Cascadian Therapeutics
Oncothyreon Inc. (Form: 10-Q, Received: 05/11/2015 17:23:16)
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2015

or

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission file number: 001-33882

 

 

ONCOTHYREON INC.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   26-0868560

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification Number)

2601 Fourth Ave., Suite 500

Seattle, Washington

  98121
(Address of principal executive offices)   (Zip Code)

(206) 801-2100

(Registrant’s telephone number, including area code)

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes   x     No   ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes   x     No   ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer   ¨    Accelerated filer   x
Non-accelerated filer   ¨   (Do not check if a smaller reporting company)    Smaller reporting company   ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):    Yes   ¨     No   x

As of May 11, 2015, the number of outstanding shares of the registrant’s common stock, par value $0.0001 per share, was 102,301,012.

 

 

 


Table of Contents

ONCOTHYREON INC.

FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2015

IN DEX

 

     Page  

PART I—FINANCIAL INFORMATION

     1   

Item 1. Financial Statements (Unaudited)

     1   

Condensed Consolidated Balance Sheets

     1   

Condensed Consolidated Statements of Operations

     2   

Condensed Consolidated Statements of Comprehensive Loss

     3   

Condensed Consolidated Statements of Cash Flows

     4   

Notes to the Condensed Consolidated Financial Statements

     5   

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

     17   

Item 3. Quantitative and Qualitative Disclosures About Market Risk

     23   

Item 4. Controls and Procedures

     23   

PART II—OTHER INFORMATION

     24   

Item 1. Legal Proceedings

     24   

Item 1A. Risk Factors

     24   

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

     38   

Item 3. Defaults Upon Senior Securities

     38   

Item 4. Mine Safety Disclosure

     38   

Item 5. Other Information

     38   

Item 6. Exhibits

     39   

Signatures

     40   

 

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Table of Contents

PART I—FINANCIAL INFORMATION

 

Item 1. Financial Statem ents

ONCOTHYREON INC.

Condensed Consoli dated Balance Sheets

(In thousands, except share and per share amounts)

 

     March 31,
2015
    December 31,
2014
 
     (Unaudited)        
ASSETS     

Current:

    

Cash and cash equivalents

   $ 13,508      $ 10,454   

Short-term investments

     60,515        47,217   

Accounts and other receivables

     248        298   

Prepaid and other current assets

     679        888   
  

 

 

   

 

 

 

Total current assets

  74,950      58,857   

Long-term investments

  3,521      6,043   

Property and equipment, net

  1,938      1,576   

Indefinite-lived intangible assets

  19,738      19,738   

Goodwill

  16,659      16,659   

Other assets

  531      538   
  

 

 

   

 

 

 

Total assets

$ 117,337    $ 103,411   
  

 

 

   

 

 

 
LIABILITIES AND STOCKHOLDERS’ EQUITY

Current:

Accounts payable

$ 497    $ 689   

Accrued and other liabilities

  2,235      2,129   

Accrued compensation and related liabilities

  767      1,614   

Current portion of restricted share unit liability

  133      155   

Current portion of warrant liability

  —        128   
  

 

 

   

 

 

 

Total current liabilities

  3,632      4,715   

Deferred rent

  309      337   

Restricted share unit liability

  179      155   

Deferred tax liability

  6,908      6,908   

Class UA preferred stock, 12,500 shares authorized, 12,500 shares issued and outstanding

  30      30   

Commitments and contingencies

Stockholders’ equity:

Preferred stock, $0.0001 par value; 10,000,000 shares authorized as of March 31, 2015 and December 31, 2014; Series A Convertible Preferred Stock – 10,000 shares issued and outstanding as of March 31, 2015 and December 31, 2014; Series B Convertible Preferred Stock – 5,333 shares and zero shares issued and outstanding as of March 31, 2015 and December 31, 2014, respectively;

  —        —     

Common stock, $0.0001 par value; 200,000,000 shares authorized as of March 31, 2015 and December 31, 2014; 102,301,012 shares and 91,601,352 shares issued and outstanding as of March 31, 2015 and December 31, 2014, respectively

  353,857      353,856   

Additional paid-in capital

  247,468      224,549   

Accumulated deficit

  (489,983   (482,048

Accumulated other comprehensive loss

  (5,063   (5,091
  

 

 

   

 

 

 

Total stockholders’ equity

  106,279      91,266   
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

$ 117,337    $ 103,411   
  

 

 

   

 

 

 

See accompanying notes to the condensed consolidated financial statements

 

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ONCOTHYREON INC.

Condensed Consolid ated Statements of Operations

(In thousands, except share and per share amounts)

 

     Three months ended
March 31,
 
     2015     2014  
     (Unaudited)  

Operating expenses

    

Research and development

   $ 5,758      $ 4,813   

General and administrative

     2,321        2,347   
  

 

 

   

 

 

 

Total operating expenses

  8,079      7,160   
  

 

 

   

 

 

 

Loss from operations

  (8,079   (7,160
  

 

 

   

 

 

 

Other income (expenses)

Investment and other income (expenses), net

  16      21   

Change in fair value of warrant liability

  128      (2,477
  

 

 

   

 

 

 

Total other income (expenses), net

  144      (2,456
  

 

 

   

 

 

 

Net loss

$ (7,935 $ (9,616
  

 

 

   

 

 

 

Net loss per share—basic and diluted

$ (0.08 $ (0.14
  

 

 

   

 

 

 

Shares used to compute basic and diluted net loss per share

  98,311,193      70,688,243   
  

 

 

   

 

 

 

See accompanying notes to the condensed consolidated financial statements.

 

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ONCOTHYREON INC.

Condensed Consolidated Sta tements of Comprehensive Loss

(In thousands)

 

     Three months ended
March 31,
 
     2014     2013  
     (Unaudited)  

Net loss

   $ (7,935   $ (9,616

Other comprehensive income:

    

Available-for-sale securities:

    

Unrealized gain during the period, net

     28        12   
  

 

 

   

 

 

 

Other comprehensive income

  28      12   
  

 

 

   

 

 

 

Comprehensive loss

$ (7,907 $ (9,604
  

 

 

   

 

 

 

See accompanying notes to the condensed consolidated financial statements

 

 

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Table of Contents

ONCOTHYREON INC.

Condensed Consolidat ed Statements of Cash Flows

(In thousands)

 

     Three months ended
March 31,
 
     2015     2014  
     (Unaudited)  

Cash flows from operating activities

    

Net loss

   $ (7,935   $ (9,616

Adjustments to reconcile net loss to net cash used in operating activities:

    

Depreciation and amortization

     149        122   

Amortization of premiums and accretion of discounts on securities

     82        169   

Share-based compensation expense

     502        769   

Change in fair value of warrant liability

     (128     2,477   

Cash settled on conversion of restricted share units

     —          (71

Net change in assets and liabilities:

    

Accounts and other receivable

     50        (222

Prepaid expenses and other current assets

     209        157   

Other long term assets

     7        (132

Accounts payable

     (192     20   

Accrued and other liabilities

     (57     (927

Accrued compensation and related liabilities

     (847     (749

Deferred rent

     (28     (25
  

 

 

   

 

 

 

Net cash used in operating activities

  (8,188   (8,028
  

 

 

   

 

 

 

Cash flows from investing activities

Purchases of investments

  (25,481   (7,002

Redemption of investments

  14,650      12,080   

Purchases of property and equipment, net

  (347   (84
  

 

 

   

 

 

 

Net cash (used in) provided by investing activities

  (11,178   4,994   
  

 

 

   

 

 

 

Cash flows from financing activities

Proceeds from issuance of common stock, net of issuance cost

  20,557      55   

Proceeds from issuance of Series B convertible preferred stock, net of issuance cost

  1,863      —     
  

 

 

   

 

 

 

Net cash provided by financing activities

  22,420      55   
  

 

 

   

 

 

 

Increase (decrease) in cash and cash equivalents

  3,054      (2,979

Cash and cash equivalents, beginning of period

  10,454      9,279   
  

 

 

   

 

 

 

Cash and cash equivalents, end of period

$ 13,508    $ 6,300   
  

 

 

   

 

 

 

See accompanying notes to the condensed consolidated financial statements.

 

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ONCOTHYREON INC.

Notes to the Condensed C onsolidated Financial Statements

Three months ended March 31, 2015 and March 31, 2014

(Unaudited)

 

1. DESCRIPTION OF BUSINESS

Oncothyreon Inc. (the Company) is a clinical-stage biopharmaceutical company incorporated in the State of Delaware on September 7, 2007. The Company is focused primarily on the development of therapeutic products for the treatment of cancer. The Company’s goal is to discover, develop and commercialize compounds that have the potential to improve the lives and outcomes of cancer patients. The Company’s operations are not subject to any seasonality or cyclicality factors.

 

2. BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements have been prepared by the Company in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) for interim financial statements. The accounting principles and methods of computation adopted in these condensed consolidated financial statements are the same as those of the audited consolidated financial statements contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014 filed with the Securities Exchange Commission (the SEC) on March 10, 2015.

Omitted from these statements are certain information and note disclosures normally included in the audited consolidated financial statements prepared in accordance with U.S. GAAP. The Company believes all adjustments necessary for a fair statement of the results for the periods presented have been made, and such adjustments consist only of those considered normal and recurring in nature. The financial results for the three months ended March 31, 2015 are not necessarily indicative of financial results for the full year. The condensed consolidated balance sheet as of December 31, 2014 has been derived from the audited financial statements at that date. The unaudited condensed consolidated financial statements and notes presented should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2014 included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014 filed with the SEC on March 10, 2015.

Accumulated Other Comprehensive Income (Loss)

Comprehensive income or loss is comprised of net income or loss and other comprehensive income or loss. Other comprehensive income or loss includes unrealized gains and losses on the Company’s available-for-sale investments. In addition to unrealized gains and losses on investments, accumulated other comprehensive income or loss consists of foreign currency translation adjustments which arose from the conversion of the Canadian dollar functional currency consolidated financial statements to the U.S. dollar reporting currency consolidated financial statements prior to January 1, 2008. Should the Company liquidate or substantially liquidate its investments in its foreign subsidiaries, the Company would be required to recognize the related cumulative translation adjustments pertaining to the liquidated or substantially liquidated subsidiaries, as a charge to earnings in the Company’s condensed consolidated statements of operations and comprehensive loss.

There were no reclassifications out of accumulated other comprehensive loss during the three months ended March 31, 2015. The tables below show the changes in accumulated balances of each component of accumulated other comprehensive loss for the three months ended March 31, 2015 and March 31, 2014:

 

     Three months ended March 31, 2015  
     Net unrealized
gains/(losses)  on
Available-for-sale
Securities
     Foreign
Currency
Translation
Adjustment
     Accumulated
Other
Comprehensive
Loss
 
            (In thousands)         

Balance at December 31, 2014

   $ (25    $ (5,066    $ (5,091

Current period other comprehensive income

     28         —           28   
  

 

 

    

 

 

    

 

 

 

Balance at March 31, 2015

$ 3    $ (5,066 $ (5,063
  

 

 

    

 

 

    

 

 

 

 

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Table of Contents
     Three months ended March 31, 2014  
     Net unrealized
gains/(losses)  on
Available-for-sale
Securities
     Foreign
Currency
Translation
Adjustment
     Accumulated
Other
Comprehensive
Loss
 
     (In thousands)   

Balance at December 31, 2013

   $ 15       $ (5,066    $ (5,051

Current period other comprehensive income

     12         —           12   
  

 

 

    

 

 

    

 

 

 

Balance at March 31, 2014

$ 27    $ (5,066 $ (5,039
  

 

 

    

 

 

    

 

 

 

 

3. RECENT ACCOUNTING PRONOUNCEMENTS

There were no new applicable accounting pronouncements during the three months ended March 31, 2015 that would have an impact on the Company’s condensed consolidated financial position or results of operations. For recent accounting pronouncements that have not yet been adopted, please refer to the Company’s audited consolidated financial statements for the year ended December 31, 2014 included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014 filed with the SEC on March 10, 2015.

 

4. FAIR VALUE MEASUREMENTS

The Company measures certain financial assets and liabilities at fair value in accordance with a hierarchy which requires an entity to maximize the use of observable inputs which reflect market data obtained from independent sources and minimize the use of unobservable inputs which reflect the Company’s market assumptions when measuring fair value. There are three levels of inputs that may be used to measure fair value:

 

    Level 1—quoted prices in active markets for identical assets or liabilities;

 

    Level 2—observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and

 

    Level 3—unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The Company’s financial assets and liabilities measured at fair value consisted of the following as of March 31, 2015 and December 31, 2014:

 

     March 31, 2015      December 31, 2014  
     Level 1      Level 2      Level 3      Total      Level 1      Level 2      Level 3      Total  
     (In thousands)  

Financial assets:

                       

Money market funds

   $ 6,514       $ —         $ —         $ 6,514       $ 4,103       $ —         $ —         $ 4,103   

Debt securities of U.S. government agencies

     —           50,854         —           50,854         —           43,844         —           43,844   

Corporate bonds

     —           14,682         —           14,682         —           9,416         —           9,416   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
$ 6,514    $ 65,536    $ —      $ 72,050    $ 4,103    $ 53,260    $ —      $ 57,363   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Financial liabilities:

Restricted share units

$ 312    $ —      $ —      $ 312    $ 310    $ —      $ —      $ 310   

Warrants

$ —      $ —      $ —      $ —        —        —        128      128   

If quoted market prices in active markets for identical assets are not available to determine fair value, then the Company uses quoted prices of similar instruments and other significant inputs derived from observable market data obtained from third-party data providers. These investments are included in Level 2 and consist of debt securities of U.S government agencies and corporate bonds. There were no transfers between Levels 1 and 2 during the three month period ended March 31, 2015. The Company classifies its warrant liability within Level 3 because the warrant liability is valued using valuation models with significant unobservable inputs. The estimated fair value of warrants accounted for as liabilities was determined on the issuance date and are subsequently remeasured to fair value at each reporting date. The change in fair value of the warrants is recorded in the statement of operations as other income or other expense estimated by using the Black-Scholes option-pricing model. A discussion of the valuation techniques and inputs to determine fair value of these instruments is included in Note 8.

 

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5. FINANCIAL INSTRUMENTS

Financial instruments consist of cash and cash equivalents, investments and accounts and other receivables that will result in future cash receipts, as well as accounts payable, accrued and other liabilities, restricted share unit liabilities, warrant liabilities and Class UA preferred stock that may require future cash outlays.

Investments

Investments are classified as available-for-sale securities and are carried at fair value with unrealized temporary holding gains and losses, where applicable, excluded from net income or loss and reported in other comprehensive income or loss and also as a net amount in accumulated other comprehensive income or loss until realized. Available-for-sale securities are written down to fair value through income whenever it is necessary to reflect an other-than-temporary impairment. The Company determined that the unrealized losses on its marketable securities as of March 31, 2015 were temporary in nature, and the Company currently does not intend to sell these securities before recovery of their amortized cost basis. All short-term investments are limited to a final maturity of less than one year from the reporting date. The Company’s long-term investments are investments with maturities exceeding 12 months but less than five years from the reporting date. The Company is exposed to credit risk on its cash equivalents, short-term investments and long-term investments in the event of non-performance by counterparties, but does not anticipate such non-performance and mitigates exposure to concentration of credit risk through the nature of its portfolio holdings. If a security falls out of compliance with the Company’s investment policy, it may be necessary to sell the security before its maturity date in order to bring the investment portfolio back into compliance. The cost basis of any securities sold is determined by specific identification. The fair value of available-for-sale securities is based on prices obtained from a third-party pricing service. The Company utilizes third-party pricing services for all of its marketable debt security valuations. The Company reviews the pricing methodology used by the third-party pricing services including the manner employed to collect market information. On a periodic basis, the Company also performs review and validation procedures on the pricing information received from the third-party pricing services. These procedures help ensure that the fair value information used by the Company is determined in accordance with applicable accounting guidance. The amortized cost, unrealized gain or losses and fair value of the Company’s cash, cash equivalents and investments for the periods presented are summarized below:

 

     Amortized
Cost
     Gross
Unrealized
Gains
     Gross
Unrealized
Losses
    Fair Value  
     (In thousands)  

As of March 31, 2015

          

Cash

   $ 5,494       $ —         $ —        $ 5,494   

Money market funds

     6,514         —           —          6,514   

Debt securities of U.S. government agencies

     50,854         3         (3     50,854   

Corporate bonds

     14,678         8         (4     14,682   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total

$ 77,540    $ 11    $ (7 $ 77,544   
  

 

 

    

 

 

    

 

 

   

 

 

 

As of December 31, 2014

Cash

$ 6,351    $ —      $ —      $ 6,351   

Money market funds

  4,103      —        —        4,103   

Debt securities of U.S. government agencies

  43,862      1      (19   43,844   

Corporate bonds

  9,423      2      (9   9,416   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total

$ 63,739    $ 3    $ (28 $ 63,714   
  

 

 

    

 

 

    

 

 

   

 

 

 

 

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The following table summarizes the Company’s available-for-sale securities by contractual maturity:

 

     As of March 31, 2015      As of December 31, 2014  
     Amortized Cost      Fair Value      Amortized Cost      Fair Value  
     (In thousands)  

Less than one year

   $ 68,527       $ 68,529       $ 51,338       $ 51,319   

Greater than one year but less than five years

     3,519         3,521         6,050         6,044   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

$ 72,046    $ 72,050    $ 57,388    $ 57,363   
  

 

 

    

 

 

    

 

 

    

 

 

 

Accounts and Other Receivables, Accounts Payable and Accrued and Other Liabilities

The carrying amounts of accounts and other receivables, accounts payable and accrued and other liabilities approximate their fair values due to the short-term nature of these financial instruments.

Class UA Preferred Stock

The fair value of class UA preferred stock is assumed to be equal to its carrying value as the amounts that will be paid and the timing of the payments cannot be determined with any certainty.

Limitations

Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates are subjective in nature and involve uncertainties and matters of significant judgment; therefore, they cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

 

6. NET LOSS PER SHARE

Basic net loss per share is calculated by dividing net loss by the weighted average number of shares outstanding for the period. Diluted net loss per share is calculated by adjusting the numerator and denominator of the basic net loss per share calculation for the effects of all potentially dilutive common shares. Potential dilutive shares of the Company’s common stock include stock options, restricted share units, warrants, Series A and B convertible preferred stock and shares granted under the 2010 Employee Stock Purchase Plan (ESPP). The calculation of diluted loss per share requires that, to the extent the average market price of the underlying shares for the reporting period exceeds the exercise price of the warrants and the presumed exercise of such securities are dilutive to loss per share for the period, adjustments to net loss used in the calculation are required to remove the change in fair value of the warrants for the period. Furthermore, adjustments to the denominator are required to reflect the addition of the related dilutive shares.

The following table is a reconciliation of the numerator and denominator used in the calculation of basic and diluted net loss per share for the three months ended March 31, 2015 and March 31, 2014:

 

     Three months ended March 31,  
     2015      2014  
     (In thousands, except share and per share amounts)  

Numerator

     

Net loss used to compute net loss per share:

     

Basic

   $ (7,935    $ (9,616

Adjustments for change in fair value of warrant liability

     —           —     
  

 

 

    

 

 

 

Diluted

$ (7,935 $ (9,616
  

 

 

    

 

 

 

Denominator

Weighted average shares outstanding used to compute net loss per share:

Basic

  98,311,193      70,688,243   

Dilutive effect of warrants

  —       —    
  

 

 

    

 

 

 

Diluted

  98,311,193      70,688,243   
  

 

 

    

 

 

 

Net loss per share—basic and diluted

$ (0.08 $ (0.14
  

 

 

    

 

 

 

 

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Table of Contents

The following table presents the number of shares that were excluded from the number of shares used to calculate diluted net loss per share:

 

     Three months ended March 31,  
     2015      2014  

Director and employee stock options

     5,222,202         4,430,033   

Warrants

     8,230,848         10,922,090   

Series A convertible preferred stock (as converted to common stock)

     10,000,000         —     

Series B convertible preferred stock (as converted to common stock)

     5,333,000         —     

Non-employee director restricted share units

     191,136         114,205   

Employee stock purchase plan

     20,683         19,484   

 

7. EQUITY

Amended and Restated Certificate of Incorporation

On June 6, 2014, the stockholders approved an amendment to the Company’s Amended and Restated Certificate of Incorporation to increase the number of the Company’s authorized common shares from 100,000,000 to 200,000,000. On June 6, 2014, the Company filed a Certificate of Amendment with the Delaware Secretary of State to effect such amendment.

Equity Financings

February 2015 Financing

Common Stock

On February 11, 2015, the Company closed on an underwritten offering of 13,500,000 shares of its common stock at a price to the public of $1.50 per share, for gross proceeds of approximately $20.3 million. As part of the common stock offering, the Company also granted the underwriters a 30-day option to purchase 2,025,000 additional shares of the Company’s common stock. On February 18, 2015, the Company closed a partial exercise of the underwriter’s option to purchase 1,199,660 additional shares of the Company’s common stock, at a price to the public of $1.50 per share, less underwriting discounts and commissions, which resulted in net proceeds to the Company of approximately $1.7 million.

Series B Convertible Preferred Stock

In addition, on February 11, 2015, the Company closed on a concurrent but separate underwritten offering of 1,333 shares of its Series B convertible preferred stock at a price to the public of $1,500 per share, for gross proceeds of approximately $2.0 million. The Company designated 5,333 shares of its authorized and unissued preferred stock as Series B convertible preferred stock and filed a Certificate of Designation of Preferences, Rights and Limitations of Series B Convertible Preferred Stock with the Delaware Secretary of State. Concurrent but separate from this offering, the Company entered into an exchange agreement with certain affiliates of Biotechnology Value Fund (BVF) to exchange 4,000,000 shares of common stock previously purchased by BVF for 4,000 shares of Series B convertible preferred stock.

 

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Each share of Series B convertible preferred stock is convertible into 1,000 shares of the Company’s common stock at any time at the holder’s option. The holder, however, will be prohibited from converting Series B convertible preferred stock into shares of common stock if, as a result of such conversion, the holder, together with its affiliates, would own more than 4.99% of the shares of the Company’s common stock then issued and outstanding, which percentage may be increased at the holders’ election up to 19.99% upon 61 days’ notice to the Company. In the event of the Company’s liquidation, dissolution, or winding up, holders of Series B convertible preferred stock will receive a payment equal to $0.0001 per share of Series B convertible preferred stock before any proceeds are distributed to the holders of common stock, after any proceeds are distributed to the holder of the Company’s Class UA preferred stock and pari passu with any distributions to the holders of the Company’s Series A convertible preferred stock. Shares of Series B convertible preferred stock will generally have no voting rights, except as required by law and except that the consent of holders of a majority of the outstanding Series B convertible preferred stock will be required to amend the terms of the Series B convertible preferred stock. Shares of Series B convertible preferred stock will not be entitled to receive any dividends, unless and until specifically declared by the Company’s board of directors, and will rank:

 

    senior to all common stock;

 

    senior to any class or series of capital stock created specifically ranking by its terms junior to the Series B convertible preferred stock;

 

    on parity with the Company’s Series A convertible preferred stock and any class or series of capital stock created specifically ranking by its terms on parity with the Series B convertible preferred stock; and

 

    junior to the Company’s Class UA preferred stock and any class or series of capital stock created specifically ranking by its terms senior to the Series B convertible preferred stock;

in each case, as to distributions of assets upon the Company’s liquidation, dissolution or winding up whether voluntarily or involuntarily.

Aggregate gross proceeds from the February 2015 offerings were approximately $24.0 million. Aggregate net proceeds from the February 2015 offerings, after underwriting discounts, commissions and estimated expenses of $1.6 million, were approximately $22.4 million.

September 2014 Financing

Common Stock

On September 23, 2014, the Company closed on an underwritten offering of 10,000,000 shares of its common stock at a price to the public of $2.00 per share, for gross proceeds of $20.0 million. As part of the common stock offering, the Company also granted the underwriters, and the underwriters exercised, a 30-day option to purchase 1,500,000 additional shares of the Company’s common stock at a price to the public of $2.00 per share, less underwriting discounts and commissions, which resulted in net proceeds to the Company of approximately $3.0 million.

Series A Convertible Preferred Stock

In addition, on September 23, 2014, the Company closed on a concurrent but separate underwritten offering of 10,000 shares of its Series A convertible preferred stock at a price to the public of $2,000 per share, for gross proceeds of $20.0 million, and the Company designated 10,000 shares of its authorized and unissued preferred stock as Series A convertible preferred stock and filed a Certificate of Designation of Preferences, Rights and Limitations of Series A Convertible Preferred Stock with the Delaware Secretary of State.

 

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Each share of Series A convertible preferred stock is convertible into 1,000 shares of the Company’s common stock at any time at the holder’s option. The holder, however, will be prohibited from converting Series A convertible preferred stock into shares of common stock if, as a result of such conversion, the holder, together with its affiliates, would own more than 4.99% of the shares of the Company’s common stock then issued and outstanding. In the event of the Company’s liquidation, dissolution, or winding up, holders of Series A convertible preferred stock will receive a payment equal to $0.0001 per share of Series A convertible preferred stock before any proceeds are distributed to the holders of common stock, but after any proceeds are distributed to the holder of the Company’s Class UA preferred stock. Shares of Series A convertible preferred stock will generally have no voting rights, except as required by law and except that the consent of holders of a majority of the outstanding Series A convertible preferred stock will be required to amend the terms of the Series A convertible preferred stock. Shares of Series A convertible preferred stock will not be entitled to receive any dividends, unless and until specifically declared by the Company’s board of directors, and will rank:

 

    senior to all common stock;

 

    senior to any class or series of capital stock created specifically ranking by its terms junior to the Series A convertible preferred stock;

 

    on parity with the Company’s Series B convertible preferred stock and any class or series of capital stock created specifically ranking by its terms on parity with the Series A convertible preferred stock; and

 

    junior to the Company’s Class UA preferred stock and any class or series of capital stock created specifically ranking by its terms senior to the Series A convertible preferred stock;

in each case, as to distribution of assets upon the Company’s liquidation, dissolution or winding up whether voluntarily or involuntarily.

Aggregate gross proceeds from the September 2014 offerings were approximately $43.0 million. Aggregate net proceeds from the offerings, after commissions and estimated expenses of $2.8 million, were approximately $40.2 million which included $21.6 million from the Company’s common stock offering and $18.6 million from the Company’s Series A convertible preferred stock offering.

 

8. WARRANTS

Warrants consist of liability-classified warrants and equity-classified warrants. As of March 31, 2015, warrants to purchase a total of 8,230,848 shares of the Company’s common stock were outstanding. No warrants were exercised or expired during the three months ended March 31, 2015 and March 31, 2014.

Equity-Classified Warrants

Equity-classified warrants consist of warrants issued in connection with the Company’s registered direct offering to Biotechnology Value Fund, L.P. and other affiliates of BVF Partners L.P. (collectively, BVF) and warrants issued in connection with a term loan with General Electric Capital Corporation (GECC). In June 2013, the Company issued warrants to purchase 5,000,000 shares of common stock at an exercise price of $5.00 per share in connection with a registered direct offering to BVF. The warrants expire on December 5, 2018. In February 2011, the Company issued warrants to purchase 48,701 shares of common stock at an exercise price of $3.08 per share in connection with a loan and security agreement entered into with GECC. The warrants expire on February 8, 2018. As of March 31, 2015, warrants to purchase 5,048,701 shares of common stock were outstanding and classified as equity.

Liability-Classified Warrants

Liability-classified warrants consist of warrants issued in conjunction with an equity financing in September 2010. The warrants issued in September 2010 have been classified as liabilities, as opposed to equity, due to potential cash settlements upon the occurrence of certain transactions specified in the warrant agreement. As of March 31, 2015, warrants to purchase 3,182,147 shares of the Company’s common stock from the September 2010 financing that expire on October 12, 2015 were outstanding and classified as a liability.

The estimated fair value of outstanding warrants accounted for as liabilities is determined at each balance sheet date. The change in the estimated fair value of such warrants is recorded in the condensed consolidated statement of operations as other income (expenses). The fair value of the warrants is estimated using the Black-Scholes option-pricing model with the following inputs for the warrants:

 

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    September 2010 Warrants  
    As of March 31, 2015     As of December 31, 2014  

Exercise price

  $ 4.24      $ 4.24   

Market value of stock at end of period

  $ 1.63      $ 1.90   

Expected dividend rate

    0.0     0.0

Expected volatility

    46.5     60.3

Risk-free interest rate

    0.3     0.2

Expected life (in years)

    0.53        0.78   

The fair value of the warrant liability was zero as of March 31, 2015. While the warrants have not expired, the primary factors affecting the decrease in value of the warrants were the time left until expiration and the fair market value of the stock price as of March 31, 2015 in relation to the strike price of the warrants.

The fair value of the warrant liability and the changes in its fair value during the three months ended March 31, 2015 and March 31, 2014 were as follows:

 

     Three months ended March 31,  
     2015      2014  
     (In thousands)  

Balance at beginning of period

   $ 128       $ 924   

Change in fair value of warrant liability included in:

     

Other expense (income)

     (128      2,477   
  

 

 

    

 

 

 

Balance at the end of period

$    $ 3,401   
  

 

 

    

 

 

 

Expected volatility is an unobservable input that is inter-related with the market value or price of the Company’s stock, since the calculation of volatility is based on the Company’s historical closing prices. There would be no impact on the value of the warrant liability if volatility were to increase or decrease by 10%.

 

9. SHARE-BASED COMPENSATION

Share Option Plan

The Company sponsors an option plan (the Share Option Plan) under which a maximum fixed reloading percentage of 10% of the issued and outstanding common stock of the Company may be granted to employees, directors and service providers. Options granted under the Share Option Plan prior to January 2010 began vesting after one year from the date of grant, are exercisable in equal amounts over four years on the anniversary date of the grant, and expire eight years following the date of grant. Options granted under the Share Option Plan after January 2010 vest 25% on the first anniversary of the vesting commencement date, with the balance vesting in monthly increments for 36 months following the first anniversary of hiring, and expire eight years following the date of grant. As of March 31, 2015, the number of shares of common stock available for issuance under the Share Option Plan was 10,230,101. As of March 31, 2015, 3,914,012 shares of common stock remained available for future grant under the Share Option Plan.

During the three months ended March 31, 2015 and March 31, 2014, the Company granted 17,000 and 52,500 stock options, respectively. Stock compensation expense was $0.5 million for the three months ended March 31, 2015 and $0.4 million for the three months ended March 31, 2014, respectively. No stock options were exercised during the three months ended March 31, 2015 and March 31, 2014.

The Company uses the Black-Scholes option pricing model to value the options at each grant date, using the following weighted average assumptions:

 

     Three months ended March 31,  
     2015     2014  

Expected dividend rate

     0.00     0.00

Expected volatility

     77.70     54.98

Risk-free interest rate

     1.41     0.21

Expected life (in years)

     6.00        1.07   

 

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The expected life represents the period that the Company’s stock options are expected to be outstanding and was determined based on the simplified method, which calculates the expected life as the average of the vesting term and the contractual term of the option. The Company’s historical stock option exercise data were impacted by a restructuring of its business in 2008. Because the Company does not have sufficient historical stock option exercise data to accurately estimate the expected term used for its valuation of stock options, the Company continues to use the simplified method to calculate the expected term of new stock option grants to employees. As the Company accumulates more data and history related to the exercises of stock option awards, the Company will reassess its use of the simplified method to determine the expected term. The expected volatility is based on the historical volatility of the Company’s common stock for a period equal to the stock option’s expected life. The risk-free interest rate is based on the yield at the time of grant of a U.S. Treasury security with an equivalent expected term of the option. The Company does not expect to pay dividends on its common stock. The amounts estimated according to the Black-Scholes option pricing model may not be indicative of the actual values realized upon the exercise of these options by the holders.

Share-based compensation guidance requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from estimates. The Company estimates forfeitures based on its historical experience.

Employee Stock Purchase Plan

The Company adopted an Employee Stock Purchase Plan (ESPP) on June 3, 2010, pursuant to which a total of 900,000 shares of common stock were reserved for sale to employees of the Company. The ESPP is administered by the compensation committee of the board of directors and is open to all eligible employees of the Company. Under the terms of the ESPP, eligible employees may purchase shares of the Company’s common stock at six month intervals during 18-month offering periods through periodic payroll deductions, which may not exceed 15% of any employee’s compensation and may not exceed a value of $25,000 in any calendar year, at a price not less than the lesser of an amount equal to 85% of the fair market value of the Company’s common stock at the beginning of the offering period or an amount equal to 85% of the fair market value of the Company’s common stock on each purchase date. The maximum aggregate number of shares that may be purchased by each eligible employee during each offering period is 15,000 shares of the Company’s common stock. For the three months ended March 31, 2015 and March 31, 2014, expense related to this plan was $11,348 and $32,196, respectively. Under the ESPP, the Company did not issue any shares to employees during each of the three month periods ended March 31, 2015 and March 31, 2014. There are 600,533 shares reserved for future issuances under the ESPP as of March 31, 2015.

Restricted Share Unit Plan

The Company also sponsors a restricted share unit plan (RSU Plan) for non-employee directors that was established in 2005. The RSU Plan provides for grants to be made from time to time by the board of directors or a committee thereof. Each restricted stock unit granted will be made in accordance with the RSU Plan and terms specific to that grant. Approximately 75% of each RSU represents a contingent right to receive approximately 0.75 of a share of the Company’s common stock upon vesting and approximately 25% represents a contingent right to receive cash upon vesting without any further consideration payable to the Company in respect thereof. On June 6, 2014, the Company’s stockholders approved an increase of 500,000 shares in the number of shares of the Company’s common stock reserved for issuance under the RSU Plan. The current maximum number of common shares of the Company reserved for issuance pursuant to the RSU Plan is 966,666. As of March 31, 2015, 502,978 shares of common stock remain available for future grant under the RSU Plan. The Company granted 27,932 restricted share units (RSUs) with a fair value of approximately $50,000 during the three months ended March 31, 2015. The Company did not grant any RSUs during the three months ended March 31, 2014. Zero and 77,408 shares were issued upon conversion of RSUs during the three months ended March 31, 2015 and March 31, 2014, respectively. The fair value of each RSU has been determined to be the closing trading price of the Company’s common shares on the date of grant as quoted in NASDAQ Global Market.

Approximately 25% of each RSU represents a contingent right to receive cash upon vesting, and the Company is required to deliver an amount in cash equal to the fair market value of these shares on the vesting date to facilitate the satisfaction of the non-employee directors’ U.S. federal income tax obligation with respect to the vested RSUs. The outstanding RSU awards are required to be remeasured at each reporting date until settlement of the award, and changes in valuation are recorded as compensation expense for the period. To the extent that the liability recorded in the balance sheet is less than the original award value, the difference is recognized in equity. The fair value of the outstanding RSUs on the reporting date is determined to be the closing trading price of the Company’s common shares on that date.

 

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The remeasurement of the outstanding RSUs together with the grant and conversion of the RSUs resulted in an additional $1,500 and $287,000 in share-based compensation expense recorded in general and administrative expenses in the condensed consolidated statement of operations for the three months ended March 31, 2015 and March 31, 2014, respectively.

 

10. CONTINGENCIES, COMMITMENTS, AND GUARANTEES

Pursuant to various license agreements, the Company is obligated to make payments based both on the achievement of certain milestones and a percentage of revenues derived from the licensed technology and royalties on net sales.

In the normal course of operations, the Company indemnifies counterparties in transactions such as purchase and sale contracts for assets or shares, service agreements, director/officer contracts and leasing transactions. These indemnification agreements may require the Company to compensate the counterparties for costs incurred as a result of various events, including environmental liabilities, changes in (or in the interpretation of) laws and regulations, or as a result of litigation claims or statutory sanctions that may be suffered by the counterparties as a consequence of the transaction. The terms of these indemnification agreements vary based upon the contract, the nature of which prevents the Company from making a reasonable estimate of the maximum potential amount that could be required to pay to counterparties. Historically, the Company has not made any significant payments under such indemnification agreements and no amounts have been accrued in the accompanying condensed consolidated financial statements with respect to these indemnification guarantees.

 

11. COLLABORATIVE AND LICENSE AGREEMENTS

Array BioPharma Inc.

On December 11, 2014, the Company entered into a License Agreement (the License Agreement) with Array BioPharma Inc. (Array). Pursuant to the License Agreement, Array granted the Company an exclusive license to develop, manufacture and commercialize ONT-380, an orally active, reversible and selective small-molecule HER2 inhibitor. The License Agreement replaced and terminated the prior Development and Commercialization Agreement, dated May 29, 2013 by and between the Company and Array (the Collaboration Agreement), pursuant to which Oncothyreon and Array were jointly developing ONT-380. The Company is now solely responsible for all pre-clinical and clinical development, regulatory and commercialization activities relating to ONT-380.

Under the terms of the License Agreement, the Company paid Array an upfront fee of $20 million, which was recorded as part of research and development expense upon initiation of the exclusive license agreement. In addition, if the Company sublicenses rights to ONT-380 to a third party, the Company will pay Array a percentage of any sublicense payments it receives, with the percentage varying according to the stage of development of ONT-380 at the time of the sublicense. If the Company is acquired within three years of the effective date of the License Agreement, and ONT-380 has not been sublicensed to another entity prior to such acquisition, then the acquirer will be required to make certain milestone payments of up to $280 million to Array, which are primarily based on potential ONT-380 sales. Array is also entitled to receive up to a double-digit royalty based on net sales of ONT-380.

The License Agreement will expire on a county-by-country basis ten years following the first commercial sale of the product in each respective country, but may be terminated earlier by either party upon material breach of the License Agreement by the other party or the other party’s insolvency, or by the Company on 180 days’ notice to Array. The Company and Array have also agreed to indemnify the other party for certain of their respective warranties and obligations under the License Agreement.

Pursuant to the terms of the License Agreement, the Company and Array agreed to terminate the Collaboration Agreement. The Company paid Array an upfront fee of $10 million upon initiation of the collaboration in 2013, which was recorded as part of research and development expense. The Company did not incur any early termination penalties as a result of termination of the Collaboration Agreement.

Celldex Therapeutics, Inc.

On May 28, 2014, the Company entered into a Co-Development Agreement with Celldex Therapeutics, Inc. (Celldex) to collaborate on a combined Phase 1b clinical trial of ONT-10 and varlilumab. The primary objective of the trial is to determine the safety and tolerability of the combined therapy. Additional objectives include evaluations of the impact of combination treatment on MUC1-specific humoral and cellular immune responses and anti-tumor effects.

 

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The agreement provides that the Company will supply ONT-10 and Celldex will supply varlilumab. The Phase 1b trial will be conducted and funded by the Company. The Company and Celldex will jointly own the data from the trial and will make any plans for potential future development of the combination therapy together. There are no payments due under this agreement.

STC.UNM

Effective June 30, 2014, Alpine Biosciences, Inc. (Alpine) entered into an exclusive license agreement with STC.UNM, by assignment from The Regents of the University of New Mexico, to license the rights to use certain technology relating to protocells, a mesoporous silica nanoparticle delivery platform. Oncothyreon acquired Alpine in August 2014. Under the terms of the license agreement, the Company, as successor to Alpine, has the right to conduct research, clinical development and commercialize all inventions and products that are developed from the platform technology in certain fields of use as described in the license agreement. In exchange for the exclusive license, the Company is obligated to make a series of payments including on-going annual license payments, reimbursement of patent costs, success based milestones up to $5 million, a double-digit royalty on commercial sublicensing income and a low single-digit royalty based on net sales, if any. In addition, Alpine issued STC.UNM a number of shares of common stock such that STC.UNM owned 5% of the outstanding equity of Alpine prior to the merger between the Company and Alpine.

Sentinel Oncology Ltd.

In April 2014, the Company entered into an exclusive license and research collaboration agreement with Sentinel Oncology Limited (Sentinel) for the development of novel small molecule Chk1 kinase inhibitors. Under the agreement, the Company makes payments to Sentinel to support their chemistry research. The Company is responsible for pre-clinical and clinical development, manufacture and commercialization of any resulting compounds. Sentinel is eligible to receive success-based development and commercial milestone payments up to approximately $90 million based on development and commercialization events, including the initiation of cGMP toxicology studies, the initiation of certain clinical trials, regulatory approval and first commercial sale. Sentinel is also entitled to a single-digit royalty based on net sales.

Merck KGaA

In May 2001, the Company and Merck KGaA entered into a collaborative arrangement to pursue joint global product research, clinical development and commercialization for two product candidates, including tecemotide (formerly known as L-BLP25 or Stimuvax), a MUC1-based liposomal cancer vaccine. This collaboration agreement was subsequently revised and ultimately replaced in 2008 with a license agreement. Under the 2008 license agreement, (1) the Company licensed to Merck KGaA the exclusive right to develop, commercialize and manufacture tecemotide and the right to sublicense to other persons all rights licensed to Merck KGaA by the Company, (2) the Company transferred certain manufacturing know-how, (3) the Company agreed not to develop any product, other than ONT-10, that is competitive with tecemotide and (4) if the Company intends to license the development or commercialization rights to ONT-10, Merck KGaA will have a right of first negotiation with respect to such rights. In 2014, Merck KGaA announced that it does not intend to continue the clinical development of tecemotide. Merck KGaA is continuing to support certain investigator-sponsored studies of tecemotide.

 

12. INCOME TAX

Due to projected and actual losses for the years ended December 31, 2015 and 2014, respectively, and the Company’s history of losses, the Company has not recorded an income tax benefit for the three months ended March 31, 2015 and March 31, 2014. The Company has recognized a full valuation allowance on its deferred tax assets. The Company’s net deferred tax assets and net deferred tax liabilities were recorded in other assets and accrued and other liabilities, respectively on the Condensed Consolidated Balance Sheets as of March 31, 2015 and December 31, 2014.

 

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13. RELATED PARTY TRANSACTIONS

Certain of the Company’s affiliates participated in the Company’s recent public underwritten offering. In February 2015, the Company closed concurrent but separate underwritten offerings of 13,500,000 shares of its common stock at a price of $1.50 per share, for gross proceeds of $20.3 million, and 1,333 shares of its Series B convertible preferred stock at a price of $1,500 per share for gross proceeds of $2.0. In this offering, affiliates of BVF, Inc., a holder of more than 5% of the Company’s outstanding common stock, purchased 1,333 shares of the Company’s Series B preferred stock for an aggregate purchase price of $2.0 million. Separate but concurrent with these offerings, affiliates of BVF, Inc. also exchanged 4,000,000 shares of common stock for 4,000 shares of Series B preferred stock.

 

14. SUBSEQUENT EVENTS

None.

 

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The information in this Item 2—“Management’s Discussion and Analysis of Financial Condition and Results of Operations” should be read in conjunction with our condensed consolidated financial statements and related notes included in Part I, Item 1 of this Quarterly Report on Form 10-Q. This discussion contains forward-looking statements or incorporates by reference forward-looking statements. You should read these statements carefully because they discuss future expectations, contain projections of future results of operations or financial condition, or state other “forward-looking” information. These statements relate to our, or in some cases, our partners’ future plans, objectives, expectations, intentions and financial performance and the assumptions that underlie these statements. These forward-looking statements include, but are not limited to, statements regarding:

 

    the results we anticipate from our discovery research, pre-clinical development activities and the clinical trials of our product candidates;

 

    our belief that our product candidates could potentially be useful for many different oncology indications that address large markets;

 

    our ability to manage our growth;

 

    the size of the markets for the treatment of conditions our product candidates target;

 

    our ability to acquire or in-license additional product candidates and technologies;

 

    our ability to manage our relationship with Array to develop and commercialize ONT-380;

 

    our ability to generate future revenue;

 

    financing to support our operations, clinical trials and commercialization of our products;

 

    our ability to adequately protect our proprietary information and technology from competitors and avoid infringement of proprietary information and technology of our competitors;

 

    the possibility that government-imposed price restrictions may make our products, if successfully developed and commercialized following regulatory approval, unprofitable;

 

    potential exposure to product liability claims and the impact that successful claims against us will have on our ability to commercialize our product candidates;

 

    our ability to obtain on commercially reasonable terms adequate product liability insurance for our commercialized products;

 

    the possibility that competing products or technologies may make our products, if successfully developed and commercialized following regulatory approval, obsolete;

 

    our ability to succeed in finding and retaining joint venture and collaboration partners to assist us in the successful marketing, distribution and commercialization of our products;

 

    our ability to attract and retain highly qualified scientific, clinical, manufacturing, and management personnel;

 

    our ability to identify and capitalize on possible collaboration, strategic partnering, acquisition or divestiture opportunities; and

 

    potential problems with third parties, including suppliers and key personnel, upon whom we are dependent.

All forward-looking statements are based on information available to us on the date of this quarterly report and we will not update any of the forward-looking statements after the date of this quarterly report, except as required by law. Our actual results could differ materially from those discussed in this quarterly report. The forward-looking statements contained in this quarterly report, and other written and oral forward-looking statements made by us from time to time, are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated in the forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed in this quarterly report in Part II, Item 1A—“Risk Factors,” and elsewhere in this quarterly report.

 

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Overview

We are a clinical-stage biopharmaceutical company focused primarily on the development of therapeutic products for the treatment of cancer. Our goal is to discover, develop and commercialize novel compounds that have the potential to improve the lives and outcomes of cancer patients. Our current clinical-stage product candidates include ONT-380, an orally active and selective small-molecule HER2 inhibitor, and ONT-10, a therapeutic vaccine targeting the Mucin 1 peptide antigen (MUC1). We are developing preclinical product candidates in oncology, and potentially certain rare diseases, using our recently acquired protocell technology. We also collaborate with partners to discover and develop additional product candidates.

We are developing ONT-380 for the treatment of HER2-positive metastatic breast cancer. ONT-380 is a small molecule inhibitor of HER2, also known as ErbB2, a receptor tyrosine kinase that is over-expressed in breast cancer and other cancers, such as gastric and ovarian cancer. Over-expression of HER2 in breast cancer is associated with increased mortality in early stage disease, decreased time to relapse, and increased incidence of metastases. We have an exclusive license agreement with Array BioPharma Inc. (Array) to develop, manufacture and commercialize ONT-380.

We are currently conducting two Phase 1b trials of ONT-380, one in combination with Kadcyla® (ado-trastuzumab emtansine or TDM-1) and another in combination with Xeloda® (capecitabine) and/or Herceptin® (trastuzumab). In December 2014, we announced that interim data from these Phase 1b trials indicated preliminary clinical activity and tolerability in a heavily pretreated patient population. Each of these ongoing trials is also enrolling a cohort of patients with HER2-positive breast cancer metastatic to the central nervous system (CNS). ONT-380 has demonstrated superior activity, based on overall survival, compared to Tykerb® (lapatinib) and to the investigational drug, neratinib, in an intracranial HER2+ breast cancer xenograft model. This provides a rationale to explore whether ONT-380 can provide benefit to patients with brain metastases, which occur in approximately one-third of women with metastatic HER2+ breast cancer.

We are conducting a Phase 1 trial for ONT-10, a cancer vaccine directed against MUC1. Results from this trial have demonstrated that ONT-10 activates the humoral arm of the immune system and elicits antibodies specific for MUC1. Natural antibodies against MUC1 have been shown to correlate with improved survival in patients with tumors expressing MUC1. This trial is also the first-in-man trial for our novel vaccine adjuvant PET-Lipid A, a fully-synthetic toll-like receptor 4 agonist. We are also conducting a Phase 1b trial of ONT-10 in combination with the T-cell agonist antibody varlilumab in collaboration with Celldex.

We are increasingly focused on expanding our pipeline of product candidates through both internal research and collaborative efforts. To support our internal efforts, in August 2014 we acquired Alpine Biosciences, Inc., of Seattle, Washington (Alpine), a privately held biotechnology company developing protocells, a nanoparticle platform technology designed to enable the targeted delivery of multiple therapeutic agents, including nucleic acids, proteins, peptides and small molecules. We intend to utilize the protocell technology to develop new product candidates for the treatment of cancer and rare diseases, either on our own or with partners. We are also collaborating with Sentinel Oncology Ltd., of Cambridge, United Kingdom for the development of novel small molecule Chk1 kinase inhibitors. We have identified a lead product candidate molecule, for which we currently expect to file an Investigational New Drug application (IND) in late 2015. In addition, we recently initiated a collaboration with Adimab LLC of Lebanon, New Hampshire for the discovery of novel antibodies against undisclosed immunotherapy targets in oncology.

We have not developed a therapeutic product to the commercial stage. As a result, our revenue has been limited to date, and we do not expect to recognize any material revenue for the foreseeable future. In particular, our ability to generate revenue in future periods will depend substantially on the progress of ongoing and/or future clinical trials for ONT-380 and ONT-10, our success in obtaining regulatory approval for ONT-380 and ONT-10, and our ability to establish commercial markets for these drugs. As ONT-380 and ONT-10 are in early clinical development, we do not expect to realize any revenues associated with the commercialization of these product candidates for the foreseeable future.

The continued research and development of our product candidates will require significant additional expenditures, including preclinical studies, clinical trials, manufacturing costs and the expenses of seeking regulatory approval. We rely on third parties to conduct a portion of our preclinical studies, all of our clinical trials and all of the manufacturing of current good manufacturing practice (cGMP) material. We expect expenditures associated with these activities to increase in future years as we continue the development of ONT-380 and ONT-10, and as we advance the development of our preclinical product candidates.

 

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We have incurred substantial losses since our inception. As of March 31, 2015, our accumulated deficit totaled $490.0 million. We incurred a net loss of $7.9 million for the three months ended March 31, 2015 compared to a net loss of $9.6 million for the same period in 2014. The decrease in loss for the three months ended March 31, 2015 was primarily due to $0.1 million in non-cash income from the change in the fair value of our warrant liability during the three months ended March 31, 2015 compared to $2.5 million in non-cash expense from the change in the fair value of our warrant liability during the three months ended March 31, 2014. The change in the fair value of our warrant liability is attributable to changes in our stock price, volatility and expected life of our warrants that were classified as liabilities. The decrease in loss was partly offset by higher research and development expenses primarily due to greater activity related to the development of our product candidates. In future periods, we expect to continue to incur substantial net losses as we expand our research and development activities with respect to our product candidates. To date we have funded our operations principally through the sale of our equity securities, cash received through our strategic alliance with Merck KGaA, government grants, debt financings and equipment financings.

Key Financial Metrics

Expenses

Research and Development . Research and development expense consists of costs associated with research activities as well as costs associated with our product development efforts, conducting preclinical studies and clinical trial and manufacturing costs. These expenses primarily include external research and development expenses incurred pursuant to collaboration agreements; agreements with third-party manufacturing and contract research organizations; technology access and licensing fees related to the use of proprietary third-party technologies; employee related expenses, including salaries, share-based compensation expense, benefits and related costs; allocated facility overhead which includes depreciation and amortization; and third-party consulting and supplier expenses. We recognize research and development expenses, including those paid to third parties, as they have been incurred.

General and Administrative . General and administrative expense consists principally of salaries, benefits, share-based compensation expense and related costs for personnel in our executive, business development, finance, accounting, legal, human resource functions and information technology services. Other general and administrative expenses include professional fees for legal, consulting, accounting services and allocation of our facility costs, which includes depreciation and amortization.

Investment and Other Income (Expense), Net . Net investment and other income (expense) consisted of interest and other income on our cash and short-term and long-term investments, debt, foreign exchange gains and losses and other non-operating income (expense). Our investments consist of debt securities of U.S. government agencies and corporate bonds.

Change in Fair Value of Warrants . Warrants issued in connection with our securities offerings in September 2010 are classified as a liability due to their potential settlement in cash and other terms and, as such, were recorded at their estimated fair value on the date of the closing of the respective transactions. The warrants are marked to market for each financial reporting period, with changes in estimated fair value recorded as a gain or loss in our condensed consolidated statements of operations. The fair value of the warrants is determined using the Black-Scholes option-pricing model, which requires the use of significant judgment and estimates for the inputs used in the model. For more information, see “Note 8—Warrants” of the unaudited financial statements included in this report.

Critical Accounting Policies and Significant Judgments and Estimates

We have prepared this Management’s Discussion and Analysis of Financial Condition and Results of Operations based on our condensed consolidated financial statements, which have been included elsewhere in this report and which have been prepared in accordance with generally accepted accounting principles in the United States. These accounting principles require us to make estimates and judgments that can affect the reported amounts of assets and liabilities as of the dates of our consolidated financial statements as well as the reported amounts of revenue and expense during the periods presented. Some of these judgments can be subjective and complex, and, consequently, actual results may differ from these estimates. For any given individual estimate or assumption we make, there may also be other estimates or assumptions that are reasonable. We believe that the estimates and judgments upon which we rely are reasonable based upon historical experience and information available to us at the time that we make these estimates and judgments. To the extent there are material differences between these estimates and actual results, our consolidated financial statements will be affected. Although we believe that our judgments and estimates are appropriate, actual results may differ from these estimates.

 

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Our critical accounting policies and significant estimates are detailed in our Annual Report on Form 10-K for the year ended December 31, 2014 filed with the SEC on March 10, 2015. There have been no material changes in our critical accounting policies and judgments since that date.

Results of Operations for the Three Month Periods Ended March 31, 2015 and March 31, 2014

Overview

The following table sets forth selected consolidated statements of operations data for each of the periods indicated.

 

     Three Months Ended March 31,  
     2015      2014  
     (In millions)  

Operating expenses

   $ 8.1       $ 7.2   

Change in fair value of warrant liability—income (loss)

   $ 0.1       $ (2.4

Net loss

   $ (7.9    $ (9.6

Operating expenses were higher for the three months ended March 31, 2015 compared to the three months ended March 31, 2014 due to increases in research and development expenses. Based on our development plans for our product candidates, we will continue to incur operating losses for the foreseeable future.

We incurred a net loss of $7.9 million for the three months ended March 31, 2015 compared to a net loss of $9.6 million for the three months ended March 31, 2014. The decrease in our net loss was primarily due to $0.1 million in non-cash income from the change in the fair value of our warrant liability during the three months ended March 31, 2015 compared to $2.5 million in non-cash expense from the change in the fair value of our warrant liability during the three months ended March 31, 2014, which was partially offset by increases in operating expenses.

Income or expense associated with the change in fair value of the warrant liability is the result of the remeasurement of the fair value of the warrant liability at each reporting date. Changes in the fair value of the warrant liability are attributable to increases or decreases in our stock price, volatility and expected life of our liability-classified warrants. For more information, see “Note 8 — Warrants” of the unaudited financial statements included elsewhere in this quarterly report on Form 10-Q.

Research and Development Expense

 

     Three Months Ended March 31,  
     2015      2014  
     (In millions)  

Research and development

   $ 5.8       $ 4.8   

Research and development expenses increased by $1.0 million, or 20.8%, for the three months ended March 31, 2015 compared to the three months ended March 31, 2014, principally due to increases in salaries and benefits of $0.9 million attributable to increased headcount. In addition, clinical trial expenses increased by $0.2 million, partly offset by lower manufacturing development and preclinical expenses of $0.2 million.

General and Administrative Expense

 

     Three Months Ended March 31,  
     2015      2014  
     (In millions)  

General and administrative

   $ 2.3       $ 2.3   

There was no change in general and administrative expenses for the three months ended March 31, 2015 compared to the three months ended March 31, 2014.

 

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Change in Fair Value of Warrant Liability

 

     Three Months Ended March 31,  
     2015      2014  
     (In millions)  

Change in fair value of warrant liability — income (expense)

   $ 0.1       $ (2.5

The $0.1 million non-cash income for the three months ended March 31, 2015 was due to the change in the estimated fair value of warrant liability during that period. Such change was attributable to the change in the price of our common stock as well as volatility and expected life of the warrants and pertains to warrants issued in connection with the September 2010 financing. We determined the fair value of the warrants using the Black-Scholes model. For more information, see “Note 8—Warrants” of the unaudited financial statements included in this report.

Liquidity and Capital Resources

Cash, Cash Equivalents, Investments and Working Capital

As of March 31, 2015, our principal sources of liquidity consisted of cash and cash equivalents of $13.5 million, short-term investments of $60.5 million and long-term investments of $3.5 million. Our cash and cash equivalents consist of cash, money market funds and securities with an initial maturity of less than 90 days. Our short-term investments are invested in debt securities of U.S government agencies and corporate bonds with maturities not exceeding 12 months from the reporting date. Our long-term investments are invested in debt securities of U.S government agencies with maturities exceeding 12 months from the reporting date. Our primary source of cash has historically been proceeds from the issuance of equity securities, exercise of warrants, debt and payments to us under grants, licensing and collaboration agreements. These proceeds have been used to fund our operations.

Our cash and cash equivalents were $13.5 million as of March 31, 2015 compared to $10.5 million as of December 31, 2014, an increase of $3.0 million, or 28.6%. The increase was attributable to net proceeds of $22.4 million from our February 2015 concurrent but separate underwritten offerings of our common stock and Series B convertible preferred stock, which resulted in net proceeds of $20.5 million and $1.9 million, respectively. The increase was partly offset by net investment purchases of $10.8 million, cash used to fund our operations of $8.2 million and equipment purchases of $0.3 million.

As of March 31, 2015, our working capital (defined as current assets less current liabilities) was $71.3 million compared to $54.1 million as of December 31, 2014, an increase of $17.2 million, or 31.8%. The increase in working capital was primarily attributable to an increase in short-term investments of $13.3 million, an increase in cash and cash equivalents of $3.1 million and a decrease in accrued compensation and related liabilities of $0.8 million.

On February 11, 2015, we closed concurrent but separate underwritten offerings of 13,500,000 shares of our common stock at a price to the public of $1.50 per share, for gross proceeds of approximately $20.3 million and 1,333 shares of our Series B convertible preferred stock at a price to the public of $1,500 per share, for gross proceeds of approximately $2.0 million. Each share of Series B convertible preferred stock is non-voting and convertible into 1,000 shares of the Company’s common stock, provided that conversion will be prohibited if, as a result, the holder and its affiliates would beneficially own more than 4.99% of the common stock then outstanding. As part of the common stock offering, we also granted the underwriters a 30-day option to purchase 2,025,000 additional shares of our common stock. On February 18, 2015, we closed a partial exercise of the underwriter’s option to purchase 1,199,660 additional shares of our common stock, at a price to the public of $1.50 per share, less underwriting discounts and commissions, which resulted in net proceeds to us of approximately $1.7 million. Aggregate gross proceeds from the offerings were approximately $24.0 million. Aggregate net proceeds from the offerings, after underwriting discounts and commissions and estimated expenses of $1.6 million, were approximately $22.4 million.

We believe that our currently available cash and cash equivalents and investments will be sufficient to finance our operations for at least the next 12 months. Nevertheless, we expect that we will require additional capital from time to time in the future in order to continue the development of products in our pipeline and to expand our product portfolio. We would expect to seek additional financing from the sale and issuance of equity or debt securities.

 

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Cash Flows from Operating Activities

Cash used by operating activities totaled $8.2 million for the three months ended March 31, 2015, compared to $8.0 million for the three months ended March 31, 2014. The increase was attributable primarily to an increase in research and development expenses.

Cash Flows from Investing Activities

Cash used by investing activities was $11.2 million for the three months ended March 31, 2015, compared to cash provided by investing activities of $5.0 million for the three months ended March 31, 2014. This change was attributable primarily to higher purchases of investments, net of redemption, of $15.9 million for the three months ended March 31, 2015 as compared to the three months ended March 31, 2014. In addition, purchases of property and equipment increased by $0.3 million during the three months ended March 31, 2015 compared to the same period in 2014.

Cash Flows from Financing Activities

Cash provided by financing activities was $22.4 million during the three months ended March 31, 2015, which consisted of net proceeds of approximately $22.4 million from our February 2015 concurrent but separate underwritten common stock and Series B convertible preferred stock offerings. Net proceeds from our common stock offering were $20.5 million and net proceeds from our Series B convertible preferred stock offering were $1.9 million. Cash provided by financing activities was $0.1 million during the three months ended March 31, 2014.

Contractual Obligations and Contingencies

In our continuing operations, we have entered into long-term contractual arrangements from time to time for our facilities, the provision of goods and services, and acquisition of technology access rights, among others. The following table presents contractual obligations arising from these arrangements as of March 31, 2015:

 

     Payments Due by Period  
     Total      Less than
1 Year
     1-3 Years      3-5 Years      After
5 Years
 
     (In thousands)  

Operating leases

   $ 2,301       $ 611       $ 1,243       $ 447       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

In May 2008, we entered into a lease for an office and laboratory facility in Seattle, Washington totaling approximately 17,000 square feet. The lease provides for a base monthly rent of $47,715, increasing to $52,259 in 2018. We also have entered into operating lease obligations through June 2017 for certain office equipment.

Under certain licensing arrangements for technologies incorporated into our product candidates, we are contractually committed to payments for sponsored research collaborations, ongoing licensing fees and royalties, as well as contingent payments when certain milestones (as defined in the agreements) may be achieved.

Guarantees and Indemnification

In the ordinary course of our business, we have entered into agreements with our collaboration partners, vendors, and other persons and entities that include guarantees or indemnity provisions. For example, our agreements with clinical trial sites and third party manufacturers contain certain customary indemnification provisions, and we have entered into indemnification agreements with our officers and directors. Based on information known to us as of March 31, 2015, we believe that our exposure related to these guarantees and indemnification obligations is not material.

Off-Balance Sheet Arrangements

During the periods presented, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or for another contractually narrow or limited purpose.

 

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Recent Accounting Pronouncements

There were no new applicable accounting pronouncements during the three months ended March 31, 2015 that would have an impact on our condensed consolidated financial position or results of operations. For recent accounting pronouncements that have not yet been adopted, please refer to the Company’s audited consolidated financial statements for the year ended December 31, 2014 included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014 filed with the SEC on March 10, 2015.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Sensitivity

We had cash, cash equivalents, short-term investments and long-term investments totaling $77.5 million and $63.7 million as of March 31, 2015 and December 31, 2014, respectively. We do not enter into investments for trading or speculative purposes. We believe that we do not have any material exposure to changes in the fair value of these assets as a result of changes in interest rates since a majority of these assets are of a short term nature. Declines in interest rates, however, would reduce future investment income. A ten basis point decline in interest rates, occurring January 1, 2015 and sustained throughout the period ended March 31, 2015, would result in a decline in investment income of approximately $18,000 for that period.

 

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, we conducted an evaluation of the effectiveness, as of the end of the period covered by this report, of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act). The purpose of this evaluation was to determine whether as of the evaluation date our disclosure controls and procedures were effective to provide reasonable assurance that the information we are required to disclose in our filings with the SEC under the Exchange Act (1) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (2) accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure. Based on this evaluation, our chief executive officer and chief financial officer have concluded that, as of March 31, 2015, our disclosure controls and procedures were effective.

Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting during the three months ended March 31, 2015 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitation on the Effectiveness of Internal Controls

The effectiveness of any system of internal control over financial reporting, including ours, is subject to inherent limitations, including the exercise of judgment in designing, implementing, operating, and evaluating the controls and procedures, and the inability to eliminate misconduct completely. Accordingly, any system of internal control over financial reporting, including ours, no matter how well designed and operated, can only provide reasonable, not absolute assurances. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. We intend to continue to monitor and upgrade our internal controls as necessary or appropriate for our business, but cannot assure you that such improvements will be sufficient to provide us with effective internal control over financial reporting.

 

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PART II— OTHER INFORMATION

 

Item 1. Leg al Proceedings

From time to time, we may be involved in litigation relating to claims arising out of our operations in the normal course of business. We are not currently a party to any legal proceedings, the adverse outcome of which, in management’s opinion, individually or in the aggregate, would have a material adverse effect on the results of our operations or financial position. There are no material proceedings to which any director, officer or any of our affiliates, any owner of record or beneficially of more than five percent of any class of our voting securities, or any associate of any such director, officer, our affiliates, or security holder, is a party adverse to us or our consolidated subsidiary or has a material interest adverse thereto.

 

Item 1A. Ris k Factors

Set forth below and elsewhere in this report, and in other documents we file with the SEC are descriptions of risks and uncertainties that could cause actual results to differ materially from the results contemplated by the forward-looking statements contained in this report. Because of the following factors, as well as other variables affecting our operating results, past financial performance should not be considered a reliable indicator of future performance and investors should not use historical trends to anticipate results or trends in future periods. The risks and uncertainties described below are not the only ones facing us. Other events that we do not currently anticipate or that we currently deem immaterial may also affect our results of operations and financial condition.

Risks Relating to our Business

Products that appear promising in research and development may be delayed or may fail to reach later stages of clinical development.

The successful development of pharmaceutical products is highly uncertain. Products that appear promising in research and development may be delayed or fail to reach later stages of development. For example, in September 2014 Merck KGaA announced that its biopharmaceutical division Merck Serono decided to discontinue the clinical development program of tecemotide as a monotherapy in Stage III NSCLC, including the Phase III START2 and INSPIRE studies. The ongoing Phase 1 trials for ONT-380 and ONT-10 may fail to demonstrate that either product candidate is sufficiently safe and effective to warrant further development.

Furthermore, decisions regarding the further development of product candidates must be made with limited and incomplete data, which makes it difficult to accurately predict whether the allocation of limited resources and the expenditure of additional capital on specific product candidates will result in desired outcomes. Preclinical and clinical data can be interpreted in different ways, and negative or inconclusive results or adverse medical events during a clinical trial could delay, limit or prevent the development of a product candidate, which could harm our business, financial condition or the trading price of our securities. There can be no assurance as to whether or when we will receive regulatory approvals for any of our product candidates, including ONT-380 or ONT-10.

There is no assurance that ONT-380 will be safe, effective or receive regulatory approval.

ONT-380 is an early stage clinical development candidate and the risks associated with its development are significant. Promising pre-clinical data in animal models and early clinical data may not be predictive of later clinical trial results. Additional clinical data may fail to establish that ONT-380 is effective in treating breast cancer or central nervous system disease or may indicate safety profile concerns not indicated by early clinical data. In December 2014, we announced that interim data from these ongoing Phase 1b trials indicated preliminary clinical activity and tolerability in a heavily pretreated patient population. However, these trials are not yet complete, and even if final Phase 1 data are encouraging, further trials will be necessary to establish safety and efficacy.

If the results of the current Phase 1 ONT-380 trials, or of future ONT-380 trials, do not indicate a favorable safety and efficacy profile for ONT-380, or otherwise fail to support the continued development of ONT-380, a substantial decline in the price of our common stock could result. There can be no assurance as to whether we will be able to successfully develop and commercialize ONT-380.

 

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Our pipeline as a whole is subject to the inherent risks of early stage pharmaceutical development.

As a function of their development stage, preclinical programs and product candidates in early clinical development are inherently subject to a high degree of risk. Research programs to identify new product candidates require substantial technical, financial and human resources. Because our current product pipeline is comprised of product candidates in pre-clinical development and Phase 1 trials, our business is heavily subject to the risks of early stage pharmaceutical development.

If we are not able to advance our preclinical programs, including our investigation of the utility of checkpoint kinase 1 inhibitors, and our Phase 1 product candidates fail, our pipeline of products in development could be reduced or eliminated. This would cause our stock price to decline and could have a material adverse effect on our business, including but not limited to our ability to raise capital to rebuild our pipeline and develop future product candidates.

We may not be successful in our efforts to use our protocell platform to develop a pipeline of product candidates or create partnership opportunities.

We intend to use our protocell platform to discover and develop our own product candidates. Our protocell platform is at an early stage of development and has not yet, and may never, lead to the development of product candidates. Even if we are successful in developing new product candidates, such product candidates may not be suitable for clinical development, including as a result of their harmful side-effects, limited efficacy or other characteristics that make it unlikely such product candidates will receive regulatory approval or achieve commercial success.

We also intend to enter into strategic partnerships with respect to our protocell platform, including business development transactions that license certain rights to our protocell platform to third parties and research collaborations. We may not be successful in entering into any capital-generating transactions with respect to this technology. Establishing strategic partnerships is difficult and time-consuming. Potential partners may reject partnerships based upon their assessment of our technology or product offerings or our financial, regulatory or intellectual property position. If we fail to establish a sufficient number of partners on acceptable terms, we may not be able to commercialize our products or generate sufficient revenue to fund further research and development efforts. Even if we establish new partnerships, these relationships may never result in the successful development or commercialization of any product candidates.

We have a history of net losses, we anticipate additional losses and we may never become profitable.

Other than the year ended December 31, 2008, we have incurred net losses in each fiscal year since we commenced our research activities. The net income we realized in 2008 was due entirely to our December 2008 transactions with Merck KGaA, and we do not anticipate realizing net income again for the foreseeable future. As of March 31, 2015, our accumulated deficit was approximately $490.0 million. Our losses have resulted primarily from expenses incurred in research and development of our product candidates. We may make significant capital commitments to fund the development of our product candidates. If these development efforts are unsuccessful, the development costs would be incurred without any future revenue, which could have a material adverse effect on our financial condition. We do not know when or if we will complete our product development efforts, receive regulatory approval for any of our product candidates, or successfully commercialize any approved products. As a result, it is difficult to predict the extent of any future losses or the time required to achieve profitability, if at all. Any failure of our products to complete successful clinical trials and obtain regulatory approval and any failure to become and remain profitable could adversely affect the price of our common stock and our ability to raise capital and continue operations.

If we fail to acquire and develop products or product candidates at all or on commercially reasonable terms, we may be unable to grow our business.

The success of our product pipeline strategy depends, in part, on our ability to identify, select and acquire product candidates. Proposing, negotiating and implementing an economically viable product acquisition or license is a lengthy and complex process. We compete for partnering arrangements and license agreements with pharmaceutical and biotechnology companies and academic research institutions. Our competitors may have stronger relationships with third parties with whom we are interested in collaborating or may have more established histories of developing and commercializing products. As a result, our competitors may have a competitive advantage in entering into partnering arrangements with such third parties. In addition, even if we find promising product candidates, and generate interest in a partnering or strategic arrangement to acquire such product candidates, we may not be able to acquire rights to additional product candidates or approved products on terms that we find acceptable, if at all. If we fail to acquire and develop product candidates from others, we may be unable to grow our business.

 

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We expect that any product candidate to which we acquire rights will require additional development efforts prior to commercial sale, including extensive clinical evaluation and approval by the U.S. Food and Drug Administration (FDA) and non-U.S. regulatory authorities. All product candidates are subject to the risks of failure inherent in pharmaceutical product development, including the possibility that the product candidate will not be shown to be sufficiently safe and effective for approval by regulatory authorities. Even if the product candidates are approved, we can make no assurance that we would be capable of economically producing the product or that the product would be commercially successful.

There is no assurance that we will be granted regulatory approval for any of our product candidates.

We are currently conducting two Phase 1b trials for ONT-380, one Phase 1 trial for ONT-10 and collaborating with Celldex to conduct a combination Phase 1b trial of ONT-10 and varlilumab. There can be no assurance that these and future trials will demonstrate sufficient safety and efficacy to obtain the requisite regulatory approvals. A number of companies in the biotechnology and pharmaceutical industries, including our company, have suffered significant setbacks in advanced clinical trials, even after promising results in earlier trials. For example, in September 2014, we and Merck KGaA announced that Merck KGaA decided to discontinue the clinical development program of tecemotide in NSCLC, including the Phase III INSPIRE and START2 studies.

Further, we may be unable to submit applications to regulatory agencies within the time frame we currently expect. Once submitted, applications must be approved by various regulatory agencies before we can commercialize the product described in the application. Additionally, even if applications are submitted, regulatory approval may not be obtained for any of our product candidates, and regulatory agencies could require additional studies to verify safety or efficacy, which could make further development of our product candidates impracticable. If our product candidates are not shown to be safe and effective in clinical trials, we may not receive regulatory approval, which would have a material adverse effect on our business, financial condition and results of operations.

We currently rely on third-party manufacturers to supply our product candidates. Any disruption in production, inability of these third-party manufacturers to produce adequate quantities to meet our needs or other impediments with respect to development or manufacturing could adversely affect our ability to continue our research and development activities or successfully complete pre-clinical studies and clinical trials, delay submissions of our regulatory applications or adversely affect our ability to commercialize our product candidates in a timely manner, or at all.

Under our prior collaboration agreement with Array for the development of ONT-380, Array was responsible for the manufacture of ONT-380, which they outsourced to third parties. In December 2014, we entered into an exclusive license agreement with Array to develop, manufacture and commercialize ONT-380. Under the exclusive license agreement, which superseded the collaboration agreement, we are responsible for the manufacture of ONT-380, which we plan to outsource to third parties. Celldex is responsible for the manufacture of varlilumab, and we are responsible for the manufacture of ONT-10, which we outsource to third parties for the combination trial of ONT-10 and varlilumab. If our or Celldex’s third-party manufacturers cease or interrupt production or if our or Celldex’s third-party manufacturers and other service providers fail to supply materials, products or services to them for any reason, or there are challenges in transferring the ONT-380 manufacturing process from Array to us, such interruption could delay progress on our programs, with the potential for additional costs. Our product candidates have not yet been manufactured on a commercial scale. In order to commercialize a product candidate, the third-party manufacturer may need to increase its manufacturing capacity, which may require the manufacturer to fund capital improvements to support the scale up of manufacturing and related activities. With respect to certain of our product candidates, we may be required to provide all or a portion of these funds. The third-party manufacturer may not be able to successfully increase its manufacturing capacity for our product candidate for which we obtain marketing approval in a timely or economic manner, or at all. If any manufacturer is unable to provide commercial quantities of a product candidate, we will need to successfully transfer manufacturing technology to a new manufacturer. Engaging a new manufacturer for a particular product candidate could require us to conduct comparative studies or use other means to determine equivalence between product candidates manufactured by a new manufacturer and those previously manufactured by the existing manufacturer, which could delay or prevent commercialization of our product candidates. If any of these manufacturers is unable or unwilling to increase its manufacturing capacity or if alternative arrangements are not established on a timely basis or on acceptable terms, the development and commercialization of our product candidates may be delayed or there may be a shortage in supply.

 

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Any manufacturer of our products must comply with cGMP requirements enforced by the FDA through its facilities inspection program or by foreign regulatory agencies. These requirements include quality control, quality assurance and the maintenance of records and documentation. Manufacturers of our products may be unable to comply with these cGMP requirements and with other FDA, state and foreign regulatory requirements. We have little control over our manufacturers’ compliance with these regulations and standards. A failure to comply with these requirements may result in fines and civil penalties, suspension of production, suspension or delay in product approval, product seizure or recall, or withdrawal of product approval. If the safety of any quantities supplied is compromised due to our manufacturers’ failure to adhere to applicable laws or for other reasons, we may not be able to obtain regulatory approval for or successfully commercialize our products.

Pre-clinical and clinical trials are expensive and time consuming, and any failure or delay in commencing or completing clinical trials for our product candidates could severely harm our business.

We are currently conducting Phase 1 clinical trials for ONT-380 and ONT-10. Each of our product candidates must undergo extensive pre-clinical studies and clinical trials as a condition to regulatory approval. Pre-clinical studies and clinical trials are expensive and take many years to complete. The commencement and completion of clinical trials for our product candidates may be delayed by many factors, including:

 

    safety issues or side effects;

 

    delays in patient enrollment and variability in the number and types of patients available for clinical trials;

 

    poor effectiveness of product candidates during clinical trials;

 

    governmental or regulatory delays and changes in regulatory requirements, policy and guidelines;

 

    our ability to obtain regulatory approval to commence a clinical trial and conduct a trial in accordance with good clinical practices;

 

    our ability to manufacture or obtain from third parties materials sufficient for use in pre-clinical studies and clinical trials; and

 

    varying interpretation of data by the FDA and similar foreign regulatory agencies.

It is possible that none of our product candidates will complete clinical trials in any of the markets in which we intend to sell those product candidates. Accordingly, we may not receive the regulatory approvals necessary to market our product candidates. Any failure or delay in commencing or completing clinical trials or obtaining regulatory approvals for product candidates would prevent or delay their commercialization and severely harm our business and financial condition.

The failure to enroll patients for clinical trials may cause delays in developing our product candidates.

We may encounter delays if we are unable to enroll enough patients to timely initiate or complete clinical trials. Patient enrollment depends on many factors, including, the size of the patient population, the nature of the protocol, the proximity of patients to clinical sites and the eligibility criteria for the trial. Moreover, when one product candidate is evaluated in multiple clinical trials simultaneously, patient enrollment in ongoing trials can be adversely affected by negative results from completed trials. Our product candidates are focused in oncology, which can be a difficult patient population to recruit. If we fail to enroll patients for clinical trials, our clinical trials may be delayed or suspended, which could delay our ability to generate revenues.

We rely on third parties to conduct our clinical trials. If these third parties do not perform as contractually required or otherwise expected, we may not be able to obtain regulatory approval for or be able to commercialize our product candidates.

 

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We rely on third parties, such as contract research organizations, medical institutions, clinical investigators and contract laboratories, to assist in conducting our clinical trials. We have, in the ordinary course of business, entered into agreements with these third parties. Nonetheless, we are responsible for confirming that each of our clinical trials is conducted in accordance with its general investigational plan and protocol. Moreover, the FDA and foreign regulatory agencies require us to comply with regulations and standards, commonly referred to as good clinical practices, for conducting, recording and reporting the results of clinical trials to assure that data and reported results are credible and accurate and that the trial participants are adequately protected. Our reliance on third parties does not relieve us of these responsibilities and requirements. If these third parties do not successfully carry out their contractual duties or regulatory obligations or meet expected deadlines, if the third parties need to be replaced or if the quality or accuracy of the data they obtain is compromised due to the failure to adhere to our clinical protocols or regulatory requirements or for other reasons, our pre-clinical development activities or clinical trials may be extended, delayed, suspended or terminated, and we may not be able to obtain regulatory approval for our product candidates.

Our product candidates may never achieve market acceptance even if we obtain regulatory approvals.

Even if we receive regulatory approvals for the commercial sale of our product candidates, the commercial success of these product candidates will depend on, among other things, their acceptance by physicians, patients, third-party payers such as health insurance companies and other members of the medical community as a therapeutic and cost-effective alternative to competing products and treatments. New patterns of care, alternative new treatments or different reimbursement and payor paradigms, possibly due to economic conditions or governmental policies, could negatively impact the commercial viability of our product candidates. If our product candidates fail to gain market acceptance, we may be unable to earn sufficient revenue to continue our business. Market acceptance of, and demand for, any product that we may develop and commercialize will depend on many factors, including:

 

    our ability to provide acceptable evidence of safety and efficacy;

 

    the prevalence and severity of adverse side effects;

 

    availability, relative cost and relative efficacy of alternative and competing treatments;

 

    the effectiveness of our marketing and distribution strategy;

 

    publicity concerning our products or competing products and treatments; and

 

    our ability to obtain sufficient third-party insurance coverage or reimbursement.

If our product candidates do not become widely accepted by physicians, patients, third-party payers and other members of the medical community, our business, financial condition and results of operations would be materially and adversely affected.

The termination of Merck’s 2008 license agreement with us could harm our business and negatively affect the development prospects for ONT-10.

Pursuant to our 2008 license agreement with Merck KGaA, Merck KGaA has the exclusive right to develop, manufacture and commercialize tecemotide in return for our right to receive cash payments upon the occurrence of certain events and royalties based on net sales. Merck KGaA has the right to terminate the license agreement upon thirty days’ prior written notice if, in its reasonable judgment, it determines there are issues concerning the safety or efficacy of tecemotide that would materially and adversely affect tecemotide’s medical, economic or competitive viability. In September 2014, Merck KGaA announced that its biopharmaceutical division Merck Serono decided to discontinue the clinical development program of tecemotide as a monotherapy in Stage III NSCLC. Merck KGaA may ultimately decide not to continue development of tecemotide as a combination therapy or in any manner and may terminate the 2008 license agreement. Any future payments under the license agreement, including royalties to us, will depend on whether Merck KGaA decides to advance tecemotide through development and commercialization.

Merck KGaA’s decisions regarding the development of tecemotide and the license agreement may also negatively impact the development of ONT-10, as both ONT-10 and tecemotide are targeted at the MUC1 antigen. Merck KGaA’s recent announcement of Merck Serono’s decision to discontinue the Phase III START2 and INSPIRE studies of tecemotide substantially decreases the likelihood that Merck KGaA will exercise its right of first negotiation with respect to ONT-10. These developments may also make it more difficult to find other co-development partners for ONT-10. In addition, if Merck KGaA were to terminate the license agreement, we would have to assume certain patent prosecution expenses with respect to ONT-10 that are currently paid for by Merck KGaA.

 

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ONT-10 is based on novel technology, which may raise new regulatory issues that could delay or make FDA or foreign regulatory approval more difficult.

The process of obtaining required FDA, and other regulatory approvals, including foreign approvals, is expensive, often takes many years and can vary substantially based upon the type, complexity and novelty of the products involved. ONT-10 is novel; therefore, regulatory agencies may lack experience with similar product candidates, which may lengthen the regulatory review process, increase our development costs and delay or prevent commercialization of ONT-10.

To date, the FDA has approved for commercial sale in the United States only one active vaccine designed to stimulate an immune response against cancer. Consequently, there is limited precedent for the successful development or commercialization of products based on technologies in this area. This may lengthen the regulatory review process, increase our development costs and delay or prevent commercialization of ONT-10.

Even if regulatory approval is received for our product candidates, the later discovery of previously unknown problems with a product, manufacturer or facility may result in restrictions, including withdrawal of the product from the market.

Approval of a product candidate may be conditioned upon certain limitations and restrictions as to the drug’s use, or upon the conduct of further studies, and may be subject to continuous review. After approval of a product, if any, there will be significant ongoing regulatory compliance obligations, and if we fail to comply with these requirements, we could be subject to penalties, including:

 

    warning letters;

 

    fines;

 

    product recalls;

 

    withdrawal of regulatory approval;

 

    operating restrictions;

 

    disgorgement of profits;

 

    injunctions; and

 

    criminal prosecution.

Regulatory agencies may require us to delay, restrict or discontinue clinical trials on various grounds, including a finding that the subjects or patients are being exposed to an unacceptable health risk. In addition, all statutes and regulations governing the conduct of clinical trials are subject to change in the future, which could affect the cost of such clinical trials. Any unanticipated delays in clinical studies could delay our ability to generate revenues and harm our financial condition and results of operations.

Failure to obtain regulatory approval in foreign jurisdictions would prevent us from marketing our products internationally.

We intend to have our product candidates marketed outside the United States. In order to market our products in the European Union and many other non-U.S. jurisdictions, we must obtain separate regulatory approvals and comply with numerous and varying regulatory requirements. To date, we have not filed for marketing approval for any of our product candidates and may not receive the approvals necessary to commercialize our product candidates in any market.

The approval procedure varies among countries and may include all of the risks associated with obtaining FDA approval. The time required to obtain foreign regulatory approval may differ from that required to obtain FDA approval, and additional testing and data review may be required. We may not obtain foreign regulatory approvals on a timely basis, if at all. Additionally, approval by the FDA does not ensure approval by regulatory agencies in other countries, and approval by one foreign regulatory authority does not ensure approval by regulatory agencies in other foreign countries or by the FDA. However, a failure or delay in obtaining regulatory approval in one jurisdiction may have a negative effect on the regulatory approval process in other jurisdictions, including approval by the FDA. The failure to obtain regulatory approval in foreign jurisdictions could limit commercialization of our products, reduce our ability to generate profits and harm our business.

 

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Our ability to continue with our planned operations is dependent on our success at raising additional capital sufficient to meet our obligations on a timely basis. If we fail to obtain additional financing when needed, we may be unable to complete the development, regulatory approval and commercialization of our product candidates.

We have expended and continue to expend substantial funds in connection with our product development activities and clinical trials and regulatory approvals. The very limited funds generated currently from our operations will be insufficient to enable us to bring all of our products currently under development to commercialization. Accordingly, we need to raise additional funds from the sale of our securities, partnering arrangements or other financing transactions in order to finance the commercialization of our product candidates. We cannot be certain that additional financing will be available when and as needed or, if available, that it will be available on acceptable terms. If financing is available, it may be on terms that adversely affect the interests of our existing stockholders or restrict our ability to conduct our operations. To the extent that we raise additional funds through collaboration and licensing arrangements, we may be required to relinquish some rights to our technologies or product candidates, or grant licenses on terms that are not favorable to us. If adequate financing is not available, we may need to continue to reduce or eliminate our expenditures for research and development, testing, production and marketing for some of our product candidates. Our actual capital requirements will depend on numerous factors, including:

 

    activities and arrangements related to the commercialization of our product candidates;

 

    the progress of our research and development programs;

 

    the progress of pre-clinical and clinical testing of our product candidates;

 

    the time and cost involved in obtaining regulatory approvals for our product candidates;

 

    the cost of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights with respect to our intellectual property;

 

    our capacity to enter into collaborative or licensing agreements with respect to our protocell technology;

 

    the effect of competing technological and market developments;

 

    the effect of changes and developments in our existing licensing and other relationships; and

 

    the terms of any new collaborative, licensing and other arrangements that we may establish.

If we require additional financing and cannot secure sufficient financing on acceptable terms, we may need to delay, reduce or eliminate some or all of our research and development programs, any of which would be expected to have a material adverse effect on our business, operating results, and financial condition.

We may expand our business through the acquisition of companies or businesses or by entering into collaborations or in-licensing product candidates that could disrupt our business and harm our financial condition.

We have in the past and may in the future seek to expand our pipeline and capabilities by acquiring one or more companies or businesses, entering into collaborations or in-licensing one or more product candidates. For example, in May 2013, we began collaborating with Array to develop ONT-380 and in December 2014, we entered into a license agreement with Array for exclusive rights to develop and commercialize ONT-380. In August 2014, we acquired Alpine Biosciences, Inc., a biotechnology company developing protocells. Acquisitions, collaborations and in-licenses, including our ONT-380 license agreement and Alpine acquisition, involve numerous risks, including:

 

    substantial cash expenditures;

 

    potentially dilutive issuance of equity securities;

 

    incurrence of debt and contingent liabilities, some of which may be difficult or impossible to identify at the time of acquisition;

 

    difficulties in assimilating the operations and technology of the acquired companies;

 

    potential disputes regarding contingent consideration;

 

    the assumption of unknown liabilities of the acquired businesses;

 

    diverting our management’s attention away from other business concerns;

 

    entering markets in which we have limited or no direct experience; and

 

    potential loss of our key employees or key employees of the acquired companies or businesses.

 

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Our experience in making acquisitions, entering collaborations and in-licensing product candidates is limited. We cannot assure you that any acquisition, collaboration or in-license will result in short-term or long-term benefits to us. We may incorrectly judge the value or worth of an acquired company or business or in-licensed product candidate. In addition, our future success would depend in part on our ability to manage the rapid growth associated with some of these acquisitions, collaborations and in-licenses. We cannot assure you that we would be able to successfully combine our business with that of acquired businesses, manage collaboration or integrate in-licensed product candidates or that such efforts would be successful. Furthermore, the development or expansion of our business or any acquired business or company or any collaboration or in-licensed product candidate may require a substantial capital investment by us. We may also seek to raise funds by selling shares of our capital stock, which could dilute our current stockholders’ ownership interest, or securities convertible into our capital stock, which could dilute current stockholders’ ownership interest upon conversion.

If we are unable to maintain and enforce our proprietary rights, we may not be able to compete effectively or operate profitably.

Our success is dependent in part on maintaining and enforcing our patents and other proprietary rights and will depend in large part on our ability to:

 

    defend patents once issued;

 

    preserve trade secrets; and

 

    operate without infringing the patents and proprietary rights of third parties.

The degree of future protection for our proprietary rights is uncertain. For example:

 

    we might not have been the first to make the inventions covered by any of our patents, if issued, or our pending patent applications;

 

    we might not have been the first to file patent applications for these inventions;

 

    under our license agreement with Array, Array is responsible for the prosecution of patents related to ONT-380, and they may not effectively prosecute and protect those patents;

 

    others may independently develop similar or alternative technologies or products and/or duplicate any of our technologies and/or products;

 

    it is possible that none of our pending patent applications will result in issued patents or, if issued, these patents may not be sufficient to protect our technology or provide us with a basis for commercially-viable products and may not provide us with any competitive advantages;

 

    if our pending applications issue as patents, they may be challenged by third parties as infringed, invalid or unenforceable under U.S. or foreign laws;

 

    if issued, the patents under which we hold rights may not be valid or enforceable; or

 

    we may develop additional proprietary technologies that are not patentable and which may not be adequately protected through trade secrets, if for example a competitor were to independently develop duplicative, similar or alternative technologies.

The patent position of biotechnology and pharmaceutical firms is highly uncertain and involves many complex legal and technical issues. There is no clear policy involving the breadth of claims allowed in patents or the degree of protection afforded under patents. Although we believe our potential rights under patent applications provide a competitive advantage, it is possible that patent applications owned by or licensed to us will not result in patents being issued, or that, if issued, the patents will not give us an advantage over competitors with similar products or technology, nor can we assure you that we can obtain, maintain and enforce all ownership and other proprietary rights necessary to develop and commercialize our product candidates.

In addition to the intellectual property and other rights described above, we also rely on unpatented technology, trade secrets, trademarks and confidential information, particularly when we do not believe that patent protection is appropriate or available. However, trade secrets are difficult to protect and it is possible that others will independently develop substantially equivalent information and techniques or otherwise gain access to or disclose our unpatented technology, trade secrets and confidential information. We require each of our employees, consultants and advisors to execute a confidentiality and invention assignment agreement at the commencement of an employment or consulting relationship with us. However, it is possible that these agreements will not provide effective protection of our confidential information or, in the event of unauthorized use of our intellectual property or the intellectual property of third parties, provide adequate or effective remedies or protection.

 

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If we are unable to obtain intellectual property rights to develop or market our products or we infringe on a third-party patent or other intellectual property rights, we may need to alter or terminate a product development program.

If our vaccine technology, protocell platform or our product candidates infringe or conflict with the rights of others, we may not be able to manufacture or market our product candidates, which could have a material and adverse effect on us.

Issued patents held by others may limit our ability to develop commercial products. All issued patents are entitled to a presumption of validity under the laws of the United States. If we need licenses to such patents to permit us to develop or market our product candidates, we may be required to pay significant fees or royalties, and we cannot be certain that we would be able to obtain such licenses on commercially reasonable terms, if at all. Competitors or third parties may obtain patents that may cover subject matter we use in developing the technology required to bring our products to market, that we use in producing our products, or that we use in treating patients with our products.

We know that others have filed patent applications in various jurisdictions that relate to several areas in which we are developing products. Some of these patent applications have already resulted in the issuance of patents and some are still pending. We may be required to alter our processes or product candidates, pay licensing fees or cease activities. Certain parts of our vaccine technology, including the MUC1 antigen, originated from third-party sources.

These third-party sources include academic, government and other research laboratories, as well as the public domain. If use of technology incorporated into or used to produce our product candidates is challenged, or if our processes or product candidates conflict with patent rights of others, third parties could bring legal actions against us, in Europe, the United States and elsewhere, claiming damages and seeking to enjoin manufacturing and marketing of the affected products. Additionally, it is not possible to predict with certainty what patent claims may issue from pending applications. In the United States, for example, patent prosecution can proceed in secret prior to issuance of a patent. As a result, third parties may be able to obtain patents with claims relating to our product candidates or technology, which they could attempt to assert against us. Further, as we develop our products, third parties may assert that we infringe the patents currently held or licensed by them and it is difficult to provide the outcome of any such action. Ultimately, we could be prevented from commercializing a product, or forced to cease some aspect of our business operations, as a result of claims of patent infringement or violation of other intellectual property rights, which could have a material and adverse effect on our business, financial condition and results of operations.

We may incur substantial costs as a result of litigation or other proceedings relating to patent and other intellectual property rights, and we may be unable to protect our rights in, or to use, our technology.

There has been significant litigation in the biotechnology industry over patents and other proprietary rights and if we become involved in any litigation, it could consume a substantial portion of our resources, regardless of the outcome of the litigation. Others may challenge the validity, inventorship, ownership, enforceability or scope of our patents or other technology used in or otherwise necessary for the development and commercialization of our product candidates. We may not be successful in defending against any such challenges. If these legal actions are successful, in addition to any potential liability for damages, we could be required to obtain a license, grant cross-licenses and pay substantial royalties in order to continue to manufacture or market the affected products.

Moreover, the cost of litigation to uphold the validity of patents to prevent infringement or to otherwise protect our proprietary rights can be substantial. If the outcome of litigation is adverse to us, third parties may be able to use the challenged technologies without payment to us. There is also the risk that, even if the validity of a patent were upheld, a court would refuse to stop the other party from using the inventions, including on the ground that its activities do not infringe that patent. There is no assurance that we would prevail in any legal action or that any license required under a third-party patent would be made available on acceptable terms or at all. If any of these events were to occur, our business, financial condition and results of operations would be materially and adversely effected.

If any products we develop become subject to unfavorable pricing regulations, third-party reimbursement practices or healthcare reform initiatives, our ability to successfully commercialize our products will be impaired.

 

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Our future revenues, profitability and access to capital will be affected by the continuing efforts of governmental and private third-party payers to contain or reduce the costs of health care through various means. We expect a number of federal, state and foreign proposals to control the cost of drugs through government regulation. We are unsure of the impact recent health care reform legislation may have on our business or what actions federal, state, foreign and private payers may take in response to the recent reforms. Therefore, it is difficult to predict the effect of any implemented reform on our business. Our ability to commercialize our products successfully will depend, in part, on the extent to which reimbursement for the cost of such products and related treatments will be available from government health administration authorities, such as Medicare and Medicaid in the United States, private health insurers and other organizations. Significant uncertainty exists as to the reimbursement status of newly approved health care products, particularly for indications for which there is no current effective treatment or for which medical care typically is not sought. Adequate third-party coverage may not be available to enable us to maintain price levels sufficient to realize an appropriate return on our investment in product research and development. If adequate coverage and reimbursement levels are not provided by government and third-party payers for use of our products, our products may fail to achieve market acceptance and our results of operations will be harmed.

Governments often impose strict price controls, which may adversely affect our future profitability.

We intend to seek approval to market our future products in both the United States and foreign jurisdictions. If we obtain approval in one or more foreign jurisdictions, we will be subject to rules and regulations in those jurisdictions relating to our product. In some foreign countries, particularly in the European Union, prescription drug pricing is subject to government control. In these countries, pricing negotiations with governmental authorities can take considerable time after the receipt of marketing approval for a drug candidate. To obtain reimbursement or pricing approval in some countries, we may be required to conduct a clinical trial that compares the cost-effectiveness of our future product to other available therapies.

Domestic and foreign governments continue to propose and pass legislation designed to reduce the cost of healthcare, including drugs. In the United States, there have been, and we expect that there will continue to be, federal and state proposals to implement similar governmental control. In addition, increasing emphasis on managed care in the United States will continue to put pressure on the pricing of pharmaceutical products. For example, in March 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act, or collectively, PPACA, became law in the United States. PPACA substantially changed the way healthcare is financed by both governmental and private insurers and significantly affected the pharmaceutical industry.

We anticipate that the PPACA, as well as other healthcare reform measures that may be adopted in the future, may result in more rigorous coverage criteria and downward pressure on the price for any approved product, and could seriously harm our prospects. Any reduction in reimbursement from Medicare or other government programs may result in a similar reduction in payments from private payers. If reimbursement of our future products is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, we may be unable to achieve or sustain profitability.

We face potential product liability exposure, and if successful claims are brought against us, we may incur substantial liability for a product candidate and may have to limit its commercialization.

The use of our product candidates in clinical trials and the sale of any products for which we obtain marketing approval expose us to the risk of product liability claims. Product liability claims might be brought against us by consumers, health care providers, pharmaceutical companies or others selling our products. If we cannot successfully defend ourselves against these claims, we will incur substantial liabilities. Regardless of merit or eventual outcome, liability claims may result in:

 

    decreased demand for our product candidates;

 

    impairment of our business reputation;

 

    withdrawal of clinical trial participants;

 

    costs of related litigation;

 

    substantial monetary awards to patients or other claimants;

 

    loss of revenues; and

 

    the inability to commercialize our product candidates.

 

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Although we currently have product liability insurance coverage for our clinical trials for expenses or losses up to a $10 million aggregate annual limit, our insurance coverage may not reimburse us or may not be sufficient to reimburse us for any or all expenses or losses we may suffer. Moreover, insurance coverage is becoming increasingly expensive and, in the future, we may not be able to maintain insurance coverage at a reasonable cost or in sufficient amounts to protect us against losses due to liability. We intend to expand our insurance coverage to include the sale of commercial products if we obtain marketing approval for our product candidates in development, but we may be unable to obtain commercially reasonable product liability insurance for any products approved for marketing. On occasion, large judgments have been awarded in class action lawsuits based on products that had unanticipated side effects. A successful product liability claim or series of claims brought against us could cause our stock price to fall and, if judgments exceed our insurance coverage, could decrease our cash and adversely affect our business.

We face substantial competition, which may result in others discovering, developing or commercializing products before, or more successfully, than we do.

The life sciences industry is highly competitive, and we face significant competition from many pharmaceutical, biopharmaceutical and biotechnology companies that are researching and marketing products designed to address cancer indications for which we are currently developing products or for which we may develop products in the future. Our future success depends on our ability to demonstrate and maintain a competitive advantage with respect to the design, development and commercialization of our product candidates. We expect any product candidate that we commercialize with our collaborative partners or on our own will compete with existing, market-leading products and products in development.

ONT-380. ONT-380 is an inhibitor of the receptor tyrosine kinase HER2, also known as ErbB2. There are multiple marketed products which target HER2, including the antibodies trastuzumab (Herceptin ®) and pertuzumab (Perjeta ®) and the antibody toxin conjugate ado-trastuzumab emtansine (Kadcyla®), all from Roche/Genentech. In addition, GlaxoSmithKline markets the dual HER1/HER2 oral kinase inhibitor lapatinib (Tykerb ®) for the treatment of metastatic breast cancer, and Puma Biotechnology is developing the HER1/HER2/HER4 inhibitor neratinib in Phase 3.

ONT-10. ONT-10 is a MUC1-based liposomal glycolipopeptide cancer vaccine. It is currently in the early stages of development for many indications, for which there are likely to be other competitors.

Many of our potential competitors have substantially greater financial, technical and personnel resources than we have. In addition, many of these competitors have significantly greater commercial infrastructures than we have. Our ability to compete successfully will depend largely on our ability to:

 

    design and develop products that are superior to other products in the market;

 

    attract qualified scientific, medical, sales and marketing and commercial personnel;

 

    obtain patent and/or other proprietary protection for our processes and product candidates;

 

    obtain required regulatory approvals; and

 

    successfully collaborate with others in the design, development and commercialization of new products.

Established competitors may invest heavily to quickly discover and develop novel compounds that could make our product candidates obsolete. In addition, any new product that competes with a generic market-leading product must demonstrate compelling advantages in efficacy, convenience, tolerability and safety in order to overcome severe price competition and to be commercially successful. If we are not able to compete effectively against our current and future competitors, our business will not grow and our financial condition and operations will suffer.

If we are unable to enter into agreements with partners to perform sales and marketing functions, or build these functions ourselves, we will not be able to commercialize our product candidates.

We currently do not have any internal sales, marketing or distribution capabilities. In order to commercialize any of our product candidates, we must either acquire or internally develop a sales, marketing and distribution infrastructure or enter into agreements with partners to perform these services for us. We may not be able to enter into such arrangements on commercially acceptable terms, if at all. Factors that may inhibit our efforts to commercialize our product candidates without entering into arrangements with third parties include:

 

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    our inability to recruit and retain adequate numbers of effective sales and marketing personnel;

 

    the inability of sales personnel to obtain access to or persuade adequate numbers of physicians to prescribe our products;

 

    the lack of complementary products to be offered by sales personnel, which may put us at a competitive disadvantage relative to companies with more extensive product lines; and

 

    unforeseen costs and expenses associated with creating a sales and marketing organization.

If we are not able to partner with a third party and are not successful in recruiting sales and marketing personnel or in building a sales and marketing and distribution infrastructure, we will have difficulty commercializing our product candidates, which would adversely affect our business and financial condition.

If we lose key personnel, or we are unable to attract and retain highly-qualified personnel on a cost-effective basis, it would be more difficult for us to manage our existing business operations and to identify and pursue new growth opportunities.

Our success depends in large part upon our ability to attract and retain highly qualified scientific, clinical, manufacturing, and management personnel. In addition, future growth will require us to continue to implement and improve our managerial, operational and financial systems, and continue to retain, recruit and train additional qualified personnel, which may impose a strain on our administrative and operational infrastructure. Any difficulties in hiring or retaining key personnel or managing this growth could disrupt our operations. The competition for qualified personnel in the biopharmaceutical field is intense. We are highly dependent on our continued ability to attract, retain and motivate highly-qualified management, clinical and scientific personnel. Due to our limited resources, we may not be able to effectively recruit, train and retain additional qualified personnel. If we are unable to retain key personnel or manage our growth effectively, we may not be able to implement our business plan.

Furthermore, we have not entered into non-competition agreements with all of our key employees. In addition, we do not maintain “key person” life insurance on any of our officers, employees or consultants. The loss of the services of existing personnel, the failure to recruit additional key scientific, technical and managerial personnel in a timely manner, and the loss of our employees to our competitors would harm our research and development programs and our business.

Our business is subject to increasingly complex environmental legislation that has increased both our costs and the risk of noncompliance.

Our business may involve the use of hazardous material, which will require us to comply with environmental regulations. We face increasing complexity in our product development as we adjust to new and upcoming requirements relating to the materials composition of many of our product candidates. If we use biological and hazardous materials in a manner that causes contamination or injury or violates laws, we may be liable for damages. Environmental regulations could have a material adverse effect on the results of our operations and our financial position. We maintain insurance under our general liability policy for any liability associated with our hazardous materials activities, and it is possible in the future that our coverage would be insufficient if we incurred a material environmental liability.

If we fail to establish and maintain proper and effective internal controls, our ability to produce accurate financial statements on a timely basis could be impaired, which would adversely affect our consolidated operating results, our ability to operate our business, and our stock price, and could result in litigation or similar actions.

Ensuring that we have adequate internal financial and accounting controls and procedures in place to produce accurate financial statements on a timely basis is a costly and time-consuming effort that needs to be re-evaluated frequently. Failure on our part to have effective internal financial and accounting controls would cause our financial reporting to be unreliable, could have a material adverse effect on our business, operating results, and financial condition, and could cause the trading price of our common stock to fall dramatically. Our management is responsible for establishing and maintaining adequate internal control over financial reporting to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP. Our management does not expect that our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the company will have been detected.

 

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We cannot be certain that the actions we have taken to ensure we have adequate internal controls over financial reporting will be sufficient. In future periods, if the process required by Section 404 of the Sarbanes-Oxley Act reveals any material weaknesses or significant deficiencies, the correction of any such material weaknesses or significant deficiencies could require remedial measures which could be costly and time-consuming. In addition, in such a case, we may be unable to produce accurate financial statements on a timely basis. Any associated accounting restatement could create a significant strain on our internal resources and cause delays in our release of quarterly or annual financial results and the filing of related reports, increase our cost and cause management distraction. Any of the foregoing could cause investors to lose confidence in the reliability of our consolidated financial statements, which could cause the market price of our common stock to decline and make it more difficult for us to finance our operations and growth.

We may face risks related to securities litigation that could result in significant legal expenses and settlement or damage awards.

We have in the past been, and may in the future become, subject to claims and litigation alleging violations of the securities laws or other related claims, which could harm our business and require us to incur significant costs. For example, in April 2013, a putative shareholder derivative action was filed in the United States District Court for the Western District of Washington, purportedly on behalf of Oncothyreon and naming certain executive officers and the members of our board of directors as defendants. The complaint asserted claims for breaches of fiduciary duty, unjust enrichment, abuse of control, and mismanagement based on allegedly false statements made by us in public filings and press releases in 2011 and 2012. In September 2013, the court entered an order granting our motion to dismiss the lawsuit with prejudice, which means that the plaintiff was not permitted to further amend his complaint to bolster his claims. The period to appeal the dismissal order has now expired, with no appeal being filed, so the lawsuit is concluded. We are generally obliged, to the extent permitted by law, to indemnify our current and former directors and officers who are named as defendants in these types of lawsuits. Any future litigation may require significant attention from management and could result in significant legal expenses, settlement costs or damage awards that could have a material impact on our financial position, results of operations, and cash flows.

Risks Related to the Ownership of Our Common Stock

The trading price of our common stock may be volatile.

The market prices for and trading volumes of securities of biotechnology companies, including our securities, have been historically volatile. In particular, we experienced significant volatility after we and Merck KGaA announced in December 2012 that tecemotide failed to meet its primary endpoint in a Phase 3 trial. We experienced additional volatility in May 2013 following an additional release regarding the Merck KGaA study of tecemotide and the release of the results of our trials of PX-866. The market has from time to time experienced significant price and volume fluctuations unrelated to the operating performance of particular companies. The market price of our common shares may fluctuate significantly due to a variety of factors, including:

 

    the results of pre-clinical testing and clinical trials by us, our competitors and/or companies that are developing products that are similar to ours (regardless of whether such products are potentially competitive with ours);

 

    public concern as to the safety of products developed by us or others;

 

    technological innovations or new therapeutic products;

 

    governmental regulations;

 

    developments in patent or other proprietary rights;

 

    litigation;

 

    comments by securities analysts;

 

    the issuance of additional shares of common stock, or securities convertible into, or exercisable or exchangeable for, shares of our common stock in connection with financings, acquisitions or otherwise;

 

    the incurrence of debt;

 

    general market conditions in our industry or in the economy as a whole; and

 

    political instability, natural disasters, war and/or events of terrorism.

 

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We may seek to raise additional capital in the future; however, such capital may not be available to us on reasonable terms, if at all, when or as we require additional funding. If we issue additional shares of our common stock or other securities that may be convertible into, or exercisable or exchangeable for, our common stock, our existing stockholders would experience further dilution.

We expect that we will seek to raise additional capital from time to time in the future. For example, in connection with our February 2015 public offering, we sold an aggregate of 14,699,660 shares of our common stock and 1,333 shares of our Series B convertible preferred stock.

Future financings may involve the issuance of debt, equity and/or securities convertible into or exercisable or exchangeable for our equity securities. These financings may not be available to us on reasonable terms or at all when and as we require funding. Additionally, if we are unable to increase our authorized capital stock, we may not have sufficient authorized but unissued capital stock to issue or sell additional capital stock in potential financings. If we are able to consummate financings, the trading price of our common stock could be adversely affected and/or the terms of such financings may adversely affect the interests of our existing stockholders. Any failure to obtain additional working capital when required would have a material adverse effect on our business and financial condition and would be expected to result in a decline in our stock price. Any issuances of our common stock, preferred stock, or securities such as warrants or notes that are convertible into, exercisable or exchangeable for, our capital stock, would have a dilutive effect on the voting and economic interest of our existing stockholders.

Because we do not expect to pay dividends on our common stock, stockholders will benefit from an investment in our common stock only if it appreciates in value.

We have never paid cash dividends on our common shares and have no present intention to pay any dividends in the future. We are not profitable and do not expect to earn any material revenues for at least several years, if at all. As a result, we intend to use all available cash and liquid assets in the development of our business. Any future determination about the payment of dividends will be made at the discretion of our board of directors and will depend upon our earnings, if any, capital requirements, operating and financial conditions and on such other factors as our board of directors deems relevant. As a result, the success of an investment in our common stock will depend upon any future appreciation in its value. There is no guarantee that our common stock will appreciate in value or even maintain the price at which stockholders have purchased their shares.

We can issue shares of preferred stock that may adversely affect the rights of a stockholder of our common stock.

Our certificate of incorporation authorizes us to issue up to 10,000,000 shares of preferred stock with designations, rights, and preferences determined from time-to-time by our board of directors. Accordingly, our board of directors is empowered, without stockholder approval, to issue preferred stock with dividend, liquidation, conversion, voting or other rights superior to those of holders of our common stock. For example, an issuance of shares of preferred stock could:

 

    adversely affect the voting power of the holders of our common stock;

 

    make it more difficult for a third party to gain control of us;

 

    discourage bids for our common stock at a premium;

 

    limit or eliminate any payments that the holders of our common stock could expect to receive upon our liquidation; or

 

    otherwise adversely affect the market price or our common stock.

We have in the past issued, and we may at any time in the future issue, additional shares of authorized preferred stock. For example, in connection with our September 2014 and February 2015 public offerings, we issued 10,000 shares of Series A convertible preferred stock and 1,333 shares of Series B convertible preferred stock, respectively, each share of which is convertible into 1,000 shares of the Company’s common stock, subject to certain ownership restrictions. Concurrent but separate from these offerings, we entered into an exchange agreement with certain affiliates of Biotechnology Value Fund (BVF) to exchange 4,000,000 shares of common stock previously purchased by BVF for 4,000 shares of Series B Convertible Preferred Stock.

 

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We expect our quarterly operating results to fluctuate in future periods, which may cause our stock price to fluctuate or decline.

Our quarterly operating results have fluctuated in the past, and we believe they will continue to do so in the future. Some of these fluctuations may be more pronounced than they were in the past as a result of the issuance by us in September 2010 of warrants to purchase shares of our common stock in connection with equity financings. As of March 31, 2015, there were outstanding warrants from the September 2010 financing exercisable for up to 3,182,147 shares of our common stock. These warrants are classified as a liability. Accordingly, the fair value of the warrants is recorded on our consolidated balance sheet as a liability, and such fair value is adjusted at each financial reporting date with the adjustment to fair value reflected in our consolidated statement of operations. The fair value of the warrants is determined using the Black-Scholes option-pricing model. Fluctuations in the assumptions and factors used in the Black-Scholes model can result in adjustments to the fair value of the warrants reflected on our balance sheet and, therefore, our statement of operations. Due to the classification of such warrants and other factors, quarterly results of operations are difficult to forecast, and period-to-period comparisons of our operating results may not be predictive of future performance. In one or more future quarters, our results of operations may fall below the expectations of securities analysts and investors. In that event, the market price of our common stock could decline. In addition, the market price of our common stock may fluctuate or decline regardless of our operating performance.

Our management has broad discretion over the use of proceeds from the sale of shares of our common and preferred stock and may not use such proceeds in ways that increase the value of our stock price.

In our September 2014 public offering, we sold 11,500,000 shares of our common stock and 10,000 shares of our Series A convertible preferred stock for net proceeds of approximately $40.2 million. In our February 2015 public offering, we sold 14,699,660 shares of common stock and 1,333 shares of Series B convertible preferred stock for net proceeds of approximately $22.4 million. We have broad discretion over the use of proceeds from the sale of those shares, and we could spend the proceeds in ways that do not improve our results of operations or enhance the value of our common stock. Our failure to apply these funds effectively could have a material adverse effect on our business, delay the development of our product candidates and cause the price of our common stock to decline.

Item 2. Unregister ed Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety D isclosure

Not applicable.

Item 5. Other Inf ormation

Not applicable.

 

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Item 6. Exh ibits

 

Exhibit
Number

  

Description

 3.1    Certificate of Designation of Preferences, Rights and Limitations of Series B Convertible Preferred Stock (incorporated by reference to Exhibit 3.1 of the Form 8-K filed by the registrant with the SEC on
February 11, 2015)
 4.1    Form of Series B Convertible Preferred Stock Certificate (incorporated by reference to Exhibit 4.1 of the Form 8-K filed by the registrant with the SEC on February 11, 2015)
 10.1*    First Amendment to Patent License Agreement between STC.UNM and Oncothyreon Inc. dated
February 2, 2015
 10.2*    Exclusive License and Collaboration Agreement between Sentinel Oncology Limited and Oncothyreon Inc. dated April 16, 2014
 10.3    Securities Exchange Agreement, effective February 5, 2015, between Oncothyreon Inc. and Biotechnology Value Fund, L.P. and Biotechnology Value Fund II, L.P. (incorporated by reference to Exhibit 10.1 of the Form 8-K filed by the registrant with the SEC on February 6, 2015)
 31.1    Certification of Robert L. Kirkman, M.D., President and Chief Executive Officer, pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 31.2    Certification of Julia M. Eastland, Chief Financial Officer, pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 32.1#    Certification of Robert L. Kirkman, M.D., President and Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 32.2#    Certification of Julia M. Eastland, Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS    XBRL Instance Document
101.SCH    XBRL Taxonomy Extension Schema Document
101.CAL    XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF    XBRL Taxonomy Extension Definition Linkbase Document
101.LAB    XBRL Taxonomy Extension Labels Linkbase Document
101.PRE    XBRL Taxonomy Extension Presentation Linkbase Document

 

# This certification is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, as amended (Exchange Act), or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended (Securities Act), or the Exchange Act.
* Portions of this exhibit have been omitted based on an application for confidential treatment submitted to the SEC. The omitted portions of this exhibit have been filed separately with the SEC.

 

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SIGN ATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

ONCOTHYREON INC.
Date: May 11, 2015

/s/ Robert L. Kirkman, M.D.

Robert L. Kirkman, M.D.

President, CEO and Director

(Principal Executive Officer)

 

Date: May 11, 2015

/s/ Julia M. Eastland

Julia M. Eastland

Chief Financial Officer

(Principal Financial and Accounting Officer)

 

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INDEX OF EXHIBITS

 

Exhibit
Number

  

Description

 3.1    Certificate of Designation of Preferences, Rights and Limitations of Series B Convertible Preferred Stock (incorporated by reference to Exhibit 3.1 of the Form 8-K filed by the registrant with the SEC on February 11, 2015)
 4.1    Form of Series B Convertible Preferred Stock Certificate (incorporated by reference to Exhibit 4.1 of the Form 8-K filed by the registrant with the SEC on February 11, 2015)
 10.1*    First Amendment to Patent License Agreement between STC.UNM and Oncothyreon Inc. dated February 2, 2015
 10.2*    Exclusive License and Collaboration Agreement between Sentinel Oncology Limited and Oncothyreon Inc. dated April 16, 2014
 10.3    Securities Exchange Agreement, effective February 5, 2015, between Oncothyreon Inc. and Biotechnology Value Fund, L.P. and Biotechnology Value Fund II, L.P. (incorporated by reference to Exhibit 10.1 of the Form 8-K filed by the registrant with the SEC on February 6, 2015)
 31.1    Certification of Robert L. Kirkman, M.D., President and Chief Executive Officer, pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 31.2    Certification of Julia M. Eastland, Chief Financial Officer, pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 32.1#    Certification of Robert L. Kirkman, M.D., President and Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 32.2#    Certification of Julia M. Eastland, Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS    XBRL Instance Document
101.SCH    XBRL Taxonomy Extension Schema Document
101.CAL    XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF    XBRL Taxonomy Extension Definition Linkbase Document
101.LAB    XBRL Taxonomy Extension Labels Linkbase Document
101.PRE    XBRL Taxonomy Extension Presentation Linkbase Document

 

# This certification is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, as amended (Exchange Act), or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended (Securities Act), or the Exchange Act.
* Portions of this exhibit have been omitted based on an application for confidential treatment submitted to the SEC. The omitted portions of this exhibit have been filed separately with the SEC.

 

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EXHIBIT 10.1

 

*

  Confidential Treatment has been requested for the marked portions of this exhibit pursuant to Rule 24B-2 of the Securities Exchange Act of 1934, as amended.

FIRST AMENDMENT TO PATENT LICENSE AGREEMENT

between

STC.UNM and ONCOTHYREON INC.

THIS FIRST AMENDMENT TO PATENT LICENSE AGREEMENT (“First Amendment”) is made as of February 2, 2015 (the “First Amendment Effective Date”) by and between STC.UNM (hereinafter referred to as “STC”), a New Mexico nonprofit corporation, with its principal office at 801 University Boulevard SE, Suite 101, Albuquerque, New Mexico 87106, and ONCOTHYREON INC. (hereinafter referred to as “Oncothyreon”), a Delaware corporation with a principal office at 2601 Fourth Avenue, Suite 500, Seattle, WA 98121. As of the First Amendment Effective Date, in consideration of the mutual covenants and promises herein contained, the parties agree as follows:

1. Background of First Amendment . STC and Alpine Biosciences, Inc. (“ALPINE”) entered into a Patent License Agreement (STC Ref. No. 2013-0170) effective June 30, 2014 (the “License Agreement”) under which STC licensed certain intellectual property to ALPINE. On August 8, 2014, Oncothyreon acquired ALPINE. With STC’s consent, as of such date Oncothyreon is the successor in interest to ALPINE under the License Agreement by way of assignment. The parties desire to enter into this First Amendment to reflect the foregoing, and to reflect that STC has subsequently entered into additional Commercialization Agreements. Capitalized terms in this First Amendment, unless defined herein, shall have the meanings ascribed to such terms in the License Agreement.

2. Change in Name of LICENSEE . The “LICENSEE” under the License Agreement is Oncothyreon Inc.

3. Amendment of License Agreement Background Section . The second paragraph of the BACKGROUND section of the License Agreement is amended by deleting the last sentence thereof.

4. Amendment of Exhibit A . The original Exhibit A of the License Agreement is amended in its entirety and as of the First Amendment Effective Date is replaced with the updated Exhibit A that is attached to this First Amendment as Schedule 1.

5. Amendment of Article I, DEFINITIONS . Article I, DEFINITIONS, of the License Agreement is amended by: (a) the addition of [*] and [*] to the list of “Inventors;” and, (b) by the deletion in its entirety of the definition of “Other STC/Sandia Jointly Owned Licensed Patents.”

6. Amendment of Section 2.2 . Section 2.2 of the License Agreement is amended to read in its entirety as follows:

 

STC – Alpine Biosciences First Amendment License No. 2013-0170    Page 1 of 3
[*]     
   *Confidential Treatment Requested.


  “2.2 The LICENSEE acknowledges that, except for the STC Solely-Owned Patent, this Agreement grants rights with respect to Licensed Patents that are owned jointly by STC and Sandia. Furthermore, STC hereby confirms that, as of the First Amendment Effective Date, STC and Sandia have entered into a Commercialization Agreement for each of the Licensed Patents, other than the STC Solely-Owned Licensed Patent.

7. Amendment of Article XV . The address in Article XV ((NOTICES) for notices to LICENSEE is hereby amended to the following address:

Oncothyreon Inc.

2601 Fourth Avenue, Suite 500

Seattle WA 98121

Attn: Protocell Operations

Copy to: Legal Department

8. Ratification . Except as amended hereby, all other terms and conditions of the License Agreement are ratified and confirmed and remain in full force and effect.

IN WITNESS WHEREOF, each of the parties has caused this First Amendment to be executed in duplicate originals by its duly authorized representatives on the respective dates entered below, effective as of the First Amendment Effective Date.

 

LICENSOR:

STC.UNM

     

LICENSEE:

ONCOTHYREON INC.

By:  

/s/ Elizabeth J. Kuuttila

      By:   

/s/ Scott Peterson

  Elizabeth J. Kuuttila       Printed Name:    Scott Peterson
  President & CEO       Title:    Chief Scientific Officer
Date:   2/3/15       Date:    3 Feb 2015

 

STC – Alpine Biosciences First Amendment License No. 2013-0170    Page 2 of 3
[*]     
   *Confidential Treatment Requested.


SCHEDULE 1

(to First Amendment to Patent License Agreement)

EXHIBIT A

LICENSED PATENTS

[*]

 

STC – Alpine Biosciences First Amendment License No. 2013-0170    Page 3 of 3
[*]     
   *Confidential Treatment Requested.

EXHIBIT 10.2

 

* Confidential Treatment has been requested for the marked portions of this exhibit pursuant to Rule 24B-2 of the Securities Exchange Act of 1934, as amended.

EXECUTION COPY

Confidential

EXCLUSIVE LICENSE AND COLLABORATION AGREEMENT

THIS EXCLUSIVE AND COLLABORATION LICENSE AGREEMENT (this “ Agreement ”) dated as of April 16, 2014 (the “ Effective Date ”), is entered into between Sentinel Oncology Limited (“ Licensor ”), having a place of business at 23 Cambridge Science Park, Milton Road, Cambridge, United Kingdom CB4 0EY, and Oncothyreon Inc., a Delaware corporation (“ Company ”), having a place of business at 2601 Fourth Ave., Suite 500, Seattle, WA 98121, USA, each a “ Party ” and collectively “ Parties ”.

WHEREAS, Licensor owns the Licensed Technology (as defined below).

WHEREAS, Company desires to obtain an exclusive license under Licensor’s rights in the Licensed Technology on the terms and conditions set forth below.

NOW, THEREFORE, in consideration of the foregoing premises and the mutual covenants herein contained, the Parties hereby agree as follows:

 

  1. DEFINITIONS

For purposes of this Agreement, the terms defined in this Section 1 shall have the respective meanings set forth below:

1.1 “ Affiliate ” shall mean, with respect to any Person, any other Person which directly or indirectly controls, is controlled by, or is under common control with, such Person. A Person shall be regarded as in control of another Person if it owns, or directly or indirectly controls, at least fifty percent (50%) of the voting stock or other ownership interest of the other Person, or if it directly or indirectly possesses the power to direct or cause the direction of the management and policies of the other Person by any means whatsoever.

1.2 “ Applicable Law ” shall mean any applicable federal, state, local or foreign law, statute, ordinance, principle of common law, or any rule, regulation, standard, judgment, order, writ, injunction, decree, arbitration award, agency requirement, license or permit of any Governmental Authority.

1.3 “ Calendar Year ” means, for the first calendar year, the period commencing on the Effective Date and ending on December 31 of the calendar year during which the Effective Date occurs, and each successive period beginning on January 1 and ending twelve (12) consecutive calendar months later on December 31.


1.4 “ Chk1 ” means checkpoint kinase 1.

1.5 “ Commercially Reasonable Efforts ” shall mean, with respect to any obligation or task under this Agreement, the carrying out by a Party, its Affiliates or Sublicensees (or their Affiliates or sublicensees) of such obligation or task with a level of effort and resources consistent with the commercially reasonable practices devoted by a biotechnology company of comparable size and resources for the research, development, manufacture or commercialization of a pharmaceutical product owned by it (or to which it has rights) at a similar stage of development or commercialization and of similar market potential, profit potential and strategic value, based on conditions then prevailing. Such efforts may take into account, without limitation, issues of safety and efficacy, regulatory authority-approved labeling, product profile, the competitiveness of alternative products in the marketplace, pricing/reimbursement for the product in a country relative to other markets, the likely timing of the product’s entry into the market, the patent and other proprietary position, the likelihood of regulatory approval and other relevant scientific, technical and commercial factors including but not limited to product market potential and anticipated profitability. For the avoidance of doubt, it is understood and acknowledged that such issues and factors may change from time to time based upon changing scientific, business and marketing and return on investment considerations

1.6 “ EMA ” shall mean the European Medicines Agency of the European Union, or the successor thereto.

1.7 “ Existing MTA ” shall mean that certain Materials Transfer Agreement entered into between the Parties on February 17, 2014.

1.8 “ Existing NDA ” shall mean that certain Confidentiality Agreement entered into between the Parties on November 19, 2013.

1.9 “ FDA ” shall mean the Food and Drug Administration of the United States, or the successor thereto.

1.10 “ Field ” shall mean all uses, including the diagnosis, prevention or treatment of any disease, state or condition in humans or animals.

1.11 “ First Commercial Sale ” shall mean, with respect to any Product in a country, the first sale of such Product after all applicable Regulatory Approvals have been granted by the applicable governing health authority of such country.

1.12 “ Generic Competition ” shall mean, with respect to a Product in a country, when one or more Generic Product(s) are being marketed in such country and all Licensed Patents with respect to such Product in such country have expired.

1.13 “ Generic Product ” shall mean a product (a) whose active pharmaceutical ingredient is equivalent to the Product being sold in a country, (b) that obtained Regulatory Approval solely by means of establishing equivalence to such Product, and (c) that is legally marketed in such country by an entity other than Company, its Affiliates or its Sublicensees.

 

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1.14 “ Governmental Authority ” means any multi-national, federal, state, local, municipal or other government authority of any nature (including any governmental division, subdivision, department, agency, bureau, branch, office, commission, council, court, tribunal or other entity), including a Regulatory Authority.

1.15 “ IND ” shall mean an Investigational New Drug application, or similar application to commence human clinical testing of a Product for use in the Field submitted to the FDA, or its foreign equivalent.

1.16 “ Invention ” means any process, method, composition of matter, article of manufacture, discovery or finding that is conceived and/or reduced to practice as a result of a Party carrying out its obligations under this Agreement, whether or not patentable.

1.17 Licensed Compounds ” means (a) any compound identified in Exhibit B, (b) any other compound discovered or developed by each Party alone or jointly with the other Party under the existing MTA or in performance of the Work Plan, and (c) any other compound owned or controlled by Licensor or its Affiliates as of the Effective Date of this Agreement or discovered, developed, in-licensed or otherwise acquired by Licensor or its Affiliates (excluding for clarity, with respect to this sub-clause (c), a Third Party that acquires control (as defined in Section 1.1) of Licensor, whether by merger, acquisition or sale of assets) during the period commencing on the Effective Date and ending [*] ([*]) years after Licensor has completed the activities ascribed to Licensor under the Work Plan, each of which compound is designed to inhibit Chk 1 or is a Qualified Compound and in relation to each of (a), (b), and (c) any derivative, salt, enantiomer, isomer, solvate, ester, prodrug or metabolite of the foregoing.

1.18 “ Licensed Know-How ” shall mean all trade secrets, data, information, compositions and other technology (including, but not limited to, formulae, procedures, protocols, techniques and results of experimentation and testing) and other know-how owned or controlled by Licensor or its Affiliates as of the Effective Date (including any know-how developed by Licensor or its Affiliates under the Existing MTA) or which arises from the work conducted by Licensor under the Work Plan and which is necessary or useful for Company or its Affiliates or their respective sublicensees to make, use, develop, sell or seek Regulatory Approval to market Licensed Compounds and/or Products.

1.19 “ Licensed Patent Rights ” shall mean (a) the patents and patent applications listed on Exhibit A , (b) any other patents and patent applications owned (whether solely or jointly with Company) or controlled by Licensor or any of its Affiliates (excluding for clarity, a Third Party that acquires control (as defined in Section 1.1) of Licensor, whether by merger, acquisition or sale of assets) as of the Effective Date or at any time during the term of this Agreement, that claim or cover Licensed Compounds or methods of use or manufacturing thereof, (c) all divisions, continuations, continuations-in-part, that claim priority to, or common priority with, any of the patent applications described in clauses (a) and (b) above or the patent applications that resulted in any of the patents described in clauses (a) and (b) above, and (d) all patents that have issued or in the future issue from any of the foregoing patent applications, including utility, model and design patents and certificates of invention, together with any reissues, renewals, extensions, supplemental protection certificates, and additions to any thereof.

 

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*Confidential Treatment Requested.


1.20 “ Licensed Technology ” shall mean, collectively, the Licensed Patent Rights and the Licensed Know-How.

1.21 “ Major European Country ” shall mean any of the following countries: United Kingdom, Germany, France, Italy, and Spain.

1.22 “ Material(s) ” means any compound discovered, developed, acquired or controlled by Licensor prior to the Effective Date in connection with the Program, including the items set forth in Exhibit C .

1.23 “ NDA ” shall mean a New Drug Application, or similar application for marketing approval of a Product for use in the Field submitted to the FDA, or its foreign equivalent.

1.24 “ Net Sales ” shall mean the gross invoice amount (not including value added taxes, sales taxes, or similar taxes) of Product sold by Company or its Affiliates or Sublicensees to the first unrelated Third Party in a bona fide arms-length transaction after deducting, if not previously deducted, from the amount invoiced or received:

(i) [*]

(ii) [*]

(iii) [*]

(iv) [*]

(v) [*]

Gross invoice price of Product sold and the deductions allowed in subsections (i)-(v) above shall be calculated in accordance with GAAP.

In the case of any sale which is not invoiced or is delivered before invoice, Net Sales shall be calculated at the time all revenue recognition criteria are met.

In the case of any sale or other disposal of a Product between or among Company and its Affiliates or Sublicensees for resale, Net Sales shall be calculated as above only on the value charged or invoiced on the first arm’s-length sale thereafter to an unrelated Third Party. Any nominal consideration received in exchange for the transfer of Products for use in clinical trials, sampling or promotional use, in each case at or below cost, shall not be included in Net Sales.

In the case of any sale or other disposal for value, such as barter or counter-trade, of any Product, or part thereof, other than in an arm’s-length transaction exclusively for money, in addition to the inclusion of any such cash consideration in the calculation of Net Sales, Net Sales shall be calculated on the value of the non-cash consideration received or the fair market price (if higher) of the Products in the country of the sale or disposal.

 

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*Confidential Treatment Requested.


Combination Product ” means a Product sold in finished dosage form containing a Licensed Compound together with one or more other active ingredients. Net Sales for Combination Products, for the purpose of calculating Company’s payment obligations under Section 4.2, shall be determined as follows:

(i) In the event one or more Products are sold as part of a Combination Product in a particular country, and all pharmaceutical products contained in the Combination Product are sold separately in such country, the Net Sales of such Product(s), for the purposes of determining payments based on Net Sales, shall be determined by multiplying the Net Sales of the Combination Product in such country, during the applicable Net Sales reporting period, by the fraction,
A/(A+B), where: A is the average sale price of the Product(s) contained in such Combination Product when sold separately in finished form in such country, and B is the average sale price of the other product(s) included in the Combination Product when sold separately in finished form in such country, in each case during the applicable Net Sales reporting period.

(ii) In the event one or more Products are sold as part of a Combination Product and are sold separately in finished form in such country, but the other pharmaceutical product(s) included in the Combination Product are not sold separately in finished form in such country, the Net Sales of the Product, for the purposes of determining payments based on Net Sales, shall be determined by multiplying the Net Sales of the Combination Product in such country by the fraction C/D where: C is the average sale price of the Product(s) contained in such Combination Product when sold separately in finished form in such country, and D is the average sale price of the Combination Product sold in such country, in each case during the applicable Net Sales reporting period.

(iii) In the event that the Net Sales of the Product(s) when included in a Combination Product cannot be determined using the methods above, Net Sales for the purposes of determining payments based on Net Sales shall be agreed upon in good faith by the Parties, on the basis of the respective fair market values of the Product(s) and all other pharmaceutical products included in such Combination Product.

1.25 “ Person ” shall mean an individual, corporation, partnership, limited liability company, trust, business trust, association, joint stock company, joint venture, pool, syndicate, sole proprietorship, unincorporated organization, Governmental Authority or any other form of entity not specifically listed herein.

1.26 “ Phase 1 Clinical Trial ” shall mean a human clinical trial that is intended to initially evaluate the safety and/or pharmacological effect of a Product in subjects or that would otherwise satisfy requirements of
21 C.F.R. 312.21(a), or its foreign equivalent.

1.27 “ Phase 2 Clinical Trial ” shall mean a human clinical trial in any country that is intended to initially evaluate the effectiveness of a Product for a particular indication or indications in patients with the disease or indication under study or would otherwise satisfy requirements of 21 CFR 312.21(b), or its foreign equivalent.

 

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1.28 “ Phase 3 Clinical Trial ” shall mean a human clinical trial in any country, the results of which could be pivotal to establish safety and efficacy of a Product as a basis for an NDA or would otherwise satisfy requirements of 21 CFR 312.21(c), or its foreign equivalent.

1.29 “ Qualified Compound ” shall mean a compound with [*].

1.30 “ Product(s) ” shall mean any pharmaceutical product or component that comprises a Licensed Compound.

1.31 “ Program ” shall mean Licensor’s Chk1 inhibitor research program, as conducted at any time in the past, as currently conducted, and as may be conducted during the term of this Agreement.

1.32 “ Regulatory Approval ” means with respect to a country, extra-national territory, province, state, or other regulatory jurisdiction, any and all approvals, licenses, registrations or authorizations of any Regulatory Authority necessary in order to commercially distribute, sell, manufacture, import, export or market a product in such country, state, province, or some or all of such extra-national territory or regulatory jurisdiction, which shall include any pricing and reimbursement approvals.

1.33 “ Regulatory Authority ” means, with respect to a particular country, extra-national territory, province, state, or other regulatory jurisdiction, any applicable Governmental Authority involved in granting Regulatory Approval and/or, to the extent required for such country, extra-national territory, province, state, or other or regulatory jurisdiction, pricing or reimbursement approval of a Product in such country or regulatory jurisdiction, including the FDA, the EMA, the European Commission and MHLW, and in each case including any successor thereto.

1.34 “ Regulatory Materials ” means regulatory applications, submissions, dossiers, notifications, registrations, Regulatory Approvals and/or other filings made to or with, or other approvals granted by, a Regulatory Authority that are necessary or reasonably desirable in order to develop, manufacture, market, sell or otherwise commercialize a Product in a particular country or regulatory jurisdiction. Regulatory Materials include, without limitation, INDs, MAAs and NDAs.

1.35 “ Royalty Term ” shall mean, with respect to each Product in each country, the term commencing on the date of the First Commercial Sale in such country and ending in such country upon the later of: (i) the expiration of the last to expire Valid Claim claiming the composition of matter of, or the method of making or using, such Product in such country; and (ii) [*] ([*]) years from the First Commercial Sale of such Product in such country.

1.36 “ Sublicensee ” means any Third Party granted a sublicense by Company under Section 3.1 to the rights licensed to Company hereunder, but shall not include any wholesaler or distributor based on a wholesaler or distributor arrangement for the sale of Product (even if such wholesaler or distributor is granted a right or license to sell Product).

1.37 “ Territory ” shall mean worldwide.

 

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1.38 “ Third Party ” shall mean any Person other than Licensor, Company and their respective Affiliates.

1.39 “ Valid Claim ” shall mean a claim of an issued and unexpired patent included within the Licensed Patent Rights or any patent which claims an invention made by or on behalf of Company alone or Company and Licensor jointly in performance of the Work Plan, which has not been held permanently revoked, unenforceable or invalid by a decision of a court or other governmental agency of competent jurisdiction, unappealable or unappealed within the time allowed for appeal, and which has not been admitted to be invalid or unenforceable through reissue or disclaimer or otherwise.

1.40 “ Work Plan ” shall mean the plan describing in reasonable detail the development activities to be performed by Licensor and Company with respect to the Licensed Compounds and the associated budget, as such plan and budget may be updated in accordance with Section 2.3.

 

  2. GOVERNANCE; WORK PLAN

2.1 Overview. The Parties desire to collaborate with respect to the pre-clinical development of the Licensed Compounds, as set forth in more detail in this Article 2, with the goal of identifying a drug candidate molecule for clinical development. Licensor will be responsible for managing medicinal chemistry and the initial scale-up of research materials, initial characterization of physiochemical properties of the molecules, and Chk1 enzymatic potency screening and other activities, if any, set forth in the Work Plan. Company shall provide reasonable assistance to Licensor in connection with carrying out such activities as set forth in the Work Plan. Company shall be solely responsible for clinical development, regulatory and commercialization activities, as described in more detail in Article 7.

 

  2.2 JRC .

2.2.1 Establishment; Responsibilities. Within sixty (60) days following the execution of this Agreement, the Parties will establish a Joint Research Committee (the “ JRC ”). The responsibilities of the Joint Research Committee shall consist of (a) ensuring open exchange of information between the Parties regarding the performance of the Work Plan, (b) overseeing and reviewing the status of the Work Plan, and (c) approving updates to the Work Plan. Except for the foregoing sub-clause (c), the JRC shall not have any decision-making authority. The JRC shall dissolve upon the acceptance of the first IND filing for a Licensed Compound unless otherwise decided by Company.

2.2.2 JRC Representatives. Each Party shall nominate two (2) individuals to serve as representatives on the JRC (the “ JRC Representatives ”). Each Party shall be entitled to change one or more of its respective JRC Representatives upon written notice to the other Party.

2.2.3 JRC Meetings. The JRC shall meet at least quarterly, or as agreed by the Parties, at such locations as the Parties agree, and will otherwise communicate regularly by telephone, electronic mail, facsimile and/or video conference. With the consent of the Parties, other representatives of Licensor or Company may attend JRC meetings as nonvoting observers. Each Party shall be responsible for all of its own expenses associated with attendance of such meetings.

 

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2.2.4 Minutes. The JRC shall keep accurate minutes of its deliberations which shall record all proposed decisions and all actions recommended or taken. The Secretary of the JRC (as appointed by the members of the JRC) shall be responsible for the preparation of draft minutes. Draft minutes shall be sent to all members of the JRC within ten (10) working days after each meeting and shall be approved, if appropriate, at the next meeting. All records of the JRC shall at all times be available to both Licensor and Company.

2.2.5 Decision Making. All decisions of the JRC shall be made by consensus. In the event that the votes required to approve a decision cannot be reached within the JRC, then such matter shall first be referred to Company’s Chief Scientific Officer and Licensor’s Chief Scientific Officer, who shall attempt in good faith to resolve such disagreement within fifteen (15) days of such matter being referred to them. If such matter is not resolved within such 15-day period, then Company may exercise the deciding vote with respect to such matter provided that such deciding vote shall not have the consequence of increasing Licensor’s obligations under this Agreement and shall not apply with regard to any allegation that a Party is in breach of this Agreement.

 

  2.3 Work Plan .

2.3.1 Licensor will use Commercially Reasonable Efforts to conduct pre-clinical development activities with respect to the Licensed Compound pursuant to the Work Plan (“ Licensor Pre-Clinical Activities ”). The initial Work Plan is attached to this Agreement as Exhibit D . The JRC shall review the Work Plan on a quarterly basis and shall adjust and make appropriate changes to the Work Plan, based on the results and progress to date.

2.3.2 Company shall fund the performance of the Licensor Pre-Clinical Activities pursuant to the budget set forth in the Work Plan, with Licensor’s internal costs calculated at the FTE rate set forth in the Work Plan for the number of FTEs set forth therein. Licensor shall have no obligation to carry out work under the Work Plan that is not covered in the budget set forth in the Work Plan. Licensor shall invoice Company on a quarterly basis for FTEs used in the previous quarter in accordance with the agreed budget. All such invoices will be paid by Company in Pounds Sterling within thirty (30) days of the date of the invoice.

 

  3. LICENSE GRANT

3.1 Licensed Technology . Licensor hereby grants to Company an exclusive (including as to Licensor, except to the extent necessary for Licensor to perform the Work Plan in accordance with this Agreement) license, with the right to grant sublicenses through multiple tiers, under the Licensed Technology to conduct research and to develop, make, have made, use, offer for sale, sell, import and export Licensed Compounds and Products in the Territory for use in the Field.

 

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3.2 Exclusivity . During the term of this Agreement, Licensor and its Affiliates will not directly or indirectly (including by sponsoring work or granting rights to any Third Party), develop or commercialize any Licensed Compounds or other compounds which are Qualified Compounds, except as necessary for Licensor to perform the Work Plan in accordance with this Agreement, provided that (except for Licensed Compounds under Section 1.17 (a) and (b)), the foregoing restriction shall cease either [*] ([*]) years after Licensor has completed the activities ascribed to Licensor under the Work Plan or [*], whichever is sooner. For the avoidance of doubt, the restrictions in this Section 3.2 shall not prohibit Licensor from conducting any research or discovery effort that is related to a target other than Chk1, so long as the primary goal of such program, as evidenced by laboratory notebooks or other relevant documents, is not to discover or develop Products that directly bind to Chk1. Notwithstanding the foregoing, the restrictions under this Section 3.2 shall not apply to any Third Party that acquires control (as defined in Section 1.1) of Licensor, whether by merger, acquisition or sale of assets, provided , that, and only so long as (a) no Licensed Patent Rights or confidential Licensed Know-How are used by, or disclosed in any material manner to, such Third Party acquiror, for use with any compound that is designed to inhibit Chk 1 or is a Qualified Compound, and (b) such Third Party acquiror segregates the personnel performing activities under this Agreement from personnel performing development and/or commercialization activities to any compound that is designed to inhibit Chk 1 or is a Qualified Compound, which activities are outside the scope of this Agreement.

3.3 Technology Transfer . Licensor shall provide to Company within thirty (30) days from the Effective Date, the Materials and all existing patent filings related to the Licensed Patent Rights, as set forth in more detail in Exhibit C.

3.4 Sublicensees . Company shall ensure that all agreements appointing a Sublicensee shall be consistent with the terms of this Agreement. Company shall be responsible for ensuring that Sublicensees comply with this Agreement. Company shall provide written notice to Licensor of the identity of each Sublicensee promptly after entering in to any agreement with such Sublicensee.

 

  4. FINANCIAL CONSIDERATIONS

 

  4.1 Milestone Payments .

4.1.1 Development Milestones. Subject to the terms and conditions of this Agreement, Company shall pay to Licensor the respective development milestone payments set forth below, upon the first achievement of each of the milestones set forth below for each Product (except as otherwise set forth below), whether such achievement is made by Company, its Affiliates or Sublicensees.

 

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Milestone

  

Payment

[*].

  

$[*] for the first Product

$[*] for the second Product

[*]

   $[*]

[*]

   $[*]

[*]

   $[*]

[*]

   $[*]

[*]

   $[*]

[*]

   $[*]

[*]

   $[*]

[*]

   $[*]

[*]

   $[*]

4.1.2 Commercial Milestone . Subject to the terms and conditions of this Agreement, Company shall pay to Licensor a one-time commercial milestone payment of $[*] if and when the aggregated Net Sales of all Products in the Territory during a single Calendar Year first exceed $[*].

4.1.3 Milestone Payment Terms .

(a) Company shall notify Licensor in writing within fifteen (15) days following the achievement of each milestone event set forth in Sections 4.1.1 and 4.1.2, and shall make the appropriate milestone payment within [*] days after the achievement of such milestone event.

(b) The milestone payments set forth in Section 4.1.1 shall be payable once per Product comprising a Licensed Compound, and only for the first indication thereof. For clarity, Products comprising one or more of the same Licensed Compounds shall be considered the same Product, regardless of the formulation, dosage strength, route of administration, packaging or indication thereof or any other active ingredient(s) or number or type of Licensed Compounds contained therein.

 

  4.2 Royalties .

4.2.1 Royalty Rate . During the applicable Royalty Term for a Product, subject to the terms and conditions of this Agreement, Company shall pay to Licensor royalties, with respect to each Product, equal to [*] percent ([*]%) of Net Sales.

4.2.2 Step-Down . The royalty amounts payable under Section 4.2.1 shall be reduced, on a country-by-country and Product-by-Product basis, to [*] percent ([*]%) of the amounts otherwise payable pursuant to Section 4.2.1 during any portion of the Royalty Term in which there is not at least one (1) Valid Claim claiming the composition of matter of, or the method of making or using, such Product in such country. Only one royalty shall be payable for each sale of a Product.

 

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4.2.3 Anti-Stacking . If Company, its Affiliates or Sublicensees are required to pay royalties to any Third Party in order to exercise its rights hereunder to make, have made, use, sell, offer to sale or import any Product, then Company shall have the right to credit [*] percent ([*]%) of such Third Party royalty payments against the royalties owing to Licensor under Section 4.2.1 with respect to sales of such Product in such country; provided, however, that Company shall not reduce the amount of the royalties paid to Licensor under Section 4.2.1 by reason of this Section 4.2.3, with respect to sales of such Product in such country, to less than [*] percent ([*]%) of the royalties that would otherwise be due under Section 4.2.1.

4.2.4 Generic Competition . Upon commencement of Generic Competition with respect to a Product in a country, and thereafter for so long as such Generic Competition persists, the royalties payable thereafter under Section 4.2.1 and 4.2.2 with respect to such Product sold in such country shall be:

(a) reduced by [*] percent ([*]%) if such Generic Product(s) represent a total prescription volume of at least [*] percent ([*]%) of such Product and such Generic Product(s), in the aggregate, in such country in such calendar year, determined by the number of unit equivalents for such Product and such Generic Product(s), in the aggregate, during such calendar year (as measured by an IMS audit or other mechanism agreed upon by the Parties), and

(b) reduced by [*] percent ([*]%) if such Generic Product(s) represent a total prescription volume of at least [*] percent ([*]%) of such Product and such Generic Product(s), in the aggregate, in such country in such calendar year, determined by the number of unit equivalents for such Product and such Generic Product(s), in the aggregate, during such calendar year (measured as described above)

4.2.5 Royalty Floor. The operation of Sections 4.2.2, 4.2.3 and/or 4.2.4, individually or in combination, shall not reduce the royalty payable to Licensor under this Agreement to less than [*] percent ([*]%) of Net Sales.

 

  5. ROYALTY REPORTS AND ACCOUNTING

5.1 Royalty Reports . Within [*] days after the end of each calendar quarter during the term of this Agreement following the First Commercial Sale of a Product, Company shall furnish to Licensor a quarterly written report showing in reasonably specific detail (a) the calculation of Net Sales by Company and its Affiliates during such calendar quarter; (b) the calculation of Net Sales by Company’s and its non-Affiliate Sublicensees, if any, during the calendar quarter immediately preceding such calendar quarter; (c) the calculation of the royalties, if any, that shall have accrued based upon such Net Sales; (d) the withholding taxes, if any, required by law to be deducted with respect to such sales; and (e) the exchange rates, if any, used in determining the amount of United States dollars. With respect to sales of Products invoiced in United States dollars, the gross sales, Net Sales and royalties payable shall be expressed in United States dollars. With respect to (i) Net Sales invoiced in a currency other than United States dollars and (ii) cash consideration paid in a currency other than United States dollars by Company’s Sublicensees hereunder, all such amounts shall be expressed both in the currency in which the distribution is invoiced and in the United States dollar equivalent. The United States dollar equivalent shall be calculated using the average of the exchange rate (local currency per US$1) published in The Wall Street Journal, Western Edition, under the heading “Currency Trading” on the last business day of each month during the applicable calendar quarter, or other newspaper agreed to by the Parties.

 

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5.2 Audits .

5.2.1 During the Royalty Term, upon the written request of Licensor and not more than once in each Calendar Year, Company shall permit an independent certified public accounting firm of nationally recognized standing selected by Licensor and reasonably acceptable to Company, at Licensor’s expense, to have access during normal business hours to such of the financial records of Company as may be reasonably necessary to verify the accuracy of the payment reports hereunder for the five (5) years immediately prior to the date of such request.

5.2.2 If such accounting firm concludes that additional amounts were owed during the audited period, Company shall pay such additional amounts within thirty (30) days after the date Licensor delivers to Company such accounting firm’s written report so concluding. The fees charged by such accounting firm shall be paid by Licensor; provided, however, if the audit discloses that the royalties payable by Company for such period are more than one hundred ten percent (110%) of the royalties actually paid for such period, then Company shall pay the reasonable fees and expenses charged by such accounting firm.

5.2.3 Licensor shall cause its accounting firm to retain all financial information subject to review under this Section 5.2 in strict confidence; provided, however, that Company shall have the right to require that such accounting firm, prior to conducting such audit, enter into an appropriate non-disclosure agreement with Company regarding such financial information. The accounting firm shall disclose to Licensor only whether the reports are correct or not, and the amount of any discrepancy. No other information shall be shared. Licensor shall treat all such financial information as Company’s Confidential Information.

 

  6. PAYMENTS

6.1 Payment Terms . Royalties shown to have accrued by each royalty report provided for under Section 5.1 shall be due on the date such royalty report is due. Payment of royalties in whole or in part may be made in advance of such due date.

6.2 Exchange Control . If at any time legal restrictions prevent the prompt remittance of part or all royalties with respect to any country in the Territory where the Product is sold, Company shall have the right, in its sole discretion, to make such payments by depositing the amount thereof in local currency to Licensor’s account in a bank or other depository institution in such country.

 

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6.3 Withholding Taxes . Company shall be entitled to deduct the amount of any withholding taxes, valued added taxes or other taxes, levies or charges other than United States taxes, payable by Company, its Affiliates or Sublicensees, and required to be withheld by Company, its Affiliates or Sublicensees, to the extent Company, its Affiliates or Sublicensees pay to the appropriate Governmental Authority on behalf of Licensor such taxes, levies or charges. Company shall use reasonable efforts to minimize any such taxes, levies or charges required to be withheld on behalf of Licensor by Company, its Affiliates or Sublicensees. Company promptly shall deliver to Licensor proof of payment of all such taxes, levies and other charges, together with copies of all communications from or with such Governmental Authority with respect thereto and shall cooperate with and provide reasonable assistance to Licensor in order to obtain a repayment of any such taxes, levies and charges.

 

  7. DEVELOPMENT AND COMMERCIALIZATION

 

  7.1 Development .

7.1.1 Pre-Clinical and Clinical Activities . From and after the Effective Date, as between the Parties, Company shall have sole responsibility for the development of Licensed Compounds and Products in the Field at its cost and expense (including responsibility for all funding, resourcing and decision-making) in the Territory. Company shall use Commercially Reasonable Efforts, including through its Affiliates and Sublicensees, to develop and obtain Regulatory Approval for at least one Product in the USA, the Major European Countries and Japan. In addition, Company shall use Commercially Reasonable Efforts to initiate GLP toxicology studies for at least one Product within [*] ([*]) months of the Effective Date.

7.1.2 Regulatory Filings . As between Company and Licensor, Company will have sole responsibility for (i) preparing and submitting all Regulatory Materials for Licensed Compounds and Products and (ii) determining all regulatory plans and strategies for Licensed Compounds and Products. As between the Parties, Company will have the exclusive right to submit to and appear before regulatory authorities on any matter with respect to Licensed Compounds and Products. Company (or its Affiliates or Sublicensees, as applicable) will own all Regulatory Materials (including Regulatory Approvals) for Licensed Compounds and Products and all such Regulatory Materials shall be submitted in the name of Company (or its Affiliate or Sublicensee, as applicable). As between the Parties, Company shall have sole decision-making authority for all regulatory matters with respect to Licensed Compounds and Products in the Field (including without limitation, the content of any regulatory filing or dossier, pharmacovigilance reports, patient risk management strategies and plans, labeling, safety, the decision to file any MAA, and recalls and withdrawals) in the Territory.

7.1.3 Development Reports. Within [*] days of January 1 of a Calendar Year, Company will provide to Licensor annual written summary reports describing in reasonable detail the development and regulatory activities of Company with respect to Licensed Compounds. Such reports and the contents thereof shall be Confidential Information of Company.

 

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7.1.4 Support. Upon Company’s request, Licensor shall provide reasonable assistance, at Company’s cost and expense (calculated at the FTE rate set forth in the Work Plan, unless otherwise mutually agreed upon by the Parties) to support the Company’s activities under this Section 7.1, including with respect to writing and finalizing any reports necessary to support the filing of an IND with the FDA for the Licensed Compound or Product selected. Licensor shall use Commercially Reasonable Efforts to provide such support to Company.

 

  7.2 Commercialization .

7.2.1 Marketing and Commercialization Activities. Upon receiving Regulatory Approval for one or more Product(s) in one or more country(ies) of the Territory, Company will have sole responsibility with respect to the marketing and commercialization of such Product(s) in such country(ies). Company shall use Commercially Reasonable Efforts, including through its Affiliates and Sublicensees, to market and commercialize such Product(s) in such
country(ies).

7.2.2 Commercialization Report . For each Calendar Year following first Regulatory Approval for a Product, Company shall provide to Licensor annually within sixty (60) days after the end of such Calendar Year a summary report describing in reasonable detail the Company’ activities with respect to the commercialization of Products. Such reports and the contents thereof shall be Confidential Information of Company.

 

  8. CONFIDENTIALITY

8.1 Confidential Information . During the term of this Agreement, and for a period of [*] ([*]) years following the expiration or earlier termination hereof, each Party shall maintain in confidence all information of the other Party that is disclosed by the other Party and identified as, or acknowledged to be, confidential at the time of disclosure (the “ Confidential Information ”), and shall not use, disclose or grant the use of the Confidential Information except on a need-to-know basis to those directors, officers, affiliates, employees, Affiliates, permitted licensees, permitted assignees and agents, consultants, clinical investigators or contractors, to the extent such disclosure is reasonably necessary in connection with performing its obligations or exercising its rights under this Agreement. To the extent that disclosure is authorized by this Agreement, prior to disclosure, each Party hereto shall obtain agreement of any such Person to hold in confidence and not make use of the Confidential Information for any purpose other than those permitted by this Agreement. Each Party shall notify the other promptly upon discovery of any unauthorized use or disclosure of the other Party’s Confidential Information.

 

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8.2 Permitted Disclosures . The confidentiality obligations contained in Section 8.1 shall not apply to the extent that (a) any receiving Party (the “ Recipient ”) is required to disclose information by law, regulation or order of a governmental agency or a court of competent jurisdiction, or (b) the Recipient can demonstrate that (i) the disclosed information was public knowledge at the time of such disclosure to the Recipient, or thereafter became public knowledge, other than as a result of actions of the Recipient in violation hereof; (ii) the disclosed information was rightfully known by the Recipient (as shown by its written records) prior to the date of disclosure to the Recipient by the other Party hereunder; (iii) the disclosed information was disclosed to the Recipient on an unrestricted basis from a source not under a duty of confidentiality to the other Party; or (iv) the disclosed information was independently developed by the Recipient without use of the Confidential Information disclosed by the other Party. In addition, Company may disclose Confidential Information regarding the Licensed Know-How or otherwise received from Licensor for the following purposes: (A) regulatory filings and other filings with Governmental Authorities, including filings with the FDA, as necessary for the development or commercialization of Licensed Compounds and Products, (B) prosecuting or defending litigation, and (C) complying with Applicable Law, including regulations promulgated by securities exchanges. Furthermore, each Party may disclose the stage of data regarding the development and commercialization of Licensed Compounds and Products under this Agreement to any bona fide potential or actual investor, stockholder, investment banker, acquirer, merger partner or other potential or actual financial partner, provided that each disclosee must be bound by obligations of confidentiality and non-use consistent with those set forth in this Agreement.

8.3 Terms of this Agreement . Except as otherwise provided in Section 8.2, Licensor and Company shall not disclose any terms or conditions of this Agreement to any Third Party without the prior consent of the other Party, provided that (a) each Party may disclose such terms to any bona fide potential or actual investor, stockholder, investment banker, acquirer, merger partner or other potential or actual financial partner; provided that each disclosee must be bound by obligations of confidentiality and non-use consistent with those set forth in this Agreement, and (b) the Company and, if applicable, Licensor may file a copy of this Agreement or portions thereof with the Securities and Exchange Commission (SEC) or other Governmental Authorities to the extent required under Applicable Law.

8.4 Press Releases . Neither Party shall issue any press release or other public announcement disclosing the existence of this Agreement or any of the terms or conditions of this Agreement or the transaction contemplated by this Agreement without the prior written consent of the other Party, which consent may not be unreasonably withheld. As of the Effective Date the Parties have agreed that each Party may issue a press release in the form attached at Exhibit E .

 

  9. INTELLECTUAL PROPERTY RIGHTS

 

  9.1 Ownership of Inventions .

9.1.1 Inventorship for all Inventions made anywhere in the world by the Parties during the course of the performance of activities pursuant to this Agreement shall be determined in accordance with the patent laws of the country where the applicable invention has been discovered or made.

9.1.2 All Inventions arising from the activities of the Parties and their respective Affiliates or a Third Party acting on behalf of a Party or its Affiliate under this Agreement, (i) discovered or invented solely by employees of a Party or its respective Affiliate or a Third Party acting on behalf of a Party or its respective Affiliate shall be owned solely by such Party or its respective Affiliate; or (ii) discovered or invented jointly by both Parties (and/or their Affiliates or a Third Party acting on behalf of a Party and/or its Affiliates) shall be owned by the Company.

 

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  9.2 Patents

9.2.1 Patent Prosecution and Maintenance . Commencing on the Effective Date, Company shall have the right to control, at its sole cost, the preparation, filing, prosecution and maintenance of all patents and patent applications within the Licensed Patent Rights. Company shall give Licensor an opportunity to review and comment on the text of each patent application subject to this Section 9.2.1 before filing, and shall supply Licensor with a copy of such patent application as filed, together with notice of its filing date and serial number. Licensor shall cooperate with Company, execute all lawful papers and instruments and make all rightful oaths and declarations as may be necessary in the preparation, prosecution and maintenance of all patents and other filings referred to in this Section 9.2.1. Company shall keep Licensor reasonably updated with regard to the prosecution of the Licensed Patents Rights. Before making any material filing or material response to the applicable patent office with respect to the Licensed Patent Rights, Company shall give Licensor the opportunity to comment on the proposed step and shall consider in good faith any reasonable comments made by Licensor. If Company, in its sole discretion, decides to abandon the preparation, filing, prosecution or maintenance of any patent or patent application in the Licensed Patent Rights, then Company shall notify Licensor in writing thereof and following the date of such notice if Licensor decides to continue such activities with respect to such patent or patent application (a) Licensor shall be responsible for and shall control, at its sole cost, the preparation, filing, prosecution and maintenance of such patents and patent applications, and (b) Company shall thereafter have no license under this Agreement to such patent or patent application.

9.2.2 Notification of Infringement . Each Party shall notify the other of any infringement in the Territory known to it of any Licensed Patent Rights and shall provide the other Party with the available evidence, if any, of such infringement.

9.2.3 Enforcement of Patent Rights . Company, at its sole expense, shall have the right to determine the appropriate course of action to enforce Licensed Patent Rights or otherwise abate the infringement thereof, to take (or refrain from taking) appropriate action to enforce Licensed Patent Rights, to defend any declaratory judgments seeking to invalidate or hold the Licensed Patent Rights unenforceable, to control any litigation or other enforcement action and to enter into, or permit, the settlement of any such litigation, declaratory judgments or other enforcement action with respect to Licensed Patent Rights, in each case in Company’s own name and, if necessary for standing purposes, in the name of Licensor and shall consider, in good faith, the interests of Licensor in so doing. If Company does not, within one hundred twenty (120) days of receipt of notice from Licensor, abate the infringement or file suit to enforce the Licensed Patent Rights against at least one infringing party in the Territory, Licensor shall have the right to take whatever action it deems appropriate to enforce the Licensed Patent Rights; provided, however, that, within thirty (30) days after receipt of notice of Licensor’s intent to file such suit, Company shall have the right to jointly prosecute such suit and to fund up to [*] ([*]) the costs of such suit. The Party controlling any such enforcement action shall not settle the action or otherwise consent to an adverse judgment in such action that diminishes the rights or interests of the non-controlling Party without the prior written consent of the other Party. All monies recovered upon the final judgment or settlement of any such suit to enforce the Licensed Patent Rights shall be shared, after reimbursement of expenses, in relation to the damages suffered by each Party.

 

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9.2.4 Cooperation . In any suit to enforce and/or defend the Licensed Patent Rights pursuant to this Section 9.2, the Party not in control of such suit shall, at the request and expense of the controlling Party, reasonably cooperate and, to the extent possible, have its employees testify when requested and make available relevant records, papers, information, samples, specimens, and the like.

 

  10. TERMINATION

10.1 Expiration . Subject to Sections 10.2 and 10.3 below, this Agreement shall expire on the expiration of Company’s obligation to pay royalties to Licensor under Section 4.2. The license grant under Section 3.1 shall be effective at all times prior to such expiration and following such expiration of this Agreement Company shall have a fully paid-up, non-exclusive license under the Licensed Know-How to conduct research and to develop, make, have made, use, sell, offer for sale, import and export Licensed Compounds and Products in the Territory for use in the Field.

10.2 Termination by Company . Company may terminate this Agreement, in its sole discretion, upon [*] prior written notice to Licensor or, if a Product has obtained Regulatory Approval at the applicable time, on [*] days prior written notice to Licensor.

10.3 Termination for Cause . If either Party believes that the other is in breach of its material obligations hereunder, then the non-breaching Party may deliver notice of such breach to the other Party. For all breaches other than a failure to make a payment set forth in this Agreement, the allegedly breaching Party shall have ninety (90) days to cure such breach from the receipt of the notice or to dispute. For any breach arising from a failure to make a payment set forth in this Agreement, the allegedly breaching Party shall have thirty (30) days from the receipt of the notice to dispute or cure such breach. If the Party receiving notice of breach fails to cure, or fails to dispute, that breach within the applicable period set forth above, then the Party originally delivering the notice of breach may terminate this Agreement on written notice of termination. If the allegedly breaching Party in good faith disputes such material breach or disputes the failure to cure or remedy such material breach and provides written notice of that dispute to the other Party within the above time periods, the matter will be addressed under the dispute resolution provisions in Section 14.3, and the notifying Party may not terminate this Agreement until it has been determined under Section 14.3 that the allegedly breaching Party is in material breach of this Agreement, and such breaching Party further fails to cure such breach within ninety (90) days after the conclusion of that dispute resolution procedure (and such termination shall then be effective upon written notification from the notifying Party to the breaching Party). Notwithstanding the foregoing, in the event Company’s alleged breach only relates to one or more Licensed Compound(s), Product(s), or country(ies), then Licensor’s ability to terminate the Agreement on the basis of such breach shall be limited to the applicable Licensed Compound(s), Product(s) or
country(ies).

10.4 Termination for Insolvency . Either Party may terminate this Agreement in its entirety on written notice to the other Party upon the liquidation, dissolution, winding-up, insolvency, bankruptcy, or filing of any petition therefor, appointment of a receiver, custodian or trustee, or any other similar proceeding, by or of the other Party where such petition, appointment or similar proceeding is not dismissed or vacated within ninety (90) calendar days and where such petition, appointment or similar proceeding is not a part of any bona fide reorganisation of a Party or its Affiliates.

 

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10.5 Termination for Patent Challenge . If Company or any of its Affiliates brings an action or asserts a claim in any forum or administrative body that challenges the validity or enforceability of any claim of the Licensed Patent Rights, Licensor may, upon written notice to Company, remove such claim from the license granted to Company under Section 3.1, unless Company or such Affiliate (as the case may be) withdraws such challenge within thirty (30) days after receipt of a written request from that it do so.

10.6 Effect of Expiration or Termination .

10.6.1 In the event Licensor terminates this Agreement pursuant to Sections 10.3 or 10.4, (a) the licenses granted to Company in Section 3.1 shall terminate solely with respect to the Licensed Compound(s), Product(s) and country(ies) in which the termination becomes effective, and Company shall retain a non-exclusive, worldwide license to sell, offer for sale and import Licensed Products, including through Sublicensees, during the Commercialization Wind-Down Period (as defined below) and (b) Company shall at Licensor’s request and subject to the payment of royalties and/or other fees to be negotiated in good faith by the Parties, (i) transfer to Licensor all INDs, NDAs and Regulatory Approvals for all Products (ii) license to Licensor any intellectual property rights developed by Company or its Affiliates and owned or controlled by Company or its Affiliates (excluding for clarity, in the event Company is acquired by a Third Party, whether by merger, acquisition or sale of assets, any intellectual property rights of such Third Party) which are necessary or useful to developing, making, selling or using Products and (iii) do such other things as may be reasonably necessary to transfer to Licensor the ongoing development, manufacturing, sale or use of Products.

10.6.2 Expiration or termination of this Agreement shall not relieve the Parties of any obligation accruing prior to such expiration or termination, and the provisions of Article 1, Article 3 (except in the event Licensor terminates this Agreement pursuant to Sections 10.3 or 10.4), Section 5.2, Article 8, Article 9, Sections 10.1 and 10.6 and Articles 11, 12, 13 and 14 shall survive the expiration or termination of this Agreement.

10.6.3 Company, its Affiliates and its Sublicensee, as applicable, shall be permitted to distribute and sell all Products that were in inventory or in production on an effective termination date for a period of [*] ([*]) months following the effective termination date (“ Commercialization Wind-Down Period ”), in accordance with the terms of this Agreement.

10.6.4 Notwithstanding the foregoing, no termination of this Agreement shall be construed as a termination of any sublicense of any Sublicensee hereunder, and thereafter each such Sublicensee shall be considered a direct licensee of Licensor, provided that (a) Company has first represented and warranted to Licensor that, to Company’s actual knowledge, as of the effective date of such termination, such Sublicensee is then in full compliance with all terms and conditions of its sublicense, and (b) such Sublicensee agrees in writing to assume all applicable obligations of Company under this Agreement.

 

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*Confidential Treatment Requested.


  11. REPRESENTATIONS AND WARRANTIES

11.1 Mutual Representations and Warranties . Each Party hereby represents and warrants to the other Party as follows:

11.1.1 Such Party is a corporation duly organized, validly existing and in good standing under the laws of the State or country in which it is incorporated.

11.1.2 Such Party (a) has the corporate power and authority and the legal right to enter into this Agreement and to perform its obligations hereunder, and (b) has taken all necessary corporate action on its part to authorize the execution and delivery of this Agreement and the performance of its obligations hereunder. This Agreement has been duly executed and delivered on behalf of such Party, and constitutes a legal, valid, binding obligation, enforceable against such Party in accordance with its terms.

11.1.3 All necessary consents, approvals and authorizations of all governmental authorities and other Persons required to be obtained by such Party in connection with this Agreement have been obtained.

11.1.4 The execution and delivery of this Agreement and the performance of such Party’s obligations hereunder (a) do not conflict with or violate any requirement of Applicable Law, and (b) do not conflict with, or constitute a default under, any contractual obligation of it.

11.2 Licensor Additional Representations and Warranties . Licensor hereby represents and warrants to Company as follows:

11.2.1 Licensor is the sole and exclusive owner of the Licensed Technology, and has not in-licensed from Third Parties any right, title or interest in or to the Licensed Technology.

11.2.2 Licensor has not granted to any Third Party any license or other interest in the Licensed Technology.

11.2.3 [*]

11.2.4 To the best of Licensor’s knowledge, the development, use, sale and import of Licensed Compounds or Products not infringe or misappropriate any intellectual property rights owned or possessed by any Third Party.

11.2.5 There are no pending or threatened claims, judgments or settlements against Licensor or its Affiliates relating to the Licensed Technology.

11.2.6 To the best of Licensor’s knowledge, no Third Party has infringed or misappropriated or is infringing or misappropriating any Licensed Technology.

 

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*Confidential Treatment Requested.


  12. INDEMNIFICATION AND INSURANCE

12.1 Indemnification. Each Party (the “ Indemnitor ”) shall defend, indemnify and hold the other Party (the “ Indemnitee ”) harmless from all losses, liabilities, damages and expenses (including attorneys’ fees and costs) incurred as a result of any claim, demand, action or proceeding brought by a Third Party arising out of any breach of this Agreement by the Indemnitor, or the gross negligence or willful misconduct of the Indemnitor in the performance of its obligations under this Agreement, except in each case to the extent arising from the gross negligence or willful misconduct of the Indemnitee or the breach of this Agreement by the Indemnitee.

12.2 Procedure . The Indemnitee promptly shall notify the Indemnitor of any liability or action in respect of which The Indemnitee intends to claim such indemnification, and the Indemnitor shall have the right to assume the defense thereof with counsel selected by the Indemnitor. The indemnity agreement in this Section 12 shall not apply to amounts paid in settlement of any loss, claim, damage, liability or action if such settlement is effected without the consent of the Indemnitor, which consent shall not be withheld unreasonably. The failure to deliver notice to the Indemnitor within a reasonable time after the commencement of any such action, if prejudicial to its ability to defend such action, shall relieve the Indemnitor of any liability to the Indemnitee under this Section 12, but the omission so to deliver notice to the Indemnitor will not relieve it of any liability that it may have to the Indemnitee otherwise than under this Section 12. The Indemnitee under this Section 12, its employees and agents, shall cooperate fully with the Indemnitor and its legal representatives in the investigation and defense of any action, claim or liability covered by this indemnification.

12.3 Insurance . Company shall maintain product liability insurance with respect to the research, development, manufacture and sales of Products by Company in such amount as Company customarily maintains with respect to the research, development, manufacture and sales of its similar products. Company shall maintain such insurance for so long as it continues to research, develop, manufacture or sell any Products, and thereafter for so long as Company customarily maintains insurance covering the research, development, manufacture or sale of its similar products.

12.4 THE WARRANTIES AND INDEMNITIES STATED IN THIS AGREEMENT ARE IN LIEU OF, AND THE PARTIES EACH DISCLAIM, ALL OTHER WARRANTIES, EXPRESS, IMPLIED OR ARISING BY LAW, INCLUDING WITHOUT LIMITATION ANY IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.

 

  13. LIMITATION OF LIABILITY

Except for breaches of Section 8 (Confidentiality), neither Party shall be liable under this Agreement for any indirect, incidental, punitive, exemplary, special or consequential damages of any kind; provided, however, that this limitation will not reduce or affect either Party’s obligations with respect to Third Party claims under Section 12 (Indemnification and Insurance) or for fraud or death or personal injury caused by its negligence.

 

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  14. MISCELLANEOUS

14.1 Notices . Any consent, notice or report required or permitted to be given or made under this Agreement by one of the Parties hereto to the other Party shall be in writing, delivered by any lawful means to such other Party at its address indicated below, or to such other address as the addressee shall have last furnished in writing to the addressor and (except as otherwise provided in this Agreement) shall be effective upon receipt by the addressee.

 

If to Licensor: Sentinel Oncology Limited
23 Cambridge Science Park, Milton Road
Cambridge, United Kingdom
CB4 0EY
Attention: Chief Executive Officer
If to Company: Oncothyreon Inc.
2601 Fourth Ave., Suite 500
Seattle, WA 98121
USA
Attention: Chief Executive Officer
with a copy to: Fenwick & West LLP
1191 Second Avenue, 10 th Floor
Seattle, WA 98101
Attention: Effie Toshav

14.2 Governing Law . This Agreement (and any disputes, including non-contractual disputes) arising out of it shall be governed by and construed in accordance with the laws of the State of New York, U.S.A without regard to the conflicts of law principles thereof.

14.3 Dispute Resolution . The Parties shall meet and discuss in good faith and use reasonable efforts to settle any dispute, controversy or claim arising from or related to this Agreement or the breach thereof. If within [*] of the Parties meeting, the Parties do not fully settle any dispute, controversy or claim arising out of or relating to this Agreement, its negotiations, execution or interpretation, or the performance by either Party of its obligations under this Agreement (other than (a) any dispute, controversy or claim regarding the validity, enforceability, claim construction or infringement of any patent rights, or defenses to any of the foregoing, or (b) any bona fide Third Party action or proceeding filed or instituted in an action or proceeding by a Third Party against a Party to this agreement), whether before or after termination of this Agreement, shall be finally resolved by binding arbitration. Whenever a Party shall decide to institute arbitration proceedings, it shall give prompt written notice to that effect to the other Party. Any such arbitration shall be conducted in the English language under the International Dispute Resolution Procedures and Arbitration Rules of the American Arbitration Association (the “ Rules ”) by a panel of three (3) arbitrators appointed in accordance with such Rules. Any such arbitration shall be held in London, UK, if the claim is first brought by Company, and York City, New York, U.S.A., if the claim is first brought by Licensor. The method and manner of discovery in any such arbitration proceedings shall be governed by the Rules. The arbitrators shall have the authority to grant specific performance and to allocate between the Parties the costs of arbitration (including attorneys’ fees and expenses of the Parties) in such equitable manner as they determine. Judgment upon the award so rendered may be entered in any court having jurisdiction or application may be made to such court for judicial acceptance of any award and an order of enforcement, as the case may be. In no event shall a demand for arbitration be made after the date when institution of a legal or equitable proceeding based upon such claim, dispute or other matter in question would be barred by the applicable statute of limitations. Notwithstanding the foregoing, either Party shall have the right, without waiving any right or remedy available to such Party under this Agreement or otherwise, to seek and obtain from any court of competent jurisdiction any interim or provisional relief that is necessary or desirable to protect the rights or property of such Party, pending the selection of the arbitrators hereunder or pending the arbitrators’ determination of any dispute, controversy or claim hereunder.

 

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*Confidential Treatment Requested.


14.4 Assignment . Neither Party shall assign its rights or obligations under this Agreement without the prior written consent of the other; provided, however, each Party may, without such consent, assign this Agreement and its rights and obligations hereunder (a) to any Affiliate, or (b) in connection with the transfer or sale of all or substantially all of its business to which this Agreement relates, or in the event of its merger, consolidation, change in control or similar transaction, further provided that Licensor may not assign the Agreement under the preceding sub-clause (a) or (b) before the completion of its activities under the Work Plan without Company’s prior written consent. Any permitted assignee shall assume all obligations of its assignor under this Agreement.

14.5 Force Majeure . Neither Party shall be held liable or responsible to the other Party nor be deemed to have defaulted under or breached this Agreement for failure or delay in fulfilling or performing any term of this Agreement to the extent, and for so long as, such failure or delay is caused by or results from causes beyond the reasonable control of the affected Party including but not limited to fire, floods, embargoes, war, acts of war (whether war be declared or not), acts of terrorism, insurrections, riots, civil commotions, strikes, lockouts or other labor disturbances, acts of God or acts, omissions or delays in acting by any Governmental Authority or the other Party.

14.6 Waivers and Amendments . No change, modification, extension, termination or waiver of this Agreement, or any of the provisions herein contained, shall be valid unless made in writing and signed by duly authorized representatives of the Parties hereto.

14.7 Entire Agreement. This Agreement embodies the entire agreement between the Parties and supersedes any prior representations, understandings and agreements between the Parties regarding the subject matter hereof, including the Existing NDA and Existing MTA, which are both hereby terminated, it being understood that any information exchanged under the Existing NDA and the Existing MTA shall be subject to Article 8 of this Agreement. There are no representations, understandings or agreements, oral or written, between the Parties regarding the subject matter hereof that are not fully expressed herein.

14.8 Severability . Any of the provisions of this Agreement which are determined to be invalid or unenforceable in any jurisdiction shall be ineffective to the extent of such invalidity or unenforceability in such jurisdiction, without rendering invalid or unenforceable the remaining provisions hereof and without affecting the validity or enforceability of any of the terms of this Agreement in any other jurisdiction.

 

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14.9 Waiver . The waiver by either Party hereto of any right hereunder or the failure to perform or of a breach by the other Party shall not be deemed a waiver of any other right hereunder or of any other breach or failure by said other Party whether of a similar nature or otherwise.

14.10 Counterparts . This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

IN WITNESS WHEREOF, the Parties have executed this Agreement effective as of the Effective Date.

 

Sentinel Oncology Limited
By:

/s/ Bob Boyle

Name:

Bob Boyle

Title

CEO

Oncothyreon Inc.
By:

/s/ Robert L. Kirkman

Name:

Robert L. Kirkman

Title

President & CEO

 

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EXHIBIT A

LICENSED PATENT RIGHTS

[*]

 

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*Confidential Treatment Requested.


EXHIBIT B

LICENSED COMPOUNDS

[*]

 

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*Confidential Treatment Requested.


EXHIBIT C

TECHNOLOGY TRANSFER

[*]

 

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*Confidential Treatment Requested.


EXHIBIT D

INITIAL WORK PLAN

[*]

 

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*Confidential Treatment Requested.


EXHIBIT E

PRESS RELEASE

 

LOGO

Sentinel Oncology and Oncothyreon Collaborate to Develop and

Commercialise Small Molecule Chk1 Inhibitors

Chk1 inhibition selectively sensitises cancer cells to radiotherapy and chemotherapy

Cambridge, UK, XX April 2014: Sentinel Oncology Ltd. (Sentinel), the small molecule drug discovery company, today announced it has signed a collaboration agreement with Oncothyreon Inc. (NASDAQ: ONTY) (Oncothyreon) for development of Sentinel’s Checkpoint Kinase 1 (Chk1) programme. Under the terms of the agreement Oncothyreon will fund additional drug discovery research at Sentinel directed at the Chk1target, and will have an exclusive license for the development and commercialisation of any resulting compounds. Sentinel is eligible to receive pre-clinical, clinical and commercial milestone payments of up to $174M and a royalty on net sales, if any.

Sentinel has developed a series of potent, selective, orally active Chk1 kinase inhibitors as chemo- and radio-sensitizers. Chemotherapy and radiotherapy are among the most commonly used cancer treatments and work by damaging the DNA of tumour cells. The Chk1 protein performs a crucial role in the way that cancer cells respond to DNA damage and although Chk1 is active in all cells, over 50% of tumour cells have partially disrupted DNA repair mechanisms and are therefore much more reliant on Chk1. Consequently, inhibition of Chk1 has been shown to selectively sensitise tumour cells to DNA damaging agents, enabling effective lower doses of chemo- and radiotherapy, and reduction in associated side-effects.

Robert L. Kirkman, M.D., President and CEO, Oncothyreon, said: “We are pleased to add to our oncology pipeline through this collaboration with Sentinel. Selective inhibitors of Chk1 have implications across a broad range of cancer types and we believe this programme has the potential to make a positive impact on the lives of many cancer patients.”

Bob Boyle, CEO, Sentinel, commented: “We are delighted that Oncothyreon has recognised the value of our Chk1 programme. It is an exciting target, and we look forward to capitalising on Oncothyreon’s expertise in order to drive the programme forward into clinical studies.”

 

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ENDS

Media contact:

Katie Odgaard

Zyme Communications Tel: +44 (0)7787 502 947

Email: katie.odgaard@zymecommunications.com

 

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EXHIBIT 31.1

CERTIFICATION

I, Robert L. Kirkman, M.D., certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Oncothyreon Inc., (the “Registrant”);

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;

4. The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

5. The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

 

May 11, 2015

/s/ Robert L. Kirkman, M.D.

Robert L. Kirkman, M.D.
President and Chief Executive Officer
(Principal Executive Officer)

EXHIBIT 31.2

CERTIFICATION

I, Julia M. Eastland, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Oncothyreon Inc., (the “Registrant”);

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;

4. The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a -15(e) and 15d—15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

5. The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

 

May 11, 2015

/s/ Julia M. Eastland

Julia M. Eastland,

Chief Financial Officer, Secretary and

Vice President of Corporate Development

(Principal Financial and Accounting Officer)

EXHIBIT 32.1

CERTIFICATION PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

(18 U.S.C. SECTION 1350)

I, Robert L. Kirkman, M.D., certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report on Form 10-Q of Oncothyreon Inc. for the quarterly period ended March 31, 2015, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Quarterly Report on Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of Oncothyreon Inc.

 

May 11, 2015

/s/ Robert L. Kirkman, M.D.

Robert L. Kirkman, M.D.
President and Chief Executive Officer
(Principal Executive Officer)

EXHIBIT 32.2

CERTIFICATION PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

(18 U.S.C. SECTION 1350)

I, Julia M. Eastland, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report on Form 10-Q of Oncothyreon Inc. for the quarterly period ended March 31, 2015, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Quarterly Report on Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of Oncothyreon Inc.

 

May 11, 2015

/s/ Julia M. Eastland

Julia M. Eastland
Chief Financial Officer, Secretary and Vice President of Corporate Development
(Principal Financial and Accounting Officer)