Celldex
(CDX-110).
Celldex is also currently developing a vaccine
candidate for recurrent glioma. Other companies may begin such development as well.
As vaccines from our Prophage Series are potentially
developed in other indications, they could face additional competition in those indications. In addition, and prior to regulatory approval, our Prophage Series vaccines and all of our other product candidates may compete for access to patients with
other products in clinical development, with products approved for use in the indications we are studying, or with off-label use of products in the indications we are studying. We anticipate that we will face increased competition in the future as
new companies enter markets we seek to address and scientific developments surrounding immunotherapy and other traditional cancer therapies continue to accelerate.
If we complete the Acquisition, we will have six preclinical checkpoint antibody programs that have been commenced by 4-AB. We are aware
of several large companies that have antibody-based products on the market or in clinical development that are directed to the same biological target as some of these programs, including Bristol-Myers Squibb, which markets ipilimumab, an anti-CTLA-4
antibody, and has an anti-PD1 antibody in development, Medimmune, which has anti-CTLA-4, OX-40 and PD1 antibodies in development, Merck and Curetech, which each has an anti-PDI antibody in development, and Pfizer, which has an
anti-CTLA-4
antibody in development.
Our future growth depends on our
ability to successfully identify, develop, acquire or in-license products and product candidates; otherwise, we may have limited growth opportunities.
An important part of our business strategy is to continue to develop a pipeline of product candidates by developing, acquiring or in-licensing
products, businesses or technologies that we believe are a strategic fit with our existing business. However, these business activities may entail numerous operational and financial risks, including:
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difficulty or inability to secure financing to fund development activities for such development, acquisition or in-licensed products or technologies;
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incurrence of substantial debt or dilutive issuances of securities to pay for development, acquisition or in-licensing of new products;
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disruption of our business and diversion of our managements time and attention;
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higher than expected development, acquisition or in-license and integration costs;
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exposure to unknown liabilities;
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difficulty and cost in combining the operations and personnel of any acquired businesses with our operations and personnel;
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inability to retain key employees of any acquired businesses;
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difficulty in managing multiple product development programs; and
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inability to successfully develop new products or clinical failure.
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We have limited resources
to identify and execute the development, acquisition or in-licensing of products, businesses and technologies and integrate them into our current infrastructure. We may compete with larger pharmaceutical companies and other competitors in our
efforts to establish new collaborations, and/or acquire, in-license, and/or advance new product candidates. These competitors likely will have access to greater financial resources than us and may have greater expertise in identifying and evaluating
new opportunities. Moreover, we may devote resources to potential development, acquisitions or in-licensing opportunities that are never completed, or we may fail to realize the anticipated benefits of such efforts.
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Failure to enter into and/or maintain significant licensing, distribution and/or collaboration agreements
on favorable terms to us may hinder our efforts to develop and commercialize our product candidates and could increase our development timelines as well as our need to rely on other financing mechanisms, such as sales of debt or equity securities,
to fund our operations.
We have been engaged in efforts to enter into licensing, distribution and/or collaborative agreements with
one or more pharmaceutical or biotechnology companies to assist us with development and/or commercialization of our product candidates. If we are successful in entering into such agreements, we may not be able to negotiate agreements with economic
terms similar to those negotiated by other companies. We may not, for example, obtain significant upfront payments, substantial royalty rates or milestones. If we fail to enter into any such agreements, our efforts to develop and/or commercialize
our products or product candidates may be undermined. In addition, if we do not raise funds through any such agreements, we will need to rely on other financing mechanisms, such as sales of debt or equity securities, to fund our operations. Such
financing mechanisms, if available, may not be sufficient or timely enough to advance our programs forward in a meaningful way in the short-term.
While we have been pursuing these business development efforts for several years, we have not entered into a substantial agreement relating to
the potential development or commercialization of any of our Prophage Series vaccines other than the agreement with NewVac giving them an exclusive license to manufacture, market and sell Oncophage as well as pursue a development program in the
Russian Federation and certain other CIS countries. To date, the NewVac arrangement has not provided substantial benefit to us, and there is no guarantee that it will. In addition, other companies may not be interested in pursuing patient-specific
vaccines like our Prophage Series vaccines, and many other companies have been and may continue to be unwilling to commit to an agreement prior to receipt of additional clinical data, if at all.
In addition, we would consider license and/or co-development opportunities to advance HerpV and, if we complete the Acquisition, antibody
candidates derived from the Retrocyte Display technology platform of 4-AB. However, collaborative partners or licensees may defer discussions until these assets are further developed, or they may not engage in such discussions on terms acceptable to
us or at all.
Because we rely on collaborators and licensees for the development and commercialization of most of our product candidate programs,
these programs may not prove successful, and/or we may not receive significant payments from such parties.
Part of our strategy is
to develop and commercialize a majority of our product candidates by continuing or entering into arrangements with academic, government, or corporate collaborators and licensees. Our success depends on our ability to negotiate such agreements and on
the success of the other parties in performing research, preclinical and clinical testing, completing regulatory applications, and commercializing product candidates. For example, the development of candidates from the Prophage G Series is currently
dependent in a large part on the efforts of our institutional collaborators, such as the Brain Tumor Research Center at the University of California, San Francisco, which has conducted or is in the process of conducting Phase 2 clinical trials of
Prophage Series vaccines G-100 and G-200 for the treatment of glioma and the Alliance for Clinical Trials in Oncology, a National Cancer Institute cooperative group, which is sponsoring a Phase 2 clinical trial of G-200 in patients with surgically
resectable recurrent glioma. When our licensees or third party collaborators sponsor clinical trials using our product candidates, we cannot control the timing or quality of such trials or related activities. In addition, substantially all product
candidates containing QS-21 Stimulon, other than HerpV, depend on the success of our collaborative partners or licensees, and our relationships with these third parties. Such product candidates depend on our collaborators and licensees successfully
enrolling patients and completing clinical trials, being committed to dedicating the resources to advance these product candidates, obtaining regulatory approvals, and successfully commercializing product candidates. We have granted NewVac an
exclusive license to manufacture, market and sell Oncophage in the Russian Federation and certain other CIS countries. NewVac has faced challenges establishing manufacturing capabilities and securing government reimbursement, which has impacted its
ability to commercialize the product in the licensed territory. NewVac
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may terminate this agreement at any time without cause. We do not expect to receive financial or other benefits, if any, from our relationship with NewVac or the sale of Oncophage in the Russian
Federation or CIS countries.
In addition, if we complete the Acquisition, our research, development, and commercialization efforts with
respect to antibody candidates from the Retrocyte Display technology platform will include the participation of institutional and corporate collaborators. For example, 4-AB has collaborative arrangements with the Ludwig Institute and Memorial Sloan
Kettering Cancer Center, and Brazil-based Recepta Biopharma S.A., among others. If we are not able to preserve these arrangements, as well as advance additional collaborations, on terms favorable to us, this may diminish the value of the Acquisition
to us and could have a negative impact on our operations.
Development activities for our collaborative programs may fail to produce
marketable products due to unsuccessful results or abandonment of these programs, failure to enter into future collaborations or license agreements, or the inability to manufacture product supply requirements for our collaborators and licensees.
Several of our agreements also require us to transfer important rights and regulatory compliance responsibilities to our collaborators and licensees. As a result of these collaborative agreements, we will not control the nature, timing, or cost of
bringing these product candidates to market. Our collaborators and licensees could choose not to devote resources to these arrangements or, under certain circumstances, may terminate these arrangements early. They may cease pursuing product
candidates or elect to collaborate with different companies. In addition, these collaborators and licensees, outside of their arrangements with us, may develop technologies or products that are competitive with those that we are developing. From
time to time, we may also become involved in disputes with our collaborators or licensees. Such disputes could result in the incurrence of significant expense, or the termination of collaborations. We may be unable to fulfill all of our obligations
to our collaborators, which may result in the termination of collaborations. As a result of these factors, our strategic collaborations may not yield revenue. Furthermore, we may be unable to enter into new collaborations or enter into new
collaborations on favorable terms. Failure to generate significant revenue from collaborations would increase our need to fund our operations through sales of debt or equity securities and would negatively affect our business prospects.
We are highly reliant on our Chief Executive Officer and other members of our management team. In addition, we have limited internal resources and if we
fail to recruit and/or retain the services of key employees and external consultants as needed, we may not be able to achieve our strategic and operational objectives.
Garo H. Armen, Ph.D., the Chairman of our Board of Directors and our Chief Executive Officer, co-founded the Company in 1994, and has been, and
continues to be, integral to building our company and developing our technology. If Dr. Armen is unable or unwilling to continue his relationship with Agenus, our business may be adversely impacted.
Effective December 1, 2005, we entered into an employment agreement with Dr. Armen. Subject to the earlier termination as provided
in the agreement, the agreement had an original term of one year and is automatically extended thereafter for successive terms of one year each, unless either party provides notice to the other at least ninety days prior to the expiration of the
original or any extension term. Dr. Armen plays an important role in our day-to-day activities. We do not carry key employee insurance policies for Dr. Armen or any other employee.
We also rely on a small staff of highly trained and experienced senior management and scientific, administrative and operations
personnel and consultants to conduct our business. Reductions in our staffing levels have eliminated redundancies in key capabilities and skill sets among our full time staff and required us to rely more heavily on outside
consultants and third parties. In addition, if in the future we need to perform sales, marketing and distribution functions for commercial and/or international operations, we will need to recruit experienced personnel and/or engage external
consultants incurring significant expenditures.
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Reduction in expenses and resulting changes to our compensation and benefit programs have reduced
the competitiveness of these programs and thereby increased employee retention risk. The competition for qualified personnel in the biotechnology field is intense, and if we are not able to continue to attract and retain qualified personnel
and/or maintain positive relationships with our outside consultants, we may not be able to achieve our strategic and operational objectives.
Risks Related to Regulation of the Biopharmaceutical Industry
The drug development and approval process is uncertain, time-consuming, and expensive.
Clinical development, including preclinical testing and the process of obtaining and maintaining regulatory approvals for new therapeutic
products, is lengthy, expensive, and uncertain. As of September 30, 2013, we have spent approximately 19 years and $301.8 million on our research and development program in heat shock proteins for cancer. It also can vary substantially based on
the type, complexity, and novelty of the product. We must provide regulatory authorities with manufacturing, product characterization, and preclinical and clinical data demonstrating that our product candidates are safe and effective before they can
be approved for commercial sale. It may take us many years to complete our testing, and failure can occur at any stage of testing. Interim results of preclinical studies or clinical trials do not necessarily predict their final results, and
acceptable results in early studies might not be seen in later studies. Any preclinical or clinical test may fail to produce results satisfactory to regulatory authorities for many reasons, including but not limited to insufficient product
characterization, poor study structure conduct or statistical analysis planning, failure to enroll a sufficient number of patients or failure to prospectively identify the most appropriate patient eligibility criteria, and collectability of data.
Preclinical and clinical data can be interpreted in different ways, which could delay, limit, or prevent regulatory approval. Negative or inconclusive results from a preclinical study or clinical trial, adverse medical events during a clinical
trial, or safety issues resulting from products of the same class of drug could require a preclinical study or clinical trial to be repeated or cause a program to be terminated, even if other studies or trials relating to the program are successful.
We or the FDA, other regulatory agencies, or an institutional review board may suspend or terminate human clinical trials at any time on various grounds.
The timing and success of a clinical trial is dependent on obtaining and maintaining sufficient cash resources, successful production of
clinical trial material, enrolling sufficient patients in a timely manner, avoiding serious or significant adverse patient reactions, and demonstrating efficacy of the product candidate in order to support a favorable risk versus benefit profile,
among other considerations. The timing and success of our clinical trials, in particular, are also dependent on clinical sites and regulatory authorities accepting each trials protocol, statistical analysis plan, product characterization
tests, and clinical data. In addition, regulatory authorities may request additional information or data that is not readily available. Delays in our ability to respond to such requests would delay, and failure to adequately address concerns would
prevent, our commercialization efforts. We have encountered in the past, and may encounter in the future, delays in initiating trial sites and enrolling patients into our clinical trials. Future enrollment delays will postpone the dates by which we
expect to complete the impacted trials and the potential receipt of regulatory approval. There is no guarantee we will successfully initiate and/or complete our clinical trials.
Delays or difficulties in obtaining regulatory approvals or clearances for our product candidates may:
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adversely affect the marketing of any products we or our licensees or collaborators develop;
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impose significant additional costs on us or our licensees or collaborators;
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diminish any competitive advantages that we or our licensees or collaborators may attain;
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limit our ability to receive royalties and generate revenue and profits; and
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adversely affect our business prospects and ability to obtain financing.
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Delays or failures in our receiving regulatory approval for our product candidates in a timely
manner may result in us having to incur additional development expense and subject us to having to secure additional financing. As a result, we may not be able to commercialize them in the time frame anticipated, and our business will suffer.
Even if we receive marketing approval for our product candidates, such product approvals could be subject to restrictions or withdrawals. Regulatory
requirements are subject to change.
Regulatory authorities generally approve products for particular indications. If an approval
is for a limited indication, this limitation reduces the size of the potential market for that product. Product approvals, once granted, are subject to continual review and periodic inspections by regulatory authorities. Our operations and practices
are subject to regulation and scrutiny by the United States government, as well as governments of any other countries in which we do business or conduct activities. Later discovery of previously unknown problems or safety issues, and/or failure to
comply with domestic or foreign laws, knowingly or unknowingly, can result in various adverse consequences, including, among other things, possible delay in approval or refusal to approve a product, warning letters, fines, injunctions, civil
penalties, recalls or seizures of products, total or partial suspension of production, refusal of the government to renew marketing applications, complete withdrawal of a marketing application, and/or criminal prosecution, withdrawal of an approved
product from the market, and/or exclusion from government health care programs. Such regulatory enforcement could have a direct and negative impact on the product for which approval is granted, but also could have a negative impact on the approval
of any pending applications for marketing approval of new drugs or supplements to approved applications.
Because we are a company
operating in a highly regulated industry, regulatory authorities could take enforcement action against us in connection with our, or our licensees or collaborators, business and marketing activities for various reasons. For example, the Foreign
Corrupt Practices Act prohibits U.S. companies and their representatives from offering, promising, authorizing, or making payments to foreign officials for the purpose of obtaining or retaining business abroad.
From time to time, new legislation is passed into law that could significantly change the statutory provisions governing the approval,
manufacturing, and marketing of products regulated by the FDA and other foreign health authorities. Additionally, regulations and guidance are often revised or reinterpreted by health agencies in ways that may significantly affect our business and
our products. It is impossible to predict whether further legislative changes will be enacted, or whether regulations, guidance, or interpretations will change, and what the impact of such changes, if any, may be. For example, the Patient Protection
and Affordable Care Act and the Health Care and Education Affordability Reconciliation Act of 2010 (collectively, the ACA), enacted in March 2010, substantially changed the way healthcare is financed by both governmental and private
insurers, and significantly impacted the pharmaceutical industry. With regard to pharmaceutical products, among other things, ACA is expected to expand and increase industry rebates for drugs covered under Medicaid programs and make changes to the
coverage requirements under the Medicare D program. We expect both government and private health plans to continue to require healthcare providers, including healthcare providers that may one day purchase our products, to contain costs and
demonstrate the value of the therapies they provide.
New data from our research and development activities, and/or resource considerations could
modify our strategy and result in the need to adjust our projections of timelines and costs of programs.
Because we are focused on
novel technologies, our research and development activities, including our nonclinical studies and clinical trials, involve the ongoing discovery of new facts and the generation of new data, based on which we determine next steps for a relevant
program. These developments can occur with varying frequency and constitute the basis on which our business is conducted. We need to make determinations on an ongoing basis as to which of these facts or data will influence timelines and costs of
programs. We may not always be able to make such judgments accurately, which may increase the costs we incur attempting to commercialize our product candidates. We monitor the likelihood of success of our initiatives and we may need
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to discontinue funding of such activities if they do not prove to be commercially feasible, due to our limited resources.
We may need to successfully address a number of technological challenges in order to complete development of our product candidates. Moreover,
these product candidates may not be effective in treating any disease or may prove to have undesirable or unintended side effects, toxicities, or other characteristics that may preclude our obtaining regulatory approvals or prevent or limit
commercial use.
Risks Related to Intellectual Property Rights
If we are unable to obtain and enforce patent protection for our product candidates and related technology, our business could be materially harmed.
Issued patents may be challenged, narrowed, invalidated or circumvented. In addition, court decisions may introduce uncertainty in
the enforceability or scope of patents owned by biotechnology companies. The legal systems of certain countries do not favor the aggressive enforcement of patents, and the laws of foreign countries may not allow us to protect our inventions with
patents to the same extent as the laws of the United States. Because patent applications in the United States and many foreign jurisdictions are typically not published until 18 months after filing, or in some cases not at all, and because
publications of discoveries in scientific literature lag behind actual discoveries, we cannot be certain that we were the first to make the inventions claimed in our issued patents or pending patent applications, or that we were the first to file
for protection of the inventions set forth in our patents or patent applications. As a result, we may not be able to obtain or maintain protection for certain inventions. Therefore, the enforceability and scope of our patents in the United States
and in foreign countries cannot be predicted with certainty and, as a result, any patents that we own or license may not provide sufficient protection against competitors. We may not be able to obtain or maintain patent protection from our pending
patent applications, from those we may file in the future, or from those we may license from third parties. Moreover, even if we are able to obtain patent protection, such patent protection may be of insufficient scope to achieve our business
objectives.
Furthermore, the product development timeline for biotechnology products is lengthy and it is possible that our issued
patents covering our product candidates in the United States and other jurisdictions may expire prior to commercial launch. In addition, because our patent on QS-21 Stimulon composition of matter has already expired, our patent rights are limited to
protecting certain combinations of QS-21 Stimulon with other adjuvants or formulations of QS-21 Stimulon with other agents, such as excipients that improve performance of the compound. However, there is no guarantee that a third party would
necessarily choose to use QS-21 Stimulon in combination with such adjuvants or formulate it with the other agents covered by our patents. We are aware of other companies that claim to produce material comparable to QS-21 Stimulon. At least one other
party has also developed derivatives of QS-21 that have shown biological activity.
Our strategy depends on our ability to identify and
seek patent protection for our discoveries. This process is expensive and time consuming, and we may not be able to file and prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner or in all jurisdictions
where protection may be commercially advantageous. Despite our efforts to protect our proprietary rights, unauthorized parties may be able to obtain and use information that we regard as proprietary. The issuance of a patent does not ensure that it
is valid or enforceable, so even if we obtain patents, they may not be valid or enforceable against third parties. In addition, the issuance of a patent does not give us the right to practice the patented invention. Third parties may have blocking
patents that could prevent us from marketing our own patented product and practicing our own patented technology.
The patent landscape in
the field of therapeutic antibody development, manufacture and commercialization is crowded. For example, we are aware of third party patents directed to methods for identifying and producing therapeutic antibodies, as well as third party patents
directed to antibodies to numerous targets for which 4-AB
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also seeks to identify, develop, and commercialize antibodies. These third party patents may have relevance to the technology platforms utilized by 4-AB, including Retrocyte Display, as well as
to development and commercialization of antibodies identified by 4-AB as therapeutic candidates. If we complete the Acquisition, we will continue to conduct analyses of these third party patents to determine whether we believe they are valid and
enforceable and, if so, whether we believe we might infringe them and would be required to seek a license. If we determine that a license for a given patent or family of patents is necessary or desirable, there can be no guarantee that a license
would be available on favorable terms, or at all.
Third parties may also seek to market biosimilar versions of any approved products.
Alternatively, third parties may seek approval to market their own products similar to or otherwise competitive with our products. In these circumstances, we may need to defend and/or assert our patents, including by filing lawsuits alleging patent
infringement. In any of these types of proceedings, a court or agency with jurisdiction may find our patents invalid and/or unenforceable. Even if we have valid and enforceable patents, these patents still may not provide protection against
competing products or processes sufficient to achieve our business objectives.
We have exclusive rights to approximately 59 issued United
States patents and approximately 82 issued foreign patents. We also have exclusive rights to approximately six pending United States patent applications and approximately 15 pending foreign patent applications. However, our patents may not protect
us against our competitors. Our patent positions, and those of other pharmaceutical and biotechnology companies, are generally uncertain and involve complex legal, scientific, and factual questions. The standards which the United States Patent and
Trademark Office, or USPTO, uses to grant patents, and the standards which courts use to interpret patents, are not always applied predictably or uniformly and can change, particularly as new technologies develop. Consequently, the level of
protection, if any, that will be provided by our patents if we attempt to enforce them, and they are challenged, is uncertain. In addition, the type and extent of patent claims that will be issued to us in the future is uncertain. Any patents that
are issued may not contain claims that permit us to stop competitors from using similar technology.
The issued patents that cover the
Prophage Series vaccines expire at various dates between 2015 and 2024. The issued patents related to HerpV expire at various dates between 2014 and 2029. Our patent to purified QS-21 Stimulon expired in 2008. Additional protection for QS-21
Stimulon in combination with other agents is provided by our other issued patents which expire between 2017 and 2022. We continue to explore means of extending the life cycle of our patent portfolio.
If we complete the Acquisition, we will own, co-own, or become licensed under a number of patents and patent applications directed to various
methods and compositions, including methods for identifying therapeutic antibodies and product candidates arising out of 4-ABs technology platforms. We can provide no assurance that any patents we will control following completion of the
Acquisition will have commercial value, or that any patent applications we will control will result in the issuance of valid and enforceable patents.
The patent position of pharmaceutical or biotechnology companies, including ours, is generally uncertain and involves complex legal and
factual considerations. The standards which the USPTO and its foreign counterparts use to grant patents are not always applied predictably or uniformly and can change. There is also no uniform, worldwide policy regarding the subject matter and scope
of claims granted or allowable in pharmaceutical or biotechnology patents. The laws of some foreign countries do not protect proprietary information to the same extent as the laws of the United States, and many companies have encountered significant
problems and costs in protecting their proprietary information in these foreign countries. Outside the United States, patent protection must be sought in individual jurisdictions, further adding to the cost and uncertainty of obtaining adequate
patent protection outside of the United States. Accordingly, we cannot predict whether additional patents protecting our technology will issue in the United States or in foreign jurisdictions, or whether any patents that do issue will have claims of
adequate scope to provide competitive advantage. Moreover, we cannot predict whether third parties will be able to successfully obtain claims or the breadth of such claims. The allowance of broader claims may increase the incidence and cost of
patent interference
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proceedings, opposition proceedings, post-grant review, inter partes review, and/or reexamination proceedings, the risk of infringement litigation, and the vulnerability of the claims to
challenge. On the other hand, the allowance of narrower claims does not eliminate the potential for adversarial proceedings, and may fail to provide a competitive advantage. Our issued patents may not contain claims sufficiently broad to protect us
against third parties with similar technologies or products, or provide us with any competitive advantage.
Our patent on QS-21 Stimulon composition
of matter has expired and we rely primarily on unpatented technology and know-how to protect our rights to QS-21 Stimulon.
Our
patent on QS-21 Stimulon composition of matter has expired, and our patent rights are limited to protecting certain combinations of QS-21 Stimulon with other adjuvants or formulations of QS-21 Stimulon with other agents. Although our licenses also
rely on unpatented technology, know-how, and confidential information, these intellectual property rights may not be enforceable in certain jurisdictions and, we may not be able to collect anticipated revenue from our licensees. Any such inability
would have a material adverse effect on our business, financial condition and results of operations.
We may become involved in lawsuits to protect
or enforce our patents, which could be expensive, time consuming and unsuccessful.
Even after they have been issued, our patents
and any patents which we license may be challenged, narrowed, invalidated or circumvented. If our patents are invalidated or otherwise limited or will expire prior to the commercialization of our product candidates, other companies may be better
able to develop products that compete with ours, which could adversely affect our competitive business position, business prospects and financial condition.
The following are examples of litigation and other adversarial proceedings or disputes that we could become a party to involving our patents
or patents licensed to us:
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we or our collaborators may initiate litigation or other proceedings against third parties to enforce our patent rights;
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third parties may initiate litigation or other proceedings seeking to invalidate patents owned by or licensed to us or to obtain a declaratory judgment that their product or technology does not infringe our patents or
patents licensed to us;
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third parties may initiate opposition proceedings, post-grant review, inter partes review, or reexamination proceedings challenging the validity or scope of our patent rights, requiring us or our collaborators and/or
licensors to participate in such proceedings to defend the validity and scope of our patents;
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there may be a challenge or dispute regarding inventorship or ownership of patents currently identified as being owned by or licensed to us;
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the USPTO may initiate an interference or derivation proceeding between patents or patent applications owned by or licensed to us and those of our competitors, requiring us or our collaborators and/or licensors to
participate in an interference or derivation proceeding to determine the priority of invention, which could jeopardize our patent rights; or
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third parties may seek approval to market biosimilar versions of our future approved products prior to expiration of relevant patents owned by or licensed to us, requiring us to defend our patents, including by filing
lawsuits alleging patent infringement.
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These lawsuits and proceedings would be costly and could affect our results of
operations and divert the attention of our managerial and scientific personnel. There is a risk that a court or administrative body could decide that our patents are invalid or not infringed by a third partys activities, or that the scope of
certain issued
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claims must be further limited. An adverse outcome in a litigation or proceeding involving our own patents could limit our ability to assert our patents against these or other competitors, affect
our ability to receive royalties or other licensing consideration from our licensees, and may curtail or preclude our ability to exclude third parties from making, using and selling similar or competitive products. Any of these occurrences could
adversely affect our competitive business position, business prospects and financial condition.
The degree of future protection for our
proprietary rights is uncertain because legal means afford only limited protection and may not adequately protect our rights or permit us to gain or keep our competitive advantage. For example:
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others may be able to develop a platform that is similar to, or better than, ours in a way that is not covered by the claims of our patents;
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others may be able to make compounds that are similar to our product candidates but that are not covered by the claims of our patents;
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we might not have been the first to make the inventions covered by patents or 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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any patents that we obtain may not provide us with any competitive advantages or may ultimately be found invalid or unenforceable; or
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we may not develop additional proprietary technologies that are patentable.
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Our commercial success
depends significantly on our ability to operate without infringing the patents and other proprietary rights of third parties.
Our
success will depend in part on our ability to operate without infringing the proprietary rights of third parties. Other entities may have or obtain patents or proprietary rights that could limit our ability to make, use, sell, offer for sale or
import our future approved products or impair our competitive position. In particular, if we complete the Acquisition, we will have six preclinical checkpoint antibody programs, and the patent landscape around the discovery, development, manufacture
and commercial use of therapeutic antibodies is crowded.
Patents that we may ultimately be found to infringe could be issued to third
parties. Third parties may have or obtain valid and enforceable patents or proprietary rights that could block us from developing product candidates using our technology. Our failure to obtain a license to any technology that we require may
materially harm our business, financial condition and results of operations. Moreover, our failure to maintain a license to any technology that we require may also materially harm our business, financial condition, and results of operations.
Furthermore, we would be exposed to a threat of litigation.
In the biopharmaceutical industry, significant litigation and other
proceedings regarding patents, patent applications, trademarks and other intellectual property rights have become commonplace. The types of situations in which we may become a party to such litigation or proceedings include:
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we or our collaborators may initiate litigation or other proceedings against third parties seeking to invalidate the patents held by those third parties or to obtain a judgment that our products or processes do not
infringe those third parties patents;
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if our competitors file patent applications that claim technology also claimed by us or our licensors, we or our licensors may be required to participate in interference, derivation or other proceedings to determine the
priority of invention, which could jeopardize our patent rights and potentially provide a third party with a dominant patent position;
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if third parties initiate litigation claiming that our processes or products infringe their patent or other intellectual property rights, we and our collaborators will need to defend against such proceedings; and
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if a license to necessary technology is terminated, the licensor may initiate litigation claiming that our processes or products infringe or misappropriate their patent or other intellectual property rights and/or that
we breached our obligations under the license agreement, and we and our collaborators would need to defend against such proceedings.
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These lawsuits would be costly and could affect our results of operations and divert the attention of our management and scientific personnel.
There is a risk that a court would decide that we or our collaborators are infringing the third partys patents and would order us or our collaborators to stop the activities covered by the patents. In that event, we or our collaborators may
not have a viable alternative to the technology protected by the patent and may need to halt work on the affected product candidate or cease commercialization of an approved product. In addition, there is a risk that a court will order us or our
collaborators to pay the other party damages. An adverse outcome in any litigation or other proceeding could subject us to significant liabilities to third parties and require us to cease using the technology that is at issue or to license the
technology from third parties. We may not be able to obtain any required licenses on commercially acceptable terms or at all. Any of these outcomes could have a material adverse effect on our business.
The biopharmaceutical industry has produced a significant number of patents, and it may not always be clear to industry participants,
including us, which patents cover various types of products or methods of use. The coverage of patents is subject to interpretation by the courts, and the interpretation is not always uniform or predictable. If we are sued for patent infringement,
we would need to demonstrate that our products or methods either do not infringe the patent claims of the relevant patent or that the patent claims are invalid, and we may not be able to do this. Proving invalidity is difficult. For example, in the
United States, proving invalidity requires a showing of clear and convincing evidence to overcome the presumption of validity enjoyed by issued patents. Even if we are successful in these proceedings, we may incur substantial costs and divert
managements time and attention in pursuing these proceedings, which could have a material adverse effect on us. If we are unable to avoid infringing the patent rights of others, we may be required to seek a license, defend an infringement
action or challenge the validity of the patents in court. Patent litigation is costly and time consuming. We may not have sufficient resources to bring these actions to a successful conclusion. In addition, if we do not obtain a license, develop or
obtain non-infringing technology, fail to defend an infringement action successfully or have infringed patents declared invalid, we may incur substantial monetary damages, encounter significant delays in bringing our product candidates to market and
be precluded from manufacturing or selling our product candidates.
The cost of any patent litigation or other proceeding, even if
resolved in our favor, could be substantial. Some of our competitors may be able to sustain the cost of such litigation and proceedings more effectively than we can because of their substantially greater resources. Uncertainties resulting from the
initiation and continuation of patent litigation or other proceedings could have a material adverse effect on our ability to compete in the marketplace. Patent litigation and other proceedings may also absorb significant management time.
If we fail to comply with our obligations under our intellectual property licenses with third parties, we could lose license rights that are important
to our business.
We are currently party to various intellectual property license agreements and we will become a party to
additional such agreements if we complete the Acquisition. These license agreements impose, and we expect that future license agreements may impose, various diligence, milestone payment, royalty, insurance and other obligations on us. These licenses
typically include an obligation to pay an upfront payment, yearly maintenance payments and royalties on sales. If we fail to comply with our obligations under the licenses, the licensors may have the right to terminate their respective license
agreements, in which event we might not be able to market any product that is covered by the agreements. Termination of the license agreements or reduction or elimination of our licensed rights may result in our having to negotiate new or reinstated
licenses with less favorable terms, which could adversely affect our competitive business position and harm our business.
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If we are unable to protect the confidentiality of our proprietary information, the value of our technology
and products could be adversely affected.
In addition to patent protection, we also rely on other proprietary rights, including
protection of trade secrets, and other proprietary information. To maintain the confidentiality of trade secrets and proprietary information, we enter into confidentiality agreements with our employees, consultants, collaborators and others upon the
commencement of their relationships with us. These agreements require that all confidential information developed by the individual or made known to the individual by us during the course of the individuals relationship with us be kept
confidential and not disclosed to third parties. Our agreements with employees and our personnel policies also provide that any inventions conceived by the individual in the course of rendering services to us shall be our exclusive property.
However, we may not obtain these agreements in all circumstances, and individuals with whom we have these agreements may not comply with their terms. Thus, despite such agreement, such inventions may become assigned to third parties. In the event of
unauthorized use or disclosure of our trade secrets or proprietary information, these agreements, even if obtained, may not provide meaningful protection, particularly for our trade secrets or other confidential information. To the extent that our
employees, consultants or contractors use technology or know-how owned by third parties in their work for us, disputes may arise between us and those third parties as to the rights in related inventions. To the extent that an individual who is not
obligated to assign rights in intellectual property to us is rightfully an inventor of intellectual property, we may need to obtain an assignment or a license to that intellectual property from that individual, or a third party or from that
individuals assignee. Such assignment or license may not be available on commercially reasonable terms or at all.
Adequate remedies
may not exist in the event of unauthorized use or disclosure of our proprietary information. The disclosure of our trade secrets would impair our competitive position and may materially harm our business, financial condition and results of
operations. Costly and time consuming litigation could be necessary to enforce and determine the scope of our proprietary rights, and failure to maintain trade secret protection could adversely affect our competitive business position. In addition,
others may independently discover or develop our trade secrets and proprietary information, and the existence of our own trade secrets affords no protection against such independent discovery.
As is common in the biopharmaceutical industry, we employ individuals who were previously or concurrently employed at research institutions
and/or other biotechnology or pharmaceutical companies, including our competitors or potential competitors. We may be subject to claims that these employees, or we, have inadvertently or otherwise used or disclosed trade secrets or other proprietary
information of their former employers, or that patents and applications we have filed to protect inventions of these employees, even those related to one or more of our product candidates, are rightfully owned by their former or concurrent employer.
Litigation may be necessary to defend against these claims. Even if we are successful in defending against these claims, litigation could result in substantial costs and be a distraction to management.
Obtaining and maintaining our patent protection depends on compliance with various procedural, documentary, fee payment and other requirements imposed
by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements.
Periodic maintenance fees, renewal fees, annuity fees and various other governmental fees on patents and/or applications will be due to the
USPTO and various foreign patent offices at various points over the lifetime of our patents and/or applications. We have systems in place to remind us to pay these fees, and we rely on our outside counsel to pay these fees when due. Additionally,
the USPTO and various foreign patent offices require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process. We employ reputable law firms and other professionals to help
us comply, and in many cases, an inadvertent lapse can be cured by payment of a late fee or by other means in accordance with rules applicable to the particular jurisdiction. However, there are situations in which noncompliance can result in
abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. If such an event were to occur, it could have a material adverse effect on our business.
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In addition, we are responsible for the payment of patent fees for patent rights that we have licensed from other parties. If any licensor of these patents does not itself elect to make these
payments, and we fail to do so, we may be liable to the licensor for any costs and consequences of any resulting loss of patent rights.
Risks Related to Litigation
We may
face litigation that could result in substantial damages and may divert managements time and attention from our business.
We
may currently be a party, or may become a party, to legal proceedings, claims and investigations that arise in the ordinary course of business such as, but not limited to, patent, employment, commercial and environmental matters. While we currently
believe that the ultimate outcome of any of these proceedings will not have a material adverse effect on our financial position, results of operations, or liquidity, litigation is subject to inherent uncertainty. Furthermore, litigation consumes
both cash and management attention.
We maintain property and general commercial insurance coverage as well as errors and omissions and
directors and officers insurance policies. This insurance coverage may not be sufficient to cover us for future claims.
We are also
exposed to the risk of employee fraud or other misconduct. Misconduct by employees could include intentional failures to comply with FDA regulations, to provide accurate information to the FDA, to comply with manufacturing standards we have
established, to comply with federal and state health-care fraud and abuse laws and regulations, to report financial information or data accurately or to disclose unauthorized activities to us. In particular, sales, marketing and business
arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing,
discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements.
Employee misconduct
could also involve the improper use of information obtained in the course of clinical trials, which could result in regulatory sanctions and serious harm to our reputation. In addition, during the course of our operations, our directors, executives
and employees may have access to material, nonpublic information regarding our business, our results of operations or potential transactions we are considering. We may not be able to prevent a director, executive or employee from trading in our
common stock on the basis of, or while having access to, material, nonpublic information. If a director, executive or employee was to be investigated, or an action was to be brought against a director, executive or employee for insider trading, it
could have a negative impact on our reputation and our stock price. Such a claim, with or without merit, could also result in substantial expenditures of time and money, and divert attention of our management team.
Product liability and other claims against us may reduce demand for our products and/or result in substantial damages.
We face an inherent risk of product liability exposure related to testing our product candidates in human clinical trials and commercial sales
of Oncophage in Russia, and may face even greater risks if we sell our other product candidates commercially. An individual may bring a product liability claim against us if one of our product candidates causes, or merely appears to have caused, an
injury. Product liability claims may result in:
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decreased demand for our product candidates;
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regulatory investigations;
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injury to our reputation;
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withdrawal of clinical trial volunteers;
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costs of related litigation; and
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substantial monetary awards to plaintiffs.
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We manufacture the Prophage Series vaccines from a patients cancer cells, and medical
professionals must inject the vaccines into the same patient from which they were manufactured. A patient may sue us if a hospital, a shipping company, or we fail to receive the removed cancer tissue or deliver that patients vaccine. We
anticipate that the logistics of shipping will become more complex if the number of patients we treat increases and that shipments of tumor and/or vaccines may be lost, delayed, or damaged. Additionally, complexities unique to the logistics of
commercial products may delay shipments and limit our ability to move commercial product in an efficient manner without incident. We do not have any other insurance that covers loss of or damage to the Prophage Series vaccines or tumor material, and
we do not know whether such insurance will be available to us at a reasonable price or at all. We have limited product liability coverage for use of our product candidates. Our product liability policy provides $10.0 million aggregate coverage and
$10.0 million per occurrence coverage. This limited insurance coverage may be insufficient to fully cover us for future claims.
We are
also subject to laws generally applicable to businesses, including but not limited to, federal, state and local wage and hour, employee classification, mandatory healthcare benefits, unlawful workplace discrimination and whistle-blowing. Any actual
or alleged failure to comply with any regulation applicable to our business or any whistle-blowing claim, even if without merit, could result in costly litigation, regulatory action or otherwise harm our business, results of operations, financial
condition, cash flow and future prospects.
If we do not comply with environmental laws and regulations, we may incur significant costs and
potential disruption to our business.
We use or may use hazardous, infectious, and radioactive materials, and recombinant DNA in
our operations, which have the potential of being harmful to human health and safety or the environment. We store these hazardous (flammable, corrosive, toxic), infectious, and radioactive materials, and various wastes resulting from their use, at
our facilities pending use and ultimate disposal. We are subject to a variety of federal, state, and local laws and regulations governing use, generation, storage, handling, and disposal of these materials. We may incur significant costs complying
with both current and future environmental health and safety laws and regulations. In particular, we are subject to regulation by the Occupational Safety and Health Administration, the Environmental Protection Agency, the Drug Enforcement Agency,
the Department of Transportation, the Centers for Disease Control and Prevention, the National Institutes of Health, the International Air Transportation Association, and various state and local agencies. At any time, one or more of the
aforementioned agencies could adopt regulations that may affect our operations. We are also subject to regulation under the Toxic Substances Control Act and the Resource Conservation Development programs.
Although we believe that our current procedures and programs for handling, storage, and disposal of these materials comply with federal,
state, and local laws and regulations, we cannot eliminate the risk of accidents involving contamination from these materials. Although we have a workers compensation liability policy, we could be held liable for resulting damages in the event
of an accident or accidental release, and such damages could be substantially in excess of any available insurance coverage and could substantially disrupt our business.
Risks Related to our Common Stock
Our stock may be delisted from The Nasdaq Capital Market, which could affect its market price and liquidity.
Our common stock is currently listed on Nasdaq under the symbol AGEN. In the event that we fail to maintain compliance with the
applicable listing requirements, our common stock could become subject to delisting from Nasdaq. Although we are currently in compliance with all of the listing standards for listing on Nasdaq, we cannot provide any assurance that we will continue
to be in compliance in the future. We have been non-compliant with the minimum bid price requirement set forth in Nasdaq Marketplace Rule 5550(a)(2) three times since our move to Nasdaq in April 2009.
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Provisions in our organizational documents could prevent or frustrate attempts by stockholders to replace
our current management.
Our certificate of incorporation and bylaws contain provisions that could make it more difficult for a
third party to acquire us without the consent of our Board of Directors. Our certificate of incorporation provides for a staggered board and removal of directors only for cause. Accordingly, stockholders may elect only a minority of our Board at any
annual meeting, which may have the effect of delaying or preventing changes in management. In addition, under our certificate of incorporation, our Board of Directors may issue additional shares of preferred stock and determine the terms of those
shares of stock without any further action by our stockholders. Our issuance of additional preferred stock could make it more difficult for a third party to acquire a majority of our outstanding voting stock and thereby effect a change in the
composition of our Board of Directors. Our certificate of incorporation also provides that our stockholders may not take action by written consent. Our bylaws require advance notice of stockholder proposals and director nominations and permit only
our president or a majority of the Board of Directors to call a special stockholder meeting. These provisions may have the effect of preventing or hindering attempts by our stockholders to replace our current management. In addition, Delaware law
prohibits a corporation from engaging in a business combination with any holder of 15% or more of its capital stock until the holder has held the stock for three years unless, among other possibilities, the board of directors approves the
transaction. Our Board of Directors may use this provision to prevent changes in our management. Also, under applicable Delaware law, our Board of Directors may adopt additional anti-takeover measures in the future.
The first right to negotiate provision contained in our agreement with one of our licensees could hinder or delay a change of control of our company or
the sale of certain of our assets.
We have entered into a First Right to Negotiate and Amendment Agreement with GSK that affords
GSK, one of our licensees, a first right to negotiate with us in the event we determine to initiate a process to effect a change of control of our company with, or to sell certain of our assets to, an unaffiliated third party or in the event that a
third party commences an unsolicited tender offer seeking a change of control of our company. In such event, we must provide GSK a period of time to determine whether it wishes to negotiate the terms of such a transaction with us. If GSK
affirmatively so elects, we are required to negotiate with GSK in good faith towards effecting a transaction of that nature for a specified period. During the negotiation period, we are obligated not to enter into a definitive agreement with a third
party that would preclude us from negotiating and/or executing a definitive agreement with GSK. If GSK determines not to negotiate with us or we are unable to come to an agreement with GSK during this period, we may enter into the specified change
of control or sale transaction within the following 12 months, provided that such a transaction is not on terms in the aggregate that are materially less favorable to us and our stockholders (as determined by our Board of Directors, in its
reasonable discretion) than terms last offered to us by GSK in a binding written proposal during the negotiation period. The first right to negotiate terminates on March 2, 2017. Although GSKs first right to negotiate does not compel us
to enter into a transaction with GSK nor prevent us from negotiating with or entering into a transaction with a third party, the first right to negotiate could inhibit a third party from engaging in discussions with us concerning such a transaction
or delay our ability to effect such a transaction with a third party.
Our stock has historically had low trading volume, and its public trading
price has been volatile.
Between our initial public offering on February 4, 2000 and September 30, 2013, and for the
nine months ended September 30, 2013, the closing price of our common stock has fluctuated between $1.80 and $315.78 per share and $2.71 and $4.93 per share, respectively. The average daily trading volume for the nine months ended
September 30, 2013 and for the year ended December 31, 2012 was approximately 277,000 shares and 176,000 shares, respectively. The market may experience significant price and volume fluctuations that are often unrelated to the operating
performance of individual companies. In addition to general market volatility, many factors may have a significant adverse effect on the market price of our stock, including:
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continuing operating losses, which we expect over the next several years as we continue our development activities;
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announcements of decisions made by public officials;
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results of our preclinical studies and clinical trials;
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announcements of new collaboration agreements with strategic partners or developments by our existing collaborative partners;
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announcements of technological innovations, new commercial products, failures of products, or progress toward commercialization by our competitors or peers;
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failure to complete the Acquisition, or once completed, failure to realize the anticipated benefits of the Acquisition;
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developments concerning proprietary rights, including patent and litigation matters;
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publicity regarding actual or potential results with respect to product candidates under development;
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quarterly fluctuations in our financial results;
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variations in the level of expenses related to any of our product candidates or clinical development programs;
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additions or departures of key management or scientific personnel;
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conditions or trends in the biotechnology and biopharmaceutical industries;
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other events or factors, including those resulting from war, incidents of terrorism, natural disasters or responses to these events;
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changes in accounting principles;
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general economic and market conditions and other factors that may be unrelated to our operating performance or the operating performance of our competitors, including changes in market valuations of similar companies;
and
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sales of common stock by us or our stockholders in the future, as well as the overall trading volume of our common stock.
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In the past, securities class action litigation has often been brought against a company following a significant decline in the market price
of its securities. This risk is especially relevant for us because biotechnology and pharmaceutical companies generally experience significant stock price volatility.
The trading market for our common stock will depend in part on the research and reports that securities or industry analysts publish about us
or our business. If one or more of the analysts who covers us downgrades our stock, or publishes inaccurate or unfavorable research about our business, our stock price would likely decline. If one or more of these analysts ceases coverage of us or
fails to publish reports on us regularly, demand for our stock could decrease, which could cause our stock price and trading volume to decline.
The
sale of a significant number of shares could cause the market price of our stock to decline.
The sale by us or the resale by
stockholders of a significant number of shares of our common stock could cause the market price of our common stock to decline. As of September 30, 2013, we had approximately 35,228,000 shares of common stock outstanding. All of these shares
are eligible for sale on Nasdaq, although certain of the shares are subject to sales volume and other limitations. We have filed registration statements to permit the sale of approximately 8,200,000 shares of common stock under our equity incentive
plans. We have also filed registration statements to permit the sale of approximately 167,000 shares of common stock under our employee stock purchase plan, to permit the sale of 225,000 shares of common stock under our Directors Deferred
Compensation Plan, to permit the sale of approximately 8,274,000 shares of common stock pursuant to various private placement agreements and to permit the sale of approximately 10,000,000 shares of our common
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stock pursuant to our At Market Issuance Sales Agreement. As of September 30, 2013, an aggregate of 13.3 million of these shares remain available for sale. In addition, we have agreed
to file a registration statement to permit the sale of the shares of our common stock that would be issued in connection with the Acquisition not later than 90 days following the closing of that transaction. The market price of our common stock may
decrease based on the expectation of such sales.
As of September 30, 2013, warrants to purchase approximately 3,643,000 shares of
our common stock with a weighted average exercise price per share of $11.53 were outstanding.
As of September 30, 2013, options to
purchase 4,164,965 shares of our common stock with a weighted average exercise price per share of $5.74 were outstanding. These options are subject to vesting that occurs over a period of up to four years following the date of grant. As of
September 30, 2013 we have 147,413 nonvested shares outstanding.
We may issue additional common stock, preferred stock, restricted
stock units, or securities convertible into or exchangeable for our common stock. Furthermore, substantially all shares of common stock for which our outstanding stock options or warrants are exercisable are, once they have been purchased, eligible
for immediate sale in the public market. The issuance of additional common stock, preferred stock, restricted stock units, or securities convertible into or exchangeable for our common stock or the exercise of stock options or warrants would dilute
existing investors and could adversely affect the price of our securities. In addition, such securities may have rights senior to the rights of securities held by existing investors.
Failure to maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act of 2002 and to comply with changing
regulation of corporate governance and public disclosure could have a material adverse effect on our operating results and the price of our common stock.
The Sarbanes-Oxley Act of 2002 and rules adopted by the Securities and Exchange Commission and Nasdaq have resulted in significant costs to us.
In particular, our efforts to comply with Section 404 of the Sarbanes-Oxley Act of 2002 and related regulations regarding the required assessment of our internal control over financial reporting, and our independent registered public accounting
firms audit of internal control over financial reporting, have required commitments of significant management time. We expect these commitments to continue.
Our internal control over financial reporting (as defined in Rules 13a-15 of the Exchange Act) is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of our consolidated financial statements for external purposes in accordance with U.S. GAAP. Because of its inherent limitations, internal control over financial
reporting may not prevent or detect all deficiencies or weaknesses in our financial reporting. While our management has concluded that there were no material weaknesses in our internal control over financial reporting as of December 31, 2012,
our procedures are subject to the risk that our controls may become inadequate because of changes in conditions or as a result of a deterioration in compliance with such procedures. No assurance is given that our procedures and processes for
detecting weaknesses in our internal control over financial reporting will be effective.
If the Acquisition is completed, we anticipate
additional commitments of management time to ensure that our internal control over financial reporting of the operations of 4-AB complies with Section 404 of the Sarbanes-Oxley Act of 2002. 4-AB is a privately held company organized under the
laws of Switzerland and, as such, it is not subject to financial reporting requirements applicable to public companies and is not required to prepare and publish audited financial statements in accordance with U.S. GAAP. Accordingly, our efforts to
ensure that our internal control over the financial reporting of the operations of 4-AB may cause us to incur significant additional costs.
Changing laws, regulations and standards relating to corporate governance and public disclosure, are creating uncertainty for companies. Laws,
regulations and standards are subject to varying interpretations in
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some cases due to their lack of specificity, and as a result, their application in practice may evolve over time as new guidance is provided, which could result in continuing uncertainty
regarding compliance matters and higher costs caused by ongoing revisions to disclosure and governance practices. If we fail to comply with these laws, regulations and standards, our reputation may be harmed and we might be subject to sanctions or
investigation by regulatory authorities, such as the Securities and Exchange Commission. Any such action could adversely affect our operating results and the market price of our common stock.
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DESCRIPTION OF UNITS
This section outlines some of the provisions of the units and the unit agreements that we may enter into. This information may not be complete
in all respects and is qualified entirely by reference to the unit agreement with respect to the units of any particular series. The specific terms of any series of units will be described in the applicable prospectus supplement. If so described in
a particular supplement, the specific terms of any series of units may differ from the general description of terms presented below.
In
this section entitled Description of Units, references to Agenus, we, our and us refer only to Agenus Inc. and not to its consolidated subsidiaries. Also, in this section, references to
holders mean those who own units registered in their own names, on the books that we or our agent maintain for this purpose, and not those who own beneficial interests in units registered in street name or in units issued in book-entry
form through one or more depositaries. Owners of beneficial interests in the units should read the section below entitled Legal Ownership and Book-Entry Issuance.
We may issue units comprised of one or more debt securities, shares of common stock, shares of preferred stock, stock purchase contracts,
warrants, rights and other securities in any combination. Each unit will be issued so that the holder of the unit is also the holder of each security included in the unit. Thus, the holder of a unit will have the rights and obligations of a holder
of each included security. The unit agreement under which a unit is issued may provide that the securities included in the unit may not be held or transferred separately, at any time or at any time before a specified date.
The applicable prospectus supplement may describe:
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the designation and terms of the units and of the securities comprising the units, including whether and under what circumstances those securities may be held or transferred separately;
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any provisions of the governing unit agreement that differ from those described below; and
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any provisions for the issuance, payment, settlement, transfer or exchange of the units or of the securities comprising the units.
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The provisions described in this section, as well as those described under Description of
Common Stock, Description of Preferred Stock, Description of Warrants and Description of Debt Securities will apply to the securities included in each unit, to the extent relevant.
Issuance in Series
We may issue units in
such amounts and in as many distinct series as we wish. This section summarizes terms of the units that apply generally to all series. Most of the financial and other specific terms of your series will be described in the applicable prospectus
supplement.
Unit Agreements
Unless
otherwise provided in the applicable prospectus supplement, the following provisions will apply to any units we issue pursuant to this prospectus. We will issue the units under one or more unit agreements to be entered into between us and a bank or
other financial institution, as unit agent. We may add, replace or terminate unit agents from time to time. We will identify the unit agreement under which each series of units will be issued and the unit agent under that agreement in the applicable
prospectus supplement.
The following provisions will generally apply to all unit agreements unless otherwise stated in the applicable
prospectus supplement.
Enforcement of Rights
Unless otherwise provided in the applicable prospectus supplement, the following provisions will apply to any units we issue pursuant to this
prospectus. The unit agent under a unit agreement will act solely as our agent in connection with the units issued under that agreement. The unit agent will not assume any obligation or relationship of agency or trust for or with any holders of
those units or of the securities comprising those units. The unit agent will not be obligated to take any action on behalf of those holders to enforce or protect their rights under the units or the included securities.
Except as indicated in the next paragraph, a holder of a unit may, without the consent of the unit agent or any other holder, enforce its
rights as holder under any security included in the unit, in accordance with the terms of that security and the indenture, warrant agreement, rights agreement or other instrument under which that security is issued. Those terms are described
elsewhere in this prospectus under the sections relating to debt securities, preferred stock, common stock or warrants, as relevant.
Notwithstanding the foregoing, a unit agreement may limit or otherwise affect the ability of a holder of units issued under that agreement to
enforce its rights, including any right to bring a legal action, with respect to those units or any securities, other than debt securities, that are included in those units. Limitations of this kind will be described in the applicable prospectus
supplement.
Modification without Consent of Holders
Unless otherwise provided in the applicable prospectus supplement, the following provisions will apply to any units we issue pursuant to this
prospectus. We and the applicable unit agent may amend any unit or unit agreement without the consent of any holder:
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to correct or supplement any defective or inconsistent provision; or
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to make any other change that we believe is necessary or desirable and will not adversely affect the interests of the affected holders in any material respect.
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We do not need any approval to make changes that affect only units to be issued after the changes
take effect. We may also make changes that do not adversely affect a particular unit in any material respect, even if they adversely affect other units in a material respect. In those cases, we do not need to obtain the approval of the holder of the
unaffected unit; we need only obtain any required approvals from the holders of the affected units.
Modification with Consent of Holders
Unless otherwise provided in the applicable prospectus supplement, the following provisions will apply to any units we issue pursuant to this
prospectus. We may not amend any particular unit or a unit agreement with respect to any particular unit unless we obtain the consent of the holder of that unit, if the amendment would:
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impair any right of the holder to exercise or enforce any right under a security included in the unit if the terms of that security require the consent of the holder to any changes that would impair the exercise or
enforcement of that right; or
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reduce the percentage of outstanding units or any series or class the consent of whose holders is required to amend that series or class, or the applicable unit agreement with respect to that series or class, as
described below.
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Any other change to a particular unit agreement and the units issued under that agreement would require
the following approval:
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if the change affects only the units of a particular series issued under that agreement, the change must be approved by the holders of a majority of the outstanding units of that series; or
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if the change affects the units of more than one series issued under that agreement, it must be approved by the holders of a majority of all outstanding units of all series affected by the change, with the units of all
the affected series voting together as one class for this purpose.
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These provisions regarding changes with majority
approval also apply to changes affecting any securities issued under a unit agreement, as the governing document.
In each case, the
required approval must be given by written consent.
Unit Agreements Will Not Be Qualified Under Trust Indenture Act
No unit agreement will be qualified as an indenture, and no unit agent will be required to qualify as a trustee, under the Trust Indenture Act.
Therefore, holders of units issued under unit agreements will not have the protections of the Trust Indenture Act with respect to their units.
Mergers
and Similar Transactions Permitted; No Restrictive Covenants or Events of Default
Unless otherwise provided in the applicable
prospectus supplement, the following provisions will apply to any units we issue pursuant to this prospectus. The unit agreements will not restrict our ability to merge or consolidate with, or sell our assets to, another corporation or other entity
or to engage in any other transactions. If at any time we merge or consolidate with, or sell our assets substantially as an entirety to, another corporation or other entity, the successor entity will succeed to and assume our obligations under the
unit agreements. We will then be relieved of any further obligation under these agreements.
The unit agreements will not include any
restrictions on our ability to put liens on our assets, including our interests in our subsidiaries, nor will they restrict our ability to sell our assets. The unit agreements also will not provide for any events of default or remedies upon the
occurrence of any events of default.
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Governing Law
Unless otherwise provided in the applicable prospectus supplement, the following provisions will apply to any units we issue pursuant to this
prospectus. The unit agreements and the units will be governed by New York law.
Form, Exchange and Transfer
Unless otherwise provided in the applicable prospectus supplement, the following provisions will apply to any units we issue pursuant to this
prospectus. We will issue each unit in globalthat is, book-entryform only. Units in book-entry form will be represented by a global security registered in the name of a depositary, which will be the holder of all the units represented by
the global security. Those who own beneficial interests in a unit will do so through participants in the depositarys system, and the rights of these indirect owners will be governed solely by the applicable procedures of the depositary and its
participants. We describe book-entry securities below under Legal Ownership and Book-Entry Issuance.
In addition, we will
issue each unit in registered form, unless we say otherwise in the applicable prospectus supplement. Bearer securities would be subject to special provisions, as we describe below under Securities Issued in Bearer Form.
Each unit and all securities comprising the unit will be issued in the same form.
If we issue any units in registered,
non-global
form, the following will apply to them.
The units will be issued in the denominations stated in the applicable prospectus supplement. Holders may exchange their units for units of
smaller denominations or combined into fewer units of larger denominations, as long as the total amount is not changed.
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Holders may exchange or transfer their units at the office of the unit agent. Holders may also replace lost, stolen, destroyed or mutilated units at that office. We may appoint another entity to perform these functions
or perform them ourselves.
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Holders will not be required to pay a service charge to transfer or exchange their units, but they may be required to pay for any tax or other governmental charge associated with the transfer or exchange. The transfer
or exchange, and any replacement, will be made only if our transfer agent is satisfied with the holders proof of legal ownership. The transfer agent may also require an indemnity before replacing any units.
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If we have the right to redeem, accelerate or settle any units before their maturity, and we exercise our right as to less than all those units or other securities, we may block the exchange or transfer of those units
during the period beginning 15 days before the day we mail the notice of exercise and ending on the day of that mailing, in order to freeze the list of holders to prepare the mailing. We may also refuse to register transfers of or exchange any unit
selected for early settlement, except that we will continue to permit transfers and exchanges of the unsettled portion of any unit being partially settled. We may also block the transfer or exchange of any unit in this manner if the unit includes
securities that are or may be selected for early settlement.
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Only the depositary will be entitled to transfer or exchange a
unit in global form, since it will be the sole holder of the unit.
Payments and Notices
In making payments and giving notices with respect to our units, we will follow the procedures we plan to use with respect to our debt
securities, where applicable.
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LEGAL OWNERSHIP AND BOOK-ENTRY ISSUANCE
We can issue securities in registered form or in the form of one or more global securities. We describe global securities in greater detail
below. We refer to those persons who have securities registered in their own names on the books that we or any applicable depositary or warrant agent maintain for this purpose as the holders of those securities. These persons are the
legal holders of the securities. We refer to those persons who, indirectly through others, own beneficial interests in securities that are not registered in their own names, as indirect holders of those securities. As we discuss below,
indirect holders are not legal holders, and investors in securities issued in book-entry form or in street name will be indirect holders.
Book-Entry
Holders
Except as described below, we will issue securities in book-entry form only, as we will specify in the applicable prospectus
supplement. This means securities may be represented by one or more global securities registered in the name of a financial institution that holds them as depositary on behalf of other financial institutions that participate in the depositarys
book-entry system. These participating institutions, which are referred to as participants, in turn, hold beneficial interests in the securities on behalf of themselves or their customers.
Only the person in whose name a security is registered is recognized as the holder of that security. Global securities will be registered in
the name of the depositary or its participants. Consequently, for global securities, we will recognize only the depositary as the holder of the securities, and we will make all payments on the securities to the depositary. The depositary passes
along the payments it receives to its participants, which in turn pass the payments along to their customers who are the beneficial owners. The depositary and its participants do so under agreements they have made with one another or with their
customers; they are not obligated to do so under the terms of the securities.
As a result, investors in a book-entry security will not
own securities directly. Instead, they will own beneficial interests in a global security, through a bank, broker or other financial institution that participates in the depositarys book-entry system or holds an interest through a participant.
As long as the securities are issued in global form, investors will be indirect holders, and not legal holders, of the securities.
Street Name Holders
We may terminate a global security or issue securities that are not issued in global form. In these cases, investors may choose to
hold their securities in their own names or in street name. Securities held by an investor in street name would be registered in the name of a bank, broker or other financial institution that the investor chooses, and the investor would
hold only a beneficial interest in those securities through an account he or she maintains at that institution.
For securities held in
street name, we or any applicable depositary will recognize only the intermediary banks, brokers and other financial institutions in whose names the securities are registered as the holders of those securities, and we or any such depositary will
make all payments on those securities to them. These institutions pass along the payments they receive to their customers who are the beneficial owners, but only because they agree to do so in their customer agreements or because they are legally
required to do so. Investors who hold securities in street name will be indirect holders, not legal holders, of those securities.
Legal Holders
Our obligations, as well as the obligations of any applicable depositary or warrant agent or other third party employed by us or any
of the foregoing, run only to the legal holders of the securities. We do not have obligations to investors who hold beneficial interests in global securities, in street name or by any other indirect
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means. This will be the case whether an investor chooses to be an indirect holder of a security or has no choice because we are issuing the securities only in global form.
For example, once we make a payment or give a notice to the holder, we have no further responsibility for the payment or notice even if that
holder is required, under agreements with depositary participants or customers or by law, to pass it along to the indirect holders but does not do so. Similarly, we may want to obtain the approval of the holders to amend an instrument defining the
rights of security holders, to relieve us of the consequences of a breach or of our or its obligation to comply with a particular provision of such an instrument or for other purposes. In such an event, we would seek approval only from the legal
holders, and not the indirect holders, of the securities. Whether and how the holders contact the indirect holders is up to the legal holders.
Special
Considerations for Indirect Holders
If you hold securities through a bank, broker or other financial institution, either in book-entry
form or in street name, you should check with your own institution to find out:
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how it handles securities payments and notices;
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whether it imposes fees or charges;
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how it would handle a request for the holders consent, if ever required;
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whether and how you can instruct it to send you securities registered in your own name so you can be a holder, if that is permitted in the future;
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how it would exercise rights under the securities if there were a default or other event triggering the need for holders to act to protect their interests; and
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if the securities are in book-entry form, how the depositarys rules and procedures will affect these matters.
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Global Securities
A global security is a
security that represents one or any other number of individual securities held by a depositary. Generally, all securities represented by the same global securities will have the same terms.
Each security issued in book-entry form will be represented by a global security that we deposit with and register in the name of a financial
institution or its nominee that we select. The financial institution that we select for this purpose is called the depositary. Unless specified otherwise in the applicable prospectus supplement, The Depository Trust Company, New York, New York
(DTC), will be the depositary for all securities issued in book-entry form.
A global security may not be transferred to or
registered in the name of anyone other than the depositary, its nominee or a successor depositary, unless special termination situations arise. We describe those situations below under Special Situations When a Global Security Will Be
Terminated. As a result of these arrangements, the depositary, or its nominee, will be the sole registered owner and legal holder of all securities represented by a global security, and investors will be permitted to own only beneficial
interests in a global security. Beneficial interests must be held by means of an account with a broker, bank or other financial institution that in turn has an account with the depositary or with another institution that does. Thus, an investor
whose security is represented by a global security will not be a legal holder of the security, but only an indirect holder of a beneficial interest in the global security.
If the prospectus supplement for a particular security indicates that the security will be issued in global form only, then the security will
be represented by a global security at all times unless and until the global security is terminated. If termination occurs, we may issue the securities through another book-entry clearing system or decide that the securities may no longer be held
through any book-entry clearing system.
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Special Considerations for Global Securities
As an indirect holder, an investors rights relating to a global security will be governed by the account rules of the investors
financial institution and of the depositary, as well as general laws relating to securities transfers. We do not recognize an indirect holder as a legal holder of securities and instead deal only with the depositary that holds the global security.
If securities are issued only in the form of a global security, an investor should be aware of the following:
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An investor cannot cause the securities to be registered in his or her name, and cannot obtain
non-global
certificates for his or her interest in the securities, except in the
special situations we describe below.
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An investor will be an indirect holder and must look to his or her own bank or broker for payments on the securities and protection of his or her legal rights relating to the securities, as we describe above.
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An investor may not be able to sell interests in the securities to some insurance companies and to other institutions that are required by law to own their securities in
non-book-entry
form.
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An investor may not be able to pledge his or her interest in a global security in circumstances where certificates representing the securities must be delivered to the lender or other beneficiary of the pledge in order
for the pledge to be effective.
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The depositarys policies, which may change from time to time, will govern payments, transfers, exchanges and other matters relating to an investors interest in a global security. We and any applicable agent
have no responsibility for any aspect of the depositarys actions or for its records of ownership interests in a global security. We and any applicable agent also will not supervise the depositary in any way.
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The depositary may, and we understand that DTC will, require that those who purchase and sell interests in the global security within its book-entry system use immediately available funds, and your broker or bank may
require you to do so as well.
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Financial institutions that participate in the depositarys book-entry system, and through which an investor holds its interest in the global security, may also have their own policies affecting payments, notices
and other matters relating to the securities.
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There may be more than one financial intermediary in the chain of ownership for an investor. We do not monitor and are not responsible for the actions of any of those intermediaries.
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Special Situations When A Global Security Will Be Terminated
In a few special situations described below, the global security will terminate, and interests in it will be exchanged for physical
certificates representing those interests. After that exchange, the choice of whether to hold securities directly or in street name will be up to the investor. Investors must consult their own banks or brokers to find out how to have their interests
in securities transferred to their own name, so that they will be direct holders. We have described the rights of holders and street name investors above.
The global security will terminate when the following special situations occur:
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if the depositary notifies us that it is unwilling, unable or no longer qualified to continue as depositary for that global security and we do not appoint another institution to act as depositary within 90 days;
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if we notify any applicable depositary or warrant agent that we wish to terminate that global security; or
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if an event of default has occurred with regard to securities represented by that global security and has not been cured or waived.
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The applicable prospectus supplement may also list additional situations for terminating a global
security that would apply only to the particular series of securities covered by the prospectus supplement. When a global security terminates, the depositary, and not us or any applicable agent, is responsible for deciding the names of the
institutions that will be the initial direct holders.