e10vk
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
FOR
ANNUAL AND TRANSITION
REPORTS PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended May 31, 2008
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to
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Commission file number
0-24050
NORTHFIELD LABORATORIES
INC.
(Exact name of Registrant as
Specified in Its Charter)
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Delaware
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36-3378733
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(State of Other Jurisdiction of
Incorporation or Organization)
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(I.R.S. Employer
Identification Number)
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1560 Sherman Avenue, Suite 1000, Evanston, Illinois
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60201-4800
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(Address of Principal Executive
Offices)
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(Zip Code)
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(847) 864-3500
Registrants telephone number,
including area code:
Securities registered pursuant to Section 12(b) of the Act:
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Title of Each Class
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Name of Each Exchange on Which Registered
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Common Stock, par value $.01 per share
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The Nasdaq Stock Market LLC
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Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the Registrant is a well known
seasoned issuer, as defined in Rule 405 of the Securities
Act of
1933. o Yes x No
Indicate by check mark if the Registrant is not required to file
reports pursuant to Section 13 or 15(d) of the Securities
Exchange Act of
1934. o Yes x No
Indicate by check mark whether the Registrant: (1) has
filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past
90 days. x Yes o No
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of the Registrants knowledge, in the definitive proxy or
information statement incorporated by reference in Part III
of this Form
10-K or any
amendment to this
Form 10-K. x
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in Rule
12b-2 of the
Exchange Act. (Check one):
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Large accelerated
filer o
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Accelerated
filer o
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Non-accelerated
filer o
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Smaller reporting
company x
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(Do not check if a smaller reporting company)
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Indicate by check mark if the Registrant is a shell company (as
defined in Rule
12b-2 of
their Securities Exchange Act of
1934). o Yes x No
As of November 30, 2007, 26,960,233 shares of the
Registrants common stock, par value $.01 per share, were
outstanding. On that date, the aggregate market value of voting
stock (based upon the closing price of the Registrants
common stock on November 30, 2007 held by non-affiliates of
the Registrant was $28,349,365 (26,249,412 shares at $1.08
per share).
As of July 31, 2008, there were 26,960,233 shares of
the Registrants common stock outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions of the Registrants Proxy Statement for its 2008
Annual Meeting are incorporated by reference into Part III
of this
Form 10-K.
The Registrant maintains an Internet website at
www.northfieldlabs.com. None of the
information contained on this website is incorporated by
reference into this
Form 10-K
or into any other document filed by the Registrant with the
Securities and Exchange Commission.
CAUTIONARY
STATEMENT REGARDING FORWARD-LOOKING INFORMATION
This Annual Report contains forward-looking statements
concerning, among other things, our prospects, clinical and
regulatory developments affecting our potential product and our
business strategies. These forward- looking statements are
identified by the use of such terms as intends,
expects, plans, estimates,
anticipates, forecasts,
should, believes and similar terms.
These forward-looking statements involve risks and
uncertainties. Actual results may differ materially from those
predicted by the forward-looking statements because of various
factors and possible events, including those discussed under
Risk Factors. Because these forward-looking
statements involve risks and uncertainties, actual results may
differ significantly from those predicted in these
forward-looking statements. You should not place undue weight on
these statements. These statements speak only as of the date of
this Annual Report.
All subsequent written and oral forward-looking statements
attributable to Northfield or any person acting on our behalf
are qualified by this cautionary statement. We do not undertake
any obligation to update or publicly release any revisions to
forward-looking statements to reflect events, circumstances or
changes in expectations after the time such statement is made.
PART I
Northfield Laboratories Inc. is a leader in developing a
hemoglobin-based oxygen-carrying red blood cell substitute. The
initial indication we are seeking for our product,
PolyHeme®,
is the treatment of life-threatening hemoglobin levels when
blood transfusion is indicated but red blood cells may not be
available, appropriate or acceptable. We believe that this
indication addresses a critical unmet medical need in multiple
civilian and military clinical settings, including:
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at the scene of injury
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during transport to the hospital via ground or air ambulance
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unplanned hemorrhage in the operating room
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lack of compatible blood
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depletion of the available blood supply due to multiple,
simultaneous injured patients
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limited blood inventory in remote or rural hospitals
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religious objection to blood transfusion
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periodic blood shortages
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We believe that in such settings PolyHeme has the potential to
improve survival in critically ill patients who have delayed
access to blood and whose expected mortality without
oxygen-carrying replacement would be considerably greater.
In July 2006 we announced the completion of patient enrollment
in our multicenter Phase III trial with PolyHeme. This was
the first study in the United States to evaluate the safety and
efficacy of an oxygen-carrying red blood cell substitute
beginning at the scene of injury and continuing during transport
and in the early hospital period. A total of 32 Level I
trauma centers across the country participated in our study,
following approval of the trial protocol by the Institutional
Review Board, or IRB, at each institution. The trial had an
enrollment of 720 patients.
We reported the data from the study in May 2007, and
subsequently announced the results of an independent cardiac
analysis in April 2008. The primary efficacy endpoint of the
study was a dual superiority-noninferiority assessment of
mortality at 30 days after injury. The margin to assess
noninferiority, using the upper limit of the confidence
interval, was set at 7% more than control. In the primary
modified intent to treat population, representing the
714 patients both randomized and treated, the upper limit
was 7.65%. These results did not achieve the primary endpoint
for efficacy in the primary analysis population as specified in
the protocol. In the as treated population, comprised of the
same 714 patients, but analyzed in accordance with the
treatment the patients actually received, the upper limit was
7.06%. In the per protocol population, which included the
590 patients both appropriately randomized and correctly
treated as specified in the trial protocol, the upper limit was
6.21%.
Day 30 mortality was also a primary safety endpoint. There was
no statistically significant difference in mortality at
30 days between patients who received PolyHeme beginning at
the scene and continuing for up to 12 hours following
injury, and control patients who received the standard of care,
including early blood.
We believe the results of this study are best understood in the
context of bleeding patients who do not have early access to
blood transfusion. Mortality rates in that scenario would be
considerably higher than those observed in the control patients
in our trial, where transit times were relatively short. We
believe that when our data are extrapolated to patients who need
an oxygen carrier and have delayed access to blood, where the
expected mortality would be high without oxygen-carrying
replacement, PolyHeme can play an important role in saving lives.
We are presently preparing a Biologics License Application, or
BLA, for PolyHeme for submission to the U.S. Food and Drug
Administration, or FDA. We have submitted a detailed summary of
our trial data to FDA and have participated in a pre-BLA meeting
with the agency. We anticipate the final BLA will be submitted
in the fourth
3
calendar quarter of 2008. We also plan to request priority
review of our BLA. We believe PolyHeme satisfies the stated
criteria for priority review based on its potential to address
an unmet medical need.
We believe that PolyHeme ultimately represents a substantial
global market opportunity, based on the need for a universally
compatible, immediately available oxygen-carrying product with
extended shelf-life and PolyHemes potential for eventual
approval for multiple indications.
BACKGROUND
The principal function of human blood is to transport oxygen
throughout the body. The lack of an adequate supply of oxygen as
a result of blood loss can lead to organ dysfunction or death.
The transfusion of human blood is presently the only effective
means of immediately restoring diminished oxygen-carrying
capacity resulting from blood loss. We estimate that
approximately 14 million units of blood are transfused in
the United States each year, of which approximately
8.4 million units are administered to patients suffering
the effects of acute blood loss.
The use of donated blood in transfusion therapy, while effective
in restoring an adequate supply of oxygen in the body of the
recipient, has several limitations. Transfused blood can be used
only in recipients having a blood type compatible with that of
the donor. Delays in treatment resulting from the necessity of
blood typing prior to transfusion, together with the limited
shelf-life of blood and the limited availability of certain
blood types, impose constraints on the immediate availability of
compatible blood for transfusion. In addition, although testing
procedures exist to detect the presence of certain diseases in
blood, these procedures cannot eliminate completely the risk of
blood-borne disease. Other potential hazards of transfusion
include mistransfusion, transfusion-related lung acute injury,
transfusion-associated circulatory overload, and
transfusion-related immunomodulation and its consequences. There
is no commercially available hemoglobin-based oxygen-carrying
red blood cell substitute in this country which addresses these
problems.
OUR
PRODUCT
Our product, PolyHeme, is a human hemoglobin-based
oxygen-carrying red blood cell substitute in development for the
treatment of life-threatening blood loss when an oxygen-carrying
fluid is required and red blood cells are not available.
PolyHeme is a solution of chemically modified human hemoglobin
which simultaneously restores lost blood volume and hemoglobin
levels. Hemoglobin is the oxygen-carrying component of the red
blood cell. PolyHeme is designed for rapid, massive infusion,
which is the way blood is transfused in trauma patients.
We purchase donated red blood cells from the American Red Cross
and Blood Centers of America for use as the starting material
for PolyHeme. We use a proprietary process of separation,
filtration, chemical modification, purification and formulation
to produce PolyHeme. Hemoglobin is first extracted from red
blood cells and filtered to remove impurities. The hemoglobin is
next chemically modified using a multi-step process to create a
polymerized form of hemoglobin. The modified hemoglobin is then
incorporated into a solution which can be administered as an
alternative to transfused blood. PolyHeme is designed to avoid
potential undesirable effects such as vasoconstriction, kidney
dysfunction, liver dysfunction and gastrointestinal distress.
One unit of PolyHeme contains 50 grams of modified hemoglobin,
approximately the same functional amount of hemoglobin delivered
by one unit of transfused blood.
We believe PolyHeme will have the following important benefits:
Universal Compatibility. Our clinical studies
to date indicate that PolyHeme is universally compatible and
accordingly does not require blood typing prior to use. The
potential benefits of universal compatibility include the
ability to use PolyHeme immediately, the elimination of
transfusion reactions and the reduction of the inventory burden
associated with maintaining sufficient quantities of all blood
types.
Oxygen-Carrying Ability. Our clinical studies
indicate that PolyHeme carries as much oxygen and loads and
unloads oxygen in a manner similar to transfused blood.
4
Blood Volume Replacement. Infusion of PolyHeme
also restores blood volume. Therefore, PolyHeme should be useful
as an oxygen-carrying red blood cell substitute in the treatment
of hemorrhagic shock resulting from extensive blood loss.
Impact on Disease Transmission. We believe,
and laboratory tests have thus far indicated, that the
manufacturing process used to produce PolyHeme substantially
reduces the concentration of infectious agents known to be
responsible for the transmission of blood-borne diseases. There
are no currently approved methods in this country to reduce the
quantity of such infectious agents in red blood cells.
Extended Shelf Life. We estimate that PolyHeme
has a shelf life in excess of 12 months under refrigerated
conditions, well in excess of the 28 to 42 day refrigerated
shelf life currently permitted for blood.
OUR
PIVOTAL PHASE III TRIAL
Patient enrollment in our pivotal Phase III trial, in which
PolyHeme was used for the first time to treat severely injured
patients in hemorrhagic shock before they reached the hospital,
was completed in July 2006. Under this protocol, treatment with
PolyHeme began at the scene of the injury or in the ambulance
and continued during transport and the initial 12 hour
post-injury period in the hospital. The study was based on two
potential life-saving benefits. The first was starting infusion
of an oxygen-carrying fluid at the scene of injury and
continuing during transport to the hospital. Because blood is
not routinely carried in ambulances, PolyHeme represented a
potential improvement over the current standard of care.
The second opportunity was the potential to improve the outcome
associated with the use of donated blood in the early hospital
period in critically injured patients. Although blood is the
current standard of care, there is a growing body of scientific
evidence pointing to the adverse immunomodulatory effects of
early blood transfusion in trauma patients, specifically the
incidence of multiple organ failure and the resultant associated
mortality. There are also published data indicating that these
same effects may not occur with PolyHeme. While blood is
available in the hospital, PolyHeme was evaluated as a
potentially better alternative for the early care of the injured
patient.
A total of 32 Level I trauma centers across the United
States participated in our study following approval of the trial
protocol by the Institutional Review Board, or IRB, at each
institution. Each of the sites that participated in the trial is
designated as a Level I trauma center, indicating its capacity
to treat the most severely injured trauma patients. A total of
720 patients were enrolled at 31 of the sites.
As part of our trial protocol, an Independent Data Monitoring
Committee, or IDMC, consisting of independent medical and
biostatistical experts, was responsible for periodically
evaluating the safety data from the trial and making
recommendations relating to continuation or modification of the
trial protocol to minimize any identified risks to patients. The
protocol included four planned evaluations by the IDMC that
occurred after 60, 120, 250 and 500 patients had been
enrolled and monitored for a
30-day
follow up period. The IDMC focused its reviews on mortality and
serious adverse events and evaluated all safety data as the
trial continued. We received a recommendation from the IDMC
after each review, but did not have access to the trial data
reviewed by the IDMC until the database of information
concerning patients enrolled in the trial had been locked.
The IDMC completed all four of the planned reviews of the trial
data and, in each case, recommended continuation of the trial
without modification through completion of patient enrollment.
This was the first time that a trial of a hemoglobin-based
oxygen carrier passed this patient evaluation milestone in a
high risk trauma population.
TRIAL
DESIGN AND CLINICAL ENDPOINTS
Prior to the launch of our pivotal Phase III trial, we
reached agreement with FDA on Special Protocol Assessment, or
SPA, for the trial. SPA is designed to facilitate the review and
approval of drug and biological products by allowing for FDA
evaluation of the trial sponsors proposed design and size
of clinical trials intended to form the primary basis for an
efficacy claim in a BLA submitted to FDA. Our SPA reflects an
agreement with FDA on our trial design, the trial endpoints and
the broad concepts for clinical indications those endpoints
would support in an application for product approval by FDA.
5
Our pivotal Phase III trial was conducted under a federal
regulation, 21 CFR 50.24, that permits research to be
conducted in certain emergent, life-threatening situations using
an exception from the requirement for prospective informed
consent by individual patients. Participation by each clinical
trial site is overseen by an IRB. Under the applicable federal
regulation, an IRB may give approval for patient enrollment in
trials in emergency situations without requiring individual
informed consent provided specific criteria are met. Patients
must be in a life- threatening situation for which available
treatments are unproven or unsatisfactory and scientific
evidence must be needed to assess the safety and effectiveness
of alternative treatments. The experimental therapy being
evaluated must also provide patients potential for direct
clinical benefit. In addition, medical intervention must be
required before informed consent can be obtained and it must be
impracticable to conduct the trial using only consenting
patients. Where informed consent is feasible, the sponsors
consent procedures and forms must be reviewed and approved by
the IRB, and attempts to obtain informed consent must be
documented by the sponsor. Before enrollment can begin, the
regulation requires public disclosure of information about the
trial, including the potential risks and benefits, and the
formation of an independent monitoring committee to oversee the
trial. Consultation must also occur with representatives of the
community where the study will be conducted and from which the
study population will be drawn. Each of the clinical sites that
participated in our trial completed the required public
disclosure and community consultation procedures and received
IRB approval to enroll patients in accordance with the trial
protocol.
Under our trial protocol, patients enrolled in the trial were
randomly assigned to either a treatment group or a control
group. The treatment group received PolyHeme at the scene of
injury or in the ambulance during transport, and continued to
receive PolyHeme, if necessary, during the initial 12 hour
post-injury period in the hospital. Patients in the treatment
group were eligible to receive a maximum of six units of
PolyHeme. The control group received crystalloid solution in the
field and donated blood, if necessary, in the hospital.
Evaluation of the efficacy data generated in our pivotal
Phase III trial focused on patient survival at 30 days
after the date of injury. The mortality rate observed for
patients in the treatment group in our trial was compared
statistically with the mortality rate for patients in the
control group. A key feature of our SPA is the agreement on dual
primary endpoints of superiority and noninferiority between the
treatment and control groups. The trial design is unusual in
that either of the primary endpoints of superiority or
noninferiority may be used to provide evidence of efficacy.
Patient enrollment in our trial was conducted primarily in urban
settings because urban Level I trauma centers have the
patient volume, resources and sophistication to conduct a
clinical trial of this complexity. In urban areas, however,
transit times in the ambulance are brief, and it was understood
that patients in the control group would reach the hospital,
where they would have early access to blood, in relatively short
periods of time. As a result, it was recognized that the
observed outcome in our trial might not demonstrate the expected
survival benefit that might occur if the trial were being
conducted in the rural setting, where more extended transport
times are typical and where the availability of blood is often
limited. It was therefore understood that the data from our
study would be extrapolated to the intended setting and the
intended patient population who require transfusion but have
delayed access to blood.
PHASE III
TRIAL RESULTS
Efficacy
Analysis
The primary efficacy endpoint for our pivotal Phase III
trial was a dual superiority-noninferiority assessment of
mortality at 30 days after injury. A noninferiority
endpoint requires the establishment of a relative margin around
the control outcome. The margin to assess noninferiority in our
study, using the upper limit of the confidence interval, was set
at 7% more than control.
The protocol for our trial specified multiple patient
populations for analysis. There were six patients enrolled who
received no treatment. The modified intent to treat, or MITT,
population is comprised of all 714 patients both randomized
and treated. In the primary MITT analysis population, patients
were analyzed as randomized, and not based on the actual
treatment they received. There were 41 randomized patients in
the study who received the incorrect treatment. Therefore,
21 patients randomized to PolyHeme who did not receive any
PolyHeme were
6
analyzed in the PolyHeme group. Two of these patients died.
Similarly, 20 patients randomized to control who received
PolyHeme were analyzed in the control group. One of those
patients died.
The as treated, or AT, population is also comprised of all
714 patients both randomized and treated. However, in this
population all patients were analyzed according to the
treatment they actually received. Therefore, all patients
who received PolyHeme were analyzed in the PolyHeme group, and
all patients who did not receive any PolyHeme were analyzed in
the control group. Although the AT population was pre-specified
for safety rather than efficacy, it provides a meaningful
opportunity to assess mortality as well.
The per protocol, or PP, population is comprised of the
590 patients both appropriately randomized and correctly
treated. The PP population does not include
124 patients who had major protocol violations related to
eligibility or treatment regimen. Since the PP patients were
treated exactly as specified in the protocol, Northfield
believes the PP population represents the clearest opportunity
to assess a treatment effect.
In the primary MITT population, the upper limit of the
confidence interval in our pivotal Phase III trial was
7.65%. These results did not achieve the primary endpoint for
efficacy in the primary analysis population as specified in the
protocol. In the AT population, the upper limit was 7.06%. In
the PP population, the upper limit was 6.21%. The data are shown
in the following table:
DAY 30
MORTALITY
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PolyHeme Group
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Control Group
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(Deaths/Number
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Mortality Rate
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(Deaths/Number
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Mortality Rate
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Upper Limit
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of Patients)
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(%)
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of Patients)
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(%)
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(%)
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MITT
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47/350
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13
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35/364
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10
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7.65
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%
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As Treated
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46/349
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13
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36/365
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10
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7.06
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Per Protocol
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31/279
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11
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29/311
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9
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6.21
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%
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Secondary efficacy endpoints of the study included Day 1
mortality, the incidence of multiple organ failure, the use of
donated blood through Day 1, and an analysis of mortality by the
mechanism of injury (blunt versus penetrating trauma). The
incidence of transfusion of donated blood was significantly
lower in the PolyHeme group at 43% than the control group at 52%
(p<0.001). There was no statistically significant
difference between PolyHeme and control patients for the other
efficacy endpoints.
The primary safety endpoints in the study were Day 1 mortality,
Day 30 mortality and durable serious adverse events, or SAEs.
Durable SAEs were prospectively defined as SAEs which resulted
in a permanently disabling outcome. There were two
durable SAEs in each group. There was no statistically
significant difference in mortality at Day 1 or Day 30 between
patients who received PolyHeme beginning at the scene and
continuing for up to 12 hours following injury, and control
patients who received the standard of care, including early
blood.
In addition to these primary safety endpoints, all adverse
events, or AEs, SAEs, cardiac SAEs and myocardial infarction, or
MI, were also analyzed. The overall incidence of AEs in the
PolyHeme group of 93% (324 patients) was higher than that
in the control group of 88% (322 patients), (p=0.041). The
most common AEs in both groups were anemia, fever and
electrolyte imbalances. The overall incidence of SAEs in the
study was 40% (141 patients) in the PolyHeme group and 35%
(126 patients) in the control group (p>0.05). The most
common SAEs in both groups were pneumonia, multiple organ
failure, hemorrhagic shock and respiratory failure.
The incidence of cardiac AEs was 35% (123 patients) in the
PolyHeme group and 29% (105 patients) in the control group
(p>0.05). The incidence of cardiac SAEs was 7%
(23 patients) in the PolyHeme group and 4%
(16 patients) in the control group (p>0.05). The
overall incidence of MI in the study as reported by
investigators was 2% (14 patients): eleven PolyHeme
patients and three control patients (p<0.05). Three
PolyHeme patients and one control patient died.
IDMC
Cardiac Subcommittee Analysis
The medical literature documents the difficulty of making an
accurate diagnosis of MI in trauma patients for multiple
reasons, including direct trauma to the chest. MI and myocardial
ischemia are traditionally assessed by electrocardiograms and
measurement of the levels of the cardiac biomarkers Troponin I
and CK-MB, both of which
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can be altered by direct trauma. Approximately 75% of the
patients in our Phase III study had abnormal
electrocardiograms or elevated cardiac biomarkers. Because of
the disparity between the low number of reported MIs and the
high incidence of abnormal electrocardiograms and elevated
cardiac biomarkers, Northfield established an expert Cardiac
Subcommittee of the IDMC to review the cardiac profiles of all
720 randomized patients in a blinded fashion. This committee was
established and the criteria agreed upon prior to unblinding the
study. The Cardiac Subcommittee used objective criteria based on
biomarkers and electrocardiograms to classify the MIs in the
study as possible, probable,
indeterminate, and absent. More than
half of the patients in both study groups had some evidence of
myocardial infarction. The classifications developed by the
Cardiac Subcommittee are summarized in the following table.
IDMC
Cardiac Subcommittee MI Analysis
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PolyHeme
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Control
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(n=349)
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(n=365)
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Probable MI
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43 (12%)
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30 (8%)
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Possible MI
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150 (43%)
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160 (44%)
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Total Possible or Probable MI
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193 (55%)
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190 (52%)
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Indeterminate
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72 (21%)
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111 (30%)
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Absent MI
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84 (24%)
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64 (18%)
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BIOLOGICS
LICENSE APPLICATION
We are presently preparing a BLA for PolyHeme for submission to
FDA. A BLA includes material related to clinical, preclinical,
and CMC, or chemistry, manufacturing and controls, information.
The clinical section of the BLA will include the results of the
Phase III trial discussed above. We have submitted a
detailed summary of our Phase III trial data to FDA and
have participated in a pre-BLA meeting with the agency. The
clinical section of the BLA will also include information from
all studies in humans, starting with our Phase I volunteer
experience. The process has taken longer than we planned. As we
have reviewed and reanalyzed the results of our clinical
studies, we have expanded the number of data sets we believe
should be included. This has required the generation of multiple
additional tables, listings, figures, and graphs, and the
subsequent additional analyses of this information in order to
provide the most comprehensive summary and interpretation of the
totality of our clinical data. That process continues as we
finalize the portions of the BLA that address the important
integrated summaries of efficacy and safety, the risk-benefit
analysis, and the product labeling.
Preclinical testing includes extensive in-vitro and in-vivo
studies of PolyHeme to assess product pharmacology and
toxicology. These studies have varied greatly with regard to
animal species, protocol and product dosing, concomitant study
drugs, and the timing and nature of the observations and
measurements. Some of these studies have shown species dependent
abnormalities in certain laboratory findings, including
increases in aspartate aminotransferase, bilirubin, blood urea
nitrogen, chromaturia, glucose, and troponin, and certain
abnormal microscopic findings, including renal tubular
proteinosis, Kupffer cell hypertrophy, karyomegaly,
histiocytosis, cellular degeneration, and inflammation in organs
such as the kidney, liver, or heart. These abnormalities were
largely reversible and there was no evidence of organ failure.
The clinical relevance of these findings is unclear when
extrapolated to the human setting. As with the clinical section,
preparing the preclinical data for inclusion in the BLA allows
Northfield to review all of the reports that have been
previously submitted to the IND and provide a more meaningful
and comprehensive summary and interpretation of the totality of
the preclinical data.
The BLA also addresses CMC issues. Completing the CMC section of
our BLA has for a number of reasons also consumed and continues
to consume considerably more time than anticipated. Our pilot
manufacturing facility was first opened in 1990 with a design
capacity to produce up to 10,000 units of PolyHeme per
year. At the time it was Northfields plan to use the pilot
facility for research and development purposes and the
manufacture of clinical supplies under the appropriate current
Good Manufacturing Practices, or cGMP, with future commercial
scale manufacturing being performed in a new facility. Our
current plan is to seek FDA approval for use of the pilot plant
as our initial commercial manufacturing site, to be followed by
expansion at a later date. The cGMP requirements
8
for commercial manufacturing have evolved considerably over the
past two decades and we have made multiple improvements and
updates to our pilot facility, all of which required subsequent
validation, in order to confirm cGMP compliance. These upgrades
have consumed and continue to consume considerable time, effort
and expense. We anticipate that the final capacity of this pilot
facility will be approximately 5,000 to 7,500 units per
year. As with the clinical and preclinical sections, the
facility modification and revalidation effort has required
considerably more time that initially projected, but it is
essential in order to provide the most meaningful and
comprehensive summary and characterization of our product and
our manufacturing process to FDA.
Based on all of these activities, we anticipate the final BLA
will be submitted during the fourth calendar quarter of 2008. We
also plan to request priority review of our BLA. We continue to
believe PolyHeme satisfies the stated criteria for priority
review based on its potential to address an unmet medical need.
RECENT
DEVELOPMENTS
There has been considerable public interest this year in the
entire field of hemoglobin-based oxygen carriers, or HBOCs. In
April 2008, a paper was published in the Journal of the
American Medical Association describing a statistical
assessment called meta analysis that pooled data from multiple
clinical trials with multiple different HBOC products used in a
variety of clinical settings. Although meta analysis is not
designed to assess individual treatments, the authors concluded
that all current HBOCs had unacceptable safety profiles and that
no further clinical trials should be conducted. Another paper
was published in April 2008 in Circulation assessing the
interaction of hemoglobin and nitric oxide in both small and
large animals. The authors concluded that some of the vasoactive
or hemodynamic effects observed with certain HBOCs could be
ameliorated by the inhalation of nitric oxide prior to and
during infusion. Lastly, there was a two day public Workshop
sponsored by FDA and National Institutes of Health, or NIH, in
April 2008 to discuss the safety and future development of
HBOCs. The program included presentations of clinical data by
all sponsors developing HBOCs, including Northfield, as well as
discussions of the basic science of hemoglobin, and the
interactions of hemoglobin and nitric oxide. There was also
interest in the potential role of nitric oxide donors, such as
nitrite infusions, inhaled nitric oxide, or s-nitrosylation of
hemoglobin, when administered with HBOCs. Northfield has begun
to collaborate with investigators in the field of nitric oxide
biology to explore some of these issues with regard to PolyHeme.
A number of key scientific papers were published during the year
addressing the safety of blood as well as HBOCs. Several of
these studies reported that many of the cardiovascular adverse
events experienced in HBOC trials also occur in patients who
receive blood transfusions. In fact, the role of nitric oxide
for both blood and HBOCs, and the significance of the age of
stored blood in relation to safety, are now of great interest to
the transfusion medicine community.
THE
MARKET OPPORTUNITY
Transfused blood represents a multi-billion dollar market in the
United States. We estimate that approximately 14 million
units of blood are transfused in the United States each year.
The transfusion market in the United States consists of two
principal segments.
The acute blood loss segment, which we estimate comprises
approximately 60% of the transfusion market, includes
transfusions required in connection with trauma, surgery and
unexpected blood loss. The chronic blood loss segment, which we
believe represents approximately 40% of the transfusion market,
includes transfusions in connection with general medical
applications and chronic anemias.
We believe that PolyHeme will be useful in the treatment of
acute blood loss. The principal clinical settings in which
patients experience acute blood loss are unplanned blood loss in
trauma, emergency surgery and other causes of urgent hemorrhage,
and planned blood loss in elective surgery. For trauma and
emergency surgical procedures, the immediate availability and
universal compatibility of PolyHeme may provide significant
advantages over transfused blood by avoiding the delay and
opportunities for error associated with blood typing. In
elective surgery, PolyHeme has the potential to increase
transfusion safety for patients and health care professionals.
In addition to the foregoing applications for which blood is
currently used, there exist potential sources of demand for
which blood is not currently used and for which PolyHeme may be
suitable. These include applications
9
in which the required blood type is not immediately available or
in which transfusions are desirable but not given for fear of a
transfusion reaction due to difficulty in identifying compatible
blood. For example, we believe PolyHeme may be used by Emergency
Medical Technicians at the scene of injury and during transport
to the hospital by ground or air ambulance. Ambulatory surgery
centers and emergicenters may also experience circumstances of
unplanned hemorrhage in which PolyHeme may be useful. In
addition, the United States military has expressed interest in
the use of hemoglobin-based oxygen carriers for the treatment of
battlefield casualties. There may also be potential market
opportunities for PolyHeme in novel areas such as ischemia,
oncology, organ preservation, pancreatic islet cell
transplantation and sickle cell anemia.
We believe that the initial indication we are seeking for
PolyHeme unavailability of red blood
cells represents the greatest clinical and
commercial opportunity for the product since it addresses a
critical unmet medical need and has the potential to provide a
survival benefit. At present, no adequate alternative to blood
exists for the treatment of patients with life-threatening
hemorrhage who need replacement of lost oxygen-carrying
capacity. PolyHeme is the first hemoglobin-based oxygen carrier
to pursue this indication, and our goal is for PolyHeme to be
first to the market for this indication.
An assessment performed for Northfield by an independent market
analysis firm of the potential market opportunity for PolyHeme,
using a variety of primary and secondary sources along with
original research, indicated a potential market opportunity in
the United States for PolyHemes initial indication of
unavailability in excess of 350,000 units per year,
representing an estimated market value of $400 to
$500 million. In addition, the global opportunity for our
initial indication, as well as multiple other potential
indications, is estimated to be six to seven times the
U.S. unavailability projection, or $2 to $3 billion.
MANUFACTURING
AND MATERIAL SUPPLY
We use a proprietary process of separation, filtration, chemical
modification, purification and formulation to produce PolyHeme.
We have produced PolyHeme for use in our clinical trials in our
pilot manufacturing facility in Mt. Prospect, Illinois. Our
pilot manufacturing facility was first opened in 1990 with a
design capacity to produce up to 10,000 units of PolyHeme
per year. At the time, it was Northfields plan to use the
pilot facility for research and development purposes and the
manufacture of clinical supplies under the appropriate current
Good Manufacturing Practices, or cGMP, with future commercial
scale manufacturing being performed in a new facility. Our
current plan is to seek FDA approval for use of the pilot plant
as our initial commercial manufacturing site, to be followed by
expansion at a later date. The cGMP requirements for commercial
manufacturing have evolved considerably over the past two
decades and we have made multiple improvements and updates to
our pilot facility in an effort to maintain compliance. These
upgrades have consumed and continue to consume considerable
time, effort and expense. We anticipate that the final capacity
of this pilot facility will be approximately 5,000 to
7,500 units per year.
Upon approval for the commercial sale of PolyHeme we presently
plan to construct an expanded commercial manufacturing facility
with the capacity to produce 100,000 units or more of
PolyHeme per year. In June 2006, we purchased the
106,000 square foot building in Mt. Prospect, Illinois in
which our pilot manufacturing facility is located and expect to
construct our expanded commercial manufacturing facility at this
site. In addition to manufacturing operations, we expect that
the facility will also house laboratory, quality control and
administrative personnel. We have conducted certain engineering
and size optimization activities for the planned facility. We
will need to raise additional funds before we are able to
proceed with this manufacturing expansion.
If FDA approval of PolyHeme is received, we presently intend to
manufacture PolyHeme for commercial sale in the United States
using our own facilities. We currently have licensing
arrangements for the manufacture of PolyHeme in certain
countries outside the United States. We may also consider
entering into other collaborative relationships with strategic
partners which could involve arrangements relating to the
manufacture of PolyHeme.
The successful commercial introduction of PolyHeme will also
depend on an adequate supply of blood to be used as a starting
material. We believe that an adequate supply of blood is
obtainable through the voluntary blood services sector. We have
had extensive discussions with existing blood collection
agencies, including the American Red Cross and Blood Centers of
America, regarding sourcing of blood. We currently have
short-term purchasing contracts with each of these agencies. We
also have an agreement in place with hemerica, Inc., a
subsidiary of Blood
10
Centers of America, under which hemerica would supply us with up
to 160,000 units per year of packed red cells, the source
material for PolyHeme.
MARKETING
STRATEGIES
If FDA approval of PolyHeme is received, we presently intend to
market PolyHeme with our own sales force in the United States.
We are exploring potential sales, marketing and distribution
plans for PolyHeme. We may also consider entering into
collaborative relationships with strategic partners which could
involve arrangements relating to the sale and marketing of
PolyHeme. We have entered into license agreements with Pfizer
Inc. and Hemocare Ltd., an Israeli corporation, to develop,
manufacture and distribute PolyHeme in certain European, Middle
Eastern and African countries. The license agreements permit
Pfizer and Hemocare to utilize PolyHeme and related
manufacturing technology in return for the payment of royalties
based upon sales of PolyHeme in the licensed territories.
In March 1989, we granted KABIVITRUM AB, a Swedish corporation
which was later acquired by Pfizer, an exclusive license to
manufacture, promote and sell PolyHeme in a territory
encompassing the United Kingdom, Germany, the Scandinavian
countries and certain countries in the Middle East. Under the
terms of the license agreement, Pfizer has the right, upon
consultation with us, to promote and sell PolyHeme in the
licensed territory under its own trademark. Following an update
from Northfield and internal analysis, Pfizer has communicated
that the product does not fit within their corporate strategies
and that Pfizer would not participate in any clinical or
commercialization activities. We are currently finalizing the
termination of the license issued to Pfizer. Northfield does not
anticipate any significant cash needs to terminate this license.
In July 1990, we granted Hemocare an exclusive license to
manufacture, promote and sell PolyHeme in a territory
encompassing Israel, Cyprus, Ivory Coast, Jordan, Kenya,
Lebanon, Liberia, Nigeria and Zaire. Under the terms of the
license agreement, Hemocare has the right, upon consultation
with us, to promote and sell PolyHeme in the licensed territory
under its own trademark. The license agreement with Hemocare
provides for royalty payments based on net sales of PolyHeme in
the licensed territory. In addition, under the terms of the
license agreement, we have the right under certain circumstances
to direct Hemocares clinical testing of PolyHeme in the
licensed territory.
Our present plans with respect to the marketing and distribution
of PolyHeme in the United States and overseas may change
significantly based on the FDA regulatory process, the
establishment of relationships with strategic partners, changes
in the scale, timing and cost of our commercial manufacturing
facility, competitive and technological advances, the
availability of additional funding and other factors.
COMPETITION
If approved for commercial sale, PolyHeme will compete directly
with established therapies for acute blood loss and may compete
with other technologies currently under development. We believe
that the treatment of urgent blood loss when blood is not
available is the setting most likely to lead to FDA approval and
the application which presents the greatest market opportunity.
However, several companies have developed or are in the process
of developing technologies which are, or in the future may be,
the basis for products which will compete with PolyHeme. Certain
of these companies are pursuing different approaches or means of
accomplishing the therapeutic effects sought to be achieved
through the use of PolyHeme.
Biopure Corporation, which is developing a bovine
hemoglobin-based oxygen carrier product, has stated that it
intends to pursue an indication for cardiovascular ischemia and
is conducting trials to explore that indication outside the
United States. Biopure has submitted a marketing authorization
application to the United Kingdoms Medicines and
Healthcare Products Regulatory Agency for its Hemopure product
for the treatment of acutely anemic adult orthopedic surgery
patients less than 80 years of age and has reported
receiving a provisional letter raising questions about its
application. Biopure has also reported that in June 2008 the
Naval Medical Research Center submitted a new protocol for a
Phase II clinical trial for resuscitation of operational
casualties with severe traumatic hemorrhagic shock without
availability of blood transfusions in comparison with Hextend.
Subjects will sign an informed consent prospectively. Biopure
announced in July it has also proposed to study use of Hemopure
in patients suffering from Acute Myelogenous Leukemia (AML) who
refuse transfusion with blood components.
11
As of July 1, 2008, Synthetic Blood International, Inc.,
changed its name to Oxygen Biotherapeutics Inc. They are
developing a protocol for a Phase II-b clinical trial of Oxycyte
in Traumatic Brain Injury. Oxycyte is a perfluorocarbon.
Sangart, Inc., a private company, has completed enrollment two
parallel European Phase III trails in elective orthopedic
surgery to gauge the ability of its human hemoglobin-based
product to prevent and treat hemodynamic instability, especially
hypotension, or low blood pressure, during surgery.
Hemobiotech, a private company, is developing a bovine
hemoglobin-based solution. It has not reported conducting
clinical trials in the United States to date.
We believe that important competitive factors in the market for
oxygen carrier products will include the relative speed with
which competitors can develop their respective products,
complete the clinical testing and regulatory approval process
and supply commercial quantities of their products to the
market. In addition to these factors, competition is expected to
be based on the effectiveness of oxygen carrier products and the
scope of the intended uses for which they are approved, the
scope and enforceability of patent or other proprietary rights,
product price, product supply and marketing and sales
capability. We believe that our competitive position will be
significantly influenced by the outcome of the regulatory
filings for PolyHeme, our ability to expand our manufacturing
capability to permit commercial production of PolyHeme, if
approved, and our ability to maintain and enforce our
proprietary rights covering PolyHeme and its manufacturing
process.
GOVERNMENT
REGULATION
FDA
Approval of Biological Products
The commercial distribution of PolyHeme and the operation of our
manufacturing facilities will require the approval of United
States government authorities, as well as those of foreign
countries if we expand overseas. In the United States, FDA
regulates medical products, including biological products, which
includes PolyHeme. The Federal Food, Drug and Cosmetic Act and
the Public Health Service Act governs the testing, manufacture,
safety, effectiveness, labeling, storage, record keeping,
approval, advertising, and promotion of PolyHeme. In addition to
FDA laws and regulations, we are also subject to other federal
and state regulations, such as the Occupational Safety and
Health Act and the Environmental Protection Act. Product
development and approval within this regulatory framework
requires a number of years and involves the expenditure of
substantial funds.
The steps required before a biological product may be sold
commercially in the United States include (1) preclinical
testing, (2) submission to FDA of an Investigational New
Drug application, (3) conduct of clinical trials in humans
to establish the safety and effectiveness of the product,
(4) submission to FDA of a BLA relating to the product and
the manufacturing facilities to be used to produce the product
for commercial sale, and (5) FDA approval of the BLA. We
have completed steps (1) through (3) of this process,
and are currently in the process of preparing a BLA in support
of PolyHeme.
The goal of clinical testing is the demonstration in adequate
and well-controlled studies of substantial evidence of the
safety and effectiveness of the product in the setting of its
intended use. Typically, trial design protocols, trial
endpoints, and the broad concepts for clinical indications those
endpoints would support if reached are established in
consultation with FDA. At the sponsors request, FDA may
reach agreement on the design and size of clinical trials
intended to form the primary basis of an efficacy claim in a
BLA. This agreement is called Special Protocol Assessment or SPA.
We reached such an agreement with FDA regarding our
Phase III study described above, but this does not
guarantee that PolyHeme will be approved. Instead, it reflects
agreement that the agency will not later alter its perspectives
on the issues of design, execution, or analysis, unless
previously unrecognized public health concerns come to light,
other new scientific concerns regarding product safety or
efficacy arise, FDA determines that we failed to comply with the
protocol agreed upon, or data, assumptions, or information
forming the basis of the agreement are determined to be
inaccurate. In other words, assuming no unexpected change in
circumstances, the agreement means that if the trial is
conducted as planned and is successful
it will provide evidence in support of product
approval. Even after an SPA agreement is finalized, it may be
changed by the sponsor or FDA on written agreement of both
parties. Further, FDA retains significant latitude and
discretion in interpreting the terms of the SPA agreement and
the data and results from any study subject to it.
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As described previously, our Phase III trial did not reach
the efficacy endpoints established in our SPA agreement.
However, we believe that approval may still be possible based on
extrapolation of the Phase III data to treatment settings
that more accurately reflect our proposed indication, which is
for use of PolyHeme when red blood cells are unavailable. There
can be no assurance, however, that FDA will agree.
The results of preclinical and clinical testing are submitted to
FDA from time to time throughout the trial process, and are then
compiled for submission in support of a BLA, along with the
details of the manufacturing process and product
characterization. The BLA must also include various
certifications, including a statement that applicable clinical
trials were appropriately registered in the public database
maintained by the National Institutes of Health (NIH), and were
conducted in accordance with federal human subject protections.
Each of the clinical sites that participated in our trials
received IRB approval on the basis of satisfaction of applicable
requirements for emergency research. Additionally, our clinical
trials were appropriately registered on the NIH database.
Accordingly, we do not anticipate difficulty with these
components of the BLA submission. FDA has in recent years
increased its scrutiny of clinical data, particularly with
respect to compliance with good clinical practice standards.
Although we monitored the sites where our Phase III study
was conducted, FDA could review their practices and our data
with potential negative consequences for our BLA.
After the BLA is submitted, FDA will engage in an initial review
to determine whether all of the required elements are included;
this is not a complete review of the merits of the application,
but rather a threshold determination as to whether the
information submitted to support licensure is sufficiently
complete to permit a substantive and meaningful review. We will
not submit our BLA unless we believe it to be complete, but
there can be no assurance that the submission will be accepted
for filing. If FDA deems the submission to be inadequate for
review, as it did for our 2001 PolyHeme BLA, it will issue a
refusal to file letter, or RTF, generally within 60 days of
receiving the application. If an RTF is issued, there is
opportunity for discussion with the agency to resolve all
concerns, and it may be necessary to submit supplemental
information. There can be no assurance that such discussion will
be successful in leading to the filing of the BLA, however.
Further, even if the submission is filed, there can be no
assurance that full review will result in product approval.
During the filing review, FDA will also decide whether to
categorize the BLA as standard or eligible for
priority review. We intend to seek priority review
status, which may be granted to products that are safe and
effective where no alternative therapy exists, or that offer
major advances in treatment. We believe that PolyHeme satisfies
the criteria for this designation based on its potential to
improve patient survival in circumstances where red blood cells
are unavailable. FDA has committed to review and act on 90% of
priority BLA submissions within 6 months of receipt, as
opposed to 10 months for standard review applications.
However, these timeframes are not binding on FDA. Amendments to
the application may alter the review schedule, even when
required by FDA, and the 6 or 10 month goal is only for a
complete response to the application, in which the
agency may approve the product, or simply request additional
information. We cannot guarantee that the agency will grant
priority review and cannot predict what impact, if any, priority
review will have on the review schedule for PolyHeme. Further,
priority review does not ensure that FDA will ultimately approve
PolyHeme.
Ultimately, we will need to satisfy FDA that PolyHeme is safe,
pure, and potent (i.e., safe and effective) for the
proposed use. The approval process is affected by a number of
factors, including the severity of the condition being treated,
the availability of alternative treatments, and the risks and
benefits demonstrated in clinical trials. The lack of
established criteria for evaluating the safety and effectiveness
of hemoglobin-based oxygen-carrying products could also delay or
prevent FDA approval. In October 2004, FDA published for comment
a draft guidance document indicating suggested criteria for
testing the safety and effectiveness of oxygen therapeutics as
substitutes for human red blood cells and providing guidance on
the design of clinical trials to assess the risks and benefits
associated with the use of such products. We cannot be certain
when the definitive guidance will be issued by FDA or what
effect, if any, the guidance will have on approval of PolyHeme.
It is possible that, as a result of more definitive guidance, we
may be required to undertake additional pre-clinical or clinical
trials or modify the way data from our trial are analyzed or
presented, delaying or preventing approval of our BLA.
In addition to the submission of adequate study data, part of
meeting the standard for approval of biological products
involves satisfying FDA that manufacturing procedures and
quality controls conform to statutory and regulatory
requirements. Prior to granting approval, FDA generally conducts
an inspection of the facilities, including outsourced facilities
that will be involved in the manufacture, production, packaging,
testing and control
13
of the product for compliance with current Good Manufacturing
Practices, or cGMP. FDA will not approve the application unless
cGMP compliance is satisfactory. Once the product is approved,
domestic manufacturing facilities are also subject to biennial
FDA inspections, and foreign manufacturing facilities are
subject to periodic FDA inspections or inspections by foreign
regulatory authorities with reciprocal inspection agreements
with FDA.
Additional preclinical studies, clinical trials, or
manufacturing data may be requested during the FDA review
process, which may significantly delay, or preclude, product
approval. Further, when deciding whether to approve the PolyHeme
BLA, FDA will likely seek the opinion of an advisory committee
comprised of outside experts. Advisory committees vote on
specific questions posed by the agency about scientific or
medical questions raised by potential new products, like
PolyHeme. Although advisory committees do not bind FDA, the
agency generally follows committee recommendations.
Once FDA has completed its review, it may approve the BLA and
license the product for marketing for a specific use.
Alternatively, as noted above, if it determines that it will not
approve the application in its present form, the agency may
issue a complete response letter describing all the deficiencies
it has identified, as well as actions the applicant can take to
repair the BLA. Upon receipt of a complete response letter, the
applicant must either resubmit the application addressing all
identified deficiencies or withdraw the application. We cannot
predict what deficiencies the agency may identify in our BLA for
PolyHeme, or whether the necessary remedial actions will be
feasible or acceptable to the company.
As a condition of approval, the agency may require post-approval
testing and surveillance to monitor the products safety or
efficacy and may impose other conditions, including labeling and
distribution restrictions, which can involve significant expense
and materially impact the products potential market and
profitability. Once granted, product approvals may be withdrawn
or restricted if compliance with regulatory standards, including
those related to manufacturing, record keeping, safety
reporting, and marketing, is not maintained, or if problems with
the product are subsequently identified. Should a sponsor seek
to market the product for a new use, a new BLA, and supportive
clinical trials, will be required.
The Food
and Drug Administration Amendments Act of 2007
As part of a sweeping initiative aimed at improving the safety
of medical products regulated by FDA, Congress enacted the Food
and Drug Administration Amendments Act of 2007, or FDAAA, in
September 2007. Among other things, FDAAA imposed the following
changes:
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Clinical Trial Registration and Results
Posting. Certain information about clinical
trials must be submitted to NIH, including a description of the
trial, participation criteria, location of trial sites, and
contact information. In September 2008, the law will require
that certain results information be submitted. Because our
clinical trials conducted to date were completed in 2006, they
are not subject to the new law, although they were registered
under a pre-existing statute governing registration of
controlled trials testing treatments for serious or
life-threatening conditions. Future trials conducted in the
course of developing PolyHeme will be subject to FDAAAs
more burdensome registration and results posting requirements.
Compliance must be documented in various agency submissions,
including the currently planned BLA. Failure to comply may
result in significant civil penalties.
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Postmarketing Studies and Clinical
Trials. Before or after approving a BLA, FDA
may require the conduct of post-approval studies or clinical
trials to investigate a known serious risk, assess signals of
serious risk, or identify an unexpected serious risk when data
indicate the potential for such risk. Post-approval requirements
under the new law may be based on information about other
products that are chemically or pharmacologically related, but
if imposed after approval, must be based on new safety
information, broadly defined to include new analyses of existing
information. Further, a post-approval study may be required only
if FDA determines that the new active postmarket risk
identification system (also created by FDAAA) and the existing
passive adverse event reporting system are inadequate. In light
of the fact that we are seeking approval of PolyHeme on the
basis of a single pivotal efficacy study, it is possible that
FDA will require one or more post-approval studies or trials,
which may require substantial expense. Significant civil fines
may be imposed for noncompliance.
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Risk Evaluation and Mitigation Strategies
(REMS). FDAAA authorizes FDA, before or after
approving a BLA, to require submission of a REMS if necessary to
ensure that the benefits of the product outweigh the
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risks. A REMS may include a medication guide to provide better
information to consumers about the products risks and
benefits, a plan for communication with healthcare providers,
restrictions on a products distribution, or a safety
registry. Sponsors of products subject to a REMS are required to
submit periodic assessments of the strategy at specified
intervals, and again, face significant penalties for failure to
comply. FDAs REMS authority supplements the agencys
previous authority to negotiate risk minimization action plans
(RiskMAPs) to minimize known and preventable safety risks or
otherwise impose burdens, such as limits on prescribing,
distribution, or direct-to-consumer advertising, on an
applicants ability to commercialize its product. A REMS
could significantly impact the marketability of PolyHeme.
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Best Pharmaceuticals for Children Act/Pediatric Research
Equity Act. FDAAA reauthorized FDA to require
pediatric testing of certain drugs. PolyHeme was not tested in
pediatric patients, and, under FDAAA, we could be required to
conduct post-marketing studies in pediatric patients.
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Foreign
Approvals
We are also exploring the potential to seek regulatory approval
of PolyHeme outside the United States, where we would be subject
to foreign regulatory requirements governing clinical trials,
marketing approval, and reimbursement for medical products. This
may involve licensing or other arrangements with other foreign
or domestic companies. To date, we have not conducted any
foreign clinical trials of PolyHeme.
Foreign requirements applicable to the licensure, marketing, and
pricing of PolyHeme may differ substantially from those imposed
and enforced by FDA. Approval of PolyHeme by FDA does not
guarantee approval abroad.
PATENTS
AND PROPRIETARY RIGHTS
Seven of our United States patents, including our broadest
United States patent, have expired. With the issuance in 2007 of
two new patents, we now own five United States patents and
several pending United States patent applications relating to
PolyHeme, its uses, and certain of our manufacturing processes.
We have obtained counterpart patents and have additional patent
applications pending in Canada, Israel, Mexico, Australia, New
Zealand, Iceland, Norway, India, the Russian Federation, South
Africa, Brazil, various Asian countries, and various European
Union countries.
Our United States patents have various expiration dates; the
latest to expire of our United States patents has a term that
extends to 2025. Our broadest issued United States patent was
originally scheduled to expire in 2006, but has been extended by
the United States Patent Office to 2008. Earlier this year,
however, PTO reversed its previous decision on the basis that
PolyHeme was no longer under continuous development
in light of the length of time that had expired without product
approval after FDAs original Refusal to File decision in
2001. In fact, during the intervening period, we conducted a
Phase III pivotal study to address the identified
deficiencies, and are currently preparing a BLA submission for
2008. We believe that this constitutes the requisite due
diligence in seeking regulatory approval necessary to retain
eligibility for interim patent term extension, and are currently
evaluating our options to appeal PTOs determination. We
cannot ensure that we will be successful in recovering this
patent protection, however, and if we are, we cannot be certain
that any additional extensions will be granted. In any event, no
extensions of this patent are possible beyond 2011.
We have a policy of seeking patents covering the important
techniques, processes and applications developed from our
research and all modifications and improvements thereto. We also
rely upon trade secrets, know-how, continuing technological
innovations and licensing opportunities to develop and maintain
our competitive position. We will continue to seek appropriate
protection for our proprietary technology.
We cannot ensure that our patents or other proprietary rights
will be determined to be valid or enforceable if challenged in
court or administrative proceedings or that we will not become
involved in disputes with respect to the patents or proprietary
rights of third parties. An adverse outcome from these
proceedings could subject us to significant liabilities to third
parties, require disputed rights to be licensed from third
parties or require us to stop using our technology, any of which
would result in a material adverse effect on our results of
operations and our financial position.
15
RESEARCH
AND DEVELOPMENT
The principal focus of our research and development effort is
the support of the clinical trials necessary for regulatory
approval of PolyHeme. We also continue to assess our
manufacturing processes for improvements and in preparation for
FDAs required pre-approval inspection. In fiscal 2008 and
2007, our research and development expenses totaled $15,916,000
and $21,060,000, respectively. We anticipate that our research
and development expenses will decrease significantly once our
BLA is submitted to FDA.
HUMAN
RESOURCES
As of August 1, 2008, we had 91 employees, of whom 78
were involved in research and development and thirteen were
responsible for financial and other administrative matters. We
also had consulting arrangements with 30 individuals and
organizations as of that date. None of our employees are
represented by labor unions, and we are not aware of any
organizational efforts on behalf of any labor unions involving
our employees. We consider our relations with our employees to
be excellent.
CORPORATE
INFORMATION
We were incorporated under the laws of the State of Delaware in
June 1985. Our website is www.northfieldlabs.com.
We make available free of charge on our website our annual
reports on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports of
Form 8-K,
Forms 3, 4 and 5 filed on behalf of directors and executive
officers and any amendments to such reports filed pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act of
1934, as soon as reasonably practicable after such material is
electronically filed with, or furnished to, the Securities and
Exchange Commission, or SEC. Copies of our code of business
conduct and ethics and other corporate governance documents are
available on our website.
You should consider the following matters when reviewing the
information contained in this document. You also should consider
the other information incorporated by reference in this
document.
We are a
development stage company without revenues or profits.
Northfield was founded in 1985 and is a development stage
company. Since 1985, we have been engaged primarily in the
development and clinical testing of PolyHeme. No revenues have
been generated to date from commercial sales of PolyHeme. Our
revenues to date have consisted solely of license fees. We
cannot ensure that our clinical testing will be successful, that
regulatory approval of PolyHeme will be obtained, that we will
be able to manufacture PolyHeme at an acceptable cost and in
appropriate quantities or that we will be able to successfully
market and sell PolyHeme. We also cannot ensure that we will not
encounter unexpected difficulties which will have a material
adverse effect on us, our operations or our properties.
We have a
history of losses and our future profitability is
uncertain.
From our inception through May 31, 2008 we have incurred
net operating losses totaling $220,216,000. We will require
substantial additional expenditures to pursue regulatory
approval for PolyHeme, to establish expanded commercial scale
manufacturing processes and facilities, and to establish
marketing, sales and administrative capabilities. These
expenditures are expected to result in substantial losses for at
least the next few years and are expected to substantially
exceed our currently available capital resources. The expense
and the time required to realize any product revenues or
profitability are highly uncertain. We cannot ensure that we
will be able to achieve product revenues or profitability on a
sustained basis or at all.
Our
financial resources are limited and we will need to raise
additional capital in the future to continue our
business.
As of May 31, 2008, we had cash and cash equivalents of
approximately $21 million. We are currently utilizing our
cash resources at a rate of approximately $20 million per
year, and we expect to maintain this rate of cash utilization
through the submission of our BLA to FDA. We anticipate that our
existing financial resources will be adequate to permit us to
continue to conduct our business only for the next 11 to
13 months. We will need to raise
16
additional capital to continue our business after this period.
Our future capital requirements will depend on many factors,
including the timing and outcome of regulatory reviews,
administrative and legal expenses, the status of competitive
products, the establishment of manufacturing capacity and the
establishment of collaborative relationships. We cannot ensure
that additional funding will be available or, if it is
available, that it can be obtained on terms and conditions we
will deem acceptable. Any additional funding derived from the
sale of equity securities is likely to result in significant
dilution to our existing stockholders. The opinion of our
independent accountants with respect to our audited financial
statements for our fiscal year ended May 31, 2008 includes
an explanatory paragraph regarding the continuation of our
company as a going concern. In addition, we are subject to a
putative class action lawsuit alleging violations of the federal
securities laws. This matter involves risks and uncertainties
that may prevent Northfield from raising additional capital or
may cause the terms upon which Northfield raises additional
capital, if additional capital is available, to be less
favorable to Northfield than would otherwise be the case.
We are
developing a single product that is subject to a high level of
technological risk.
To succeed as a company, we must develop PolyHeme commercially
and sell adequate quantities of PolyHeme at a high enough price
to generate a profit. We may not accomplish either of these
objectives. Our operations have to date consisted primarily of
the development and clinical testing of PolyHeme. We do not
expect to realize product revenues unless we successfully
develop and achieve commercial introduction of PolyHeme. We
expect that such revenues, if any, will be derived solely from
sales of PolyHeme directly or through licensees. We also expect
the use of PolyHeme initially to be limited to the acute blood
loss segment of the transfusion market. The biomedical field has
undergone rapid and significant technological changes.
Technological developments may result in PolyHeme becoming
obsolete or non-competitive before we are able to recover any
portion of the research and development and other expenses we
have incurred to develop and clinically test PolyHeme. Any such
occurrence would have a material adverse effect on us and our
operations.
We are
required to receive FDA approval before we may sell PolyHeme
commercially, data from our clinical trials to date may not be
adequate to obtain FDA approval, and we may be required to
conduct additional clinical trials in the future.
We anticipate submitting our BLA to FDA in the fourth calendar
quarter of 2008. Our BLA will include information related to our
clinical and preclinical studies as well as information relating
to the chemistry, manufacturing and controls, or CMC, involved
in the manufacture of PolyHeme. The preparation of a BLA is a
complex and time-consuming process; we have already experienced
delays and there can be no assurance that we will be able to
submit our BLA within this time period. If the completion of our
BLA takes longer than expected, FDA review, and potential
approval for commercial sale, will also be delayed.
We intend to seek priority review of our BLA, but there can be
no assurance that FDA will classify the application as priority.
In fact, there can be no assurance that the submission will be
accepted for filing. FDA may issue a refusal to file letter, or
RTF, if it believes the filing is inadequate or incomplete. FDA
previously issued an RTF for our BLA submitted in 2001, which
was based on data from our prior Phase II trauma trials in
the hospital setting only. Subsequent discussion with FDA
resulted in the mutual decision to proceed with our pivotal
Phase III trial, which FDA agreed would satisfy the
standards for approval of PolyHeme, if successful. That
agreement, reached as part of a special protocol assessment, or
SPA, is not a guarantee of approval, however, since new concerns
about safety and efficacy have arisen, as described below.
The clinical section of the BLA will include the results of our
Phase III trial and the results of our prior clinical
trials of PolyHeme. The primary efficacy endpoint of the
Phase III trial was a dual superiority-noninferiority
assessment of mortality at 30 days after injury. The
results did not achieve the primary efficacy endpoint in the
primary patient population as specified in the protocol.
Further, although there was no statistically significant
difference between the PolyHeme and control group for any of the
primary safety endpoints for our trial, statistically
significant differences favoring the standard of care were
observed with respect to certain secondary safety endpoints,
including the incidence of myocardial infarction. Based on these
results, there can be no assurance that the data will be
sufficient to demonstrate the safety and effectiveness of
PolyHeme for purposes of obtaining FDA approval.
17
Preclinical testing included extensive in-vitro and in-vivo
studies of PolyHeme to assess product pharmacology and
toxicology. These studies varied greatly with regard to animal
species, protocol and product dosing, concomitant study drugs,
and the timing and nature of the observations and measurements.
Some of these studies have shown species dependent abnormalities
in certain laboratory findings, including increases in aspartate
aminotransferase, bilirubin, blood urea nitrogen, chromaturia,
glucose, and troponin, and certain abnormal microscopic
findings, including renal tubular proteinosis, Kupffer cell
hypertrophy, karyomegaly, histiocytosis, cellular degeneration,
and inflammation in organs such as the kidney, liver, or heart.
These abnormalities were largely reversible and there was no
evidence of organ failure. The clinical relevance of these
findings is unclear when extrapolated to the human setting.
There can be no assurance that these preclinical data will be
considered sufficient for FDA approval.
The BLA also addresses CMC issues. Our pilot manufacturing
facility was first opened in 1990 with a design capacity to
produce up to 10,000 units of PolyHeme per year. At the
time it was Northfields plan to use the pilot facility for
research and development purposes and the manufacture of
clinical supplies under the appropriate current Good
Manufacturing Practices, or cGMP, with future commercial scale
manufacturing being performed in a new facility. Our current
plan is to seek FDA approval for use of the pilot plant as our
initial commercial manufacturing site, to be followed by
expansion at a later date. The cGMP requirements for commercial
manufacturing have evolved considerably over the past two
decades and we have made multiple improvements and updates to
our pilot facility, all of which required subsequent validation,
in order to confirm cGMP compliance. These upgrades have
consumed and continue to consume considerable time, effort and
expense. We anticipate that the final capacity of this pilot
facility will be approximately 5,000 to 7,500 units per
year. There can be no assurance that the pilot facility will be
considered to be in compliance with cGMP requirements.
FDA review includes a balance of risks and benefits, but the
current regulatory climate is shaped by heightened pressure on
FDA from the public and Congress following high profile safety
concerns about certain pharmaceutical products. FDA has become
increasingly risk-averse, requiring even more substantial
benefits to outweigh potential safety concerns. We believe that
PolyHeme could offer substantial benefits to patients in the
absence of red blood cells for transfusion. If approved,
PolyHeme would be the first hemoglobin-based oxygen carrier for
human use to receive FDA approval. We recognize, however, that
our Phase III study did not fully reflect the patient
population for whom PolyHeme may be most appropriate and that
the data are therefore susceptible to varying interpretations.
As a result, there is no guarantee that an agency focused more
heavily on product safety risks will be willing to extrapolate
an acceptable risk-benefit profile from the urban setting of our
pivotal clinical trial, particularly in light of potential
safety signals.
FDA may accordingly refuse to approve PolyHeme for commercial
sale, and may require us to conduct additional clinical trials
of PolyHeme in order to obtain approval. Alternatively, FDA may
be willing to approve PolyHeme on the basis of available
evidence, but may significantly limit the indication for which
it may be marketed, impose additional restrictions through a
Risk Evaluation and Mitigation Strategy, or REMS, or require
substantial postmarketing commitments to evaluate the use of
PolyHeme in additional settings where it may be used or in
additional patient populations, such as children . Any of these
alternatives could impede access, raise costs and reduce the
ability of Northfield to recoup investments. Additionally, in
order to market PolyHeme for any additional uses in the United
States, we will be required to obtain approval of a separate
BLA, which will require the design and conduct of additional
clinical trials, and will involve all of the uncertainties
described above.
Our business, financial condition and results of operations are
critically dependent on receiving FDA approval of PolyHeme. A
significant delay in achieving, or failure to achieve, FDA
approval for commercial sales of PolyHeme would have a material
adverse effect on us and could result in the cessation of our
business. Even if we submit our BLA during the fourth calendar
quarter of 2008, FDAs increasing focus on drug safety may
lead to a substantial delay in obtaining FDA approval of
PolyHeme. A 2007 study conducted by an independent research
organization found that product approvals have been increasingly
delayed by FDA requests for additional safety and other data.
FDA also faces an increased workload following many new
responsibilities imposed by the Food and Drug Administration
Amendments Act of 2007, and these factors have combined to
result in longer periods of time to approve new products. In
this environment, we anticipate that PolyHemes approval,
if it occurs at all, may take significantly longer than the six
month goal established by FDA for priority review products.
18
There may
be limitations in the supply of the starting material for
PolyHeme.
We currently purchase donated red blood cells from the American
Red Cross and Blood Centers of America for use as the starting
material for PolyHeme. We have an agreement with hemerica, Inc.,
a subsidiary of Blood Centers of America, under which hemerica
would supply us with up to 160,000 units per year of packed
red cells, the source material for PolyHeme. We have not
purchased any blood supplies under this agreement to date. We
have plans to enter into long-term supply arrangements with
other blood collectors. We cannot ensure that we will be able to
enter into satisfactory long-term arrangements with blood bank
operators, that the price we may be required to pay for starting
material will permit us to price PolyHeme competitively or that
we will be able to obtain an adequate supply of starting
material. Additional demand for blood may arise from competing
human hemoglobin-based oxygen carrier products, thereby limiting
our available supply of starting material.
The
market may not accept our product.
Even if PolyHeme is approved for commercial sale by FDA, the
degree of market acceptance of PolyHeme by physicians,
healthcare professionals and third party payors will depend on a
number of factors, including:
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relative convenience and ease of administration;
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the prevalence and severity of any adverse side effects;
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effectiveness of our sales and marketing strategy; and
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the price of PolyHeme compared with competing therapies.
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In addition, even if PolyHeme does achieve market acceptance, we
may not be able to maintain that market acceptance over time if
new products are introduced that are more favorably received
than PolyHeme or render PolyHeme obsolete.
We rely
on third parties to perform data collection and analysis with
respect to our clinical trial and to assist in the preparation
of our BLA for PolyHeme, which may result in costs and delays
that prevent us from successfully commercializing our
product.
We do not have the personnel resources to conduct all of the
activities relating to the collection and analysis of data from
our clinical trial and the preparation and submission of our BLA
for PolyHeme. We rely and will continue to rely on clinical
investigators, third-party clinical research organizations and
consultants to perform many of these functions.
Our BLA may be delayed, suspended or terminated if:
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these third parties do not successfully carry out their
contractual duties or regulatory obligations or meet expected
deadlines;
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these third parties need to be replaced; or
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the work performed by these third parties does not satisfy
applicable regulatory requirements or is not usable for other
reasons.
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Failure to perform by these third parties may increase our
development costs, delay our ability to obtain regulatory
approval and prevent the commercialization of our product.
Our
activities are and will continue to be subject to extensive
government regulation.
Our research, development, testing, manufacturing, marketing,
and distribution of PolyHeme (as well as that of our
collaborators) are, and will continue to be, subject to
extensive regulation, monitoring, and approval by FDA and other
government agencies, potentially in ways that we cannot
currently predict. The regulatory approval process to establish
the safety and effectiveness of PolyHeme and the safety and
reliability of our manufacturing process has already consumed
considerable time and resources.
We have taken advantage of Special Protocol Assessment, or SPA.
Our SPA reflects an agreement with FDA on our trial design, the
trial endpoints and the broad concepts for clinical indications
those endpoints would support in
19
an application for product approval by FDA. The SPA agreement,
however, is not a guarantee of product approval by FDA or
approval of any permissible claims about the product. In
particular, it is not binding on the FDA if previously
unrecognized public health concerns later come to light, other
new scientific concerns regarding product safety or
effectiveness arise, the sponsor fails to comply with the
protocol agreed upon, or FDAs reliance on data,
assumptions or information are determined to be wrong. Even
after an SPA agreement is finalized, the SPA agreement may be
changed by the sponsor company or the FDA on written agreement
of both parties, and the FDA retains significant latitude and
discretion in interpreting the terms of the SPA agreement and
the data and results from any study that is the subject of the
SPA agreement.
In addition, the data obtained from clinical trials are
susceptible to varying interpretations, which could delay, limit
or prevent FDA regulatory approval. Even if FDA accepts that our
analysis of the Phase III data is sufficient to demonstrate
effectiveness, our data may not demonstrate safety. We cannot
ensure that, even after extensive clinical trials, regulatory
approval will ever be obtained for PolyHeme. If PolyHeme is
approved, it would be the first hemoglobin-based oxygen carrier
for human use to receive FDA approval.
Before we can market PolyHeme for any use in the United States,
and for each subsequent indication, we must submit a BLA. Once
we have prepared an application that we believe satisfies the
statutory and regulatory standards for approval, there are many
junctures at which the application may be delayed or fail. FDA
may refuse to file the application, may refuse to designate the
application for priority review, or may not be satisfied that
PolyHeme is safe, pure, and potent, as a result of inadequate
support from clinical trials, or concerns about our
manufacturing facilities. The timing of each of these decisions
is uncertain, and even after extensive clinical trials, there is
no assurance that regulatory approval will ever be obtained for
PolyHeme, particularly in light of FDAs current
conservative approach to risk.
Moreover, if regulatory approval of PolyHeme is granted, it may
be heavily constrained by FDAs focus on drug safety, and
the authorities granted FDA by the Food and Drug Administration
Amendments Act. Approval may be authorized only for a narrow
indication, which will limit the ability to market PolyHeme, and
FDA may also require post-approval studies or REMS in order to
protect patients, further limiting access and requiring
substantial investments of company time and resources. If these
studies, clinical experience and required adverse event
reporting, additional trials to support new indications, or even
meta-analyses made possible through FDAAAs clinical trial
disclosure requirements, demonstrate new risks, FDA may further
restrict the approval of PolyHeme, or withdraw approval
altogether. Additional laws and regulations may also be enacted
which could prevent or delay regulatory approval of PolyHeme,
and/or
negatively impact post-approval marketing, including laws or
regulations relating to the price or cost-effectiveness of
medical products. Any of these scenarios are likely to have a
material adverse effect on our financial condition.
Further, the manufacturing, testing, distribution, labeling,
packaging, storage, advertising, promotion, reporting and
record-keeping related to PolyHeme will also be subject to
extensive ongoing regulatory requirements following approval.
Among other things, we will be required to comply with current
good manufacturing practices, adverse event reporting
requirements, and FDAs general prohibitions against
promoting products for unapproved or off-label uses.
We are also subject to inspection and market surveillance by FDA
for compliance with these and other requirements. Any
enforcement action resulting from failure, even by inadvertence,
to comply with these requirements, or those imposed in the
future, could negatively affect the manufacture and marketing of
PolyHeme.
We
currently manufacture PolyHeme at a single location and, if we
were unable to utilize this facility, our ability to manufacture
PolyHeme will be significantly affected, and we will be delayed
or prevented from commercializing PolyHeme.
We currently manufacture PolyHeme at a single location and we
have no alternative manufacturing capacity in place at this
time. Although we have made substantial ongoing investments in
the maintenance of our manufacturing facility, there can be no
assurance that the we will not experience disruptions in our use
of the facility due to age or condition of our facility. In
addition, damage to this manufacturing facility due to fire,
contamination, natural disaster, power loss, unauthorized entry
or other events could force us to cease the manufacturing of
PolyHeme. Any lack of supply could, in turn, delay any potential
commercial sales. In addition, if the facility or the equipment
in the facility is significantly damaged, destroyed or becomes
inoperable for any reason, we may not be able to replace our
manufacturing capacity for an extended period of time, and our
business, financial condition and results of
20
operations will be materially and adversely affected. We intend
to seek FDA approval of this facility for the commercial
production of PolyHeme if and when marketing approval of
PolyHeme is obtained. This facility will be subject to FDA
inspections and extensive regulation, including compliance with
current good manufacturing practices and FDA approval. Failure
to comply may result in enforcement action, which may
significantly delay or suspend manufacturing operations.
Failure
to increase manufacturing capacity may impair PolyHemes
market acceptance and prevent us from achieving
profitability.
Our pilot manufacturing facility was first opened in 1990 with a
design capacity to produce up to 10,000 units of PolyHeme per
year. At the time it was Northfields plan to use the pilot
facility for research and development purposes and the
manufacture of clinical supplies under the appropriate current
Good Manufacturing Practices, or cGMP, with future commercial
scale manufacturing being performed in a new facility. Our
current plan is to seek FDA approval for use of the pilot plant
as our initial commercial manufacturing site, to be followed by
expansion at a later date. The cGMP requirements for commercial
manufacturing have evolved considerably over the past two
decades and we have made multiple improvements and updates to
our pilot facility in an effort to confirm compliance. These
upgrades have consumed and continue to consume considerable
time, effort and expense. We anticipate that the final capacity
of this pilot facility will be approximately 5,000 to 7,500
units per year. In June 2006, we purchased the
106,000 square foot building in Mt. Prospect, Illinois in
which our pilot manufacturing facility is located and plan to
construct an expanded commercial manufacturing facility at this
site if FDA approval for the marketing of PolyHeme is received.
We currently do not have sufficient available funds to permit us
to begin construction of this facility and we will need to raise
additional funds before we are able to proceed with our planned
manufacturing expansion. There can be no assurance that we will
be able to raise additional funds for this purpose. If we are
successful in raising sufficient funds to begin construction of
a commercial manufacturing facility, we expect that completion
of the facility, including FDA inspection and validation, will
require approximately 24 to 30 months. Therefore, even if
FDA approval for the marketing of PolyHeme is obtained, we may
not be able to produce PolyHeme in commercial quantities for a
substantial period of time. A commercial-scale manufacturing
facility will be subject to FDA inspections and extensive
regulation, including compliance with current good manufacturing
practices and FDA approval of
scale-up
changes. Failure to comply may result in enforcement action,
which may significantly delay or suspend manufacturing
operations. We have no experience in large-scale manufacturing,
and there can be no assurance that we can achieve large-scale
manufacturing capacity. It is also possible that we may incur
substantial cost overruns and delays compared to existing
estimates in building and equipping a large-scale manufacturing
facility. Moreover, in order to seek FDA approval of the sale of
PolyHeme produced at a larger-scale manufacturing facility, we
may be required to conduct additional studies with product
manufactured at that facility. A significant delay in achieving
scale-up of
commercial manufacturing capabilities would have a material
adverse effect on sales of PolyHeme.
There are
significant competitors developing similar products.
We may be unable to compete successfully in developing and
marketing our product. If approved for commercial sale, PolyHeme
will compete directly with established therapies for acute blood
loss and may compete with other technologies currently under
development. We cannot ensure that PolyHeme will have advantages
which will be significant enough to cause medical professionals
to adopt it rather than continue to use established therapies or
to adopt other new technologies or products. We also cannot
ensure that the cost of PolyHeme will be competitive with the
cost of established therapies or other new technologies or
products. The development of hemoglobin-based oxygen-carrying
products is a continuously evolving field. Competition is
intense and may increase. Several companies have developed or
are in the process of developing technologies which are, or in
the future may be, the basis for products which will compete
with PolyHeme. Certain of these companies are pursuing different
approaches or means of accomplishing the therapeutic effects
sought to be achieved through the use of PolyHeme. Some of these
companies may have substantially greater financial resources,
larger research and development staffs, more extensive
facilities and more experience in testing, manufacturing,
marketing and distributing medical products. We cannot ensure
that one or more other companies will not succeed in developing
technologies or products which will become available for
commercial use prior to PolyHeme, which will be more effective
or less costly than PolyHeme or which would otherwise render
PolyHeme obsolete or non-competitive.
21
Further, the regulatory climate for follow-on or
generic versions of biological products approved
under a BLA in the United States remains uncertain. Currently,
there is no established statutory or regulatory pathway for the
abbreviated approval of follow-on versions of biological
products approved under a BLA, meaning that even after our
intellectual property protections expire, a company seeking to
market a copy of PolyHeme would have to conduct its own clinical
trials and submit a completely independent BLA. However, members
of Congress have expressed increasing interest in legislation to
establish a statutory path for follow-on biological products. At
this time, we cannot know with certainty when any such process
may be adopted, or how it might affect our intellectual property
rights, but any such process has the potential to have a
material effect on PolyHemes commercial success.
We do not
have experience in the sale and marketing of medical
products.
If approved for commercial sale, we currently intend to market
PolyHeme in the United States using our own sales force. We have
no experience in the sale or marketing of medical products,
which are subject to significant regulations not applicable to
the sale and marketing of other types of goods and services.
PolyHeme may only be marketed and promoted for its approved
use(s), and our sales force will be subject to a variety of
regulatory and industry restrictions on their ability to
aggressively pursue potential customers. If our sales and
marketing teams fail to comply with these restrictions, we could
be subject to significant liability.
Our ability to implement our sales and marketing strategy for
the United States will depend on our ability to recruit, train
and retain a marketing staff and sales force with sufficient
technical expertise. We cannot ensure that we will be able to
establish an effective marketing staff and sales force, that the
cost of establishing such a marketing staff and sales force will
not exceed revenues from the sale of PolyHeme or that our
marketing and sales efforts will be successful.
Our
profitability will be affected if we incur product liability
claims in excess of our insurance coverage.
The testing and marketing of medical products, even after FDA
approval, have an inherent risk of product liability. Claims by
users of PolyHeme, or by others selling PolyHeme, could expose
us to substantial product liability. We maintain limited product
liability insurance coverage for our clinical trials in the
total amount of $10 million. However, our profitability
would be adversely affected by a successful product liability
claim in excess of our insurance coverage. We cannot ensure that
product liability insurance will be available in the future or
be available on reasonable terms.
Our pivotal Phase III trial was conducted under a federal
regulation that allows research to be conducted in certain
emergent, life-threatening situations using an exception from
the requirement for informed patient consent. Under the
applicable federal regulation, an IRB may give approval for
patient enrollment in trials in emergency situations without
requiring individual informed consent provided specific criteria
are met. Individual informed consent is often a defense raised
against product liability claims asserted by patients
participating in clinical trials of medical products. We cannot
ensure that IRB approval of patient enrollment in our trial,
even if given in full compliance with the applicable federal
regulations, will provide us with a defense against product
liability claims by patients participating in our trial. It is
also possible that we may be subject to legal claims by patients
objecting to being enrolled in our trial without their
individual informed consent, even if the patients do not suffer
any injuries in connection with our trial.
We depend
on the services of a limited number of key personnel.
Our success is highly dependent on the continued services of a
limited number of skilled managers and scientists. The loss of
any of these individuals could have a material adverse effect on
us. In addition, our success will depend, among other factors,
on the recruitment and retention of additional highly skilled
and experienced management and technical personnel. We have
historically provided incentive compensation to our officers and
employees in part through grants of stock options and restricted
stock under our equity compensation plans. Decreases in the
trading price of our common stock, however, have substantially
reduced the value of equity compensation awards made to our
officers and employees in prior years. Our ability to provide
competitive compensation to our officers and employees may also
be adversely affected by our limited capital resources and
anticipated need to raise substantial additional capital to
continue our business. We cannot ensure that we will be
22
able to retain existing employees or to attract and retain
additional skilled personnel on acceptable terms as a result of
these factors as well as competition for such personnel among
numerous large and well-funded pharmaceutical and health care
companies, universities and non-profit research institutions.
Our
ability to generate revenue from our product will depend on
reimbursement and drug pricing policies and
regulations.
Our ability to achieve acceptable levels of reimbursement for
PolyHeme by governmental authorities, private health insurers
and other organizations will have an effect on our ability to
successfully commercialize PolyHeme. We cannot be sure that
reimbursement in the United States, Europe or elsewhere will be
available for PolyHeme or, if reimbursement should become
available, that it will not be decreased or eliminated in the
future. If reimbursement is not available or is available only
at limited levels, we may not be able to successfully
commercialize PolyHeme, and may not be able to obtain a
satisfactory financial return on PolyHeme.
Third-party payers increasingly are challenging prices charged
for medical products and services. Also, the trend toward
managed health care in the United States and the changes in
health insurance programs, as well as legislative proposals to
reform health care or reduce government insurance programs, may
result in lower prices for pharmaceutical products, including
PolyHeme. Cost-cutting measures that health care providers are
instituting, and the effect of any health care reform, could
harm our ability to sell PolyHeme.
Moreover, we are unable to predict what additional legislation
or regulation, if any, relating to the health care industry or
third-party coverage and reimbursement may be enacted in the
future or what effect this legislation or regulation would have
on our business. In the event that governmental authorities
enact legislation or adopt regulations which affect third-party
coverage and reimbursement, demand for PolyHeme may be reduced,
thereby harming our sales and profitability.
Failure
to obtain regulatory approval in foreign jurisdictions would
prevent our product from being marketed abroad.
We have entered into license agreements with Pfizer Inc. and
Hemocare Ltd., an Israeli corporation, to develop, manufacture
and distribute PolyHeme in certain European, Middle Eastern and
African countries. Following an update from Northfield and
internal analysis, Pfizer has communicated that the product does
not fit within their corporate strategies and that Pfizer would
not participate in any clinical or commercialization activities.
We are currently finalizing the termination of the license
issued to Pfizer. Northfield does not anticipate any significant
cash needs to terminate this license.
The license agreements permit Hemocare to sell PolyHeme in
return for the payment of royalties based upon sales of PolyHeme
in the licensed territories. In order for Hemocare or anyone
else, including us, to market our products in the European Union
and many other foreign jurisdictions, we or our licensees must
obtain separate regulatory approvals and comply with numerous
and varying regulatory requirements. The approval procedure
varies among countries and can involve additional testing. The
time required to obtain approval may differ from that required
to obtain FDA approval. The foreign regulatory approval process
entails all of the risks associated with obtaining FDA approval.
We and our licensees may fail to obtain foreign regulatory
approvals on a timely basis, if at all. Approval by FDA does not
ensure approval by regulatory authorities in other countries,
and approval by one foreign regulatory authority does not ensure
approval by regulatory authorities in other foreign countries or
by FDA. We and our licensees may not be able to file for, and
may not receive, necessary regulatory approvals to commercialize
our product in any market. If we or our licensees fail to obtain
these approvals, our business, financial condition and results
of operations could be materially and adversely affected.
Failure
to maintain effective internal controls over financial reporting
could have a material adverse effect on our business, operating
results and stock price.
Section 404 of the Sarbanes-Oxley Act of 2002 requires us
to include a report by our management on our internal controls
over financial reporting in our annual reports filed with the
SEC. This report must contain an assessment by management of the
effectiveness of our internal controls over financial reporting
as of the end of our fiscal year and a statement as to whether
or not our internal controls are effective.
23
Our efforts to comply with Section 404 have resulted in,
and are likely to continue to result in, significant costs, the
commitment of time and operational resources and the diversion
of managements attention. If our management identifies one
or more material weaknesses in our internal controls over
financial reporting, we will be unable to assert our internal
controls are effective. If we are unable to assert that our
internal controls over financial reporting are effective, our
business may be harmed. Market perception of our financial
condition and the trading price of our stock may be adversely
affected and customer perception of our business may suffer.
We are
subject to a variety of federal, state and local laws, rules and
regulations related to the discharge or disposal of toxic,
volatile or other hazardous chemicals.
Although we believe that we are in material compliance with
these laws, rules and regulations, the failure to comply with
present or future regulations could result in fines being
imposed on us, suspension of production or cessation of
operations. Third parties may also have the right to sue to
enforce compliance. Moreover, it is possible that increasingly
strict requirements imposed by environmental laws and
enforcement policies could require us to make significant
capital expenditures. The operation of a manufacturing plant
entails the inherent risk of environmental damage or personal
injury due to the handling of potentially harmful substances,
and there can be no assurance that we will not incur material
costs and liabilities in the future because of an accident or
other event resulting in personal injury or unauthorized release
of such substances to the environment. In addition, we generate
hazardous materials and other wastes that are disposed of at
various offsite facilities. We may be liable, irrespective of
fault, for material cleanup costs or other liabilities incurred
at these disposal facilities in the event of a release of
hazardous substances by such facilities into the environment.
We are
subject to a putative class action lawsuit.
We and Dr. Steven A. Gould, Northfields Chief
Executive Officer, and Richard De Woskin, Northfields
previous Chief Executive Officer, are subject to a putative
class action pending in the United States District Court for the
Northern District of Illinois Eastern Division, purportedly
brought on behalf of a class of Northfields shareholders.
The complaint alleges, among other things, that during the
period from March 19, 2001 to March 20, 2006, the
named defendants made or caused to be made a series of
materially false or misleading statements and omissions about
Northfields elective surgery clinical trial and business
prospects in violation of Section 10(b) of the Securities
Exchange Act of 1934, as amended, and
Rule 10b-5
promulgated thereunder and Section 20(a) of the Exchange
Act. Plaintiffs allege that those allegedly false and misleading
statements and omissions caused the purported class to purchase
Northfield common stock at artificially inflated prices. As
relief, the complaint seeks, among other things, a declaration
that the action be certified as a proper class action,
unspecified compensatory damages (including interest) and
payment of costs and expenses (including fees for legal counsel
and experts). If the outcome of this lawsuit is unfavorable to
Northfield, or Northfield determines that it is advisable to
enter into a settlement of the lawsuit, Northfield could be
required to pay significant monetary damages or make significant
settlement payments to the plaintiffs in the lawsuit. While
Northfield maintains directors and officers liability insurance,
there can be no assurance that the proceeds of this insurance
will be available with respect to all or part of any damages,
costs or expenses that may be incurred by Northfield in
connection with the aforementioned putative class action
lawsuit. In addition, Northfield is a party to indemnification
agreements under which it may be required to indemnify and
advance defense costs to its current and former directors and
officers in connection with this putative class action lawsuit.
Even if this lawsuit is ultimately resolved in favor of
Northfield, Northfield still may incur substantial legal fees
and expenses in defending the lawsuit.
RISKS
RELATED TO OUR INTELLECTUAL PROPERTY
Our
success depends upon our ability to protect our intellectual
property and our proprietary technology.
Our success depends in part on our ability to obtain and
maintain intellectual property protection for PolyHeme as well
as our technology and know-how. Our policy is to seek to protect
PolyHeme and our technologies by, among other methods, filing
United States and foreign patent applications related to our
proprietary technology, inventions and improvements that are
important to the development of PolyHeme. The patent positions
of companies like ours are generally uncertain and involve
complex legal and factual questions. Our ability to maintain and
solidify our proprietary position for our technology will depend
on our success in obtaining effective patent claims and
24
enforcing those claims once granted. We do not know whether any
of our patent applications will result in the issuance of any
patents. Our issued patents and those that may issue in the
future may be challenged, invalidated, rendered unenforceable or
circumvented, which could limit our ability to stop competitors
from marketing related products or the length of term of patent
protection that we may have for PolyHeme.
Our United States patents have various expiration dates; the
latest to expire of our United States patents has a term that
extends to 2025. Our broadest United States patent was
originally scheduled to expire in 2006 but was extended by the
United States Patent Office to 2007. Earlier this year, however,
PTO reversed its decision on the basis that PolyHeme was no
longer under continuous development in light of the
length of time that had expired without product approval after
FDAs original Refusal to File decision in 2001. During the
intervening period, we conducted our pivotal Phase III
trial, and are currently preparing a BLA submission for 2008. We
believe that this constitutes the requisite due diligence in
seeking regulatory approval necessary to retain eligibility for
interim patent term extension, and are currently evaluating our
options to appeal PTOs determination. We cannot ensure
that we will be successful in recovering this patent protection,
and if we are, we cannot be certain that any additional
extensions will be granted. In any event, no extensions for this
patent are possible beyond 2011.
In addition, the rights granted under any issued patents may not
provide us with competitive advantages against competitors with
similar compounds or technologies. Furthermore, our competitors
may independently develop similar technologies or duplicate any
technology developed by us in a manner that does not infringe
our patents or other intellectual property. Because of the
extensive time required for development, testing and regulatory
review of PolyHeme, it is possible that, before PolyHeme can be
commercialized, any related patent may expire or remain in force
for only a short period following commercialization, thereby
reducing any advantages of the patent.
We rely
on trade secrets and other confidential information to maintain
our proprietary position.
In addition to patent protection, we also rely on protection of
trade secrets, know-how and confidential and proprietary
information. To maintain the confidentiality of trade secrets
and proprietary information, we have entered into
confidentiality agreements with our employees, consultants and
collaborators upon the commencement of their relationships with
us. These agreements require that all confidential information
developed by the individual or made known to the individual by
us during the course of the individuals relationship with
us be kept confidential and not disclosed to third parties. Our
agreements with employees also provide that inventions conceived
by the individual in the course of rendering services to us will
be our exclusive property. Individuals with whom we have these
agreements may not comply with their terms. In the event of the
unauthorized use or disclosure of our trade secrets or
proprietary information, these agreements, even if obtained, may
not provide meaningful protection for our trade secrets or other
confidential information. To the extent that our employees,
consultants or contractors use technology or know-how owned by
others in their work for us, disputes may arise as to the rights
in related inventions. Adequate remedies may not exist in the
event of unauthorized use or disclosure of our confidential
information. The disclosure of our trade secrets would impair
our competitive position and could have a material adverse
effect on our operating results, financial condition and future
growth prospects.
We may be
involved in lawsuits to protect or enforce our patents, which
could be expensive and time consuming.
Competitors may infringe our patents. To counter
infringement or unauthorized use, we may be required to file
infringement claims, which can be expensive and time-consuming.
In addition, in an infringement proceeding, a court may decide
that a patent of ours is not valid or is unenforceable, or may
refuse to stop the other party from using the technology at
issue on the grounds that our patents do not cover its
technology. An adverse determination of any litigation or
defense proceedings could put one or more of our patents at risk
of being invalidated or interpreted narrowly and could put our
patent applications at risk of not issuing.
Interference proceedings brought by the United States Patent and
Trademark Office may be necessary to determine the priority of
inventions with respect to our patent applications or those of
our collaborators or licensors. Litigation or interference
proceedings may fail and, even if successful, may result in
substantial costs and be a distraction to our management. We may
not be able to prevent misappropriation of our proprietary
rights, particularly in countries where the laws may not protect
such rights as fully as in the United States.
25
Furthermore, because of the substantial amount of discovery
required in connection with intellectual property litigation,
there is a risk that some of our confidential information could
be compromised by disclosure during this type of litigation. In
addition, during the course of this kind of litigation, there
could be public announcements of the results of hearings,
motions or other interim proceedings or developments. If
securities analysts or investors perceive these results to be
negative, it could have a substantial adverse effect on the
price of our common stock.
We may not prevail in any litigation or interference proceeding
in which we are involved. Even if we do prevail, these
proceedings can be very expensive and distract our management.
Third
parties may own or control patents or patent applications that
are infringed by our product or technologies.
Our success depends in part on avoiding the infringement of
other parties patents and proprietary rights. In the
United States, patent applications filed in recent years are
confidential for 18 months, while older applications are
not published until the patent issues. As a result, there may be
patents of which we are unaware, and avoiding patent
infringement may be difficult. We may inadvertently infringe
third-party patents or patent applications. These third parties
could bring claims against us that, even if resolved in our
favor, could cause us to incur substantial expenses and, if
resolved against us, could additionally cause us to pay
substantial damages. Further, if a patent infringement suit were
brought against us, we could be forced to stop or delay
research, development, manufacturing or sales of PolyHeme in the
country or countries covered by the patent we infringe, unless
we can obtain a license from the patent holder. Such a license
may not be available on acceptable terms, or at all,
particularly if the third party is developing or marketing a
product competitive with PolyHeme. Even if we were able to
obtain a license, the rights may be nonexclusive, which would
give our competitors access to the same intellectual property.
We also may be required to pay substantial damages to the patent
holder in the event of an infringement. Under some circumstances
in the United States, these damages could be triple the actual
damages the patent holder incurs. If we have supplied infringing
products to third parties for marketing or licensed third
parties to manufacture, use or market infringing products, we
may be obligated to indemnify these third parties for any
damages they may be required to pay to the patent holder and for
any losses the third parties may sustain themselves as the
result of lost sales or damages paid to the patent holder.
Any successful infringement action brought against us may also
adversely affect marketing of PolyHeme in other markets not
covered by the infringement action. Furthermore, we may suffer
adverse consequences from a successful infringement action
against us even if the action is subsequently reversed on
appeal, nullified through another action or resolved by
settlement with the patent holder. The damages or other remedies
awarded, if any, may be significant. As a result, any
infringement action against us would likely delay the regulatory
approval process, harm our competitive position, be very costly
and require significant time and attention of our key management
and technical personnel.
RISKS
RELATED TO OUR COMMON STOCK
Our stock
price could be volatile.
The market price of our common stock has fluctuated
significantly in response to a number of factors, many are which
are beyond our control, including:
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regulatory developments relating to our PolyHeme product;
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announcements by us relating to the results of our clinical
trials of PolyHeme;
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developments relating to our efforts to obtain additional
financing to fund our operations;
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announcements by us regarding transactions with potential
strategic partners;
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announcements relating to blood substitute products being
developed by our competitors;
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changes in industry trends or conditions;
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our issuance of additional equity or debt securities; and
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sales of significant amounts of our common stock or other
securities in the market.
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26
In addition, the stock market in general, and the Nasdaq Global
Market and the biotechnology industry market in particular, have
experienced significant price and volume fluctuations that have
often been unrelated or disproportionate to the operating
performance of listed companies. These broad market and industry
factors may seriously harm the market price of our common stock,
regardless of our operating performance. In the past, securities
class action litigation has often been instituted following
periods of volatility in the market price of a companys
securities. A securities class action suit against us could
result in substantial costs, potential liabilities and the
diversion of our managements attention and resources.
We have
received notice that our common stock may be delisted from the
Nasdaq Global Market unless we are able to achieve compliance
with Nasdaqs minimum bid requirement.
Our common stock currently trades on the Nasdaq Global Market.
In June 2008, we received notice from the Nasdaq Stock Market
that for 30 consecutive business days our share price had closed
below the minimum $1.00 per share requirement for
continued inclusion under Marketplace Rule 4450(a)(5). In
accordance with Marketplace Rule 4450(e)(2), we have until
December 8, 2008 to regain compliance. The Nasdaq notice
stated that if, at any time before December 8, 2008 the bid
price of our common stock closes at $1.00 per share or more for
a minimum of 10 consecutive business days, or such longer
period as may be required under Market Place
Rule 4450(e)(2), the Nasdaq staff would provide written
notification that we had achieved compliance with the minimum
bid requirement. Through August 14, 2008, we have not
achieved compliance with the minimum bid requirement and there
can be no assurance that we will be able to achieve compliance
before December 8, 2008.
The Nasdaq notice also indicated that if we do not regain
compliance by December 8, 2008, the Nasdaq staff will
provide written notification that our common stock will be
delisted from the Nasdaq Global Market. At that time, we may
appeal the staffs determination to the Nasdaq Listing
Qualifications Panel. Alternatively, we would be permitted to
apply to transfer our common stock to the Nasdaq Capital Market
if we satisfy the requirements for initial inclusion set forth
in Marketplace Rule 4310(c), other than the minimum bid
price requirement, at that time. If our application is approved,
we would be afforded an additional period of up to 180 calendar
days in which to regain compliance while our common stock is
traded on the Nasdaq Capital Market. If we fail to achieve
compliance during this period while our common stock is traded
on the Nasdaq Capital Market, Nasdaq may fully delist our common
stock. Following full delisting, our common stock would trade on
an over-the-counter basis and would not be listed or traded on
any securities exchange.
The delisting of our common stock from the Nasdaq Global Market
is likely to reduce the trading volume and liquidity in our
shares and may lead to further decreases in the trading price of
our shares. Similar reductions in trading volume, liquidity and
trading price are likely to occur if our shares are fully
delisted from Nasdaq and begin trading in the over-the-counter
market. The delisting of our shares may also prevent investors
from purchasing shares of our common stock using margin loans
provided by brokers or other financial institutions.
Our ability to raise additional equity capital, which is
critical to the continuation of our business, would also likely
to be adversely affected by the delisting of our common stock
from the Nasdaq Global Market or the Nasdaq Capital Market.
Our board of directors may consider possible actions, such as a
reverse stock split, combination of shares, or other
recapitalization transaction, in order to increase the trading
price of our common stock to achieve compliance with
Nasdaqs minimum bid requirement. At our annual meeting of
stockholders to be held on October 2, 2008, it is expected
that our stockholders will be asked to consider and approve a
resolution authorizing our board of directors to amend our
certificate of incorporation to effect a reverse split of our
common stock. If the proposal is approved by our stockholders,
our board of directors would be authorized to effect a reverse
split of our common stock in a range of between three and seven
pre-split shares for each post-split share. Our board of
directors would be given the discretion whether to implement the
reverse stock split and, if implemented, to determine the number
of pre-split shares, within the foregoing range, to be combined
into each post-split share. There can be no assurance that our
stockholders will approve the proposal to effect a reverse split
of our common stock or, if approved by our stockholders, that
our board of directors will determine that it is advisable to
effect such a split. If a reverse stock split is completed,
there can also be no assurance that the trading price of our
common stock will increase as a result of the split or that the
split will permit us to achieve compliance with Nasdaqs
minimum bid requirements.
27
Anti-takeover
provisions contained in our charter and bylaws could discourage
potential takeover attempts.
Our certificate of incorporation contains a fair
price provision which requires approval of the holders of
at least 80% of our voting stock, excluding shares held by
certain interested stockholders and their affiliates, as a
condition to mergers or certain other business combinations
with, or proposed by, any holder of 15% or more of our voting
stock, except in cases where approval of our disinterested
directors is obtained or certain minimum price criteria and
other procedural requirements are satisfied. In addition, our
board of directors has the authority, without further action by
our stockholders, to fix the rights and preferences and issue
shares of preferred stock. These provisions, and other
provisions of our certificate of incorporation and bylaws and
Delaware law, may have the effect of deterring hostile takeovers
or delaying or preventing changes in our control or management,
including transactions in which stockholders might otherwise
receive a premium for their shares over the then prevailing
market prices.
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Item 1B.
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Unresolved
Staff Comments.
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We have not received any written comments from the staff of the
SEC regarding our periodic or current reports under the
Securities Exchange Act of 1934 that remain unresolved.
We maintain our principal executive offices in Evanston,
Illinois. The lease for our executive offices extends through
February 2011. Rent expense for our Evanston offices for our
2008 fiscal year was $442,959.
We currently operate a pilot manufacturing facility in Mt.
Prospect, Illinois. If we receive FDA approval for the
commercial sale of PolyHeme we presently plan to construct an
expanded commercial manufacturing facility with the capacity to
produce more than 100,000 units of PolyHeme per year. In
June 2006, we purchased the 106,000 square foot building in
Mt. Prospect, Illinois in which our pilot manufacturing facility
is located and plan to construct our expanded commercial
manufacturing facility at this site. In addition to
manufacturing operations, we expect that the facility will also
house laboratory, quality control and administrative personnel.
Engineering and size optimization activities for the planned
facility are currently underway. We currently do not have
sufficient available funds to permit us to begin construction of
this facility and we will need to raise additional funds before
we are able to proceed with our planned manufacturing expansion.
There can be no assurance that we will be able to raise
additional funds for this purpose.
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Item 3.
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Legal
Proceedings.
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Between March 17, 2006 and May 15, 2006, ten separate
complaints were filed, each purporting to be on behalf of a
class of the Companys shareholders, against the Company
and Dr. Steven A. Gould, the Companys Chief Executive
Officer, and Richard DeWoskin, the Companys former Chief
Executive Officer. Those putative class actions were
consolidated in a case pending in the United States District
Court for the Northern District of Illinois Eastern Division.
The Consolidated Amended Class Action Complaint was filed
on September 8, 2006, and alleged, among other things, that
during the period from March 19, 2001 through
March 20, 2006, the named defendants made or caused to be
made a series of materially false or misleading statements and
omissions about the Companys elective surgery clinical
trial and business prospects in violation of Section 10(b)
of the Securities Exchange Act of 1934, as amended, and
Rule 10b-5
promulgated there under, and Section 20(a) of the Exchange
Act. Plaintiffs alleged that those allegedly false and
misleading statements and omissions caused the purported class
to purchase the Companys common stock at artificially
inflated prices. As relief, the complaint sought, among other
things, a declaration that the action be certified as a proper
class action, unspecified compensatory damages (including
interest) and payment of costs and expenses (including fees for
legal counsel and experts). The Company and the individual
defendants filed a motion to dismiss the complaint, and on
September 25, 2007, the court granted that motion, finding
that the plaintiffs failed to state a claim. The court dismissed
the complaint without prejudice, and on November 20, 2007,
the plaintiffs filed a Consolidated Second Amended
Class Action Complaint. On January 22, 2008, the
Company filed a motion to dismiss, and the briefing of that
motion was completed on June 26, 2008. The fully briefed
motion to dismiss currently is pending before the court. The
putative class action is at an early stage and it is not
possible to predict the outcome.
28
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Item 4.
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Submission
of Matters to a Vote of Security Holders.
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None.
PART II
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Item 5.
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Market
for Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities.
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MARKET
INFORMATION
Our common stock is traded on the Nasdaq Global Market under the
symbol NFLD. The following table sets forth, for the
periods indicated, the range of high and low sales prices for
our common stock on the Nasdaq Global Market. These prices do
not include retail markups, markdowns or commissions.
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Fiscal Quarter Ended
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High
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Low
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February 28, 2006
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$
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14.45
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$
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8.86
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May 31, 2006
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11.30
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8.62
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August 31, 2006
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13.10
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8.06
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November 30, 2006
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16.36
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10.29
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February 28, 2007
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17.94
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3.73
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May 31, 2007
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5.93
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1.36
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August 31, 2007
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1.76
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1.00
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November 30, 2007
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3.08
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.75
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February 29, 2008
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1.35
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.95
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May 31, 2008
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1.20
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.76
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August 31, 2008 (through July 31, 2008)
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.96
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.37
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29
STOCK
PERFORMANCE GRAPH
The following graph compares the cumulative total return on our
common stock from May 31, 2003 through May 31, 2008
with the CRSP Total Return Index for the Nasdaq Stock Market
(U.S. Companies) and the Nasdaq Pharmaceutical Index. The
total stockholder return assumes that $100 was invested in our
common stock and each of the two indexes on May 31, 2003,
and also assumes the reinvestment of any dividends. The return
on our common stock is calculated using the closing price for
the common stock on May 31, 2003, as quoted on the Nasdaq
Stock Market, Inc. Past financial performance may not be a
reliable indicator of future performance, and investors should
not use historical trends to anticipate results or trends in
future periods.
Comparison
of Five Year Cumulative Total Returns
Performance Graph for
Northfield Laboratories, Inc.
The Stock Performance Graph is not deemed to be soliciting
material or to be filed with the Securities and Exchange
Commission under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended, or incorporated by
reference in any document so filed.
30
HOLDERS
OF RECORD
As of August 1, 2008, there were approximately 500 holders
of record and approximately 16,000 beneficial owners of our
common stock. There were as of that date no issued and
outstanding shares of our preferred stock.
DIVIDENDS
We have never declared or paid dividends on our capital stock
and do not anticipate declaring or paying any dividends in the
foreseeable future.
ISSUER
PURCHASES OF EQUITY SECURITIES
We did not repurchase any of our equity securities during the
three months ended May 31, 2008.
RECENT
SALES OF UNREGISTERED SECURITIES
We did not make any unregistered sales of our common stock
during our 2008 fiscal year.
31
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Item 6.
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Selected
Financial Data
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The selected financial data set forth below for, and as of the
end of, each of the years in the five-year period ended
May 31, 2008 and for the cumulative period from
June 19, 1985 (inception) through May 31, 2008 were
derived from Northfields financial statements.
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Cumulative
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June 19,
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1985
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through
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Years Ended May 31,
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May 31,
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2008
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2007
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2006
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2005
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2004
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2008
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(In thousands, except per share data)
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Statement of Operations Data:
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Revenues:
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License income
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$
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$
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3,000
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Costs and expenses:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
$
|
15,916
|
|
|
$
|
21,060
|
|
|
$
|
24,165
|
|
|
$
|
16,600
|
|
|
$
|
10,777
|
|
|
$
|
184,757
|
|
General and administrative
|
|
|
5,812
|
|
|
|
9,374
|
|
|
|
5,832
|
|
|
|
4,990
|
|
|
|
3,854
|
|
|
|
70,463
|
|
Interest income (net)
|
|
|
1,320
|
|
|
|
2,763
|
|
|
|
3,222
|
|
|
|
1,268
|
|
|
|
131
|
|
|
|
32,078
|
|
Net loss
|
|
$
|
(20,409
|
)
|
|
$
|
(27,671
|
)
|
|
$
|
(26,775
|
)
|
|
$
|
(20,322
|
)
|
|
$
|
(14,574
|
)
|
|
$
|
(220,216
|
)
|
Net loss per share basic and
|
|
$
|
(.76
|
)
|
|
$
|
(1.03
|
)
|
|
$
|
(1.00
|
)
|
|
$
|
(0.88
|
)
|
|
$
|
(0.86
|
)
|
|
$
|
(16.67
|
)
|
Shares used in calculation of per share data(1)
|
|
|
26,955
|
|
|
|
26,906
|
|
|
|
26,770
|
|
|
|
23,069
|
|
|
|
16,932
|
|
|
|
13,214
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and marketable securities
|
|
$
|
20,726
|
|
|
$
|
40,158
|
|
|
$
|
72,984
|
|
|
$
|
98,131
|
|
|
$
|
42,487
|
|
|
|
|
|
Total assets
|
|
|
29,985
|
|
|
|
50,119
|
|
|
|
75,871
|
|
|
|
100,002
|
|
|
|
44,179
|
|
|
|
|
|
Total liabilities
|
|
|
3,003
|
|
|
|
4,777
|
|
|
|
6,534
|
|
|
|
4,228
|
|
|
|
2,626
|
|
|
|
|
|
Deficit accumulated during development stage
|
|
|
(220,216
|
)
|
|
|
(199,808
|
)
|
|
|
(172,136
|
)
|
|
|
(145,361
|
)
|
|
|
(125,040
|
)
|
|
|
|
|
Total shareholders equity
|
|
|
26,982
|
|
|
|
45,342
|
|
|
|
69,337
|
|
|
|
95,774
|
|
|
|
41,553
|
|
|
|
|
|
|
|
|
(1) |
|
Computed on the basis described in Note 1 of the Notes to
Financial Statements. Excludes 2,090,125 shares reserved
for issuance upon the exercise of stock options and
115,418 shares reserved for issuance for stock warrants as
of May 31, 2008. Additional stock options for a total of
526,000 were available for grant as of May 31, 2008 under
our employee stock option plans. |
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
RECENT
DEVELOPMENTS
We are presently preparing a Biologics License Application, or
BLA, for our PolyHeme red blood cell substitute, for submission
to the Food and Drug Administration, or FDA. We anticipate
submitting our BLA to FDA during the fourth calendar quarter of
2008. We also plan to submit a request for priority review of
our BLA. We believe PolyHeme satisfies the stated criteria for
priority review based on its potential to address an unmet
medical need.
Since Northfields incorporation in 1985, we have devoted
substantially all of our efforts and resources to the research,
development and clinical testing of PolyHeme. We have incurred
operating losses during each year of our operations since
inception and expect to incur substantial additional operating
losses for the next several years. From Northfields
inception through May 31, 2008, we have incurred operating
losses totaling approximately $220,216,000.
We will be required to prepare and submit a BLA to FDA and
obtain regulatory approval from FDA before PolyHeme can be sold
commercially. The FDA regulatory process is subject to
significant risks and uncertainties. We therefore cannot at this
time reasonably estimate the timing of any future revenues from
the commercial sale of
32
PolyHeme. The costs incurred by Northfield to date and during
each period presented below in connection with our development
of PolyHeme are described in the Statements of Operations in our
financial statements.
Our success will depend on several factors, including our
ability to obtain FDA regulatory approval of PolyHeme and our
manufacturing facilities, obtain sufficient quantities of blood
to manufacture PolyHeme in commercial quantities, manufacture
and distribute PolyHeme in a cost-effective manner, enforce our
patent positions and raise sufficient capital to fund these
activities. We have experienced significant delays in the
development and clinical testing of PolyHeme. We cannot ensure
that we will be able to achieve these goals or that we will be
able to realize product revenues or profitability on a sustained
basis or at all.
RESULTS
OF OPERATIONS
We reported no revenues for the fiscal years ended May 31,
2008 or 2007. From Northfields inception through
May 31, 2008, we have reported total revenues of
$3,000,000, all of which were derived from licensing fees.
OPERATING
EXPENSES
Operating expenses for our fiscal years ended May 31, 2008
and 2007 totaled $21,729,000, and $30,434,000, respectively.
Measured on a percentage basis, fiscal 2008 operating expenses
decreased from fiscal 2007 expenses by 28.6%.
During fiscal 2008, research and development expenses totaled
$15,916,000, a decrease of $5,144,000, or 24.4%, from fiscal
2007 expenses of $21,060,000. During fiscal 2007, we concluded
enrollment in our pivotal Phase III trial. While clinical
costs associated with the trial decreased during fiscal 2008,
our efforts to prepare our BLA for PolyHeme to be submitted to
FDA and to ready our manufacturing facility, increased, which
offset a portion of the decline. The reduction in research and
development costs was also driven by $3,500,000 in federal grant
funding that was used to offset operating expenses at our
manufacturing facility throughout the fiscal year.
We anticipate a continued high level of research and development
spending in fiscal 2009. Preparing our BLA for PolyHeme to be
submitted to FDA will continue through fiscal 2009. At the same
time, we will be undergoing an extensive process of preparation
for FDAs pre-approval inspection of our pilot
manufacturing facility. Northfields internal research and
development resources will be focused on these tasks and we
expect to maintain the use of external resources to complete
these tasks in a timely manner.
General and administrative expenses for the 2008 fiscal year
totaled $5,812,000, a decrease of $3,562,000, or 38.0%, from the
expenses incurred in the prior fiscal year. We experienced a
significant decrease in professional fees following the
completion of our response to voluntary requests for information
received for the Securities and Exchange Commission and Senate
Finance Committee in March 2006. Northfield also saw a
reduction in public relations expense during fiscal 2008.
Additionally there was a decrease in share based compensation
expense in fiscal 2008 compared to fiscal 2007. Executive
compensation decreased because there were no bonuses paid during
fiscal 2008. We anticipate our general and administrative
expenses will remain consistent in fiscal 2009.
INTEREST
INCOME
Interest income in fiscal 2008 equaled $1,320,000 compared to
$2,763,000 in fiscal 2007. The current year decrease is the
result of lower available cash resources for investment.
Available interest rates at the beginning of the current fiscal
year were approximately 5.2% for money-market investments and
5.2% for high quality one year securities. Money market rates in
May 2008 were approximately 1.98% and high quality three-month
securities were also around 2.03%. As our current investments
mature, they will be rolled over until the funds are required
for our business.
With declining available cash resources we anticipate that in
the absence of a major cash infusion, interest income will
decline in fiscal 2009. A one percent rate decline yields
$10,000 less in interest income on a $1,000,000 investment over
a 12-month
period.
33
NET
LOSS
The net loss for our fiscal year ended May 31, 2008 was
$20,409,000, or $.76 per share, compared to a net loss of
$27,671,000, or $1.03 per share, for the fiscal year ended
May 31, 2007. The decrease in net loss was primarily driven
by a reduction in outside clinical expenses of $3,900,000. The
reduction in net loss was also driven by $3,500,000 in federal
grant funding that was used to offset operating expenses at our
manufacturing facility throughout the year. Effective
June 1, 2006, we adopted SFAS 123R. Among its
provisions, SFAS 123R requires us to recognize compensation
expense for equity awards over the vesting period based on their
grant-date fair value. The decrease in net loss was further
driven by a decrease in share based compensation expenses and
professional service fees.
LIQUIDITY
AND CAPITAL RESOURCES
From Northfields inception through May 31, 2008, we
have used cash in operating activities and for the purchase of
property, plant, equipment and engineering services in the
amount of $223,537,000. For the fiscal years ended May 31,
2008 and 2007, these cash expenditures totaled $19,953,000 and
$34,969,000, respectively. The fiscal 2008 decrease in cash
utilization is due to the purchase of our manufacturing facility
in fiscal 2007 for $6,700,000. The decrease in cash utilization
was also driven by a reduction in payments of outside clinical
expenses.
We have financed our research and development and other
activities to date through the public and private sale of equity
securities and, to a more limited extent, through the license of
product rights. As of May 31, 2008, we had cash and
marketable securities totaling $20,726,000. As previously
reported, we have been successful in securing a
$1.4 million federal appropriation as part of the Defense
Appropriation Bill in 2005 and a $3.5 million federal
appropriation as part of the Fiscal 2006 Defense Appropriation
Bill. As of May 31, 2008, we have received all of these
funds.
We are currently utilizing our cash resources at a rate of
approximately $20 million per year. We expect the rate at
which we utilize our cash resources will remain constant in
fiscal 2009 as we prepare to complete and submit a BLA for
PolyHeme to FDA, and upgrade our manufacturing facility for FDA
inspection.
Based on our current estimates, we believe our existing capital
resources will be sufficient to permit us to conduct our
operations, including the preparation and submission of a BLA to
FDA, for approximately 11 to 13 months.
We may in the future issue additional equity or debt securities
or enter into collaborative arrangements with strategic
partners, which could provide us with additional funds or absorb
expenses we would otherwise be required to pay. We are also
pursuing potential sources of additional government funding. Any
one or a combination of these sources may be utilized to raise
additional capital. We believe our ability to raise additional
capital or enter into a collaborative arrangement with a
strategic partner will depend primarily on the status of the FDA
review of our BLA submission, as well as general conditions in
the business and financial markets.
We cannot ensure that we will be able to achieve product
revenues or profitability on a sustained basis or at all. As a
result, our independent accountants have included an explanatory
paragraph in their audit opinion based on uncertainty regarding
our ability to continue as a going concern. Our capital
requirements may vary materially from those now anticipated
because of the timing and results of our clinical testing of
PolyHeme, the establishment of relationships with strategic
partners, changes in the scale, timing or cost of our planned
commercial manufacturing facility, competitive and technological
advances, the FDA regulatory process, changes in our marketing
and distribution strategy and other factors.
CRITICAL
ACCOUNTING POLICIES
The preparation of financial statements requires management to
make estimates and assumptions that affect amounts reported
therein. We believe the following critical accounting policy
reflects our more significant judgments and estimates used in
the preparation of our financial statements.
SHARE-BASED
COMPENSATION
Effective June 1, 2006, we adopted SFAS No. 123R,
Share-Based Payment. We elected to use the modified
prospective application of SFAS No. 123R for awards
issued prior to June 1, 2006. Income from continuing
34
operations before income tax for the years ended May 31,
2007 and 2008, includes total expense recognized for all of our
stock-based payment plans.
The fair value of stock options granted under the stock
incentive plans is estimated on the date of grant based on the
Black-Scholes option pricing model. We utilize our own
historical stock price movement as its basis for our calculated
expected volatility factor. We use historical data to estimate
stock option exercise and employee departure behavior used in
the Black-Scholes option pricing model. The expected term of
stock options granted represents the period of time that stock
options granted are expected to be outstanding. The risk-free
rate for the period within the contractual term of the stock
option is based on the U.S. Treasury yield curve in effect
at the time of grant.
NET
DEFERRED TAX ASSETS VALUATION
We record our net deferred tax assets in the amount that we
expect to realize based on projected future taxable income. In
assessing the appropriateness of our valuation, assumptions and
estimates are required, such as our ability to generate future
taxable income. As of May 31, 2008, we have recorded a 100%
percent valuation allowance against our net deferred tax assets.
In the event we were to determine that it was more likely than
not we would be able to realize our deferred tax assets in the
future in excess of their carrying value, an adjustment to
recognize the deferred tax assets would increase income in the
period such determination was made.
CONTRACTUAL
OBLIGATIONS
The following table reflects a summary of our contractual cash
obligations as of May 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than
|
|
|
|
|
Contractual Obligations
|
|
Total
|
|
|
One Year
|
|
|
1-3 Years
|
|
|
Lease Obligations(1)
|
|
$
|
367,248
|
|
|
$
|
367,248
|
|
|
|
|
|
Other Obligations(2)
|
|
|
1,776,900
|
|
|
|
1,776,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Contractual Cash Obligations
|
|
$
|
2,144,148
|
|
|
$
|
2,144,148
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The lease for our Evanston headquarters is cancelable with six
months notice combined with a termination payment equal to three
months base rent at any time after February 14, 2009. If
the lease is cancelled as of February 15, 2009 unamortized
broker commissions of $17,470 would also be due. |
|
(2) |
|
Represents payments required to be made upon termination of
employment agreements with three of our executive officers. The
employment contracts renew automatically unless terminated.
Figures shown represent compensation payable upon the
termination of the employment agreements for reasons other than
death, disability, cause or voluntary termination of employment
by the executive officer other than for good reason. Additional
payments may be required under the employment agreements in
connection with a termination of employment of the executive
officer following a change in control of Northfield. |
RECENT
ACCOUNTING PRONOUNCEMENTS
In February 2007, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards
(SFAS) 159, The Fair Value Option for Financial Assets
and Financial Liabilities. SFAS 159 permits entities to
choose to measure many financial instruments and certain other
items at fair value at specified election dates. Under
SFAS 159, a business entity is required to report
unrealized gains and losses on items for which the fair value
option has been elected in earnings (or another performance
indicator if the business entity does not report earnings) at
each subsequent reporting date. SFAS 159 also establishes
presentation and disclosure requirements designed to facilitate
comparisons between entities that choose different measurement
attributes for similar types of assets and liabilities.
SFAS 159 is effective for fiscal years beginning after
November 15, 2007. We do not believe that adoption of
SFAS 159 will have a material effect on our financial
statements.
In September 2006, the FASB issued SFAS 157, Fair Value
Measurements. SFAS 157 defines fair value, establishes
a framework for measuring fair value and expands disclosures
about fair value measurements. The
35
requirements of SFAS 157 are effective for financial
statements issued for fiscal years beginning after
November 15, 2007. In February 2008, the FASB issued FASB
Staff Position
No. FAS 157-2,
Effective Date of FASB Statement No. 157, which
provides a one year deferral of the effective date of
SFAS No. 157 for non-financial assets and
non-financial liabilities, except those that are recognized or
disclosed in the financial statements at fair value at least
annually. In accordance with FSP
FAS No. 157-2,
we will only adopt the provisions for SFAS No. 157
with respect to our financial assets and liabilities that are
measured at fair value within the financial statements as of
June 1, 2008.
In December 2007, the FASB issued SFAS No. 141
(revised 2007), Business Combinations. This Statement
will replace SFAS No. 141, Business combinations.
This Statement establishes principles and requirements for
how the acquirer recognizes and measures in its financial
statements the identifiable assets acquired, the liabilities
assumed and any non-controlling interest in the acquiree;
recognizes and measures the goodwill acquired in the business
combination or a gain from a bargain purchase; and determines
what information to disclose to enable users of the financial
statements to evaluate the nature and financial effects of the
business combination. This Statement applies prospectively to
business combinations for which the acquisition date is on or
after the beginning of the first annual reporting period
beginning on or after December 15, 2008. We plan to adopt
this Statement on June 1, 2009. We do not believe that
adoption of SFAS 157 will have a material effect on our
financial statements.
In June 2006, the FASB issued FIN 48, Accounting for
Uncertainty in Income Taxes an Interpretation of
SFAS 109, Accounting for Income Taxes. FIN 48
prescribes a recognition threshold and measurement attribute for
the financial statement recognition and measurement of a tax
position taken or expected to be taken in a tax return.
FIN 48 developed a two-step process to evaluate a tax
position and also provides guidance on derecognition,
classification, interest and penalties, accounting in interim
periods, disclosure and transition. This interpretation was
effective for fiscal years beginning after December 15,
2006. We adopted this interpretation as required on June 1,
2007 (See note 5 to the consolidated financial statements).
|
|
ITEM 7A.
|
Quantitative
and Qualitative Disclosures About Market Risk.
|
We currently do not have any foreign currency exchange risk. We
invest our cash and cash equivalents in government securities,
certificates of deposit and money market funds. These
investments are subject to interest rate risk. However, due to
the nature of our short-term investments, we believe that the
financial market risk exposure is not material. A one percentage
point decrease in the interest rate received over a one year
period on our cash and marketable securities of $20,726,000 at
May 31, 2008 would decrease interest income by $207,000.
|
|
ITEM 8.
|
Financial
Statements and Supplemental Data.
|
See the Table of Contents to Financial Statements on
Page 38. See Note 10 to the Financial Statements on
Page 57 for the Unaudited Supplementary Quarterly Data.
These Financial Statements are incorporated by reference into
this document.
|
|
ITEM 9.
|
Changes
in and Disagreements with Accountants on Accounting and
Financial Disclosure.
|
None.
|
|
ITEM 9A.
|
Controls
and Procedures.
|
Evaluation
of Disclosure Controls and Procedures
Based on their evaluation as of the end of the period covered by
this report, our Chief Executive Officer and Vice President
Finance have concluded that Northfields disclosure
controls and procedures, as defined in
Rules 13a-15(e)
and
15d-15(e)
under the Securities Exchange Act of 1934, are effective to
ensure that information required to be disclosed by us in the
reports that we file or submit under the Securities Exchange Act
is recorded, processed, summarized and reported within the time
periods specified in the SECs rules and forms.
Change in
Internal Control Over Financial Reporting
There were no changes in our internal control over financial
reporting during the quarter ended May 31, 2008 that have
materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
36
Managements
Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting (as defined
in
Rule 13a-15(f)
under the Securities Exchange Act of 1934). Our management
assessed the effectiveness of our internal control over
financial reporting as of May 31, 2008. In making this
assessment, our management used the criteria set forth by the
Committee of Sponsoring Organizations of the Treadway Commission
(COSO) in Internal Control Integrated
Framework. Our management has concluded that, as of May 31,
2008, our internal control over financial reporting is effective
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.
Limitations
on the Effectiveness of Controls
Our management, including our Chief Executive Officer and Vice
President Finance, does not expect that our disclosure controls
and procedures or our internal control over financial reporting
will prevent all errors and all fraud. A control system, no
matter how well conceived and operated, can provide only
reasonable, not absolute, assurance that the objectives of the
control system are met. Further, the design of a control system
must reflect the fact that there are resource constraints, and
the benefits of controls must be considered relative to their
costs. Because of the inherent limitations in all control
systems, no evaluation of controls can provide absolute
assurance that all control issues and instances of fraud, if
any, within our company have been detected.
|
|
Item 9B.
|
Other
Information.
|
None.
PART III
Items 10
Through 14.
The information specified in Items 10 through 14 of
Form 10-K
has been omitted in accordance with instructions to
Form 10-K.
We expect to file with the SEC by August 14, 2008, pursuant
to Regulation 14A, a definitive proxy statement which will
contain the information required to be included in Items 10
through 14 of
Form 10-K.
PART IV
|
|
Item 15.
|
Exhibits
and Financial Statement Schedules.
|
(a) The following documents are filed as part of this
report:
(1) and (2). See the Table of Contents to Financial
Statements on page 38.
(3) See Description of Exhibits on page 59.
(b) See Description of Exhibits on page 59.
(c) None.
37
NORTHFIELD
LABORATORIES INC.
(a company in the development stage)
TABLE OF
CONTENTS
38
Report
of Independent Registered Public Accounting Firm
The Board of Directors
Northfield Laboratories Inc.:
We have audited the accompanying balance sheets of Northfield
Laboratories Inc. (a company in the development stage) as of
May 31, 2008 and 2007, and the related statements of
operations, shareholders equity (deficit), and cash flows
for each of the years in the two-year period ended May 31,
2008, and for the cumulative period from June 19, 1985
(inception) through May 31, 2008. These financial
statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards as established by the Auditing Standards
Board (United States) and in accordance with the auditing
standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. The
Company is not required to have, nor were we engaged to perform,
an audit of its internal control over financial reporting. Our
audit included consideration of internal control over financial
reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Companys
internal control over financial reporting. Accordingly, we
express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of Northfield Laboratories Inc. as of May 31, 2008 and
2007, and the results of its operations and its cash flows for
each of the years in the two-year period ended May 31, 2008
and for the cumulative period from June 19, 1985
(inception) through May 31, 2008, in conformity with
U.S. generally accepted accounting principles.
The accompanying financial statements have been prepared
assuming that the Company will continue as a going concern. As
discussed in note 1 to the financial statements, the
Company has suffered recurring losses from operations and has
insufficient capital resources to fund its continuing operations
that raise substantial doubt about its ability to continue as a
going concern. Managements plans in regard to these
matters are also described in note 1. The financial
statements do not include any adjustments that might result from
the outcome of this uncertainty.
/s/ KPMG LLP
August 14, 2008
39
NORTHFIELD
LABORATORIES INC.
(a company in the development stage)
BALANCE SHEETS
May 31, 2008 and May 31, 2007
|
|
|
|
|
|
|
|
|
|
|
May 31,
|
|
|
May 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
12,746,540
|
|
|
|
23,224,026
|
|
Restricted cash
|
|
|
301,292
|
|
|
|
529,752
|
|
Marketable securities
|
|
|
7,979,830
|
|
|
|
16,934,204
|
|
Prepaid expenses
|
|
|
696,253
|
|
|
|
673,192
|
|
Other current assets
|
|
|
|
|
|
|
212,854
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
21,723,915
|
|
|
|
41,574,028
|
|
Property, plant, and equipment
|
|
|
19,747,948
|
|
|
|
19,588,246
|
|
Accumulated depreciation
|
|
|
(11,506,730
|
)
|
|
|
(11,063,080
|
)
|
|
|
|
|
|
|
|
|
|
Net property, plant, and equipment
|
|
|
8,241,218
|
|
|
|
8,525,166
|
|
|
|
|
|
|
|
|
|
|
Other assets
|
|
|
19,550
|
|
|
|
19,550
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
29,984,683
|
|
|
|
50,118,744
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
1,917,260
|
|
|
|
3,573,025
|
|
Accrued expenses
|
|
|
111,637
|
|
|
|
101,118
|
|
Government grant liability
|
|
|
301,292
|
|
|
|
529,752
|
|
Accrued compensation and benefits
|
|
|
658,012
|
|
|
|
565,709
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
2,988,201
|
|
|
|
4,769,604
|
|
Other liabilities
|
|
|
14,392
|
|
|
|
7,431
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
3,002,593
|
|
|
|
4,777,035
|
|
|
|
|
|
|
|
|
|
|
Shareholders equity:
|
|
|
|
|
|
|
|
|
Preferred stock, $.01 par value. Authorized
5,000,000 shares; none issued and outstanding
|
|
|
|
|
|
|
|
|
Common stock, $.01 par value. Authorized
60,000,000 shares; issued 26,960,233 at May 31, 2008
and 26,916,541 at
|
|
|
|
|
|
|
|
|
May 31, 2007
|
|
|
269,602
|
|
|
|
269,165
|
|
Additional paid-in capital
|
|
|
246,954,375
|
|
|
|
244,905,543
|
|
Deficit accumulated during the development stage
|
|
|
(220,216,494
|
)
|
|
|
(199,807,606
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
27,007,483
|
|
|
|
45,367,102
|
|
Less cost of common shares in treasury; 1,717 shares and
1,717 shares, respectively
|
|
|
(25,393
|
)
|
|
|
(25,393
|
)
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
26,982,090
|
|
|
|
45,341,709
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
29,984,683
|
|
|
|
50,118,744
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to financial statements.
40
NORTHFIELD
LABORATORIES INC.
(a company in the development stage)
STATEMENTS OF OPERATIONS
Years ended May 31, 2008 and 2007 and
the cumulative period from June 19, 1985
(inception) through May 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative
|
|
|
|
|
|
|
|
|
|
from
|
|
|
|
|
|
|
|
|
|
June 19, 1985
|
|
|
|
Years Ended May 31,
|
|
|
through
|
|
|
|
2008
|
|
|
2007
|
|
|
May 31, 2008
|
|
|
Revenues license income
|
|
$
|
|
|
|
|
|
|
|
|
3,000,000
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
15,916,141
|
|
|
|
21,059,618
|
|
|
|
184,756,957
|
|
General and administrative
|
|
|
5,812,451
|
|
|
|
9,374,395
|
|
|
|
70,462,746
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,728,592
|
|
|
|
30,434,013
|
|
|
|
255,219,703
|
|
Other income and expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
1,319,704
|
|
|
|
2,762,836
|
|
|
|
32,161,364
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
83,234
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,319,704
|
|
|
|
2,762,836
|
|
|
|
32,078,130
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss before cumulative effect of change in accounting
principle
|
|
|
(20,408,888
|
)
|
|
|
(27,671,177
|
)
|
|
|
(220,141,573
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative effect of change in accounting principle
|
|
|
|
|
|
|
|
|
|
|
74,921
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(20,408,888
|
)
|
|
|
(27,671,177
|
)
|
|
|
(220,216,494
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share basic and diluted
|
|
$
|
(0.76
|
)
|
|
|
(1.03
|
)
|
|
|
(16.67
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in calculation of per share data basic
and diluted
|
|
|
26,954,530
|
|
|
|
26,906,407
|
|
|
|
13,214,051
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to financial statements.
41
NORTHFIELD
LABORATORIES INC.
(a company in the development stage)
STATEMENTS OF SHAREHOLDERS EQUITY
(DEFICIT)
Years ended May 31, 2008 and 2007 and the cumulative
period
from June 19, 1985 (inception) through May 31,
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock
|
|
|
Common stock
|
|
|
|
Number
|
|
|
Aggregate
|
|
|
Number
|
|
|
Aggregate
|
|
|
|
of shares
|
|
|
amount
|
|
|
of shares
|
|
|
amount
|
|
|
Issuance of common stock on August 27, 1985
|
|
|
|
|
|
$
|
|
|
|
|
3,500,000
|
|
|
$
|
35,000
|
|
Issuance of Series A convertible preferred stock at $4.00
per share on August 27, 1985 (net of costs of issuance of
$79,150)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at May 31, 1986
|
|
|
|
|
|
|
|
|
|
|
3,500,000
|
|
|
|
35,000
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred compensation relating to grant of stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of deferred compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at May 31, 1987
|
|
|
|
|
|
|
|
|
|
|
3,500,000
|
|
|
|
35,000
|
|
Issuance of Series B convertible preferred stock at $35.68
per share on August 14, 1987 (net of costs of issuance of
$75,450)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of deferred compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at May 31, 1988
|
|
|
|
|
|
|
|
|
|
|
3,500,000
|
|
|
|
35,000
|
|
Issuance of common stock at $24.21 per share on June 7,
1988 (net of costs of issuance of $246,000)
|
|
|
|
|
|
|
|
|
|
|
413,020
|
|
|
|
4,130
|
|
Conversion of Series A convertible preferred stock to
common stock on June 7, 1988
|
|
|
|
|
|
|
|
|
|
|
1,250,000
|
|
|
|
12,500
|
|
Conversion of Series B convertible preferred stock to
common stock on June 7, 1988
|
|
|
|
|
|
|
|
|
|
|
1,003,165
|
|
|
|
10,032
|
|
Exercise of stock options at $2.00 per share
|
|
|
|
|
|
|
|
|
|
|
47,115
|
|
|
|
471
|
|
Issuance of common stock at $28.49 per share on March 6,
1989 (net of costs of issuance of $21,395)
|
|
|
|
|
|
|
|
|
|
|
175,525
|
|
|
|
1,755
|
|
Issuance of common stock at $28.49 per share on March 30,
1989 (net of costs of issuance of $10,697)
|
|
|
|
|
|
|
|
|
|
|
87,760
|
|
|
|
878
|
|
Sale of options at $28.29 per share to purchase common stock at
$.20 per share on March 30, 1989 (net of costs of issuance
of $4,162)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred compensation relating to grant of stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of deferred compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at May 31, 1989
|
|
|
|
|
|
|
|
|
|
|
6,476,585
|
|
|
|
64,766
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred compensation relating to grant of stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of deferred compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at May 31, 1990
|
|
|
|
|
|
|
|
|
|
|
6,476,585
|
|
|
|
64,766
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of deferred compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at May 31, 1991
|
|
|
|
|
|
|
|
|
|
|
6,476,585
|
|
|
|
64,766
|
|
Exercise of stock warrants at $5.60 per share
|
|
|
|
|
|
|
|
|
|
|
90,000
|
|
|
|
900
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of deferred compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at May 31, 1992
|
|
|
|
|
|
|
|
|
|
|
6,566,585
|
|
|
|
65,666
|
|
Exercise of stock warrants at $7.14 per share
|
|
|
|
|
|
|
|
|
|
|
15,000
|
|
|
|
150
|
|
Issuance of common stock at $15.19 per share on April 19,
1993 (net of costs of issuance of $20,724)
|
|
|
|
|
|
|
|
|
|
|
374,370
|
|
|
|
3,744
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of deferred compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at May 31, 1993
|
|
|
|
|
|
|
|
|
|
|
6,955,955
|
|
|
|
69,560
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock at $6.50 per share on May 26, 1994
(net of costs of issuance of $2,061,149)
|
|
|
|
|
|
|
|
|
|
|
2,500,000
|
|
|
|
25,000
|
|
Cancellation of stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of deferred compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at May 31, 1994
|
|
|
|
|
|
|
|
|
|
|
9,455,955
|
|
|
|
94,560
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock at $6.50 per share on June 20,
1994 (net of issuance costs of $172,500)
|
|
|
|
|
|
|
|
|
|
|
375,000
|
|
|
|
3,750
|
|
Exercise of stock options at $7.14 per share
|
|
|
|
|
|
|
|
|
|
|
10,000
|
|
|
|
100
|
|
Exercise of stock options at $2.00 per share
|
|
|
|
|
|
|
|
|
|
|
187,570
|
|
|
|
1,875
|
|
Cancellation of stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of deferred compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at May 31, 1995
|
|
|
|
|
|
|
|
|
|
|
10,028,525
|
|
|
|
100,285
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock at $17.75 per share on August 9,
1995 (net of issuance costs of $3,565,125)
|
|
|
|
|
|
|
|
|
|
|
2,925,000
|
|
|
|
29,250
|
|
Issuance of common stock at $17.75 per share on
September 11, 1995 (net of issuance costs of $423,238)
|
|
|
|
|
|
|
|
|
|
|
438,750
|
|
|
|
4,388
|
|
Exercise of stock options at $2.00 per share
|
|
|
|
|
|
|
|
|
|
|
182,380
|
|
|
|
1,824
|
|
Exercise of stock options at $6.38 per share
|
|
|
|
|
|
|
|
|
|
|
1,500
|
|
|
|
15
|
|
Exercise of stock options at $7.14 per share
|
|
|
|
|
|
|
|
|
|
|
10,000
|
|
|
|
100
|
|
Cancellation of stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of deferred compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at May 31, 1996
|
|
|
|
|
|
$
|
|
|
|
|
13,586,155
|
|
|
$
|
135,862
|
|
See accompanying notes to financial statements.
42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deficit
|
|
|
|
|
|
|
|
|
|
|
Series A convertible
|
|
|
Series B convertible
|
|
|
|
|
|
accumulated
|
|
|
|
|
|
|
|
|
Total
|
|
preferred stock
|
|
|
preferred stock
|
|
|
Additional
|
|
|
during the
|
|
|
|
|
|
|
|
|
shareholders
|
|
Number
|
|
|
Aggregate
|
|
|
Number
|
|
|
Aggregate
|
|
|
paid-in
|
|
|
development
|
|
|
Deferred
|
|
|
Treasury
|
|
|
equity
|
|
of shares
|
|
|
amount
|
|
|
of shares
|
|
|
amount
|
|
|
capital
|
|
|
stage
|
|
|
compensation
|
|
|
shares
|
|
|
(deficit)
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
(28,000
|
)
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
7,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
250,000
|
|
|
|
250,000
|
|
|
|
|
|
|
|
|
|
|
|
670,850
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
920,850
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(607,688
|
)
|
|
|
|
|
|
|
|
|
|
|
(607,688
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
250,000
|
|
|
|
250,000
|
|
|
|
|
|
|
|
|
|
|
|
642,850
|
|
|
|
(607,688
|
)
|
|
|
|
|
|
|
|
|
|
|
320,162
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,429,953
|
)
|
|
|
|
|
|
|
|
|
|
|
(2,429,953
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,340,000
|
|
|
|
|
|
|
|
(2,340,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
720,000
|
|
|
|
|
|
|
|
720,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
250,000
|
|
|
|
250,000
|
|
|
|
|
|
|
|
|
|
|
|
2,982,850
|
|
|
|
(3,037,641
|
)
|
|
|
(1,620,000
|
)
|
|
|
|
|
|
|
(1,389,791
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
200,633
|
|
|
|
200,633
|
|
|
|
6,882,502
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,083,135
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,057,254
|
)
|
|
|
|
|
|
|
|
|
|
|
(3,057,254
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
566,136
|
|
|
|
|
|
|
|
566,136
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
250,000
|
|
|
|
250,000
|
|
|
|
200,633
|
|
|
|
200,633
|
|
|
|
9,865,352
|
|
|
|
(6,094,895
|
)
|
|
|
(1,053,864
|
)
|
|
|
|
|
|
|
3,202,226
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,749,870
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,754,000
|
|
|
(250,000
|
)
|
|
|
(250,000
|
)
|
|
|
|
|
|
|
|
|
|
|
237,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(200,633
|
)
|
|
|
(200,633
|
)
|
|
|
190,601
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
93,759
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
94,230
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,976,855
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,978,610
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,488,356
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,489,234
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,443,118
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,443,118
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(791,206
|
)
|
|
|
|
|
|
|
|
|
|
|
(791,206
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
683,040
|
|
|
|
|
|
|
|
(683,040
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
800,729
|
|
|
|
|
|
|
|
800,729
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35,728,451
|
|
|
|
(6,886,101
|
)
|
|
|
(936,175
|
)
|
|
|
|
|
|
|
27,970,941
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,490,394
|
)
|
|
|
|
|
|
|
|
|
|
|
(3,490,394
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
699,163
|
|
|
|
|
|
|
|
(699,163
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
546,278
|
|
|
|
|
|
|
|
546,278
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36,427,614
|
|
|
|
(10,376,495
|
)
|
|
|
(1,089,060
|
)
|
|
|
|
|
|
|
25,026,825
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,579,872
|
)
|
|
|
|
|
|
|
|
|
|
|
(5,579,872
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
435,296
|
|
|
|
|
|
|
|
435,296
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36,427,614
|
|
|
|
(15,956,367
|
)
|
|
|
(653,764
|
)
|
|
|
|
|
|
|
19,882,249
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
503,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
504,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,006,495
|
)
|
|
|
|
|
|
|
|
|
|
|
(7,006,495
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
254,025
|
|
|
|
|
|
|
|
254,025
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36,930,714
|
|
|
|
(22,962,862
|
)
|
|
|
(399,739
|
)
|
|
|
|
|
|
|
13,633,779
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
106,890
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
107,040
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,663,710
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,667,454
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,066,609
|
)
|
|
|
|
|
|
|
|
|
|
|
(8,066,609
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
254,025
|
|
|
|
|
|
|
|
254,025
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42,701,314
|
|
|
|
(31,029,471
|
)
|
|
|
(145,714
|
)
|
|
|
|
|
|
|
11,595,689
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,363,810
|
)
|
|
|
|
|
|
|
|
|
|
|
(7,363,810
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,163,851
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,188,851
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(85,400
|
)
|
|
|
|
|
|
|
85,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
267
|
|
|
|
|
|
|
|
267
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
56,779,765
|
|
|
|
(38,393,281
|
)
|
|
|
(60,047
|
)
|
|
|
|
|
|
|
18,420,997
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,439,013
|
)
|
|
|
|
|
|
|
|
|
|
|
(7,439,013
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,261,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,265,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
71,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
71,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
373,264
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
375,139
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(106,750
|
)
|
|
|
|
|
|
|
106,750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(67,892
|
)
|
|
|
|
|
|
|
(67,892
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
59,378,829
|
|
|
|
(45,832,294
|
)
|
|
|
(21,189
|
)
|
|
|
|
|
|
|
13,625,631
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,778,875
|
)
|
|
|
|
|
|
|
|
|
|
|
(4,778,875
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
48,324,374
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
48,353,624
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,360,187
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,364,575
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
362,937
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
364,761
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,555
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,570
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
71,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
71,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(80,062
|
)
|
|
|
|
|
|
|
80,062
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(62,726
|
)
|
|
|
|
|
|
|
(62,726
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
115,427,120
|
|
|
$
|
(50,611,169
|
)
|
|
$
|
(3,853
|
)
|
|
|
|
|
|
$
|
64,947,960
|
|
43
NORTHFIELD
LABORATORIES INC.
(a company in the development stage)
STATEMENTS OF SHAREHOLDERS EQUITY (DEFICIT)
Years ended May 31, 2008 and 2007 and the cumulative
period
from June 19, 1985 (inception) through May 31,
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock
|
|
|
Common stock
|
|
|
|
Number
|
|
|
Aggregate
|
|
|
Number
|
|
|
Aggregate
|
|
|
|
of shares
|
|
|
amount
|
|
|
of shares
|
|
|
amount
|
|
|
Net loss
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
Exercise of stock options at $0.20 per share
|
|
|
|
|
|
|
|
|
|
|
263,285
|
|
|
|
2,633
|
|
Exercise of stock options at $2.00 per share
|
|
|
|
|
|
|
|
|
|
|
232,935
|
|
|
|
2,329
|
|
Exercise of stock options at $7.14 per share
|
|
|
|
|
|
|
|
|
|
|
10,000
|
|
|
|
100
|
|
Amortization of deferred compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at May 31, 1997
|
|
|
|
|
|
|
|
|
|
|
14,092,375
|
|
|
|
140,924
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock options at $7.14 per share
|
|
|
|
|
|
|
|
|
|
|
5,000
|
|
|
|
50
|
|
Amortization of deferred compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at May 31, 1998
|
|
|
|
|
|
|
|
|
|
|
14,097,375
|
|
|
|
140,974
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock options at $7.14 per share
|
|
|
|
|
|
|
|
|
|
|
17,500
|
|
|
|
175
|
|
Exercise of stock warrants at $8.00 per share
|
|
|
|
|
|
|
|
|
|
|
125,000
|
|
|
|
1,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at May 31, 1999
|
|
|
|
|
|
|
|
|
|
|
14,239,875
|
|
|
|
142,399
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock options at $13.38 per share
|
|
|
|
|
|
|
|
|
|
|
2,500
|
|
|
|
25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at May 31, 2000
|
|
|
|
|
|
|
|
|
|
|
14,242,375
|
|
|
|
142,424
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock options at $6.38 per share
|
|
|
|
|
|
|
|
|
|
|
6,000
|
|
|
|
60
|
|
Exercise of stock options at $10.81 per share
|
|
|
|
|
|
|
|
|
|
|
17,500
|
|
|
|
175
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at May 31, 2001
|
|
|
|
|
|
|
|
|
|
|
14,265,875
|
|
|
|
142,659
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at May 31, 2002
|
|
|
|
|
|
|
|
|
|
|
14,265,875
|
|
|
|
142,659
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at May 31, 2003
|
|
|
|
|
|
|
|
|
|
|
14,265,875
|
|
|
|
142,659
|
|
Issuance of common stock at $5.60 per share on July 28,
2003 (net of costs of issuance of $909,229)
|
|
|
|
|
|
|
|
|
|
|
1,892,857
|
|
|
|
18,928
|
|
Issuance of common stock to directors at $6.08 per share on
October 30, 2003
|
|
|
|
|
|
|
|
|
|
|
12,335
|
|
|
|
123
|
|
Deferred compensation related to stock grants
|
|
|
|
|
|
|
|
|
|
|
25,500
|
|
|
|
255
|
|
Amortization of deferred compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock at $5.80 per share on January 29,
2004 (net of costs of issuance of $1,126,104)
|
|
|
|
|
|
|
|
|
|
|
2,585,965
|
|
|
|
25,860
|
|
Issuance of common stock at $5.80 per share on February 18,
2004 (net of costs of issuance of $116,423)
|
|
|
|
|
|
|
|
|
|
|
237,008
|
|
|
|
2,370
|
|
Issuance of common stock at $5.80 per share on April 15,
2004 (net of costs of issuance of $192,242)
|
|
|
|
|
|
|
|
|
|
|
409,483
|
|
|
|
4,095
|
|
Issuance of common stock at $12.00 per share on May 18,
2004 (net of costs of issuance of $1,716,831.36)
|
|
|
|
|
|
|
|
|
|
|
1,954,416
|
|
|
|
19,544
|
|
Exercise of stock options at $6.38 per share
|
|
|
|
|
|
|
|
|
|
|
15,000
|
|
|
|
150
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at May 31, 2004
|
|
|
|
|
|
|
|
|
|
|
21,398,439
|
|
|
|
213,984
|
|
Deferred compensation related to stock grants
|
|
|
|
|
|
|
|
|
|
|
5,500
|
|
|
|
55
|
|
Amortization of deferred compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock options between $5.08 and $14.17 per share
|
|
|
|
|
|
|
|
|
|
|
167,875
|
|
|
|
1,679
|
|
Cost of shares in treasury, 1,717 shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock to directors at $12.66 per share on
September 21, 2004
|
|
|
|
|
|
|
|
|
|
|
5,925
|
|
|
|
59
|
|
Issuance of common stock at $15.00 per share on February 9,
2005 (net of costs of issuance of $4,995,689)
|
|
|
|
|
|
|
|
|
|
|
5,175,000
|
|
|
|
51,750
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at May 31, 2005
|
|
|
|
|
|
|
|
|
|
|
26,752,739
|
|
|
|
267,527
|
|
Amortization of deferred compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock options at $7.13 and $10.66 per share
|
|
|
|
|
|
|
|
|
|
|
2,875
|
|
|
|
29
|
|
Issuance of common stock to directors at $13.05 per share on
September 29, 2005
|
|
|
|
|
|
|
|
|
|
|
5,750
|
|
|
|
57
|
|
Issuance of common stock to director at $13.21 per share on
October 3, 2005
|
|
|
|
|
|
|
|
|
|
|
1,135
|
|
|
|
12
|
|
Issuance of common stock to director at $10.67 per share on
February 24, 2006
|
|
|
|
|
|
|
|
|
|
|
1,406
|
|
|
|
14
|
|
Exercise of stock options at $10.66, $5.15 and $11.09 per share
|
|
|
|
|
|
|
|
|
|
|
8,000
|
|
|
|
80
|
|
Exercise of stock options at $10.66 and $7.13 per share
|
|
|
|
|
|
|
|
|
|
|
2,750
|
|
|
|
28
|
|
Exercise of stock options at $5.15 and $7.13 per share
|
|
|
|
|
|
|
|
|
|
|
3,000
|
|
|
|
30
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at May 31, 2006
|
|
|
|
|
|
|
|
|
|
|
26,777,655
|
|
|
|
267,777
|
|
Eliminate remaining deferred compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock options at $5.15 and $7.13 per share
|
|
|
|
|
|
|
|
|
|
|
2,750
|
|
|
|
28
|
|
Exercise of stock options at $7.13 per share
|
|
|
|
|
|
|
|
|
|
|
750
|
|
|
|
7
|
|
Issuance of common stock to directors at $13.03 per share on
September 20, 2006
|
|
|
|
|
|
|
|
|
|
|
6,912
|
|
|
|
69
|
|
Exercise of stock options at $11.44 per share
|
|
|
|
|
|
|
|
|
|
|
10,000
|
|
|
|
100
|
|
Exercise of stock options at $5.15, $11.92 and $13.21 per share
|
|
|
|
|
|
|
|
|
|
|
3,125
|
|
|
|
31
|
|
Exercise of stock options at $5.08 and $6.08 per share
|
|
|
|
|
|
|
|
|
|
|
15,000
|
|
|
|
150
|
|
Exercise of stock options at $5.15 per share
|
|
|
|
|
|
|
|
|
|
|
3,000
|
|
|
|
30
|
|
Exercise of stock options at $11.92 per share
|
|
|
|
|
|
|
|
|
|
|
375
|
|
|
|
4
|
|
Exercise of warrants at $6.88 per share
|
|
|
|
|
|
|
|
|
|
|
96,974
|
|
|
|
969
|
|
Share-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at May 31, 2007
|
|
|
|
|
|
|
|
|
|
|
26,916,541
|
|
|
|
269,165
|
|
Issuance of common stock to directors at $2.06 per share on
September 25, 2007
|
|
|
|
|
|
|
|
|
|
|
43,692
|
|
|
|
437
|
|
Share-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at May 31, 2008
|
|
|
|
|
|
$
|
|
|
|
|
26,960,233
|
|
|
$
|
269,602
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to financial statements.
44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deficit
|
|
|
|
|
|
|
|
|
Total
|
|
Series A convertible
|
|
|
Series B convertible
|
|
|
|
|
|
accumulated
|
|
|
|
|
|
|
|
|
share-
|
|
preferred stock
|
|
|
preferred stock
|
|
|
Additional
|
|
|
during the
|
|
|
Deferred
|
|
|
|
|
|
holders
|
|
Number
|
|
|
Aggregate
|
|
|
Number
|
|
|
Aggregate
|
|
|
paid-in
|
|
|
development
|
|
|
compen-
|
|
|
Treasury
|
|
|
equity
|
|
of shares
|
|
|
amount
|
|
|
of shares
|
|
|
amount
|
|
|
capital
|
|
|
stage
|
|
|
sation
|
|
|
shares
|
|
|
(deficit)
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(4,245,693
|
)
|
|
$
|
|
|
|
|
|
|
|
$
|
(4,245,693
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,025
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52,658
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
463,540
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
465,869
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
71,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
71,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,569
|
|
|
|
|
|
|
|
2,569
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
116,011,985
|
|
|
|
(54,856,862
|
)
|
|
|
(1,284
|
)
|
|
|
|
|
|
|
61,294,763
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,883,378
|
)
|
|
|
|
|
|
|
|
|
|
|
(5,883,378
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35,650
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,284
|
|
|
|
|
|
|
|
1,284
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
116,047,635
|
|
|
|
(60,740,240
|
)
|
|
|
|
|
|
|
|
|
|
|
55,448,369
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,416,333
|
)
|
|
|
|
|
|
|
|
|
|
|
(7,416,333
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,354
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,354
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
124,775
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
124,950
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
998,750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
117,185,514
|
|
|
|
(68,156,573
|
)
|
|
|
|
|
|
|
|
|
|
|
49,171,340
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,167,070
|
)
|
|
|
|
|
|
|
|
|
|
|
(9,167,070
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
57,112
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
57,112
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33,425
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33,450
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
117,276,051
|
|
|
|
(77,323,643
|
)
|
|
|
|
|
|
|
|
|
|
|
40,094,832
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,174,609
|
)
|
|
|
|
|
|
|
|
|
|
|
(10,174,609
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38,220
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38,280
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
189,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
189,175
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
117,503,271
|
|
|
|
(87,498,252
|
)
|
|
|
|
|
|
|
|
|
|
|
30,147,678
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,717,360
|
)
|
|
|
|
|
|
|
|
|
|
|
(10,717,360
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
117,503,271
|
|
|
|
(98,215,612
|
)
|
|
|
|
|
|
|
|
|
|
|
19,430,318
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,250,145
|
)
|
|
|
|
|
|
|
|
|
|
|
(12,250,145
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
117,503,271
|
|
|
|
(110,465,757
|
)
|
|
|
|
|
|
|
|
|
|
|
7,180,173
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,671,843
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,690,771
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
74,877
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
75,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
190,995
|
|
|
|
|
|
|
|
(191,250
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35,630
|
|
|
|
|
|
|
|
35,630
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,846,633
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,872,493
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,255,853
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,258,223
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,178,664
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,182,759
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,716,616
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,736,160
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
95,550
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
95,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14,573,798
|
)
|
|
|
|
|
|
|
|
|
|
|
(14,573,798
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
166,534,302
|
|
|
|
(125,039,555
|
)
|
|
|
(155,620
|
)
|
|
|
|
|
|
|
41,553,111
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
71,055
|
|
|
|
|
|
|
|
(71,110
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
122,121
|
|
|
|
|
|
|
|
122,121
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,739,585
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,741,264
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(25,393
|
)
|
|
|
(25,393
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
74,941
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
75,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
72,577,561
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
72,629,311
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(20,321,456
|
)
|
|
|
|
|
|
|
|
|
|
|
(20,321,456
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
240,997,444
|
|
|
|
(145,361,011
|
)
|
|
|
(104,609
|
)
|
|
|
(25,393
|
)
|
|
|
95,773,958
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
95,550
|
|
|
|
|
|
|
|
95,550
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29,295
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29,324
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
74,943
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
75,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,988
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,986
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
65,075
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
65,155
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26,640
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26,668
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,905
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,935
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(26,775,418
|
)
|
|
|
|
|
|
|
|
|
|
|
(26,775,418
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
241,240,276
|
|
|
|
(172,136,429
|
)
|
|
|
(9,059
|
)
|
|
|
(25,393
|
)
|
|
|
69,337,172
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,059
|
)
|
|
|
|
|
|
|
9,059
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,105
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,133
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,348
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,355
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
89,931
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
90,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
114,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
114,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,646
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,677
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
81,050
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
81,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,420
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,450
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,466
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,470
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
666,211
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
667,180
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,655,849
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,655,849
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(27,671,177
|
)
|
|
|
|
|
|
|
|
|
|
|
(27,671,177
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
244,905,543
|
|
|
|
(199,807,606
|
)
|
|
|
|
|
|
|
(25,393
|
)
|
|
|
45,341,709
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
89,563
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
90,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,959,269
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,959,269
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(20,408,888
|
)
|
|
|
|
|
|
|
|
|
|
|
(20,408,888
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
246,954,375
|
|
|
$
|
(220,216,494
|
)
|
|
$
|
|
|
|
|
(25,393
|
)
|
|
$
|
26,982,090
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45
NORTHFIELD
LABORATORIES INC.
(a company in the development stage)
STATEMENTS OF CASH FLOWS
Years ended May 31, 2008 and 2007
and the cumulative period from June 19, 1985
(inception) through May 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative
|
|
|
|
|
|
|
|
|
|
from
|
|
|
|
|
|
|
|
|
|
June 19, 1985
|
|
|
|
Years ended May 31,
|
|
|
through
|
|
|
|
2008
|
|
|
2007
|
|
|
May 31, 2008
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(20,408,888
|
)
|
|
|
(27,671,177
|
)
|
|
|
(220,216,494
|
)
|
Adjustments to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable security amortization
|
|
|
(520,947
|
)
|
|
|
(1,213,864
|
)
|
|
|
(4,033,014
|
)
|
Depreciation and amortization
|
|
|
640,480
|
|
|
|
488,891
|
|
|
|
20,074,142
|
|
Share based compensation
|
|
|
2,049,269
|
|
|
|
2,745,849
|
|
|
|
8,856,142
|
|
Loss on sale of equipment
|
|
|
2,423
|
|
|
|
19,729
|
|
|
|
88,511
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted cash
|
|
|
228,460
|
|
|
|
396,740
|
|
|
|
758,212
|
|
Prepaid expenses
|
|
|
(23,061
|
)
|
|
|
139,912
|
|
|
|
(905,464
|
)
|
Other current assets
|
|
|
212,854
|
|
|
|
(212,854
|
)
|
|
|
(1,896,251
|
)
|
Other assets
|
|
|
|
|
|
|
49,391
|
|
|
|
55,791
|
|
Accounts payable
|
|
|
(1,655,765
|
)
|
|
|
(908,779
|
)
|
|
|
1,917,260
|
|
Accrued expenses
|
|
|
10,519
|
|
|
|
(32,888
|
)
|
|
|
111,637
|
|
Government grant liability
|
|
|
(228,460
|
)
|
|
|
(396,740
|
)
|
|
|
(758,212
|
)
|
Accrued compensation and benefits
|
|
|
92,303
|
|
|
|
(176,329
|
)
|
|
|
658,012
|
|
Other liabilities
|
|
|
6,961
|
|
|
|
(249,580
|
)
|
|
|
6,961
|
|
Current other liabilities
|
|
|
|
|
|
|
7,431
|
|
|
|
7,431
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(19,593,852
|
)
|
|
|
(27,014,268
|
)
|
|
|
(195,275,336
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property, plant, equipment, and capitalized
engineering costs
|
|
|
(358,955
|
)
|
|
|
(7,954,855
|
)
|
|
|
(28,262,123
|
)
|
Proceeds from sale of land and equipment
|
|
|
|
|
|
|
|
|
|
|
1,863,023
|
|
Proceeds from matured marketable securities
|
|
|
56,161,753
|
|
|
|
88,000,000
|
|
|
|
761,808,105
|
|
Proceeds from sale of marketable securities
|
|
|
|
|
|
|
|
|
|
|
7,141,656
|
|
Purchase of marketable securities
|
|
|
(46,686,432
|
)
|
|
|
(70,041,318
|
)
|
|
|
(772,902,357
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
9,116,366
|
|
|
|
10,003,827
|
|
|
|
(30,351,696
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock
|
|
|
|
|
|
|
929,865
|
|
|
|
237,055,000
|
|
Payment of common stock issuance costs
|
|
|
|
|
|
|
|
|
|
|
(14,128,531
|
)
|
Proceeds from issuance of preferred stock
|
|
|
|
|
|
|
|
|
|
|
6,644,953
|
|
Proceeds from sale of stock options to purchase common shares
|
|
|
|
|
|
|
|
|
|
|
7,443,118
|
|
Proceeds from issuance of notes payable
|
|
|
|
|
|
|
|
|
|
|
1,500,000
|
|
Repayment of notes payable
|
|
|
|
|
|
|
|
|
|
|
(140,968
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
|
|
|
|
929,865
|
|
|
|
238,373,572
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash
|
|
|
(10,477,486
|
)
|
|
|
(16,080,576
|
)
|
|
|
12,746,540
|
|
Cash at beginning of period
|
|
|
23,224,026
|
|
|
|
39,304,602
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash at end of period
|
|
$
|
12,746,540
|
|
|
|
23,224,026
|
|
|
|
12,746,540
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Schedule of Noncash Financing Activities :
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock option, 5,000 shares in exchange for
1,717 treasury shares
|
|
$
|
|
|
|
|
|
|
|
|
25,393
|
|
See accompanying notes to financial statements.
46
NORTHFIELD
LABORATORIES INC.
(a company in the development stage)
NOTES TO FINANCIAL STATEMENTS
May 31, 2008 and 2007
|
|
(1)
|
Summary
of Significant Accounting Policies
|
Description
of Operations in the Development Stage
Northfield Laboratories Inc. (the Company), a
Delaware corporation, was incorporated on June 19, 1985 to
research, develop, test, manufacture, market, and distribute a
hemoglobin-based blood substitute product. The Company is
continuing its research and development activities.
Basis
of Presentation
The financial statements have been prepared in accordance with
the provisions of Statement of Financial Accounting Standards
(SFAS) No. 7, Accounting and Reporting by Development
Stage Enterprises, which requires development stage
companies to employ the same generally accepted accounting
principles as operating companies.
Going
Concern Uncertainty
The financial statements of the Company have been presented
based on the assumption that the Company will continue as a
going concern. The Company, however, may not be able to continue
as a going concern because it expects to experience significant
future losses and currently has insufficient capital resources
to fund its continuing operations. The Company believes its
existing capital resources will be sufficient to permit it to
conduct its operations, including the preparation and submission
of a Biologics License Application to U.S. Food and Drug
Administration, for approximately 11 to 13 months. Thereafter,
the Company will require substantial additional funding to
continue its operations and complete its planned
commercialization. The Company reported cash and cash
equivalents, restricted cash and marketable securities of
$21.0 million as of May 31, 2008.
There can be no assurance that the Company will have adequate
capital resources through May 31, 2009. The Companys
inability to raise sufficient levels of capital could materially
delay or prevent the commercialization of its PolyHeme blood
substitute product and could result in the cessation of the
Companys business. The financial statements do not include
any adjustments that might result from the outcome of this
uncertainty.
Cash
and Cash Equivalents
Cash and cash equivalents consist of cash on hand, cash in
banks, and money market funds.
Restricted
Cash
As of May 31, 2008, the Company had $301,292 in restricted
cash from a government grant. The funds will be used in
accordance with the terms of the grant and all funds will be
used during the fiscal year 2009.
The Company will recognize the funds as a contra-expense or a
reduction of asset carrying value based on the type of grant
expenditure incurred. During the year ended May 31, 2008,
the Company offset $3,273,700 in operating expenses and $186,771
in capital expenditures with government grant funds.
Marketable
Securities
Marketable securities consist of high grade commercial paper,
all of which have maturities of less than one year. The Company
classifies its investment securities as
held-to-maturity.
Held-to-maturity
securities are those securities which the Company has both the
ability and intent to hold until maturity.
Held-to-maturity
securities are recorded at amortized cost, adjusted for the
amortization or accretion of premiums or discounts. Premiums and
discounts are amortized or accreted over the life of the related
instrument as an adjustment to yield using the straight-line
method, which approximates the effective interest method.
Interest income is recognized when earned.
47
Property,
Plant, and Equipment
Property, plant, and equipment are recorded at cost and are
depreciated using the straight-line method over the estimated
useful lives of the respective assets, generally three to seven
years for equipment and 39.5 years for buildings. Leasehold
improvements are amortized using the straight-line method over
the lesser of the life of the asset or the term of the lease,
generally five years.
Treasury
Shares
The Company intends to hold repurchased shares in treasury for
general corporate purposes, including issuances under various
employee stock option plans. The Company accounts for treasury
shares using the cost method.
Computation
of Net Loss Per Share
Basic loss per share is based on the weighted average number of
shares outstanding and excludes the dilutive effect of
unexercised common equivalent shares. Diluted loss per share is
based on the weighted average number of shares outstanding and
includes the dilutive effect of common equivalent shares as long
as their inclusion is not anti-dilutive. Because the Company
reported a net loss for the years ended May 31, 2008 and
2007 and the cumulative period from June 19, 1985
(inception) through May 31, 2008, basic and diluted per
share amounts are the same.
The following potential common share instruments have been
excluded from the computation of per share amounts for all
periods presented as their effect on per share calculations is
anti-dilutive. The share amounts represent an average annual
balance of all outstanding options and warrants.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative
|
|
|
|
|
|
|
|
|
|
From
|
|
|
|
|
|
|
|
|
|
June 19, 1985
|
|
|
|
|
|
|
|
|
|
Through
|
|
|
|
2008
|
|
|
2007
|
|
|
May 31, 2008
|
|
|
Stock options
|
|
|
1,885,750
|
|
|
|
1,714,375
|
|
|
|
821,850
|
|
Warrants
|
|
|
115,418
|
|
|
|
163,905
|
|
|
|
90,783
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,001,168
|
|
|
|
1,878,280
|
|
|
|
912,633
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Of the total options and warrants outstanding as of May 31,
2008, the Company has no options
in-the-money,
2,090,125 options
out-of-the-money,
and 115,418 warrants
out-of-the-money
that were excluded from the net loss per share calculation.
Stock
Based Compensation
Effective June 1, 2006, the Company adopted Financial
Accounting Standards Board (FASB) Statement
No. 123 (revised), Share-Based Payment
(SFAS 123R). Among its provisions,
SFAS 123R requires compensation expense for equity awards
to be recognized over the vesting period based on their
grant-date fair value. Prior to the adoption of SFAS 123R,
the Company utilized the intrinsic-value based method of
accounting under APB Opinion No. 25, Accounting for
Stock Issued to Employees and related interpretations, and
adopted the disclosure requirements of SFAS No. 123,
Accounting for Stock-Based Compensation
(SFAS 123). Under the intrinsic-value based
method of accounting, compensation expense for stock options
granted to our employees was measured as the excess of the fair
value of the Companys common stock at the grant date over
the amount the employee must pay for the stock.
The Company adopted SFAS 123R in the first quarter of
fiscal 2007 using the modified prospective approach. Under this
transition method, the measurement and method of amortization of
costs for share-based payments granted prior to, but not vested
as of June 1, 2006, is based on the same estimate of the
grant-date fair value and the same amortization method that was
previously used in the Companys SFAS 123 pro forma
disclosure. Results for prior periods have not been restated as
provided for under the modified prospective approach. For equity
awards granted after the date of adoption, we recognize
share-based compensation expense on a straight-line basis over
the vesting term.
48
Compensation expense is recognized only for share-based payments
expected to vest. We estimate forfeitures at the date of grant
based on our historical experience and future expectations.
Prior to the adoption of SFAS 123R, the effect of
forfeitures on the pro forma expense amounts was recognized
based on actual forfeitures.
The Company does not recognize a tax benefit related to share
based compensation due to the historical net operating loss and
related valuation allowance.
The effect of adopting SFAS 123R and the impact of the
expense on basic earnings per share for the year ended
May 31, 2008 was $.08. The charge associated with
share-based compensation expense recognized in Statement of
Operations for the year ended May 31, 2008 was $2,049,269.
As of May 31, 2008, there was approximately $1,779,759 of
total unrecognized compensation cost related to non-vested
share-based compensation arrangements granted under the
incentive plans. That cost is expected to be recognized over a
weighted-average period of 1.32 years.
The fair value of each option granted is estimated on the date
of grant using the Black-Scholes option-pricing model. The table
below outlines the weighted average assumptions used for option
grants in fiscal 2008 and 2007.
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
May 31, 2008
|
|
|
May 31, 2007
|
|
|
Fair value
|
|
|
681,500
|
|
|
|
1,160,525
|
|
Expected volatility
|
|
|
95.9
|
%
|
|
|
75.8
|
%
|
Risk-free interest rate
|
|
|
4.82
|
%
|
|
|
5.0
|
%
|
Dividend yield
|
|
|
|
|
|
|
|
|
Expected lives
|
|
|
6.3 years
|
|
|
|
6.7 years
|
|
|
|
|
|
|
|
|
|
|
Financial
Instruments
The fair market values of financial instruments, which consist
of marketable securities (note 2), were not materially
different from their carrying values at May 31, 2008 and
2007.
Use of
Estimates
Management of the Company has made a number of estimates and
assumptions relating to the reporting of assets and liabilities
and the disclosure of contingent assets and liabilities to
prepare these financial statements in conformity with accounting
principles generally accepted in the United States of America.
Actual results could differ from those estimates.
|
|
(2)
|
Marketable
Securities
|
The Company classifies its investments in marketable securities
as held to maturity in accordance with the
provisions of Statement of Financial Accounting Standards
No. 115, Accounting for Certain Investments in Debt
and Equity Securities. Held to maturity securities are
securities which the Company has the ability and intent to hold
until maturity. Held to maturity securities are recorded at
amortized cost, which is equal to original cost adjusted for the
amortization or accretion of premiums or discounts. Premiums and
discounts are amortized or accreted over the life of the related
instrument as an adjustment to yield using the straight-line
method, which approximates the effective interest method.
Interest income is recognized when earned. Unrealized losses
considered to be
other-than-temporary
are recognized currently in earnings. All marketable securities
are due within one year.
49
Marketable securities at May 31, 2008 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Unrealized
|
|
|
Amortized Cost
|
|
Fair Value
|
|
(Losses)
|
|
Corporate debt securities
|
|
$
|
7,979,830
|
|
|
$
|
7,979,440
|
|
|
$
|
(390
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
7,979,830
|
|
|
$
|
7,979,440
|
|
|
$
|
(390
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable securities at May 31, 2007 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Unrealized
|
|
|
Amortized Cost
|
|
Fair Value
|
|
(Losses)
|
|
Corporate debt securities
|
|
$
|
16,934,204
|
|
|
$
|
16,934,479
|
|
|
$
|
275
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
16,934,204
|
|
|
$
|
16,934,479
|
|
|
$
|
275
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair values are based on quoted market prices.
|
|
(3)
|
Property,
Plant, and Equipment
|
Property, plant, and equipment, at cost, less accumulated
depreciation and amortization, are summarized as follows as of
May 31, 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Useful Life
|
|
|
2008
|
|
|
2007
|
|
|
Land
|
|
|
|
|
|
$
|
2,758,364
|
|
|
$
|
2,758,364
|
|
Building
|
|
|
39.5 years
|
|
|
|
3,996,548
|
|
|
|
3,996,549
|
|
Building improvements
|
|
|
39.5 years
|
|
|
|
46,380
|
|
|
|
|
|
Manufacturing equipment
|
|
|
5 years
|
|
|
|
9,743,577
|
|
|
|
9,817,151
|
|
Laboratory equipment
|
|
|
5 years
|
|
|
|
1,267,129
|
|
|
|
1,267,870
|
|
Office furniture and equipment
|
|
|
7 years
|
|
|
|
875,130
|
|
|
|
848,516
|
|
Computer equipment
|
|
|
3 years
|
|
|
|
519,306
|
|
|
|
359,411
|
|
Leasehold improvements
|
|
|
Lease Term
|
|
|
|
66,564
|
|
|
|
65,435
|
|
Capitalized engineering costs
|
|
|
3 years
|
|
|
|
474,950
|
|
|
|
474,950
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
19,747,948
|
|
|
$
|
19,588,246
|
|
Less accumulated depreciation and Amortization
|
|
|
|
|
|
|
(11,506,730
|
)
|
|
|
(11,063,080
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
8,241,218
|
|
|
|
8,525,166
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense related to property, plant
and equipment amounted to $640,480 and $488,891 for the years
ended May 31, 2008 and 2007, respectively.
On June 19, 1985, the date of incorporation, the Company
authorized 5,500,000 shares of $.10 par value common
stock. On August 12, 1985, an amendment to the Certificate
of Incorporation was approved increasing the authorized number
of common shares to 8,750,000 and changing the par value to $.01.
On June 7, 1988, the Company issued 413,020 additional
shares of common stock for net proceeds of $9,754,000. In
conjunction with this transaction, all outstanding shares of
Series A and Series B convertible preferred stock were
converted to common stock and the Series B warrants were
converted to common stock warrants (note 7). In conjunction
with this transaction, options for 47,115 common shares were
exercised at $2.00 per share.
On March 6, 1989, the Company issued 175,525 additional
shares of common stock for net proceeds of $4,978,610.
50
On March 30, 1989, the Company issued 87,760 additional
shares of common stock for net proceeds of $2,489,234. Also on
this date, the Company sold an option to purchase
263,285 shares of common stock for net proceeds of
$7,443,118. The option exercise price was $.20 per share. On
July 8, 1996, the option was exercised and the Company
issued all 263,285 shares of common stock.
On September 30, 1991, the Company issued 90,000 additional
shares of common stock for net proceeds of $504,000. These
shares were issued as a result of the exercise of common stock
warrants.
On June 29, 1992, the Company issued 15,000 additional
shares of common stock for net proceeds of $107,040. These
shares were issued as a result of the exercise of common stock
warrants.
On April 19, 1993, the Company issued 374,370 additional
shares of common stock for net proceeds of $5,667,454.
On May 5, 1994, the Company filed an amended and restated
Certificate of Incorporation effecting a five-for one stock
split of the Companys common stock. All common share and
per share amounts have been adjusted retroactively to give
effect to the stock split. Additionally, the amended and
restated Certificate of Incorporation effected an increase in
the number of authorized shares of common stock to 20,000,000
and authorized 5,000,000 shares of preferred stock.
On May 26, 1994, the Company issued 2,500,000 additional
shares of common stock for net proceeds of $14,188,851. The
proceeds were received by the Company on June 3, 1994.
On June 20, 1994, the Company issued 375,000 additional
shares of common stock for net proceeds of $2,265,000.
During the year ended May 31, 1995, the Company issued
197,570 additional shares of common stock upon the exercise of
stock options for cash at $2.00 and $7.14 per share for net
proceeds of $446,539.
On August 9, 1995, the Company issued 2,925,000 additional
shares of common stock for net proceeds of $48,353,624. On
September 11, 1995, the Company issued 438,750 additional
shares of common stock for net proceeds of $7,364,575.
During the year ended May 31, 1996, the Company issued
193,880 additional shares of common stock upon the exercise of
stock options for cash at $2.00, $6.38, and $7.14 per share for
net proceeds of $445,731.
During the year ended May 31, 1997, the Company issued
506,220 additional shares of common stock upon the exercise of
stock options for cash at $0.20, $2.00, and $7.14 per share for
net proceeds of $589,927.
During the year ended May 31, 1998, the Company issued
5,000 additional shares of common stock upon the exercise of
stock options for cash at $7.14 per share for net proceeds of
$35,700.
During the year ended May 31, 1999, the Company issued
142,500 additional shares of common stock upon the exercise of
warrants and stock options for cash at $8.00 and $7.14 per
share, respectively, for net proceeds of $1,124,950.
During the year ended May 31, 2000, the Company issued
2,500 additional shares of common stock upon the exercise of
stock options for cash at $13.38 per share, for net proceeds of
$33,450.
During the year ended May 31, 2001, the Company issued
23,500 additional shares of common stock upon the exercise of
stock options for cash at $6.38 and $10.81 per share
respectively, for net proceeds of $227,455.
On July 28, 2003, the Company issued 1,892,857 additional
shares of common stock for net proceeds of $9,690,771.
On October 30, 2003, the Company issued 12,335 additional
shares of common stock to directors in the form of stock grants.
On January 16, 2004, the Company issued 25,500 additional
restricted shares of common stock to officers in the form of
stock grants.
51
On January 29, 2004, the Company issued 2,585,965
additional shares of common stock for net proceeds of
$13,872,493.
On February 18, 2004, the Company issued 237,008 additional
shares of common stock for net proceeds of $1,258,223.
On April 15, 2004, the Company issued 409,483 additional
shares of common stock for net proceeds of $2,182,759.
On May 18, 2004, the Company issued 1,954,416 additional
shares of common stock for net proceeds of $21,736,160.
On May 26, 2004, the Company issued 15,000 additional
shares of common stock upon the exercise of a stock option for
cash at $6.38 per share for net proceeds of $95,700.
On June 1, 2004, the Company issued 6,000 additional shares
of common stock upon the exercise of a stock option for cash at
$6.38 per share for net proceeds of $38,280.
On September 1, 2004, the Company issued 4,500 additional
restricted shares of common stock to officers in the form of
stock grants.
On September 17, 2004, the Company issued 2,500 additional
shares of common stock upon the exercise of a stock option for
cash at $7.83 per share for net proceeds of $19,575.
On September 21, 2004, the Company issued 5,925 additional
shares of common stock to directors in the form of stock grants.
On October 21, 2004, the Company issued 1,000 additional
restricted shares of common stocks to an employee in the form of
a stock grant.
On November 10, 11 and 12, 2004 the Company issued 84,029
additional shares of common stock upon the exercise of stock
options for cash at $13.38, $10.88 and $10.81 per share for net
proceeds of $961,013.
On November 16, 17 and 18, 2004, the Company issued 48,971
additional shares of common stock upon the exercise of stock
options for cash at $10.81 per share for net proceeds of
$529,377.
On December 1, 2004, the Company issued 12,500 additional
shares of common stock upon the exercise of stock options for
cash at $7.43 per share for net proceeds of $92,875.
On January 14, 2005, the Company issued 375 additional
shares of common stock upon the exercise of stock options for
cash at $7.13 per share for net proceeds of $2,674.
On February 1, 2005, the Company issued 6,000 additional
shares of common stock upon the exercise of stock options for
cash at $5.15, $7.13, $10.66, and $14.17 per share for net
proceeds of $59,195.
On February 9, 2005, the Company issued 5,175,000
additional shares of common stock for net proceeds of
$72,629,311.
On April 26, 2005, the Company issued 2,500 additional
shares of common stock upon the exercise of stock options for
cash at $5.15 per share for net proceeds of $12,875.
On May 6, 2005, the Company issued 5,000 additional shares
of common stock upon the exercise of stock options at $5.08 per
share for the exchange of 1,717 shares of common stock at a
price per share of $14.79 and cash of $6.
On June 8, 2005, the Company issued 375 additional shares
of common stock upon the exercise of stock options for cash at
$7.13 per share for net proceeds of $2,674.
On August 30, 2005, the Company issued 2,500 additional
shares of common stock upon the exercise of stock options for
cash at $10.66 per share for net proceeds of $26,650.
On September 29, 2005, the Company issued 5,750 additional
shares of common stock to directors in the form of stock grants.
52
On October 3, 2005, the Company issued 1,135 additional
shares of common stock to directors in the form of stock grants.
On December 30, 2005, the Company issued 8,000 additional
shares of common stock upon the exercise of stock options for
cash at $10.66, $5.15 and $11.09 per share for net proceeds of
$65,155.
On February 17, 2006, the Company issued 2,750 additional
shares of common stock upon the exercise of stock options for
cash at $10.66 and $7.13 per share for net proceeds of $26,668.
On February 24, 2006, the Company issued 1,406 additional
shares of common stock to directors in the form of stock grants.
On May 25, 2006, the Company issued 3,000 additional shares
of common stock upon the exercise of stock options for cash at
$5.15 and $7.13 per share for net proceeds of $16,935.
On June 20, 2006, the Company issued 2,750 additional
shares of common stock upon the exercise of stock options for
cash at $5.15 and $7.13 per share for net proceeds of $17,133.
On July 10, 2006, the Company issued 750 additional shares
of common stock upon the exercise of stock options for cash at
$7.14 per share for net proceeds of $5,355.
On September 20, 2006, the Company issued 6,912 additional
shares of common stock to directors in the form of stock grants.
On September 22, 2006, the Company issued 5,000 additional
shares of common stock upon the exercise of stock options for
cash at $11.44 per share for net proceeds of $57,200.
On September 29, 2006, the Company issued 5,000 additional
shares of common stock upon the exercise of stock options for
cash at $11.44 per share for net proceeds of $57,200.
On October 25, 2006, the Company issued 1,875 additional
shares of common stock upon the exercise of stock options for
cash at $5.15 and $11.92 per share for net proceeds of $12,195.
On October 30, 2006, the Company issued 1,250 additional
shares of common stock upon the exercise of stock options for
cash at $5.15 and $13.21 per share for net proceeds of $12,482.
On November 22, 2006, the Company issued 15,000 additional
shares of common stock upon the exercise of stock options for
cash at $5.08 and $6.08 per share for net proceeds of $81,200.
On December 5, 2006, the Company issued 3,000 additional
shares of common stock upon the exercise of stock options for
cash at $5.15 per share for net proceeds of $15,450.
On December 8, 2006, the Company issued 96,974 additional
shares of common stock upon the exercise of warrants for cash at
$6.88 per share for net proceeds of $667,180.
On December 15, 2006, the Company issued 375 additional
shares of common stock upon the exercise of stock options for
cash at $11.92 per share for net proceeds of $4,470.
On September 25, 2007, the Company issued 43,692 additional
shares of common stock to directors in the form of stock grants.
As a result of losses incurred to date, the Company has not
provided for income taxes. As of May 31, 2008, the Company
has net operating loss carry-forwards for income tax purposes of
approximately $188,000,000, which are available to offset future
taxable income, if any, from 2009 to 2028. Deferred tax assets
primarily resulted from net operating loss carry-forwards and
differences in the recognition of research and development and
depreciation expenses. During the year ended May 31, 2008,
net operating loss carry-forwards of $7,800,000 expired.
Additionally, the Company has approximately $6,100,000 of
research and experimentation tax credits and investment tax
credits available to reduce future income taxes through 2028.
53
Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss
and tax credit carryforwards.
The net deferred tax assets as of May 31, 2008 and 2007 are
summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Net operating loss carryforwards
|
|
$
|
73,000,000
|
|
|
$
|
68,000,000
|
|
Tax credit carryforwards
|
|
|
6,100,000
|
|
|
|
5,700,000
|
|
Other
|
|
|
2,700,000
|
|
|
|
2,600,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
81,800,000
|
|
|
|
76,300,000
|
|
Valuation allowance
|
|
|
(81,800,000
|
)
|
|
|
(76,300,000
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
The net change in the valuation allowance for the fiscal years
ended May 31, 2008 and 2007 was an increase of $5,500,000
and $8,000,000, respectively. Differences between the statutory
federal tax rate of 34 percent and effective federal rates
are primarily due to the increase in the valuation allowance for
net deferred tax assets.
The Company adopted the provisions of FASB Interpretation
No. 48, Accounting for Uncertainty in Income Taxes,
an interpretation of FASB Statement No. 109
(FIN 48) in the first quarter of fiscal 2008.
At the adoption date and as of May 31, 2008, the Company
had no material unrecognized tax benefits and no adjustments to
liabilities, retained earnings, loss from continuing operations,
or net loss were required. It is the Companys policy to
include interest
and/or
penalties related to uncertain tax positions in income tax
expense. No interest
and/or
penalties were recognized upon FIN 48 adoption. Tax years
1992 through 2006 remain open to examination by the major taxing
jurisdictions to which the Company reports. The adoption of
FIN 48 had no effect on the Companys basic and
diluted earnings per share.
The Companys Nonqualified Stock Option Plan for Outside
Directors (the Directors Plan) lapsed on
May 31, 2004. Following the termination of the plan, all
options outstanding prior to plan termination may be exercised
in accordance with their terms. During 2004, the Company did not
grant any options to purchase shares of common stock. As of
May 31, 2008, options to purchase a total of
45,000 shares of the Companys common stock at prices
between $4.09 and $11.18 per share were outstanding under the
Directors Plan. These options expire between 2011 and 2012, ten
years after the date of grant. Stock options for
15,000 shares expired during fiscal year ended May 31,
2008.
With an effective date of October 1, 1996, the Company
established the Northfield Laboratories Inc. 1996 Stock Option
Plan (the 1996 Option Plan). This plan provides for
the granting of stock options to the Companys directors,
officers, key employees, and consultants. Stock options to
purchase a total of 500,000 shares of common stock are
available under the 1996 Option Plan. As of May 31, 2008,
options to purchase a total of 105,500 shares of the
Companys common stock at prices between $10.66 and $15.41
were outstanding. These options expire between 2009 and 2010,
ten years after the date of grant. The 1996 Option Plan has
lapsed allowing no additional grants to be made. Stock options
for 55,000 shares expired during fiscal year ended
May 31, 2008. Stock options for 4,000 shares were
cancelled during fiscal 2008.
With an effective date of June 1, 1999, the Company
established the Northfield Laboratories Inc. 1999 Stock Option
Plan (the 1999 Option Plan). This plan provides for
the granting of stock options to the Companys directors,
officers, key employees, and consultants. Stock options to
purchase a total of 500,000 shares of common stock are
available under the 1999 Option Plan. These options expire in
2011 and 2013 or ten years after the date of grant. As of
May 31, 2008, options to purchase a total of
275,625 shares of the Companys common stock at prices
between $3.62 and $14.17 per share were outstanding under the
1999 Option Plan. Stock options for 7,750 shares were
cancelled during fiscal 2008.
54
With an effective date of January 1, 2003, the Company
established the New Employee Stock Option Plan (the New
Employee Plan). This plan provides for the granting of
stock options to the Companys new employees. Stock options
to purchase a total of 350,000 shares are available under
the New Employee Plan. During the year ended May 31, 2008,
the Company did not grant any options to purchase shares of
common stock. Stock options for 25,000 shares were
cancelled. During the year ended May 31, 2007, the Company
granted 30,000 options to purchase shares of common stock at
prices between $9.65 and $10.87. These options expire in 2016 or
ten years after date of grant. As of May 31, 2008, options
to purchase a total of 55,000 shares of the Companys
common stock at prices between $3.62 and $18.55 per share were
outstanding under the New Employee Plan.
With an effective date of September 17, 2003, the Company
established 2003 Equity Compensation Plan. This plan provides
for the granting of stock, stock options and various other types
of equity compensation to the Companys employees,
non-employee directors and consultants. Stock options to
purchase a total of 2,250,000 shares are available under
the 2003 Equity Compensation Plan. During the year ended
May 31, 2008, the Company granted 587,500 options to
purchase shares of common stock at prices between $1.36 and
$2.06. These options expire in 2017 or ten years after date of
grant. Stock options for 72,000 shares were cancelled.
During the year ended May 31, 2008, the Company granted and
issued 43,692 common shares at $2.06 per share to directors.
During the year ended May 31, 2007, the Company granted
122,500 options to purchase shares of common stock at prices
between $3.61 and $14.68. These options expire between 2016 and
2017 or ten years after date of grant. During the year ended
May 31, 2007, the Company granted and issued 6,912 common
shares at $13.03 per share to directors. At both May 31,
2008 and May 31, 2007, the amount of related deferred
compensation reflected in shareholders equity was $0. The
amortization of deferred compensation for the years ended
May 31, 2008 and May 31, 2007 was $0 and $9.059
respectively. At May 31, 2008, options to purchase a total
of 1,609,000 shares of the Companys common stock at
prices between $1.36 and $18.55 were outstanding under the 2003
Equity Compensation Plan.
The Company issued shares from authorized but un-issued common
shares upon share option exercises and restricted stock grants.
Additional information on shares subject to options is as
follows:
The following table summarizes information about stock options
outstanding at May 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Exercise
|
|
|
|
|
|
Exercise
|
|
|
|
Options
|
|
|
Price
|
|
|
Options
|
|
|
Price
|
|
|
Outstanding at beginning of year
|
|
|
1,681,375
|
|
|
$
|
11.08
|
|
|
|
1,746,375
|
|
|
$
|
11.11
|
|
Granted
|
|
|
587,500
|
|
|
|
1.44
|
|
|
|
152,500
|
|
|
|
10.58
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
35,000
|
|
|
|
7.51
|
|
Cancelled
|
|
|
108,750
|
|
|
|
10.89
|
|
|
|
82,500
|
|
|
|
12.70
|
|
Expired
|
|
|
70,000
|
|
|
|
12.83
|
|
|
|
100,000
|
|
|
|
10.84
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of year
|
|
|
2,090,125
|
|
|
$
|
8.32
|
|
|
|
1,681,375
|
|
|
$
|
11.08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at year end
|
|
|
1,287,500
|
|
|
$
|
10.11
|
|
|
|
1,121,000
|
|
|
$
|
10.26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average fair value of options granted during the year
|
|
$
|
1.16
|
|
|
|
|
|
|
$
|
7.61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Options
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Weighted
|
|
|
Exercisable
|
|
|
Average
|
|
|
Weighted
|
|
|
|
|
|
|
Remaining
|
|
|
Average
|
|
|
At
|
|
|
Remaining
|
|
|
Average
|
|
Range of
|
|
Number
|
|
|
Contractual
|
|
|
Exercise
|
|
|
May 31,
|
|
|
Contractual
|
|
|
Exercise
|
|
Exercise Prices
|
|
Outstanding
|
|
|
Life
|
|
|
Price
|
|
|
2008
|
|
|
Life
|
|
|
Price
|
|
|
$ 1.36 4.09
|
|
|
749,500
|
|
|
|
8.26
|
|
|
$
|
1.94
|
|
|
|
206,250
|
|
|
|
6.06
|
|
|
$
|
3.23
|
|
5.08 7.13
|
|
|
184,625
|
|
|
|
4.86
|
|
|
|
5.56
|
|
|
|
184,625
|
|
|
|
4.86
|
|
|
|
5.56
|
|
7.50 9.65
|
|
|
182,500
|
|
|
|
5.73
|
|
|
|
7.59
|
|
|
|
177,500
|
|
|
|
5.66
|
|
|
|
7.53
|
|
10.62 13.06
|
|
|
667,500
|
|
|
|
6.25
|
|
|
|
12.31
|
|
|
|
476,375
|
|
|
|
5.75
|
|
|
|
12.20
|
|
13.21 15.41
|
|
|
86,000
|
|
|
|
4.45
|
|
|
|
14.23
|
|
|
|
77,750
|
|
|
|
4.18
|
|
|
|
14.30
|
|
18.55
|
|
|
220,000
|
|
|
|
6.66
|
|
|
|
18.55
|
|
|
|
165,000
|
|
|
|
6.66
|
|
|
|
18.55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The aggregate intrinsic value for options exercisable and
outstanding in the table above is $0 and based on a weighted
average exercise price of $10.11 for options exercisable at
May 31, 2008 and $10.26 for options exercisable at
May 31, 2007. The total intrinsic value of options
exercised during the fiscal years ended May 31, 2008 and
2007 was $0 and $240,254, respectively. The total fair value of
options vested during the fiscal years ended May 31, 2008
and 2007 was $2,149,413 and $2,297,887, respectively.
In connection with demand notes dated September 23, 1986,
the Company issued warrants to purchase a total of
90,000 shares of common stock at $5.60 per share. The
warrants were exercised on September 30, 1991.
In connection with a demand note dated July 2, 1987, the
Company issued warrants to purchase a total of 3,000 shares
of Series B convertible preferred stock at $35.68 per
share. On June 7, 1988, these warrants were converted to
common stock warrants to purchase 15,000 shares of common
stock at $7.14 per share. The warrants were exercised on
June 29, 1992.
On March 13, 1993, the Company granted warrants to purchase
125,000 shares of common stock at $13.00 per share. These
warrants were cancelled on August 3, 1994 and were reissued
at $8.00 per share. These warrants were exercised on
May 13, 1999.
In connection with a share offering dated July 28, 2003,
the Company issued a warrant to purchase 56,786 shares of
common stock at $7.75 per share. The warrant became exercisable
on July 28, 2004 and expired on July 29, 2008. The
Black-Scholes fair value of this warrant is $282,794. The
assumptions used to calculate the Black-Scholes value were as
follows: the risk-free interest rate was 3.1%, the expected life
was five years and the expected volatility was 82.9%.
In connection with a share offering dated January 29, 2004,
the Company issued a warrant to purchase 96,974 shares of
common stock at $6.88 per share. The warrants were exercised on
December 8, 2006. The
Black-Scholes
fair value of this warrant is $414,079. The assumptions used to
calculate the Black-Scholes value were as follows: the risk free
interest rate was 3.2%, the expected life was five years and the
expected volatility was 74.4%.
In connection with a share offering dated May 18, 2004, the
Company issued a warrant to purchase 58,632 shares of
common stock at $13.73 per share. The warrant became exercisable
on May 18, 2005 and expires on May 17, 2009. The
Black-Scholes fair value of this warrant is $484,887. The
assumptions used to calculate the Black-Scholes value were as
follows: the risk-free interest rate was 4.4%, the expected life
was five years and the expected volatility was 77.8%.
Rent expense amounted to $442,959 and $176,604 for the years
ended May 31, 2008 and 2007, respectively.
56
On June 23, 2006, the Company purchased its research and
manufacturing facility and wrote off the asset retirement
obligation of $249,500 against rental expense. The lease was
collateralized by a $49,200 security deposit that was returned
upon purchase.
The Companys lease for its corporate facility expires
February 14, 2011. The lease is cancelable with six months
notice combined with a termination payment equal to three months
base rent at any time after February 14, 2009. If the lease
is cancelled as of February 14, 2009, unamortized broker
commissions of $17,470 would also be due. The lease is secured
by a security deposit of $19,250 as of May 31, 2008.
At May 31, 2008, future minimum lease payments under the
operating leases are as follows:
|
|
|
|
|
Years Ending
|
|
|
|
May 31,
|
|
Amount
|
|
|
2009
|
|
$
|
367,248
|
|
2010
|
|
|
0
|
|
|
|
|
|
|
|
|
$
|
367,248
|
|
|
|
|
|
|
|
|
(9)
|
Employee
Benefit Plan
|
Effective January 1, 1994, the Company established a
defined contribution 401(k) savings plan covering each employee
of the Company satisfying certain minimum length of service
requirements. Matching contributions to the accounts of plan
participants are made by the Company in an amount equal to 33%
of each plan participants before-tax contribution, subject
to certain maximum contribution limitations, and are made at the
discretion of the Company. Expenses incurred under this plan for
Company contributions for the years ended May 31, 2008 and
2007 amounted to $275,461 and $269,020, respectively.
|
|
(10)
|
Quarterly
Financial Information (Unaudited)
|
The following table shows our quarterly unaudited financial
information for the eight quarters ended May 31, 2008. The
Company has prepared this information on the same basis as the
annual information presented in other sections of this report.
In managements opinion this information reflects fairly,
in all material respects, the results of its operations. You
should not rely on the operating results for any quarter to
predict the results for any subsequent period or for the entire
fiscal year. You should be aware of possible variances in our
future quarterly results. See Risk Factors in the
body of this document.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
(In thousands except per share data)
|
|
|
|
May 31,
|
|
|
Feb. 28,
|
|
|
Nov. 30,
|
|
|
Aug. 31,
|
|
|
May 31,
|
|
|
Feb. 28,
|
|
|
Nov. 30,
|
|
|
Aug. 31,
|
|
|
|
2008
|
|
|
2008
|
|
|
2007
|
|
|
2007
|
|
|
2007
|
|
|
2007
|
|
|
2006
|
|
|
2006
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
4,528
|
|
|
|
3,670
|
|
|
|
3,940
|
|
|
|
3,778
|
|
|
|
5,132
|
|
|
|
4,476
|
|
|
|
5,625
|
|
|
|
5,826
|
|
General and administrative
|
|
|
1,339
|
|
|
|
1,481
|
|
|
|
1,482
|
|
|
|
1,510
|
|
|
|
1,839
|
|
|
|
2,270
|
|
|
|
2,701
|
|
|
|
2,564
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,867
|
|
|
|
5,151
|
|
|
|
5,422
|
|
|
|
5,288
|
|
|
|
6,971
|
|
|
|
6,746
|
|
|
|
8,326
|
|
|
|
8,390
|
|
Other income and expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
117
|
|
|
|
319
|
|
|
|
401
|
|
|
|
482
|
|
|
|
578
|
|
|
|
635
|
|
|
|
723
|
|
|
|
827
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative effect of change in accounting principle
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(5,750
|
)
|
|
|
(4,831
|
)
|
|
|
(5,021
|
)
|
|
|
(4,805
|
)
|
|
|
(6,393
|
)
|
|
|
(6,112
|
)
|
|
|
(7,603
|
)
|
|
|
(7,563
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share basic and diluted
|
|
|
(0.21
|
)
|
|
|
(0.18
|
)
|
|
|
(0.19
|
)
|
|
|
(0.18
|
)
|
|
|
(0.24
|
)
|
|
|
(0.23
|
)
|
|
|
(0.28
|
)
|
|
|
(0.28
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in calculation
|
|
|
26,955
|
|
|
|
26,959
|
|
|
|
26,938
|
|
|
|
26,915
|
|
|
|
26,906
|
|
|
|
26,911
|
|
|
|
26,800
|
|
|
|
26,776
|
|
Between March 17, 2006 and May 15, 2006, ten separate
complaints were filed, each purporting to be on behalf of a
class of the Companys shareholders, against the Company
and Dr. Steven A. Gould, the Companys Chief Executive
Officer, and Richard DeWoskin, the Companys former Chief
Executive Officer. Those putative
57
class actions were consolidated in a case pending in the United
States District Court for the Northern District of Illinois
Eastern Division. The Consolidated Amended Class Action
Complaint was filed on September 8, 2006, and alleged,
among other things, that during the period from March 19,
2001 through March 20, 2006, the named defendants made or
caused to be made a series of materially false or misleading
statements and omissions about the Companys elective
surgery clinical trial and business prospects in violation of
Section 10(b) of the Securities Exchange Act of 1934, as
amended, and
Rule 10b-5
promulgated there under, and Section 20(a) of the Exchange
Act. Plaintiffs alleged that those allegedly false and
misleading statements and omissions caused the purported class
to purchase the Companys common stock at artificially
inflated prices. As relief, the complaint sought, among other
things, a declaration that the action be certified as a proper
class action, unspecified compensatory damages (including
interest) and payment of costs and expenses (including fees for
legal counsel and experts). The Company and the individual
defendants filed a motion to dismiss the complaint, and on
September 25, 2007, the court granted that motion, finding
that the plaintiffs failed to state a claim. The court dismissed
the complaint without prejudice, and on November 20, 2007,
the plaintiffs filed a Consolidated Second Amended
Class Action Complaint. On January 22, 2008, the
Company filed a motion to dismiss, and the briefing of that
motion was completed on June 26, 2008. The fully briefed
motion to dismiss currently is pending before the court. The
putative class action is at an early stage and it is not
possible to predict the outcome.
58
EXHIBITS
|
|
|
|
|
Number
|
|
Description
|
|
|
3
|
.1
|
|
Restated Certificate of Incorporation of the Registrant
(incorporated herein by reference to Exhibit 3.1 to the
Registrants Current Report on
Form 8-K
filed by the Registrant with the Commission on October 5,
2005 and Exhibit 3.11 to the Registrants Quarterly
Report on
Form 10-Q
for the Registrants quarter ended November 30, 1999)
|
|
3
|
.2
|
|
Restated Bylaws of the Registrant (incorporated herein by
reference to Exhibit 3.1 to the Registrants Current
Report on
Form 8-K
filed by the Registrant with the Commission on November 30,
2007)
|
|
10
|
.1
|
|
Sublease dated as of April 20, 1988 between the Registrant
and First Illinois Bank of Evanston, N.A., as Trustee
(incorporated herein by reference to Exhibit 10.1 to the
Registrants Registration Statement on
Form S-1,
filed with the Securities and Exchange Commission (the
Commission) on March 25, 1994, File
No. 33-76856
(the
S-1
Registration Statement))
|
|
10
|
.2
|
|
Amendment to Sublease dated as of January 7, 1998 between
the Registrant and Bank One of Illinois, N.A., as successor to
First Illinois Bank of Evanston, N.A. (incorporated herein by
reference to Exhibit 10.1.1 to the Registrants
Quarterly Report on
Form 10-Q
for the Registrants quarter ended February 28, 1998)
|
|
10
|
.4
|
|
Second Amendment to Lease between the Registrant and Rotary
International (incorporated by reference to Exhibit 10.1 to
the
Form 8-K
filed by the Registrant with the Commission on March 7,
2005)
|
|
10
|
.5
|
|
License Agreement dated as of March 6, 1989 between the
Registrant and KabiVitrum AB (predecessor of
Pharmacia & Upjohn Inc.) (incorporated herein by
reference to Exhibit 10.6 to the
S-1
Registration Statement)
|
|
10
|
.6
|
|
License Agreement dated as of July 20, 1990 between the
Registrant and Eriphyle BV (incorporated herein by reference to
Exhibit 10.7 to the
S-1
Registration Statement)
|
|
10
|
.7*
|
|
Northfield Laboratories Inc. 401(K) Plan (incorporated herein by
reference to Exhibit 10.14 to the
S-1
Registration Statement)
|
|
10
|
.8*
|
|
Northfield Laboratories Inc. Nonqualified Stock Option Plan for
Outside Directors (incorporated herein by reference to
Exhibit 10.15 to the Registrants Annual Report on
Form 10-K
for the Registrants fiscal year ended May 31, 1994)
|
|
10
|
.9*
|
|
Northfield Laboratories Inc. 1996 Stock Option Plan
(incorporated herein by reference to Exhibit 10.5.1 to the
Registrants Quarterly Report on
Form 10-Q
for the Registrants quarter ended November 30, 1997)
|
|
10
|
.10*
|
|
Northfield Laboratories Inc. 1999 Stock Option Plan
(incorporated herein by reference to Exhibit 10.10 to the
Registrants Annual Report on
Form 10-K
for the Registrants fiscal year ended May 31, 1999)
|
|
10
|
.11*
|
|
Northfield Stock Option Plan for New Employees (incorporated
herein by reference to Exhibit 10.12 to the
Registrants Registration Statement on
Form S-3
filed with the Securities and Exchange Commission on
June 27, 2003, File
No. 333-106615
the
S-3
Registration Statement)
|
|
10
|
.12*
|
|
Northfield Laboratories Inc. 2003 Equity Compensation Plan
(incorporated herein by reference to Exhibit 10.1 to the
Registrants Registration Statement on
Form S-8
filed with the Securities and Exchange Commission on
October 30, 2003, File
No. 333-110110)
|
|
10
|
.13*
|
|
Employment Agreement dated as of January 25,2005 between
the Registrant and Steven A. Gould, M.D. (incorporated
herein by reference to Exhibit 99.1 to the
Form 8-K
filed by the Registrant with the Commission on February 1,
2005)
|
|
10
|
.14*
|
|
Employment Agreement dated as of January 25, 2005 between
the Registrant and Jack J. Kogut (incorporated herein by
reference to Exhibit 99.2 to the
Form 8-K
filed by the Registrant with the Commission on February 1,
2005)
|
|
10
|
.15*
|
|
Form of Indemnification Agreement Director and
Executive Officer (incorporated herein by reference to
Exhibit 10.18 to the Registrants Quarterly Report on
Form 10-Q
for the Registrants quarter ended February 28, 2001)
|
|
10
|
.16*
|
|
Form of Indemnification Agreement Director
(incorporated herein by reference to Exhibit 10.19 to the
Registrants Quarterly Report on
Form 10-Q
for the Registrants quarter ended February 28, 2001)
|
|
10
|
.17*
|
|
Form of Indemnification Agreement Executive Officer
(incorporated herein by reference to Exhibit 10.20 to the
Registrants Quarterly Report on
Form 10-Q
for the Registrants quarter ended February 28, 2001)
|
59
|
|
|
|
|
Number
|
|
Description
|
|
|
10
|
.18
|
|
Agreement of Purchase and Sale dated June 12, 2006 between
First Industrial, L.P. and the Registrant (incorporated herein
by reference to Exhibit 10.8 to the Registrants
Annual Report on
Form 10-K
for the Registrants fiscal year ended May 31, 2007)
|
|
23
|
.1
|
|
Consent of Independent Registered Public Accounting Firm
|
|
31
|
.1
|
|
Certification Pursuant to
Rule 13a-14(a)/15d-14(a)
|
|
31
|
.2
|
|
Certification Pursuant to
Rule 13a-14(a)/15d-14(a)
|
|
32
|
.1
|
|
Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002
|
|
32
|
.2
|
|
Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes- Oxley Act
of 2002
|
|
|
|
* |
|
Indicates a management contract or compensatory plan or
arrangement required to be filed as an exhibit to
Form 10-K
pursuant to Item 14(c). |
60
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Company has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized, on this August 14, 2008.
NORTHFIELD LABORATORIES INC.
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|
|
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By:
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/s/ Steven
A. Gould, M.D.
|
Steven A. Gould, M.D.
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the Company in the capacities indicated on
August 14, 2008.
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|
|
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Signature
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Title
|
|
|
|
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/s/ Steven
A. Gould, M.D.
Steven
A. Gould, M.D.
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|
Chairman of the Board and Chief Executive Officer
(principal executive officer)
|
|
|
|
/s/ Donna
ONeill-Mulvihill
Donna
ONeill-Mulvihill
|
|
Vice President Finance
(principal financial and accounting officer)
|
|
|
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/s/ John
F. Bierbaum
John
F. Bierbaum
|
|
Director
|
|
|
|
/s/ Bruce
S. Chelberg
Bruce
S. Chelberg
|
|
Director
|
|
|
|
/s/ Alan
L. Heller
Alan
L. Heller
|
|
Director
|
|
|
|
/s/ Paul
M. Ness, M.D.
Paul
M. Ness, M.D.
|
|
Director
|
|
|
|
/s/ David
A. Savner
David
A. Savner
|
|
Director
|
|
|
|
/s/ Edward
C. Wood, Jr.
Edward
C. Wood, Jr.
|
|
Director
|
61