As filed with the U.S. Securities and Exchange Commission on March 31, 2006

Registration No. 333-131817

 

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

 

 

Amendment No. 1 to

Form S-4

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

 

 

 

 

CANCERVAX CORPORATION

(Exact name of Registrant as specified in its charter)

 

 

 

 

 

2110 Rutherford Road

Carlsbad, California 92008

(760) 494-4200

(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)

 

Hazel M. Aker, Esq.

Senior Vice President, General

Counsel and Secretary

CancerVax Corporation

2110 Rutherford Road

Carlsbad, CA 92008

(760) 494-4200

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

Copies to:

 

 

Approximate date of commencement of proposed sale to the public:  As soon as practicable after the effectiveness of this registration statement and the satisfaction or waiver of all other conditions under the merger agreement described herein.

 

If the securities being registered on this form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box.  o

 

If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o

 

If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o

 

The Registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment that specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

 

SUBJECT TO COMPLETION, DATED MARCH 31, 2006

 

ANNUAL MEETING OF STOCKHOLDERS
MERGER PROPOSED — YOUR VOTE IS VERY IMPORTANT

 

The boards of directors of CancerVax Corporation, or CancerVax, and Micromet AG, or Micromet, have approved a merger combining CancerVax and Micromet. Subject to CancerVax stockholder approval of the merger, and upon the terms and subject to the conditions set forth in the merger agreement, CancerVax has agreed to issue, and Micromet securityholders will receive, shares of CancerVax common stock such that Micromet securityholders will own approximately 67.5% of the combined company on a fully-diluted basis, and CancerVax securityholders will own approximately 32.5% of the combined company on a fully-diluted basis.

 

The merger agreement provides that Carlsbad Acquisition Corporation, or Merger Sub, which is a wholly-owned subsidiary of CancerVax, will merge with and into Micromet, Inc., or Micromet Parent, with Micromet Parent becoming a wholly-owned subsidiary of CancerVax and the surviving corporation of the merger. The merger agreement also provides that immediately prior to the merger, the holders of equity interests of Micromet will exchange their interests for shares of common stock of Micromet Parent in an exchange transaction, which will result in Micromet becoming a wholly-owned subsidiary of Micromet Parent. Accordingly, as a result of the merger, Micromet Parent will survive as a wholly-owned direct subsidiary of CancerVax and, in turn, Micromet will be a wholly-owned indirect subsidiary of CancerVax. Following the merger, CancerVax will change its corporate name to Micromet, Inc. as required by the merger agreement.

 

Stockholders of CancerVax will be asked, at CancerVax’s annual meeting of stockholders, among other proposals, to approve the issuance of shares of CancerVax common stock to the stockholders of Micromet Parent in the merger, and the resulting change of control of CancerVax.

 

The date, time and place of the CancerVax annual meeting is as follows:

 

May 3, 2006

9:00 a.m., local time

CancerVax Corporation

2110 Rutherford Road

Carlsbad, CA 92008

 

This proxy statement/prospectus provides you with information about CancerVax, Micromet and the proposed merger. All information required to be distributed in the 2005 annual report to CancerVax stockholders in connection with the CancerVax annual meeting is included in this proxy statement/prospectus. No separate annual report will be distributed to CancerVax stockholders prior to the CancerVax annual meeting. You may obtain other information about CancerVax from documents filed with the Securities and Exchange Commission. We encourage you to carefully read the entire proxy statement/prospectus.

 

 

FOR A DISCUSSION OF SIGNIFICANT MATTERS THAT SHOULD BE CONSIDERED BEFORE VOTING AT THE ANNUAL MEETING, SEE “RISK FACTORS” BEGINNING ON PAGE 31.

 

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES REGULATORS HAVE APPROVED OR DISAPPROVED THIS TRANSACTION OR THE CANCERVAX COMMON STOCK TO BE ISSUED IN THE MERGER OR DETERMINED WHETHER THIS PROXY STATEMENT/PROSPECTUS IS ACCURATE OR ADEQUATE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

 

This proxy statement/prospectus is dated [          ], 2006, and is first being mailed to stockholders of CancerVax and Micromet on or about [          ], 2006.

 

THIS PROXY STATEMENT/PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.

 

CANCERVAX CORPORATION
2110 Rutherford Road
Carlsbad, CA 92008
(760) 494-4200

 

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

 

TO BE HELD ON MAY 3, 2006

 

 

 

 

To the Stockholders of CancerVax Corporation:

 

On behalf of the board of directors of CancerVax Corporation, a Delaware corporation, we are pleased to deliver this proxy statement/prospectus for the proposed merger combining CancerVax and Micromet AG, a corporation organized under the laws of Germany. An annual meeting of stockholders of CancerVax will be held on May 3, 2006 at 9:00 a.m., local time, at CancerVax Corporation, 2110 Rutherford Road, Carlsbad, California, for the following purposes:

 

1. To consider and vote upon a proposal to approve the issuance of CancerVax common stock pursuant to the Agreement and Plan of Merger and Reorganization, dated as of January 6, 2006 and amended as of March 17, 2006, by and among CancerVax, Carlsbad Acquisition Corporation, a wholly-owned subsidiary of CancerVax, Micromet, Inc., a Delaware corporation, and Micromet AG, a corporation organized under the laws of Germany, and the resulting change of control of CancerVax, as described in the attached proxy statement/prospectus.

 

2. To approve an amendment to CancerVax’s amended and restated certificate of incorporation to increase the number of authorized shares of common stock from 75,000,000 shares to 150,000,000 shares, which represents an additional 75,000,000 shares, as described in the attached proxy statement/prospectus.

 

3. To authorize the board of directors of CancerVax to amend in its discretion CancerVax’s amended and restated certificate of incorporation to effect a reverse stock split of the CancerVax common stock, at a ratio within the range of 1:2 to 1:4, and at such ratio to be determined by the board of directors of CancerVax, as described in the attached proxy statement/prospectus.

 

4. To approve an amendment to CancerVax’s amended and restated certificate of incorporation to change the name of “CancerVax Corporation” to “Micromet, Inc.”

 

5. To elect three directors for a three-year term to expire at the 2009 annual meeting of stockholders; provided, however, that, if the merger is completed, CancerVax’s board of directors will consist of the nine people identified in the accompanying proxy statement/prospectus.

 

6. To ratify the selection of Ernst & Young LLP as CancerVax’s independent registered public accounting firm for the fiscal year ending December 31, 2006.

 

7. To consider and vote upon an adjournment of the annual meeting, if necessary, if a quorum is present, to solicit additional proxies if there are not sufficient votes in favor of Proposal Nos. 1 through 6.

 

8. To transact such other business as may properly come before the annual meeting or any adjournment or postponement thereof.

 

The board of directors of CancerVax has fixed March 27, 2006 as the record date for the determination of stockholders entitled to notice of, and to vote at, the annual meeting and any adjournment or postponement thereof. Only holders of record of shares of CancerVax common stock at the close of business on the record date are entitled to notice of, and to vote at, the annual meeting. At the close of business on the record date, CancerVax had 27,955,139 shares of common stock outstanding and entitled to vote.

 

Your vote is important. The affirmative vote of the holders of a majority of the votes cast in person or by proxy at the CancerVax annual meeting is required for approval of Proposal Nos. 1, 6 and 7 above. The affirmative vote of holders of a majority of the outstanding common stock is required for approval of Proposal Nos. 2, 3 and 4. The affirmative vote of holders of a plurality of the votes cast in person or by proxy is required to elect the directors in Proposal No. 5. Even if you plan to attend the annual meeting in person, we request that you sign and return the enclosed proxy and thus ensure that your shares will be represented at

the annual meeting if you are unable to attend. If you sign, date and mail your proxy card without indicating how you wish to vote, your proxy will be counted as a vote in favor of Proposal Nos. 1 through 7. If you fail to return your proxy card, the effect will be that your shares will not be counted for purposes of determining whether a quorum is present at the annual meeting and will count as a vote against Proposal Nos. 2, 3 and 4. If you do attend the CancerVax annual meeting and wish to vote in person, you may withdraw your proxy and vote in person.

 

By Order of the Board of Directors,

 

 

David F. Hale

President and Chief Executive Officer
Carlsbad, California
[          ], 2006

 

THE CANCERVAX BOARD OF DIRECTORS HAS DETERMINED AND BELIEVES THAT EACH OF THE PROPOSALS OUTLINED ABOVE IS ADVISABLE TO, AND IN THE BEST INTERESTS OF, CANCERVAX AND ITS STOCKHOLDERS AND HAS APPROVED EACH SUCH PROPOSAL. THE CANCERVAX BOARD OF DIRECTORS RECOMMENDS THAT CANCERVAX STOCKHOLDERS VOTE “FOR” EACH SUCH PROPOSAL.

 

TABLE OF CONTENTS

 

 

Except where specifically noted, the following information and all other information contained in this proxy statement/prospectus does not give effect to the proposed reverse stock split described in CancerVax’s Proposal No. 3.

 

The following section provides answers to frequently asked questions about the merger and the effect of the merger on holders of CancerVax common stock and Micromet capital stock. This section, however, only provides summary information. CancerVax and Micromet urge you to read carefully the remainder of this proxy statement/prospectus, including the annexes to this proxy statement/prospectus, because the information in this section does not provide all the information that might be important to you regarding the merger and the other matters being considered at the annual meeting.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The voluntary resignation of William LaRue will become effective on June 1, 2006. Mr. LaRue has agreed to provide consulting services to the combined company until August 15, 2006, in order to assist with post-merger integration activities, for compensation of $50,000.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CancerVax Corporation

Attn: Investor Relations

2110 Rutherford Road

Carlsbad, California 92008

(760) 494-4200

E-mail: investors@cancervax.com

 

 

Micromet AG

Attn: Investor Relations

Staffelseestr. 2

81477 Munich

Germany

Phone: +49 (0) 89/895277-0

Email: ir@micromet.de

 

This summary highlights selected information from this proxy statement/prospectus. To understand the merger fully, you should read carefully this entire document and the documents to which we refer, including the annexes attached hereto. See “Where You Can Find More Information” on page 247. The merger agreement is attached as Annex A to this proxy statement/prospectus. We encourage you to read the merger agreement as it is the legal document that governs the merger. We have included page references in parentheses to direct you to a more detailed description of the topics presented in this summary.

 

Except where specifically noted, the following information and all other information contained in this proxy statement/prospectus does not give effect to the proposed reverse stock split described in CancerVax’s Proposal No. 3.

 

THE COMPANIES

 

CancerVax Corporation

2110 Rutherford Road

Carlsbad, California 92008

(760) 494-4200

 

CancerVax is a biotechnology company focused on the research, development and commercialization of novel biological products for the treatment of cancer. CancerVax’s leading product candidate, D93, is a humanized, monoclonal, anti-angiogenic antibody that is currently being evaluated in pre-clinical studies. D93 has been shown to selectively bind to denatured or remodeled protein in diseased or damaged tissues, but not to native collagen in the extra-cellular matrix of healthy tissue, and has demonstrated the ability to selectively bind to denatured collagen targets in colon, melanoma, lung, and breast cancer tumors grown in xenogeneic mouse models. CancerVax submitted an Investigational New Drug Application, or IND, for D93 to the U.S. Food and Drug Administration in February 2006, to initiate a Phase I clinical trial for D93.

 

Carlsbad Acquisition Corporation is a wholly-owned subsidiary of CancerVax that was incorporated in Delaware in January 2006. Carlsbad Acquisition Corporation does not engage in any operations and exists solely to facilitate the merger.

 

Micromet AG

Staffelseestr. 2

81477 Munich

Germany

+49 (0) 89/895277-0

 

Micromet AG is a privately-held European biopharmaceutical company focused on the development of antibody-based drugs. Micromet’s leading product candidate, adecatumumab (MT201), is a recombinant human monoclonal antibody with a binding specificity to epithelial cell adhesion molecule (Ep-CAM). Adecatumumab (MT201) is being evaluated in two European Phase 2 clinical trials, one in patients with prostate cancer, and one in patients with metastatic breast cancer. Adecatumumab (MT201) is also being studied as a combination therapy with Taxotere^® (docetaxel) in a Phase 1 clinical trial for the treatment of patients with metastatic breast cancer. Micromet’s other leading product candidate, MT103, is being evaluated in a European Phase 1 clinical trial for the treatment of patients with non-Hodgkin’s lymphoma.

 

Micromet, Inc., which was incorporated in Delaware in January 2006, does not engage in any operations and exists solely to facilitate the merger.

 

The Combined Company

 

The combined company’s U.S. headquarters immediately following the consummation of the merger will be located at CancerVax’s current principal executive offices in Carlsbad, California, while the combined company’s German headquarters will remain in Munich, Germany. The combined company intends to move its U.S. headquarters to the eastern United States later in 2006. As a result of the merger, former Micromet shareholders will

possess majority control of the combined company. Current management of Micromet will be responsible for the day-to-day management of the combined company.

 

RISKS ASSOCIATED WITH CANCERVAX, MICROMET AND THE MERGER (PAGE 31)

 

The merger (including the possibility that the merger may not be completed) poses a number of risks to each company and its respective security holders. In addition, both CancerVax and Micromet are subject to various risks associated with their businesses and their industries. The risks are discussed in greater detail under the caption “Risk Factors” beginning on page 31 of this proxy statement/prospectus. CancerVax and Micromet both encourage you to read and consider all of these risks carefully.

 

REASONS FOR THE MERGER

 

The following discussion of the parties’ reasons for the merger contains a number of forward-looking statements that reflect the current views of CancerVax and/or Micromet with respect to future events that may have an effect on their future financial performance. Forward-looking statements are subject to risks and uncertainties. Actual results and outcomes may differ materially from the results and outcomes discussed in the forward-looking statements. Cautionary statements that identify important factors that could cause or contribute to differences in results and outcomes include those discussed in “Summary — Forward-Looking Information” and “Risk Factors.”

 

Mutual Reasons for the Merger (Page 73).  CancerVax and Micromet believe that the combined company represents a biotechnology company with the following potential advantages:

 

 

 

 

CancerVax’s Reasons for the Merger (Page 73).  The CancerVax board of directors approved the merger based on a number of factors, including the following:

 

 

 

In addition to considering the strategic factors outlined above, the CancerVax board of directors considered the following factors in reaching its conclusion to approve the merger and to recommend that the CancerVax stockholders approve the issuance of shares of CancerVax common stock in the merger and resulting change of control of CancerVax, all of which it viewed as generally supporting its decision to approve the business combination with Micromet:

 

 

 

 

In the course of its deliberations, CancerVax’s board of directors also considered a variety of risks and other countervailing factors related to entering into the merger agreement, including the following:

 

 

 

 

Micromet’s Reasons for the Merger (Page 75).  The Micromet supervisory board approved the merger based on a number of factors, including the following:

 

 

 

 

In addition to considering the strategic factors outlined above, the Micromet supervisory board considered the following factors in reaching its conclusion to approve the merger, all of which it viewed as generally supporting its decision to approve the business combination with CancerVax:

 

 

 

 

 

 

 

 

In the course of its deliberations, Micromet’s supervisory board also considered a variety of risks and other countervailing factors related to entering into the merger agreement, including the following:

 

 

EFFECT OF FAILURE TO APPROVE THE MERGER BY THE STOCKHOLDERS

 

CancerVax

 

CancerVax will continue to have significant cash resources. The growth of CancerVax will be largely based on the success of a single product candidate, D93, for the treatment of patients with solid tumors, as CancerVax is currently pursuing sublicensing opportunities for SAI-EGF, its clinical-stage product candidate, and two pre-clinical product candidates. CancerVax submitted an IND for D93 to the FDA in February 2006, and plans to initiate a Phase 1 clinical trial for D93 later in 2006, however, this product candidate will require substantial testing in humans prior to commercialization. CancerVax may lack the personnel and financial resources to complete the testing of D93 in a timely manner and, as a result, could lose its rights to develop this product candidate.

 

Micromet

 

Micromet will continue to have a broad and deep pipeline of product candidates. The growth of Micromet will be largely based on the success of the product candidates in its portfolio. To support the development, registration and commercialization of those product candidates, Micromet will soon need to raise significant additional capital.

 

COMPARATIVE PER SHARE MARKET PRICE INFORMATION

 

CancerVax common stock is listed on the Nasdaq National Market under the symbol “CNVX.” On January 6, 2006, the last full trading day prior to the public announcement of the proposed merger, CancerVax common stock closed at $1.49. On March 27, 2006, CancerVax common stock closed at $3.00.

 

Micromet is a private company and no public market exists for its ordinary shares or preference shares.

 

NUMBER OF STOCKHOLDERS

 

As of the record date of March 27, 2006, there were approximately 214 holders of record of CancerVax common stock.

 

As of March 27, 2006, there were approximately 43 holders of record of Micromet ordinary shares and preference shares.

 

THE CANCERVAX ANNUAL MEETING

 

The CancerVax Annual Meeting (Page 64)

 

Time, Date and Place.  The annual meeting of the stockholders of CancerVax will be held on May 3, 2006, at CancerVax Corporation at 2110 Rutherford Road, Carlsbad, California at 9:00 a.m., local time, to vote on Proposal No. 1 to approve the issuance of shares of CancerVax common stock in the merger, and the resulting change of control of CancerVax; Proposal No. 2 to approve the amendment to CancerVax’s amended and restated certificate of incorporation to increase the number of authorized shares of common stock from 75,000,000 shares to 150,000,000 shares; Proposal No. 3 to approve the authorization of the board of directors of CancerVax to amend in its discretion CancerVax’s amended and restated certificate of incorporation to effect a reverse stock split of CancerVax’s common stock, at a ratio within the range of 1:2 to 1:4; Proposal No. 4 to approve the amendment to CancerVax’s amended and restated certificate of incorporation to change the name of “CancerVax Corporation” to “Micromet, Inc.”; Proposal No. 5 to elect three directors for a three-year term to expire at the 2009 annual meeting of stockholders; provided, however, that, if the merger is completed, CancerVax’s board of directors will consist of the nine people identified in this proxy statement/prospectus under “Management of the Combined Company After the Merger” below; Proposal No. 6 to ratify the selection of Ernst & Young LLP as CancerVax’s independent registered public accounting firm for the fiscal year ending December 31, 2006; and Proposal No. 7 to adjourn the annual meeting, if necessary, if a quorum is present, to solicit additional proxies if there are not sufficient votes in favor of Proposal Nos. 1 through 6.

 

Record Date and Voting Power for CancerVax.  You are entitled to vote at the CancerVax annual meeting if you owned shares of CancerVax common stock at the close of business on March 27, 2006, the record date for the CancerVax annual meeting. You will have one vote at the annual meeting for each share of CancerVax common

stock you owned at the close of business on the record date. There are 27,955,139 shares of CancerVax common stock entitled to vote at the annual meeting.

 

CancerVax Required Vote.  The affirmative vote of the holders of a majority of the votes cast in person or by proxy at the CancerVax annual meeting is required for approval of Proposal Nos. 1, 6 and 7 above. The affirmative vote of holders of a majority of the outstanding common stock is required for approval of Proposal Nos. 2, 3 and 4. The affirmative vote of holders of a plurality of the votes cast in person or by proxy is required to elect the directors in Proposal No. 5.

 

Share Ownership of Management.  As of March 27, 2006, the directors and executive officers of CancerVax, together with their affiliates, beneficially owned approximately 37.3% of the shares entitled to vote at the CancerVax annual meeting. Certain executive officers and affiliates of CancerVax, holding approximately 30% of CancerVax’s outstanding common stock, have agreed to vote their shares in favor of the issuance of shares of CancerVax common stock in the merger, and the resulting change of control of CancerVax.

 

RECOMMENDATIONS TO CANCERVAX STOCKHOLDERS

 

The CancerVax board of directors has determined and believes that the issuance of shares of CancerVax common stock in the merger, and the resulting change of control of CancerVax, is advisable and fair to, and in the best interest of, CancerVax and its stockholders. The CancerVax board of directors recommends that the holders of CancerVax common stock vote:

 

“For” Proposal No. 1 to approve the issuance of shares of CancerVax common stock in the merger, and the resulting change of control of CancerVax;

 

“For” Proposal No. 2 to approve the increase in the number of authorized shares of common stock to 150,000,000;

 

“For” Proposal No. 3 to authorize the CancerVax board of directors to effect the reverse stock split;

 

“For” Proposal No. 4 to approve the name change of “CancerVax Corporation” to “Micromet, Inc.”;

 

“For” Proposal No. 5 to elect three directors for a three-year term to expire at the 2009 annual meeting of stockholders; provided, however, that, if the merger is completed, CancerVax’s board of directors will consist of the nine people identified in this proxy statement/prospectus;

 

“For” Proposal No. 6 to ratify the selection of Ernst & Young LLP as CancerVax’s independent registered public accounting firm for the fiscal year ending December 31, 2006; and

 

“For” Proposal No. 7 to adjourn the CancerVax annual meeting, if necessary, if a quorum is present, to solicit additional proxies if there are not sufficient votes in favor of proposal Nos. 1 through 6.

 

CancerVax Proposal No. 1 — Approval of the Issuance of Shares of CancerVax Common Stock in the Merger and the Resulting Change of Control of CancerVax

 

The Merger (Page 69)

 

Merger Sub will be merged with and into Micromet Parent. Micromet Parent will be the surviving corporation and will continue as a wholly-owned subsidiary of CancerVax. Immediately prior to the merger, the holders of equity interests of Micromet will exchange their interests for shares of common stock in Micromet Parent in an exchange transaction (the “Micromet Reorganization”) that will result in Micromet becoming a wholly-owned subsidiary of Micromet Parent. As a result of the merger, Micromet will survive as a wholly-owned indirect subsidiary of CancerVax. Following the merger, CancerVax will change its name to Micromet, Inc. In the merger, all shares of Micromet Parent capital stock will be cancelled and Micromet shareholders, option holders, warrant holders and note holders will receive the number of shares, or options and warrants to acquire shares, of CancerVax common stock equal to approximately 67.5% of the fully-diluted shares of the combined company. The approval of this matter by CancerVax stockholders is contingent upon receiving stockholder approval of CancerVax Proposal Nos. 1 through 4. Micromet and Micromet Parent have already approved the merger. No separate approval of the

merger by the shareholders of Micromet is required and the sole stockholder of Micromet Parent has already consented to the merger.

 

Merger Consideration; Manner and Basis of Converting Shares (Page 94)

 

As a result of the merger, all shares of Micromet Parent capital stock will automatically be cancelled and Micromet Parent stockholders, together with holders of options, warrants and other rights to acquire shares of Micromet Parent common stock, will receive an aggregate number of shares of CancerVax common stock equal to 67.5% of the fully-diluted shares of the combined company. There will be no adjustment to the total number of shares of CancerVax common stock to be issued to Micromet Parent stockholders or holders of options, warrants or other rights to acquire shares of Micromet Parent common stock for changes in the market price of CancerVax common stock. Further, the merger agreement does not include a price-based termination right. Accordingly, the market value of the shares of CancerVax issued in connection with the merger will depend on the market value of the shares of CancerVax common stock at the time of effectiveness of the merger, and could vary significantly from the market value on the date of this document.

 

The fixed number of shares of CancerVax common stock to be issued in exchange for all shares of Micromet Parent stock at the consummation of the merger will be allocated among:

 

 

 

 

The shares of CancerVax common stock to be issued in connection with the merger will be allocated to the Micromet Parent stockholders and holders of options, warrants and other rights to acquire shares of Micromet Parent common stock on a pro rata basis.

 

Micromet Parent Stock Options (Page 96)

 

Each outstanding option granted by Micromet Parent to purchase shares of Micromet Parent common stock will be converted into an option to acquire CancerVax common stock having the same terms and conditions as the Micromet Parent stock option. The number of shares that the new CancerVax option will be exercisable for and the exercise price of the new CancerVax option will reflect the exchange ratio in the merger. The number of shares of CancerVax common stock issuable upon the exercise of each stock option will be rounded down to the nearest whole number of shares of CancerVax common stock, and the exercise price will be rounded up to the nearest whole cent. The number of shares of CancerVax common stock issuable upon exercise of the new CancerVax options is part of the 67.5% of the fully-diluted shares of the combined company described under “Merger Consideration; Manner and Basis for Converting Shares.”

 

Micromet Parent Warrants (Page 96)

 

Each outstanding warrant granted by Micromet Parent to purchase shares of Micromet Parent common stock will be converted into a warrant to acquire CancerVax common stock having the same terms and conditions as the Micromet Parent warrant. The number of shares that the new CancerVax warrant will be exercisable for and the exercise price of the new CancerVax warrant will reflect the exchange ratio in the merger. The number of shares of CancerVax common stock issuable upon the exercise of each warrant will be rounded down to the nearest whole number of shares of CancerVax common stock, and the exercise price will be rounded up to the nearest whole cent. The number of shares of CancerVax common stock issuable upon exercise of the new CancerVax warrants is part of

the 67.5% of the fully-diluted shares of the combined company described under “Merger Consideration; Manner and Basis for Converting Shares.”

 

MedImmune Note (Page 96)

 

In conjunction with the execution of a collaboration agreement between Micromet and MedImmune, Inc. in 2003, Micromet issued a €10,000,000 convertible note to MedImmune Ventures, Inc. The terms of that note, as amended on October 11, 2005, provide that the holder has the right, immediately prior to the effectiveness of the merger, to convert the note in full into Micromet preference shares series (A new) if the pre-money valuation of Micromet in such transaction is €120,000,000 or more; if the valuation of Micromet is less, the conversion rate is a pro rata percentage determined as the pre-money valuation of Micromet in such transaction divided by €120,000,000, multiplied by one hundred. In addition, if the combined company after the merger holds more than €30,000,000 in cash, then MedImmune has the right (but not the obligation) to accelerate repayment of the loan in an amount equal to the principal balance multiplied by a fraction (A) the numerator of which is the amount of cash held by the combined company in excess of €30,000,000 and (B) the denominator of which is €30,000,000, to the extent such principal balance has not been converted as described in the immediately preceding sentence. As a result, if the combined company has at least €60,000,000 in cash, MedImmune may require the loan to be repaid in full. In each case, any remainder of the note remains outstanding until the due date in accordance with the terms of the note. The note bears interest at 4.5% per annum and is due in June 2010 unless earlier converted or repaid. MedImmune has informed Micromet that it desires to convert its note to the fullest extent possible in connection with the merger. Based upon the closing price of CancerVax stock on March 27, 2006, it is expected that all of the principal under the MedImmune note will convert in connection with the merger.

 

Fairness Opinion Received by CancerVax (Page 77)

 

Piper Jaffray delivered its opinion to CancerVax’s board of directors that, as of January 6, 2006 and based on and subject to the factors, assumptions and limitations set forth therein, the total merger consideration to be paid to the holders of Micromet Parent common stock in the merger was fair to CancerVax from a financial point of view. For the purposes of Piper Jaffray’s opinion, the shares of CancerVax common stock to be exchanged for outstanding shares of Micromet Parent common stock (determined as set forth in Section 1.6(a)(ii) of the merger agreement) were referred to as the “merger consideration.”

 

The full text of the written opinion of Piper Jaffray, dated January 6, 2006, which sets forth the assumptions made, procedures followed, matters considered and limitations on the review undertaken in connection with the opinion, is attached to this proxy statement/prospectus as Annex C. Piper Jaffray provided its opinion for the information and assistance of CancerVax’s board of directors in connection with its consideration of the merger. The Piper Jaffray opinion is not a recommendation as to how any holder of CancerVax common stock should vote with respect to the issuance of shares of CancerVax common stock in the merger. CancerVax urges you to read the entire opinion carefully.

 

Interests of CancerVax’s Executive Officers and Directors in the Merger (Page 85)

 

When considering the recommendation by the CancerVax board of directors, you should be aware that a number of CancerVax’s executive officers and directors have interests in the merger that are different from those of other CancerVax stockholders.

 

David F. Hale is the President and Chief Executive Officer, a member of the board of directors, a stockholder and a holder of options to purchase stock of CancerVax. Hazel M. Aker is the Senior Vice President, General Counsel and Secretary, a stockholder and a holder of options to purchase stock of CancerVax. William R. LaRue is the Senior Vice President and Chief Financial Officer, a stockholder and a holder of options to purchase stock of CancerVax. Upon closing of the merger, David Hale will become the Chairman of the board of directors of the combined corporation. William LaRue and Hazel Aker have agreed to provide consulting services to the combined company until August 15, 2006, each for compensation of $50,000, in order to assist with post-merger integration activities. David Hale, Hazel Aker and William LaRue participated in the negotiation and approval of the terms of

the merger on behalf of CancerVax, following disclosure of all material facts regarding their respective interests (or potential interests) in the merger.

 

Following the merger, in addition to David Hale, current CancerVax board members Phillip Schneider, Michael Carter and Barclay Phillips will continue to serve on the board of directors of the combined corporation.

 

As of March 27, 2006, all directors and executive officers of CancerVax, together with their affiliates, beneficially owned 37.3% of the shares of CancerVax common stock. Approval of the merger requires the affirmative vote of the holders of a majority of CancerVax’s outstanding common stock. Certain CancerVax officers and directors, and their affiliates, have also entered into voting agreements in connection with the merger. The voting agreements are discussed in greater detail under the caption “Voting Agreements” beginning on page 113.

 

For a more complete description of the interests of current and former officers and directors of CancerVax, please see the section entitled “Interests of CancerVax’s Executive Officers and Directors in the Merger” on page 85 of this proxy statement/prospectus.

 

Interests of Micromet’s Executive Officers and Directors in the Merger (Page 87)

 

You also should be aware that a number of Micromet’s executive officers and directors have interests in the merger that are different from those of other Micromet stockholders.

 

Christian Itin is the Chief Executive Officer of Micromet and a shareholder and holder of options to purchase ordinary shares of Micromet. Patrick A. Baeuerle is the Chief Scientific Officer of Micromet and a shareholder and holder of options to purchase ordinary shares of Micromet. Gregor K. Mirow is the Chief Financial Officer and Chief Operating Officer of Micromet and a shareholder and holder of options to purchase ordinary shares of Micromet. Carsten Reinhardt is the Senior Vice President, Clinical Development of Micromet. Upon consummation of the Micromet Reorganization, each of Drs. Itin, Baeuerle and Mirow will be stockholders and optionholders of Micromet Parent and will receive shares of CancerVax common stock in the merger and have their options to purchase Micromet Parent common stock assumed by CancerVax.

 

Upon the closing of the merger, Dr. Itin will become the President and Chief Executive Officer of the combined corporation, Dr. Baeuerle will become Senior Vice President and Chief Scientific Officer of the combined corporation, Dr. Mirow will become Senior Vice President of Operations of the combined corporation and Dr. Reinhardt will become Senior Vice President, Clinical Development of the combined corporation. Each of Drs. Itin and Mirow participated in the negotiation and approval of the terms of the merger on behalf of Micromet following disclosure of all material facts regarding their respective interests (or potential interests) in the merger.

 

Following the merger, current members of the Micromet supervisory board Jerry Benjamin, John Berriman, Michael Carter and Otello Stampacchia will continue to serve on the board of directors of the combined company. Dr. Carter also is a current director of CancerVax.

 

As of March 27, 2006, all directors and executive officers of Micromet, together with their affiliates, beneficially owned 34.7% of the ordinary shares of Micromet, 48.6% of the Micromet preference shares series (A new) and 58.6% of the Micromet preference shares series (B new). Upon consummation of the Micromet Reorganization, all directors and executive officers of Micromet, together with their affiliates, will own approximately 54.5% of the outstanding common stock of Micromet Parent. Consummation of the Micromet Reorganization requires the agreement to exchange at least 55% of the Micromet AG preference shares series (B new) for shares of Micromet Parent common stock. Certain of the officers and directors of Micromet, and their affiliates, have also entered into voting agreements in connection with the merger. The voting agreements are discussed in greater detail under the caption “Voting Agreements” beginning on page 113.

 

For a more complete description of the interests of current and former officers and directors of Micromet AG, please see the section entitled “Interests of Micromet’s Executive Officers and Directors in the Merger” on page 87 of this proxy statement/prospectus.

 

Restrictions on Resales; Affiliate Agreements Relating to Micromet Affiliates (Page 92)

 

The shares of CancerVax common stock to be received by Micromet Parent stockholders in the merger will be registered under the Securities Act of 1933 and, except as described in this section, may be freely traded without restriction. CancerVax’s registration statement on Form S-4, of which this proxy statement/prospectus is a part, does not cover the resale of shares of CancerVax common stock to be received in connection with the merger by persons who are deemed to be “affiliates” of Micromet or Micromet Parent. The shares of CancerVax common stock to be issued in the merger and received by persons who are deemed to be “affiliates” of Micromet or Micromet Parent may be resold by them only in transactions registered under the Securities Act of 1933, exempt from registration by the resale provisions of Rule 145 under the Securities Act of 1933 or as otherwise permitted under the Securities Act of 1933. Persons who are deemed to be “affiliates” of Micromet or Micromet Parent prior to the merger include individuals or entities that control, are controlled by, or are under common control with Micromet or Micromet Parent and may include officers and directors, as well as principal stockholders, of Micromet or Micromet Parent. Affiliates of Micromet and Micromet Parent will be notified separately of their affiliate status. Under the terms of the merger agreement, CancerVax has agreed to file as soon as practicable, and in any event within 45 days after the effective time of the merger, a resale registration statement to cover the resale by former affiliates of Micromet Parent and Micromet of shares of CancerVax common stock received by such stockholders in the merger. In addition, CancerVax agreed to use commercially reasonable efforts to keep the resale registration statement continuously effective until the earlier of the date upon which all of the shares held by such stockholders may be resold under Rule 145 without restriction and the date upon which all such shares have been sold pursuant to the resale registration statement.

 

The merger agreement provides that Micromet will use commercially reasonable efforts to secure signed affiliate agreements from all persons who are, may become or might be deemed to be affiliates of Micromet or Micromet Parent, and who will receive CancerVax common stock in connection with the merger. These affiliate agreements provide that these persons will not sell, transfer or otherwise dispose of their shares of CancerVax common stock unless they do so in compliance with securities laws governing sales by affiliates.

 

Limitation on Soliciting, Discussing and Negotiating Other Acquisition Proposals (Page 105)

 

CancerVax and Micromet have each agreed, and have further agreed to ensure that their representatives do not, prior to the consummation of the merger, directly or indirectly, solicit, initiate, knowingly encourage, induce or facilitate the making, submission or announcement of, or enter into discussions or negotiations with any person with respect to, any alternative acquisition proposal or any inquiry that would reasonably be expected to lead to an alternative acquisition proposal for their respective company. CancerVax and Micromet have also agreed to notify each other upon receipt of any alternative acquisition proposal or any inquiry that would reasonably be expected to lead to an alternative acquisition proposal, including the terms of the alternative acquisition proposal or inquiry and the identity of the person making the alternative acquisition proposal or inquiry. However, if CancerVax or Micromet receives an unsolicited bona fide written acquisition proposal that is a superior acquisition proposal, or could reasonably be expected to lead to a superior acquisition proposal, prior to the CancerVax annual meeting, then CancerVax or Micromet, as the case may be, may provide nonpublic information to, and engage in discussions and negotiations with, the third party making the acquisition proposal so long as certain conditions set forth in the merger agreement are satisfied.

 

Obligations of the CancerVax Board of Directors and Micromet Supervisory Board with Respect to Their Recommendations and Holding the CancerVax Meeting of Stockholders (Page 104)

 

Subject to certain conditions, the board of directors of CancerVax or Micromet may withdraw or modify their respective recommendation in support of the issuance of shares of CancerVax common stock in the merger or the adoption of the merger agreement, as the case may be. In the event that the board of directors of either company withdraws or modifies its recommendation in a manner adverse to the other company, that company may be required under certain circumstances to pay a termination fee of $2,000,000 to the other company.

 

Conditions to the Merger (Page 106)

 

The respective obligations of CancerVax and Micromet to consummate the merger are subject to the satisfaction of certain conditions described herein.

 

Termination of the Merger Agreement (Page 109)

 

Either CancerVax or Micromet can terminate the merger agreement under certain circumstances described herein, which would prevent the merger from being consummated.

 

Expenses and Termination Fees (Page 111)

 

Subject to limited exceptions, all fees and expenses incurred in connection with the merger agreement will be paid by the company incurring such expenses. A termination fee of $2,000,000 may be payable by either CancerVax or Micromet to the other party upon the termination of the merger agreement under certain circumstances.

 

Material U.S. Federal Income Tax Consequences (Page 90)

 

As provided in the merger agreement, Cooley Godward LLP, counsel to Micromet and Micromet Parent, will issue a tax opinion to the effect that the merger will constitute a reorganization under Section 368 of the Internal Revenue Code of 1986, as amended. In such a reorganization, a Micromet Parent stockholder generally will not recognize any gain or loss for U.S. federal income tax purposes upon the exchange of its shares of Micromet Parent common stock for shares of CancerVax common stock. However, any cash received for any fractional share will result in the recognition of gain or loss as if such stockholder sold its fractional share. A Micromet Parent stockholder’s tax basis in the shares of CancerVax common stock that it receives in the merger will equal its current tax basis in its Micromet Parent common stock exchanged in the merger, as the case may be (reduced by the basis allocable to any fractional share interest for which it receives cash).

 

Tax matters can be complicated, and the tax consequences of the merger to you will depend on the facts of your own situation. You should consult your own tax advisors to fully understand the tax consequences of the merger to you, including the applicability and effect of federal, state, local and foreign income and other tax laws.

 

Regulatory Approvals (Page 92)

 

As of the date of this proxy statement/prospectus, neither CancerVax, Micromet nor Micromet Parent is required to make filings or to obtain approvals or clearances from any antitrust regulatory authorities in the United States or other countries to consummate the merger. In the United States, CancerVax must comply with applicable federal and state securities laws and the rules and regulations of the Nasdaq National Market in connection with the issuance of shares of CancerVax common stock in the merger and the filing of this proxy statement/prospectus with the Securities and Exchange Commission.

 

Anticipated Accounting Treatment (Page 92)

 

The merger will be treated by CancerVax as a reverse merger under the purchase method of accounting in accordance with U.S. generally accepted accounting principles. For accounting purposes, Micromet is considered to be acquiring CancerVax in this transaction. Therefore, the aggregate consideration paid in connection with the merger, together with the direct costs of acquisition, will be allocated to CancerVax’s tangible and intangible assets and liabilities based on their fair market values. The assets and liabilities and results of operations of CancerVax will be consolidated into the results of operations of Micromet as of the effective date of the merger. These allocations will be based on a valuation that has not yet been finalized.

 

Appraisal Rights (Page 92)

 

Under Delaware law, Micromet shareholders and holders of CancerVax common stock are not entitled to appraisal rights in connection with the merger. The sole stockholder of Micromet Parent has already consented to the merger and accordingly is not entitled to assert appraisal rights.

 

CancerVax Proposal No. 2 — Approval of Amendment to the Amended and Restated Certificate of Incorporation of CancerVax to Increase Authorized Common Stock (Page 116)

 

CancerVax currently does not have authorized sufficient shares to effectuate the merger. At the CancerVax meeting, holders of CancerVax stock will be asked to approve an amendment of CancerVax’s amended and restated certificate of incorporation to increase the number of authorized shares of CancerVax common stock to 150,000,000, while the number of authorized shares of preferred stock will remain unchanged. CancerVax’s amended and restated certificate of incorporation currently authorizes 75,000,000 shares of common stock and 10,000,000 shares of preferred stock. On March 27, 2006, 27,955,139 shares of CancerVax common stock were outstanding.

 

CancerVax Proposal No. 3 — Authorization of the CancerVax Board of Directors to Effect the Reverse Stock Split (Page 117)

 

At the CancerVax meeting, holders of CancerVax common stock will be asked to approve the proposal to authorize CancerVax’s board of directors to, at their discretion, amend the CancerVax amended and restated certificate of incorporation to effect a reverse stock split of the issued and outstanding shares of CancerVax common stock at a ratio within the range of 1:2 and 1:4. If approved by the CancerVax stockholders, the reverse stock split would become effective upon the closing of the merger. The CancerVax board may effect only one reverse stock split in connection with this Proposal No. 3. The CancerVax board’s decision will be based on a number of factors, including market conditions, existing and expected trading prices for CancerVax’s common stock and the listing requirements of the Nasdaq National Market. Even if the stockholders approve the reverse stock split, CancerVax reserves the right not to effect the reverse stock split if the CancerVax board does not deem it to be in the best interests of CancerVax and its stockholders to effect the reverse stock split. The CancerVax board may determine to effect the reverse stock split, if it is approved by the stockholders, even if the other proposals to be acted upon at the meeting are not approved, including the issuance of shares in the merger.

 

The form of the proposed amendment to the CancerVax amended and restated certificate of incorporation to effect the reverse stock split, as more fully described below, will effect the reverse stock split but will not change the number of authorized shares of common stock or preferred stock, or the par value of CancerVax’s common stock or preferred stock.

 

CancerVax Proposal No. 4 — Approval of Name Change (Page 122)

 

In connection with the merger, CancerVax is proposing to amend CancerVax’s amended and restated certificate of incorporation to change the name of the corporation from “CancerVax Corporation” to “Micromet, Inc.” The primary reason for the corporate name change is that management believes this will allow for brand recognition of CancerVax’s and Micromet’s products and services through the creation of a single brand name. CancerVax’s management believes that the current name will no longer accurately reflect the business of the combined company and the mission of the combined company subsequent to the consummation of the merger. Insofar as the proposed new corporate name will reflect a combination of Micromet’s business with CancerVax following the merger, the proposed name change and the amendment of CancerVax’s amended and restated certificate of incorporation, even if approved by the stockholders at the annual meeting, will only be filed with the office of the Secretary of State of the State of Delaware and, therefore, become effective if the merger is consummated. The approval of the name change to Micromet, Inc. is a condition to the consummation of the merger.

 

CancerVax Proposal No. 5 — Election of CancerVax Directors (Page 123)

 

At the CancerVax meeting, three nominees for director are to be elected as Class III directors. The nominees are David F. Hale, Donald L. Morton, M.D. and Michael G. Carter, M.B., Ch.B., F.R.C.P., who are each members of CancerVax’s present board of directors. The Class I and Class II directors have one year and two years, respectively, remaining on their terms of office. However, if the merger is completed, the board of directors of the combined company will consist of Messrs. Hale, Phillips, Schneider and Carter, who are currently directors of CancerVax, and

Messrs. Benjamin, Stampacchia, and Berriman, who are currently directors of Micromet, and Messrs. Itin and one additional member to be designated by Micromet.

 

CancerVax Proposal No. 6 — Ratification of Selection of CancerVax’s Independent Registered Public Accounting Firm (Page 131)

 

CancerVax’s board of directors and audit committee have selected Ernst & Young LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2006 and have directed that management submit the selection of the independent registered public accounting firm to the stockholders for ratification at the annual meeting. Ernst & Young LLP has audited our financial statements since June 1998, our date of inception, and through the year ending December 31, 2005. Representatives of Ernst & Young LLP will be present at the annual meeting, will have an opportunity to make a statement if they so desire and will be available to respond to appropriate questions. Stockholders are not required to ratify the selection of Ernst & Young LLP as our independent registered public accounting firm. However, CancerVax is submitting the selection of Ernst & Young LLP to the stockholders for ratification as a matter of good corporate practice. If you fail to ratify the selection, our board of directors and the audit committee will reconsider whether or not to retain Ernst & Young LLP. Even if the selection is ratified, our board of directors and the audit committee in their discretion may direct the appointment of a different independent registered public accounting firm at any time during the year if they determine that such a change would be in the best interests of CancerVax and its stockholders.

 

CancerVax Proposal No. 7 — Approval of Possible Adjournment of the Annual Meeting (Page 133)

 

If CancerVax fails to receive a sufficient number of votes to approve Proposal Nos. 1 through 6, CancerVax may propose to adjourn the annual meeting, if a quorum is present, for a period of not more than 30 days for the purpose of soliciting additional proxies to approve Proposal Nos. 1 through 6. CancerVax currently does not intend to propose adjournment at the annual meeting if there are sufficient votes to approve Proposal Nos. 1 through 6.

 

CancerVax common stock is listed on the Nasdaq National Market under the symbol “CNVX.” The following table presents, for the periods indicated, the range of high and low per share sales prices for CancerVax common stock as reported on the Nasdaq National Market since CancerVax’s initial public offering on October 30, 2003. Micromet is a private company and its ordinary shares and preference shares are not publicly traded.

 

CancerVax Common Stock

 

 

On January 6, 2006, the last trading day prior to announcement of the merger, the closing price of CancerVax’s common stock was $1.49, for an aggregate value of CancerVax of $41.7 million, so if the merger was consummated on that day, the value attributable to the Micromet capital stock in the aggregate, or to approximately 67.5% of the fully-diluted shares of the combined company, would equal $86.5 million. On March 27, 2006, the closing price of CancerVax’s common stock was $3.00, for an aggregate value of CancerVax of $83.9 million, so if the merger was consummated on that day, the value attributable to the Micromet Parent capital stock in the aggregate, or to approximately 67.5% of the fully-diluted shares of the combined company, would equal $174.2 million. Accordingly, the value per share allocable to the holders of capital stock of Micromet Parent, assuming consummation of the Micromet Reorganization, as of January 6, 2006 and March 27, 2006, would be $25.07 and $50.47, respectively.

 

Because the market price of CancerVax common stock is subject to fluctuation, the market value of the shares of CancerVax common stock that holders of Micromet Parent capital stock will receive in the merger may increase or decrease.

 

Following the consummation of the merger and successful reapplication to the NASD for initial inclusion, CancerVax common stock will continue to be listed on the Nasdaq National Market and there will be no public market for the Micromet ordinary shares and preference shares.

 

Dividends

 

CancerVax has never declared or paid any cash dividends on its capital stock. CancerVax currently intends to retain any future earnings to finance the growth and development of its business and, therefore, does not anticipate paying any cash dividends in the foreseeable future. Any future determination to pay cash dividends will be at the discretion of CancerVax’s board of directors and will depend upon its financial condition, operating results, capital requirements, covenants in CancerVax’s debt instruments, and such other factors as the board of directors deems relevant.

 

Micromet has never declared or paid any cash dividends on its capital stock nor does it intend to do so.

 

The following table sets forth selected historical financial data of CancerVax. The statement of operations data for the years ended December 31, 2003, 2004 and 2005 and the balance sheet data as of December 31, 2004 and 2005 have been derived from CancerVax’s audited consolidated financial statements contained in this proxy statement/prospectus. The statement of operations data for the years ended December 31, 2001 and 2002 and the balance sheet data as of December 31, 2001, 2002 and 2003 have been derived from CancerVax’s audited consolidated financial statements which are not included in this proxy statement/prospectus. This information is only a summary and you should read the following tables in conjunction with CancerVax’s financial statements and related notes and CancerVax’s “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contained in this proxy statement/prospectus. Historical results are not necessarily indicative of the results to be expected in the future.

 

 

 

 

 

 

The following table sets forth selected historical financial data of Micromet. The statement of operations data for the years ended December 31, 2003, 2004 and 2005 and the balance sheet data as of December 31, 2004 and 2005 have been derived from Micromet’s audited financial statements which are included elsewhere in this proxy statement/prospectus. The statement of operations data for the year ended December 31, 2002 and the balance sheet data as of December 31, 2003 have been derived from Micromet’s audited financial statements, which are not included in this proxy statement/prospectus. The statement of operations data for the year ended December 31, 2001 and the balance sheet data as of December 31, 2001 and 2002 have been derived from Micromet’s unaudited financial statements which are not included in this proxy statement/prospectus. This information is only a summary and you should read the following tables in conjunction with Micromet’s financial statements and related notes and Micromet’s “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contained in this proxy statement/prospectus. Historical results are not necessarily indicative of the results to be expected in the future.

 

 

 

The following selected unaudited pro forma condensed combined financial information was prepared using the purchase method of accounting. For accounting purposes, Micromet is considered to be acquiring CancerVax in the merger. The CancerVax and Micromet unaudited pro forma condensed combined balance sheet data assume that the merger of CancerVax and Micromet was consummated on December 31, 2005, and combines CancerVax’s and Micromet’s historical balance sheets as of December 31, 2005. The CancerVax and Micromet unaudited pro forma condensed combined statement of operations data assume that the merger of CancerVax and Micromet was consummated on January 1, 2005. The unaudited pro forma condensed combined statement of operations data for the year ended December 31, 2005 combines CancerVax’s and Micromet’s historical statements of operations for the year ended December 31, 2005.

 

The selected unaudited pro forma condensed combined financial data are presented for illustrative purposes only and are not necessarily indicative of the combined financial position or results of operations of future periods or the results that actually would have been realized had the entities been a single entity during this period. The selected unaudited pro forma condensed combined financial data as of and for the year ended December 31, 2005 are derived from the unaudited pro forma condensed combined financial statements at page 142 of this proxy statement/prospectus and should be read in conjunction with those statements and the related notes. See “Unaudited Pro Forma Condensed Combined Financial Statements.”

 

 

 

Common Stock

 

As of March 27, 2006, the authorized common stock of CancerVax consisted of 75,000,000 shares of common stock, of which 27,955,139 shares were issued and outstanding.

 

Dividend Rights

 

Subject to preferences that may apply to shares of preferred stock outstanding at the time, the holders of outstanding shares of CancerVax common stock are entitled to receive dividends out of assets legally available at the times and in the amounts as our board of directors may from time to time determine.

 

Voting Rights

 

Each CancerVax common stockholder is entitled to one vote for each share of common stock held on all matters submitted to a vote of stockholders. Cumulative voting for the election of directors is not provided for in our amended and restated certificate of incorporation, which means that the holders of a majority of the shares voted can elect all of the directors then standing for election.

 

No Preemptive or Similar Rights

 

Our common stock is not entitled to preemptive rights and is not subject to conversion or redemption.

 

Right to Receive Liquidation Distributions

 

Upon our liquidation, dissolution or winding-up, the assets legally available for distribution to our stockholders are distributable ratably among the holders of our common stock and any participating preferred stock outstanding at that time after payment of liquidation preferences, if any, on any outstanding preferred stock and payment of other claims of creditors.

 

Anti-Takeover Provisions

 

The provisions of the Delaware General Corporation Law, or DGCL, CancerVax’s amended and restated certificate of incorporation and bylaws may have the effect of delaying, deferring, or discouraging another person from acquiring control of CancerVax.

 

CancerVax is subject to Section 203 of the DGCL, which, subject to certain exceptions, prohibits a Delaware corporation from engaging in any “business combination” with an “interested stockholder” for a period of three years following the time that such stockholder became an interested stockholder, unless:

 

 

With certain exceptions, an “interested stockholder” is a person or group who or which owns 15% or more of the corporation’s outstanding voting stock (including any rights to acquire stock pursuant to an option, warrant,

agreement, arrangement or understanding, or upon the exercise of conversion or exchange rights, and stock with respect to which the person has voting rights only), or is an affiliate or associate of the corporation and was the owner of 15% or more of such voting stock at any time within the previous three years.

 

In general, Section 203 defines a business combination to include:

 

 

A Delaware corporation may “opt out” of this provision with an express provision in its original amended and restated certificate of incorporation or an express provision in its amended and restated certificate of incorporation or bylaws resulting from a stockholders’ amendment approved by at least a majority of the outstanding voting shares. However, CancerVax has not “opted out” of this provision. Section 203 could prohibit or delay mergers or other takeover or change-in-control attempts and, accordingly, may discourage attempts to acquire CancerVax.

 

Transfer Agent

 

The transfer agent for CancerVax common stock is Mellon Investor Services LLC.

 

Listing

 

CancerVax common stock is quoted on the Nasdaq National Market under the symbol “CNVX.”

 

The following information does not give effect to the proposed reverse stock split of CancerVax common stock described in CancerVax’s Proposal No. 3.

 

The information below reflects:

 

 

 

 

You should read the tables below in conjunction with the respective audited financial statements and related notes of CancerVax and Micromet included elsewhere in this proxy statement/prospectus and the unaudited pro forma condensed financial information and notes related to such financial statements included elsewhere in this proxy statement/prospectus.

 

CANCERVAX

 

 

MICROMET

 

 

 

 

CANCERVAX AND MICROMET

 

 

This proxy statement/prospectus includes “forward-looking statements” within the meaning of the safe harbor provisions of the United States Private Securities Litigation Reform Act of 1995. Words such as “anticipate,” “believes,” “budget,” “continue,” “could,” “estimate,” “expect,” “forecast,” “intend,” “may,” “plan,” “potential,” “predicts,” “project,” “should,” “will” and similar expressions are intended to identify such forward-looking statements. Forward-looking statements in this proxy statement/prospectus include, without limitation, statements regarding benefits of the proposed merger and future expectations concerning available cash and cash equivalents, the expected timing of the conclusion of clinical trials, the timing of regulatory filings, and other matters that involve known and unknown risks, uncertainties and other factors that may cause actual results, levels of activity, performance or achievements to differ materially from results expressed in or implied by this proxy statement/prospectus. Such risk factors include, among others:

 

 

Actual results may differ materially from those contained in the forward-looking statements in this proxy statement/prospectus. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this proxy statement/prospectus. All forward-looking statements are qualified in their entirety by this cautionary statement.

 

You should consider the following factors in evaluating whether to approve the issuance of shares of CancerVax common stock in the merger and the resulting change in control of CancerVax. These factors should be considered in conjunction with the other information included by CancerVax and Micromet in this proxy statement/prospectus.

 

References to “we,” “us” and “our” in these risk factors refer to the operations of the combined company as it would exist following the merger.

 

After the merger, we will need to modify our finance and accounting systems, procedures and controls to incorporate the operations of Micromet, which modifications may be time consuming and expensive to implement, and there is no guarantee that we will be able to do so.

 

As a public reporting company, we are required to comply with the Sarbanes-Oxley Act of 2002 and the related rules and regulations of the Securities and Exchange Commission, including Section 404 of the Sarbanes-Oxley Act of 2002. Although we believe that we currently have adequate finance and accounting systems, procedures and controls for our business on a standalone basis, after the merger we will need to upgrade the existing, and implement additional, procedures and controls to incorporate the operations of Micromet. These updates may require significant time and expense, and there can be no guarantee that we will be successful in implementing them. Furthermore, CancerVax’s managerial, financial and accounting personnel are expected to terminate their employment with us soon after the merger. The loss of these personnel could limit our ability to successfully complete these updates. If we are unable to complete the required modifications to our internal control reporting or if our independent registered public accounting firm is unable to provide us with an unqualified report as to the effectiveness of our internal control over financial reporting, investors could lose confidence in the reliability of our internal control over financial reporting, which could have a material adverse effect on our stock price.

 

If we are not successful in integrating our organizations, we may not be able to operate efficiently after the merger.

 

Achieving the benefits of the merger will depend in part on the successful integration of CancerVax’s and Micromet’s technical and business operations and personnel in a timely and efficient manner. The integration process requires coordination of the personnel of both companies, and involves the integration of systems, applications, policies, procedures, business processes and operations. This process may be difficult and unpredictable because of possible conflicts and differing opinions on business, scientific and regulatory matters. Moreover, the integration of the two companies will present challenges resulting from the transatlantic nature of the combined company. If we cannot successfully integrate our technical and business operations and personnel, we may not realize the expected benefits of the merger.

 

Integrating our companies may divert management’s attention away from our operations.

 

The successful integration of CancerVax’s and Micromet’s technical and business operations and personnel may place a significant burden on our management and internal resources. The diversion of management’s attention and any difficulties encountered in the transition and integration process could result in delays in our clinical trial and product development programs and could otherwise harm our business, financial condition and operating results.

 

We expect to incur significant costs integrating the companies into a single business.

 

We expect to incur significant costs integrating CancerVax’s and Micromet’s technical and business operations and personnel, which include costs for:

 

 

 

 

 

 

If we fail to retain key employees, the benefits of the merger could be diminished.

 

The successful combination of CancerVax and Micromet will depend, in part, on the retention of key personnel. There can be no assurance that the combined company will be able to retain its key management and scientific personnel. If we fail to retain such key employees, we may not realize the anticipated benefits of the merger. Additionally, the voluntary resignation of William R. LaRue, CancerVax’s Chief Financial Officer, will become effective June 1, 2006 and the voluntary resignation of Hazel M. Aker, CancerVax’s General Counsel, will become effective upon the closing of the merger.

 

If one or more of the product candidates in the merged company cannot be shown to be safe and effective in clinical trials, is not approvable or not commercially successful, then the benefits of the merger may not be realized.

 

The combined company will have two product candidates in clinical trials, and we plan to commence clinical trials for one additional product candidate in 2006 and at least one product candidate in 2007. All of these product candidates must be rigorously tested in clinical trials, and be shown to be safe and effective before the U.S. Food and Drug Administration or other regulatory authorities outside the U.S. will consider them for approval. Failure to demonstrate that one or more of our product candidates is safe and effective, or significant delays in demonstrating such safety and efficacy, could diminish the benefits of the merger. Failure to obtain marketing approval of one or more of our product candidates from appropriate regulatory authorities, or significant delays in obtaining such approval, could diminish the benefits of the merger. If approved for sale, our product candidates must be successfully commercialized. Failure to successfully commercialize one or more of our product candidates could diminish the benefits of the merger.

 

Because Micromet Parent stockholders will receive a fixed number of shares of CancerVax common stock in the merger, rather than a fixed value, if the market price of CancerVax common stock declines, Micromet Parent stockholders will receive consideration in the merger of lesser value.

 

The aggregate number of shares of common stock of CancerVax to be issued to Micromet Parent stockholders is fixed. Accordingly, the aggregate number of shares that Micromet Parent stockholders will receive in the merger will not change, even if the market price of CancerVax common stock changes. In recent years, the stock market in general, and the securities of biotechnology companies in particular, have experienced extreme price and volume fluctuations. These market fluctuations may adversely affect the market price of CancerVax common stock. The market price of CancerVax common stock upon and after the consummation of the merger could be lower than the market price on the date of the merger agreement or the current market price.

 

Failure to complete the merger could adversely affect CancerVax’s stock price and CancerVax’s and Micromet’s future business and operations.

 

The merger is subject to the satisfaction of closing conditions, including approval by CancerVax stockholders, and neither CancerVax nor Micromet can assure you that the merger will be successfully completed. In the event that the merger is not consummated, CancerVax and Micromet may be subject to many risks, including the costs related to the merger, such as legal, accounting and advisory fees, which must be paid even if the merger is not completed, and the payment by either Micromet or CancerVax of a termination fee under certain circumstances. If the merger is not consummated, the market price of CancerVax common stock could decline.

 

Completion of the merger may result in dilution of future earnings per share to the stockholders of CancerVax.

 

The completion of the merger may result in greater net losses or a weaker financial condition compared to that which would have been achieved by either CancerVax or Micromet on a stand-alone basis. The merger could fail to produce the benefits that the companies anticipate, or could have other adverse effects that the companies currently

do not foresee. In addition, some of the assumptions that either company has made, such as the achievement of operating synergies, may not be realized. In this event, the merger could result in greater losses as compared to the losses that would have been incurred by CancerVax if the merger had not occurred.

 

The costs associated with the merger are difficult to estimate, may be higher than expected and may harm the financial results of the combined company.

 

CancerVax and Micromet estimate that they will incur aggregate direct transaction costs of approximately $4.1 million associated with the merger, and additional costs associated with the consolidation and integration of operations, which cannot be estimated accurately at this time. If the total costs of the merger exceed our estimates or the benefits of the merger do not exceed the total costs of the merger, the financial results of the combined company could be adversely affected.

 

Micromet executive officers and directors may have interests that are different from, or in addition to, those of Micromet shareholders generally.

 

The executive officers and directors of Micromet may have interests in the merger that are different from, or are in addition to, those of Micromet shareholders generally. These interests include ownership through affiliated entities of CancerVax common stock, certain Micromet directors being nominated for election to the CancerVax board of directors at the effective time of the merger, the issuance of options to Micromet management immediately prior to the transaction, which will be assumed by CancerVax, the adoption of new employment agreements for certain Micromet executives in connection with the merger and/or the provision and continuation of indemnification and insurance arrangements for current directors of Micromet following consummation of the merger. In addition, you should be aware that Michael Carter has a significant relationship with both companies due to his position as a current director of both CancerVax and Micromet. See the section entitled “The Merger — Interests of Micromet’s Executive Officers and Directors in the Merger” starting on page 87.

 

Risks Relating to CancerVax’s Business

 

Our business to date has been largely dependent on the success of Canvaxin, which was the subject of Phase 3 clinical trials that we terminated in 2005. Although we ceased the development of Canvaxin and have reduced our workforce, we may be unable to successfully manage our remaining resources, including available cash, while we seek to implement the merger with Micromet.

 

Both of our Phase 3 clinical trials for Canvaxin in patients with advanced-stage melanoma were discontinued during 2005 based upon the recommendations of the independent Data and Safety Monitoring Board, or DSMB, with oversight responsibility for these clinical trials, that the data were unlikely to provide significant evidence of a survival benefit for Canvaxin-treated patients versus patients who received placebo. We had previously devoted substantially all of our research, development and clinical efforts and financial resources toward the development of Canvaxin. In connection with the termination of our clinical trials for Canvaxin, we announced restructuring activities, including significant workforce reductions, and in 2005 incurred non-recurring charges associated with our restructuring activities aggregating $5.1 million, which includes employee severance costs of $3.5 million, leased facility exit costs of $1.4 million and contract termination costs of $0.2 million. In addition, we anticipate continued workforce reductions and associated employee severance and other costs in 2006. As a result of the discontinuation of our clinical trials, development program and manufacturing operations for Canvaxin, we are planning to sublease our manufacturing facility, which includes the additional production suite, our warehouse facility and our corporate headquarters and research and development facility. We cannot predict whether any such subleasing arrangements would be consummated on favorable terms or at all, and anticipate that such transactions may require us to incur significant additional costs and obtain third-party consents beyond our control. We may be unable to adequately reduce expenses associated with our existing manufacturing, administrative and warehouse facilities, clinical trial agreements and other commitments related to Canvaxin.

 

The remaining product candidates in our pipeline are in early stages of development and our efforts to develop and commercialize these product candidates are subject to a high risk of failure. If we fail to successfully develop our product candidates, our ability to generate revenues will be substantially impaired.

 

The process of successfully developing product candidates for the treatment of human diseases is very time-consuming, expensive and unpredictable and there is a high rate of attrition for product candidates in preclinical and clinical trials. Until recently, our business strategy depended upon the successful clinical development of Canvaxin and the subsequent development of additional pipeline product candidates to complement our initial focus on Canvaxin. Our remaining product candidates are in earlier stages of development than Canvaxin, so we will require substantial additional financial resources, as well as research, development and clinical capabilities, to pursue the development of these product candidates, and we may never develop an approvable product.

 

Our remaining principal product candidates are D93, a humanized, anti-angiogenic monoclonal antibody, and SAI-EGF, a product candidate that targets the epidermal growth factor receptor, or EGFR, signaling pathway. In February 2006, we submitted an Investigational New Drug Application, or IND, to initiate a Phase 1 clinical trial for D93 in patients with solid tumors in 2006, but we have not yet received approval from the FDA to commence clinical trials with D93. In order to approve our IND for D93 to initiate a Phase 1 clinical trial, the FDA may request substantial additional testing or information, which could result in delays, increased costs and uncertainty. We have announced our intention to sub-license our rights to SAI-EGF and the other product candidates that we licensed from CIMAB, S.A., a Cuban company, and on January 13, 2006, we received a letter from CIMAB notifying us of their belief that we are in breach of our agreement with CIMAB as a result of our failure to make a milestone payment. If we are unable to resolve the dispute, then CIMAB may seek to terminate the agreement for breach.

 

Subject to our diligence obligations to our licensors for these product candidates, we are considering strategic alternatives with respect to certain other of our product candidates given the substantial reduction in our research and development and clinical resources in connection with the termination of our Canvaxin development activities. We may be unable to successfully develop these product candidates ourselves, and we also may be unable to enter into strategic collaborations with third parties to pursue the development of these product candidates. Even if we are able to identify potential strategic collaborators or licensees for these product candidates, we may be unable to obtain required consents from our licensors and the financial terms available to us may not be acceptable. In any event, we do not anticipate that any of our product candidates will reach the market for at least several years.

 

We do not know whether our planned preclinical development or clinical trials for our product candidates will begin on time or be completed on schedule, if at all. In addition, we do not know whether these clinical trials will result in marketable products. We cannot assure you that any of our product candidates will:

 

 

We are subject to extensive government regulation that increases the cost and uncertainty associated with our efforts to gain regulatory approval of our product candidates.

 

Preclinical development, clinical trials, manufacturing and commercialization of our product candidates are all subject to extensive regulation by United States and foreign governmental authorities. It takes many years and significant expenditures to obtain the required regulatory approvals for biological products. Satisfaction of regulatory requirements depends upon the type, complexity and novelty of the product candidate and requires substantial resources. As demonstrated by the discontinuation of our Phase 3 clinical trials of Canvaxin in patients with advanced-stage melanoma, we cannot be certain that any of our product candidates will be shown to be safe

and effective, or that we will ultimately receive approval from the FDA or foreign regulatory authorities to market these products. In addition, even if granted, product approvals and designations such as fast-track and orphan drug may be withdrawn or limited at a later time.

 

We have no manufacturing capabilities or manufacturing personnel and expect to depend on third parties to manufacture the product candidates that we are currently developing. We will be dependent on sole-source suppliers to provide our product candidates for early-stage clinical trials.

 

We do not operate any facilities for manufacturing D93 or any of the other product candidates that we may develop in the future. As a result, we will rely on third parties to manufacture these product candidates for our early-stage clinical trials. Our dependence upon third parties for the manufacture of these product candidates may result in unforeseen delays or other problems beyond our control.

 

In January 2005, we entered into an agreement with AppTec Laboratory Services, Inc., to manufacture D93 for early-stage clinical trials. There can be no assurance that we, AppTec or any other third party manufacturing organization will be able to develop adequate manufacturing capabilities to supply the quantities of D93 needed for our clinical trials or commercialization of this product candidate.

 

There are a limited number of manufacturers that are capable of manufacturing biological product candidates. We may not be able to obtain services from such manufacturers in a timely manner, if at all, to meet our requirements for clinical trials and, subject to the receipt of regulatory approvals, commercial sale. We also depend on third party contract laboratories to perform quality control testing of our product candidates.

 

Under our licensing agreement, CIMAB has the right and obligation, subject to specified terms and conditions, to supply SAI-EGF for Phase 1 and Phase 2 clinical trials, and for Phase 3 clinical trials and commercialization in countries in our territory other than the United States, Canada and Mexico. Production of these product candidates may require raw materials for which the sources and amounts are limited. Any inability to obtain adequate supplies of such raw materials could significantly delay the development, regulatory approval and marketing of these product candidates. In addition, prior to the initiation of Phase 3 clinical trials in the U.S., we will need to transfer the manufacturing and quality assurance processes for these product candidates to a facility outside of Cuba. Our ability to transfer information to CIMAB that might be beneficial in scaling-up such manufacturing processes is significantly limited due to U.S. government restrictions. Difficulties or delays in the transfer of the manufacturing and quality processes related to these product candidates could cause significant delays in the initiation of the Phase 3 clinical trials and in the establishment of our own commercial-scale manufacturing capabilities for these products. There can be no assurance that we or CIMAB will be able to develop adequate manufacturing capabilities to supply the quantities of SAI-EGF needed for clinical trials or commercial-scale quantities.

 

Product liability claims may damage our reputation and, if insurance proves inadequate, the product liability claims may harm our business.

 

We may be exposed to the risk of product liability claims that is inherent in the manufacturing, testing and marketing of therapies for treating people with cancer or other diseases. Patients who participated in our clinical trials for Canvaxin or patients who participate in our future clinical trials of our other product candidates may bring product liability claims. A product liability claim may damage our reputation by raising questions about a product’s safety and efficacy and could limit our ability to continue to conduct clinical trials and develop or product candidates. If our claims experience results in higher rates, or if product liability insurance otherwise becomes costlier because of general economic, market or industry conditions, then we may not be able to maintain product liability coverage on acceptable terms.

 

Although we have product liability and clinical trial liability insurance with coverage limits of $5 million, this coverage may be inadequate, or may be unavailable in the future on acceptable terms, if at all. Defending a suit, regardless of its merit, could be costly and could divert management attention.

Changes in the laws or regulations of the United States or Cuba related to the conduct of our business with CIMAB may adversely affect our ability to develop and commercialize or sublicense our rights to SAI-EGF and the two other product candidates that we have licensed from that company.

 

The United States government has maintained an embargo against Cuba for more than 40 years. The embargo is administered by the Office of Foreign Assets Control, or OFAC, of the U.S. Department of Treasury. Without a license from OFAC, U.S. individuals and companies may not engage in any transaction in which Cuba or Cubans have an interest. In order to enter into and carry out our licensing agreements with CIMAB, we have obtained from OFAC a license authorizing us to carry out all transactions set forth in the license agreements that we have entered into with CIMAB for the development, testing, licensing and commercialization of SAI-EGF, and with CIMAB and YM Biosciences for the two other product candidates that target the EGF receptor signaling pathway. In the absence of such a license from OFAC, the execution of and our performance under these agreements could have exposed us to legal and criminal liability. At any time, there may occur for reasons beyond our control a change in United States or Cuban law, or in the regulatory environment in the U.S. or Cuba, or a shift in the political attitudes of either the U.S. or Cuban governments, that could result in the suspension or revocation of our OFAC license or in our inability to carry out part or all of the licensing agreements with CIMAB. There can be no assurance that the U.S. or Cuban governments will not modify existing law or establish new laws or regulations that may adversely affect our ability to develop, test, license and commercialize these product candidates. Our OFAC license may be revoked or amended at anytime in the future, or the U.S. or Cuban governments may restrict our ability to carry out all or part of our respective duties under the licensing agreements between us, CIMAB and YM BioSciences. Similarly, any such actions may restrict CIMAB’s ability to carry out all or part of its licensing agreements with us. In addition, we cannot be sure that the FDA or other regulatory authorities will accept data from the clinical trials of these products that were conducted in Cuba as the basis for our applications to conduct additional clinical trials, or as part of our application to seek marketing authorizations for such products.

 

In 1996, a significant change to the United States embargo against Cuba resulted from congressional passage of the Cuban Liberty and Democratic Solidarity Act, also known as the Helms-Burton Bill. That law authorizes private lawsuits for damages against anyone who traffics in property confiscated, without compensation, by the government of Cuba from persons who at the time were, or have since become, nationals of the United States. We do not own any property in Cuba and do not believe that any of CIMAB’s properties or any of the scientific centers that are or have been involved in the development of the technology that we have licensed from CIMAB were confiscated by the government of Cuba from persons who at the time were, or who have since become, nationals of the U.S. However, there can be no assurance that our understanding in this regard is correct. We do not intend to traffic in confiscated property, and have included provisions in our licensing agreements to preclude the use of such property in association with the performance of CIMAB’s obligations under those agreements.

 

As part of our interactions with CIMAB, we will be subject to the U.S. Commerce Department’s export administration regulations that govern the transfer of technology to foreign nationals. Specifically, we or our sublicensees, if any, will require a license from the Commerce Department’s Bureau of Industry and Security, or BIS, in order to export or otherwise transfer to CIMAB any information that constitutes technology under the definitions of the Export Administration Regulations, or EAR, administered by BIS. The export licensing process may take months to be completed, and the technology transfer in question may not take place unless and until a license is granted by the Commerce Department. Due to the unique status of the Republic of Cuba, technology that might otherwise be transferable to a foreign national without a Commerce Department license requires a license for export or transfer to a Cuban national. If we or our sublicensees fail to comply with the export administration regulations, we may be subject to both civil and criminal penalties. There can be no guarantee that any license application will be approved by BIS or that a license, once issued, will not be revoked, modified, suspended or otherwise restricted for reasons beyond our control due to a change in U.S.-Cuba policy or for other reasons.

 

As a result of the reduction in our workforce that we announced in October 2005, and continuing restructuring activities initiated in January 2006, we may not be successful in retaining key employees and in attracting qualified new employees as required in the future. If we are unable to retain our management, scientific staff and scientific advisors or to attract additional qualified personnel, our product development efforts will be seriously jeopardized.

 

In October 2005, we announced the discontinuation of any further development and manufacturing activities with respect to Canvaxin, and a corporate restructuring plan that included a reduction in our workforce from 183 to 52 employees. In January 2006, we initiated additional restructuring measures, which will result in the further reduction of our workforce to approximately 10 employees by the completion of the proposed merger with Micromet. This planned reduction includes the termination of David F. Hale, CancerVax’s President and Chief Executive Officer, who will become chairman of the combined company. Additionally, the voluntary resignation of William R. LaRue, CancerVax’s Chief Financial Officer, will become effective June 1, 2006 and the voluntary resignation of Hazel M. Aker, CancerVax’s General Counsel, will become effective upon the closing of the merger.

 

Competition among biotechnology companies for qualified employees is intense, and the ability to retain and attract qualified individuals is critical to our success. We may experience further reductions in force due to voluntary employee resignations and a diminished ability to recruit new employees to further the development of our product candidates. We may be unable to attract or retain key personnel on acceptable terms, if at all.

 

We have relationships with scientific advisors at academic and other institutions, some of whom conduct research at our request or assist us in formulating our research, development or clinical strategy. These scientific advisors are not our employees and may have commitments to, or consulting or advisory contracts with, other entities that may limit their availability to us. We have limited control over the activities of these scientific advisors and can generally expect these individuals to devote only limited time to our activities. Failure of any of these persons to devote sufficient time and resources to our programs could harm our business. In addition, these advisors may have arrangements with other companies to assist those companies in developing technologies that may compete with our products.

 

We do not maintain “key person” life insurance on any of our officers, employees or consultants.

 

We may become involved in securities class action litigation that could divert management’s attention and harm our business.

 

The stock market has from time to time experienced significant price and volume fluctuations that have affected the market prices for the common stock of pharmaceutical and biotechnology companies. These broad market fluctuations may cause the market price of our common stock to decline. In the past, following periods of volatility in the market price of a particular company’s securities, securities class action litigation has often been brought against that company. We may become involved in this type of litigation in the future. Litigation often is expensive and diverts management’s attention and resources, which could adversely affect our business.

 

If our competitors develop and market products that are more effective than our existing product candidates or any products that we may develop, or obtain marketing approval before we do, our commercial opportunity will be reduced or eliminated.

 

The biotechnology and pharmaceutical industries are subject to rapid and significant technological change. We have many potential competitors, including major drug and chemical companies, large, diversified biotechnology companies, smaller, specialized biotechnology firms, universities and other research institutions. These companies and other institutions may develop technologies and products that are more effective than our product candidates or that would make our technology and product candidates obsolete or non-competitive. Many of these companies and other institutions have greater financial and technical resources and development, production and marketing capabilities than we do. In addition, many of these companies and other institutions have more experience than we do in preclinical testing, human clinical trials and manufacturing of new or improved biological therapeutics, as well as in obtaining FDA and foreign regulatory approvals.

Various companies are developing or commercializing products that are used for the treatment of forms of cancer and other diseases that we have targeted for product development. Some of these products use therapeutic approaches that may compete directly with our product candidates. These companies may succeed in obtaining approvals from the FDA and foreign regulatory authorities for their products sooner than we do for ours.

 

Specifically, we face competition from a number of companies working in the fields of specific active immunotherapy for the treatment of solid tumors, anti-angiogenesis, and signal transduction through the EGFR pathway. We expect that competition among products approved for sale will be based on various factors, including product efficacy, safety, reliability, availability, price and patent position. Some of these products use therapeutic approaches that may compete directly with our product candidates, and the companies developing these competing technologies may have significantly greater resources that we do, and may succeed in obtaining approvals from the FDA and foreign regulatory authorities for their products sooner than we do for ours.

 

We are aware of a number of competitive products currently available in the marketplace or under development for the prevention and treatment of the diseases we have targeted for product development. For example, a number of companies are currently developing products in the field of anti-angiogenesis for the treatment of patients with tumors. These products use a number of substances designed to inhibit angiogenesis, such as vascular endothelial growth factor, or VEGF, VEGF receptor, platelet-derived growth factor, or PDGF, receptor, integrins, collagen, and matrix metalloprotienases. Genentech’s Avastin^® (bevacizumab) is an anti-angiogenic monoclonal antibody targeting the VEGF growth factor. It has been approved by FDA for the treatment of patients with metastatic colorectal cancer. Pfizer’s Sutent^® (sunitinib malate) was recently approved by the FDA for the treatment of patients with a specific type of stomach cancer and kidney cancer, and Bayer and Onyx Pharmaceutical’s Nexavar^® (sorafenib tosylate) was approved by the FDA for the treatment of patients with gastric cancer. A proposed mechanism of action for both Nexavar and Sutent is inhibition of the VEGF receptor. A number of other VEGF growth factor and VEGF receptor antagonists are also under development, as well as a number of agents targeting other potential anti-angiogenic mechanisms. We are unaware of any products in development that specifically target the same denatured collagen as our D93 product candidate. We expect that competition among anti-angiogenic products approved for sale will be based on various factors, including product efficacy, safety, reliability, availability, price and patent position. As a result, any product candidates that we may develop may be rendered obsolete and noncompetitive.

 

Additionally, several products that target the EGFR signaling pathway in the treatment of cancer have recently been approved by the FDA or are in the late phases of clinical development. The approved products are AstraZeneca Pharmaceutical LP’s Iressa^tm (gefitinib), an EGFR-targeted tyrosine kinase inhibitor for refractory Stage IV Non-small lung cancer, or NSCLC, ImClone Systems, Inc.’s Erbitux^tm (cetuximab), an EGFR monoclonal antibody for Stage IV refractory colorectal cancer, and Genentech, Inc. and OSI Pharmaceuticals, Inc.’s EGFR-targeted tyrosine kinase inhibitor, Tarceva^tm (erlotinib HCl), for the treatment of patients with locally advanced or metastatic NSCLC after failure of at least one prior chemotherapy regimen, as well as in combination with Eli Lilly & Company’s Gemzar^® (gemcitabine) for the treatment of patients with locally advanced pancreatic cancer. Two other products that are currently being evaluated in Phase 3 clinical trials are GlaxoSmithKline’s lapatinib (GW572016), a tyrosine kinase dual inhibitor of EGFR and HER-2, which is being studied in patients with advanced metastatic breast cancer whose disease progressed on Herceptin^® (trastuzumab) therapy, and Abgenix, Inc. and Amgen, Inc.’s panitumumab (ABX-EGF), a fully human monoclonal antibody targeting the EGFR, which is being studied in patients with advanced colorectal and renal cell cancer. Several other monoclonal antibodies and tyrosine kinase inhibitors targeting the EGFR signaling pathway are in the early stages of development. If we receive approval to market and sell any of our product candidates that target the EGFR signaling pathway, we may compete with certain of these companies and their products as well as other product candidates in varying stages of development. In addition, researchers are continually learning more about the treatment of NSCLC and other forms of cancer, and new discoveries may lead to new technologies for treatment.

 

We also face competition from pharmaceutical and biotechnology companies, academic institutions, governmental agencies and private research organizations in recruiting and retaining highly qualified scientific personnel and consultants and in the development and acquisition of technologies. Moreover, technology controlled by third parties that may be advantageous to our business may be acquired or licensed by our competitors, thereby preventing us from obtaining technology on commercially reasonable terms, if at all. Because part of our strategy is

to target markets outside of the United States through collaborations with third parties, we will compete for the services of third parties that may have already developed or acquired internal biotechnology capabilities or made commercial arrangements with other biopharmaceutical companies to target the diseases on which we have focused.

 

Risks Related to CancerVax’s Financial Results and Need for Financing

 

We have a history of losses and expect to incur substantial losses and negative operating cash flows for the foreseeable future, and we may never achieve sustained profitability.

 

We have incurred $190.0 million in net losses from our inception through December 31, 2005. We expect to increase our operating expenses over the next several years as we conduct clinical trials with D93, expand our research and development activities, acquire or license new technologies and product candidates and contract for manufacturing and quality services for our product candidates that are in clinical trials. The extent of our future operating losses and the timing of profitability are highly uncertain, and we may never generate revenue. In October 2005, we announced restructuring activities, including workforce reductions, and we incurred non-recurring charges associated with our restructuring activities aggregating $5.1 million, which includes employee severance costs of $3.5 million, leased facility exit costs of $1.4 million and contract termination costs of $0.2 million. We anticipate that we will incur additional costs as a result of the restructuring plan in 2006, including additional employee severance costs, costs associated with the closure of our manufacturing facilities and contract terminations. Because of the numerous risks and uncertainties associated with our restructuring activities and our product development efforts, we are unable to predict the extent of any future losses or when we will become profitable, if at all.

 

We do not expect to generate any revenue for several years because our remaining pipeline product candidates are in the early stages of development. Our ability to generate revenue depends on a number of factors, including our ability to successfully develop and obtain regulatory approvals to commercialize D93 and our other product candidates, and our ability to sublicense SAI-EGF and the other product candidates licensed from CIMAB. We have not yet completed the development, including obtaining regulatory approvals, of any products and, consequently, have not generated revenues from the sale of products. Even if these early-stage product candidates receive regulatory approval, we will need to establish and maintain sales, marketing and distribution capabilities, and even if we are able to commercialize our product candidates, we may not achieve profitability for at least several years after generating material revenue, if ever. If we are unable to become profitable, we may be unable to continue our operations.

 

If we fail to obtain the capital necessary to fund our operations, we will be unable to develop or commercialize our product candidates and our ability to operate as a going concern may be adversely affected.

 

Absent the proposed merger with Micromet, we believe that our existing cash, cash equivalents, and securities available-for-sale as of December 31, 2005 and any remaining pre-commercialization cost-sharing payments from our collaboration for Canvaxin with Serono Technologies, S.A., will be sufficient to meet our projected operating requirements until September 30, 2007. In addition to our workforce reductions and the termination of our Canvaxin development activities, we have announced our intention to consummate the merger with Micromet. We may not successfully implement any of these alternatives, and even if we determine to pursue one or more of these alternatives, we may be unable to do so on acceptable financial terms. Our restructuring measures implemented to date and the proposed merger with Micromet may disappoint investors and further depress the price of our common stock and the value of an investment in our common stock thereby limiting our ability to raise additional funds.

 

We will require substantial funds to conduct development activities, including preclinical testing and clinical trials of our product candidates, including D93. Our ability to conduct the required development activities related to these product candidates will be significantly limited if we are unable to obtain the necessary capital. We may seek to raise additional funds to meet our working capital and capital expenditure needs. We have filed a shelf registration statement, declared effective by the Securities and Exchange Commission on December 9, 2004, under which we may raise up to $80 million through the sale of our common stock. We may also raise additional funds through additional debt financing or through additional strategic collaboration agreements. However, we do not

know whether additional financing will be available when needed, or whether it will be available on favorable terms or at all. Having insufficient funds may require us to delay, scale back or eliminate some or all of our research or development programs or to relinquish greater or all rights to product candidates at an earlier stage of development or on less favorable terms than we would otherwise choose. Failure to obtain adequate financing also may adversely affect our ability to operate as a going concern.

 

Our future capital requirements will depend on, and could increase significantly as a result of, many factors, including:

 

 

If we do not establish and maintain strategic collaborations to fund our product development activities, we may have to reduce or delay our rate of product development and increase our expenditures.

 

We intend to rely on strategic collaborations for research, development, marketing and commercialization of our product candidates. We have not yet obtained regulatory approval for, marketed or sold any of our product candidates in the United States or elsewhere and we will need to build our internal marketing and sales capabilities or enter into successful collaborations for these services in order to ultimately commercialize our product candidates. Establishing strategic collaborations is difficult and time-consuming. Our discussions with potential collaborators may not lead to the establishment of new collaborations on favorable terms, if at all. For example, potential collaborators may reject collaborations based upon their assessment of our financial, regulatory or intellectual property position. Any collaborations we may develop in the future may never result in the successful development or commercialization of our product candidates or the generation of sales revenue. To the extent that we enter into co-promotion or other collaborative arrangements, our product revenues are likely to be lower than if we directly marketed and sold any products that we may develop.

 

Management of our relationships with our collaborators will require:

 

 

If we enter into research and development collaborations at an early phase of product development, our success will in part depend on the performance of our corporate collaborators. We will not directly control the amount or timing of resources devoted by our corporate collaborators to activities related to our product candidates. Our corporate collaborators may not commit sufficient resources to our research and development programs or the commercialization, marketing or distribution of our product candidates. If any corporate collaborator fails to commit sufficient resources, our preclinical or clinical development programs related to the collaboration could be delayed or terminated. Also, our collaborators may pursue existing or other development-stage products or alternative technologies in preference to those being developed in collaboration with us. Finally, our collaborators may terminate our relationships, and we may be unable to establish additional corporate collaborations in the future on acceptable terms, if at all. If clinical trials of our product candidates are not successful, or if we fail to make required milestone or royalty payments to our collaborators or to observe other obligations in our agreements with them, our collaborators may have the right to terminate those agreements. For example, Serono may terminate our collaboration agreement for Canvaxin for convenience upon 180 days’ prior notice.

 

Our operating and financial flexibility, including our ability to borrow money, is limited by certain debt arrangements.

 

In December 2004, we entered into a loan and security agreement with a financing institution, and have borrowed the full $18.0 million available under this credit facility. In order to secure our obligations under this loan and security agreement, we granted the bank a first priority security interest in substantially all of our assets, excluding our intellectual property. We used the proceeds from the loan agreement primarily to construct and equip an additional production suite in our existing manufacturing facility and to create additional warehouse and laboratory space to support the manufacture of Canvaxin. The terms of our loan and security agreement require that it be repaid in full upon the occurrence of a change of control event, such as the consummation of our merger with Micromet.

 

The loan agreement contains various customary affirmative and negative covenants, including, without limitation:

 

 

In addition, under this loan agreement, we are generally obligated to maintain, as of the last day of each quarter, cash, cash equivalents and securities available-for-sale in an amount at least equal to the greater of (i) our quarterly cash burn multiplied by 2 or (ii) the then outstanding principal amount of the obligations under such agreement multiplied by 1.5. In the event that we breach this financial covenant, we are obligated to pledge and deliver to the bank a certificate of deposit in an amount equal to the aggregate outstanding principal amount of the obligations under such agreement.

 

Our loan agreements contain certain customary events of default, which generally include, among others, non-payment of principal and interest, violation of covenants, cross defaults, the occurrence of a material adverse change in our ability to satisfy our obligations under our loan agreements or with respect to one of our lender’s security interest in our assets and in the event we are involved in certain insolvency proceedings. Upon the occurrence of an event of default, our lenders may be entitled to, among other things, accelerate all of our

obligations and sell our assets to satisfy our obligations under our loan agreements. In addition, in an event of default, our outstanding obligations may be subject to increased rates of interest.

 

In addition, we may incur additional indebtedness from time to time to finance acquisitions, investments or strategic alliances or capital expenditures or for other purposes. Our level of indebtedness could have negative consequences for us, including the following:

 

 

Our quarterly operating results and stock price may fluctuate significantly.

 

We expect our results of operations to be subject to quarterly fluctuations. The level of our revenues, if any, and results of operations at any given time, will be based primarily on the following factors:

 

 

These factors may cause the price of our stock to fluctuate substantially. We believe that quarterly comparisons of our financial results are not necessarily meaningful and should not be relied upon as an indication of our future performance.

 

Risks Related to CancerVax’s Intellectual Property and Litigation

 

Our success depends on whether we are able to maintain and enforce our licensing arrangements with various third party licensors.

 

We hold rights to commercialize our anti-angiogenesis product candidates under agreements that require, among other things, royalty payments on future sales, if any, and our achievement of certain development milestones. On October 15, 2004, we amended and restated our collaboration agreement with Applied Molecular Evolution, Inc., or AME, which is now a wholly-owned subsidiary of Eli Lilly and Company, under which AME utilized its technology to humanize a murine monoclonal antibody, which is now referred to as D93, and another of our anti-angiogenic monoclonal antibodies. Under the amended and restated collaboration agreement, AME may terminate the agreement if we fail to make milestone or royalty payments to AME. In February 2006, we submitted

an IND for D93, as required under our agreement with AME; however, AME may also terminate the agreement if we fail to meet certain other specified clinical development obligations. In the event of such termination, we will be required to grant to AME an exclusive license for all of our patent rights relating to the humanized monoclonal antibodies that are the subject of this agreement and the products that incorporate or are derived from one or more of the humanized monoclonal antibodies that are the subject of the agreement. AME also received a right of first negotiation to obtain from us an exclusive license under our intellectual property rights related to the making, using and selling of any products that incorporate or are derived from one or more of the humanized monoclonal antibodies that are the subject of the agreement should we decide to negotiate with or seek a collaborator for the commercialization of such product. The amended and restated collaboration agreement also obligates us to pay for the preparation, filing, prosecution, maintenance and enforcement of all patent applications directed at the humanized monoclonal antibodies that are the subject of the amended agreement. We made a $0.2 million payment to AME in the fourth quarter of 2004 in connection with the execution of the amended and restated collaboration agreement.

 

We hold exclusive rights through two agreements with CIMAB to develop and commercialize within a specific territory, which includes the U.S., Canada, Japan, Australia, New Zealand, Mexico, the countries comprising the European Union and certain other countries in Europe, SAI-EGF, a product candidate being evaluated in Phase 2 clinical trials that target the EGFR signaling pathway for the treatment of cancer. In addition, we obtained from CIMAB and YM BioSciences the exclusive rights to develop and commercialize, within the same territory, SAI-TGF-a, which targets transforming growth factor-alpha, and SAI-EGFR-ECD, which targets the extracellular domain of the EGF receptor, both of which are in preclinical development. In exchange for these rights, we will pay to CIMAB and YM BioSciences technology access fees and transfer fees totaling $5.7 million, to be paid over the first three years of the agreement. We will also make future milestone payments to CIMAB and YM BioSciences up to a maximum of $34.7 million upon meeting certain regulatory, clinical and commercialization objectives, as well as royalties on future sales of commercial products, if any. Each agreement terminates upon the later of the expiration of the last of any patent rights to licensed products that are developed under each respective agreement or 15 years after the date of the first commercial sale of the last product licensed or developed under the agreements. CIMAB may terminate one or both of the agreements if we have not used reasonable commercial efforts to submit an IND to the FDA for the leading product candidate by July 12, 2006, or if the first regulatory approval for marketing this product candidate within our territory is not obtained by July 12, 2016, provided that CIMAB has timely complied with all of its obligations under the agreements, or if CIMAB does not receive timely payment of the initial access fees and technology transfer fees under the agreements. In addition, if CIMAB does not receive payments under the agreements due to changes in U.S. law, actions by the U.S. government or by order of any U.S. court for a period of more than one year, CIMAB may terminate our rights to the licensed product candidates in countries within our territory other than the U.S. and Canada. We may terminate the agreements for any reason following 180 days written notice to CIMAB. On January 13, 2006, we received a letter from CIMAB notifying us of their belief that we are in breach of our agreement as a result of our failure to make a milestone payment. If we are unable to resolve the dispute, then CIMAB may seek to terminate the agreement for breach.

 

Although the license agreements with CIMAB are governed by the laws of England and Wales, their enforcement may necessitate pursuing legal proceedings and obtaining orders in other jurisdictions, including the U.S. and the Republic of Cuba. There can be no assurance that a court judgment or order obtained in one jurisdiction will be enforceable in another. In addition, as is the case in many developing countries, the commercial legal environment in Cuba may be subject to political risk. It is possible that we may not be able to enforce our legal rights in Cuba or against Cuban entities to the same extent as we would in a country with a commercial and legal system more consistent with United States or western European practice. Termination of these license arrangements or difficulties in the enforcement of such arrangements may have a material adverse effect on our business, operations and financial condition.

 

We have announced our intention to actively seek to sublicense our rights to the three product candidates licensed from CIMAB, but there can be no guarantee that we will be successful in our efforts to consummate a sublicense on terms and conditions that will be acceptable.

 

We also hold rights to a human monoclonal antibody under a license from M-Tech Therapeutics, which can be terminated if we determine not to file and obtain approval of an IND application for a licensed product by a specified

date and conduct clinical trials for such product, or if we determine not to file and obtain approval of an IND application for a licensed product by a specified date because of negative pre-clinical results.

 

 

We are party to intellectual property licenses and agreements that are important to our business and expect to enter into similar licenses and agreements in the future. These licenses and agreements impose various research, development, commercialization, sublicensing, royalty, indemnification, insurance and other obligations on us. If we or our collaborators fail to perform under these agreements or otherwise breach obligations thereunder, we could lose intellectual property rights that are important to our business.

 

 

We cannot be certain that additional patents will be issued on our product candidates that target the EGFR signaling pathways, or that any patents will be issued on our anti-angiogenesis product candidates, as a result of pending applications filed to date. If a third party has also filed a patent application relating to an invention claimed by us or our licensors, we may be required to participate in an interference proceeding declared by the U.S. Patent and Trademark Office to determine priority of invention, which could result in substantial uncertainties and cost for us, even if the eventual outcome is favorable to us. The degree of future protection for our proprietary rights is uncertain. For example:

 

 

 

 

 

Additionally, there may be risks related to the licensing of the proprietary rights for the product candidates that target the EGFR signaling pathway that were developed in Cuba. Under current Cuban patent law, ownership of the inventions of the Cuban inventors for which patent applications have been filed rests with the state.

 

If we are not able to protect and control our unpatented trade secrets, know-how and other technological innovation, we may suffer competitive harm.

 

We also rely on proprietary trade secrets and unpatented know-how to protect our research, development and manufacturing activities, particularly when we do not believe that patent protection is appropriate or available. However, trade secrets are difficult to protect. We attempt to protect our trade secrets and unpatented know-how by requiring our employees, consultants and advisors to execute a confidentiality and non-use agreement. We cannot guarantee that these agreements will provide meaningful protection, that these agreements will not be breached, that we will have an adequate remedy for any such breach, or that our trade secrets will not otherwise become known or independently developed by a third party. Our trade secrets, and those of our present or future collaborators that we utilize by agreement, may become known or may be independently discovered by others, which could adversely affect the competitive position of our product candidates.