Via Facsimile and U.S. Mail
Mail Stop 03-09
May 17, 2005
Robert L. Bratzler
President and Chief Executive Officer
Coley Pharmaceutical Group, Inc.
93 Worcester Street, Suite 101
Wellesley, MA 02481
Re: Coley Pharmaceutical Group, Inc.
Registration Statement on Form S-1
Filed April 20, 2005
File Number 333-124176
Dear Mr. Bratzler:
We have reviewed your filing and have the following comments.
Where indicated, we think you should revise your document in
response
to these comments. If you disagree, we will consider your
explanation as to why our comment is inapplicable or a revision is
unnecessary. Please be as detailed as necessary in your
explanation.
In some of our comments, we may ask you to provide us with
supplemental information so we may better understand your
disclosure.
After reviewing this information, we may or may not raise
additional
comments.
Please understand that the purpose of our review process is
to
assist you in your compliance with the applicable disclosure
requirements and to enhance the overall disclosure in your filing.
We look forward to working with you in these respects. We welcome
any questions you may have about our comments or on any other
aspect
of our review. Feel free to call us at the telephone numbers
listed
at the end of this letter.
FORM S-1
General
1. Please provide us proofs of all graphic, visual, or
photographic
information you will provide in the printed prospectus prior to
its
use, for example in a preliminary prospectus. Please note we may
have comments regarding these materials.
2. Please note that when you file a pre-effective amendment
containing pricing-related information, we may have additional
comments. As you are likely aware, you must file this amendment
prior to circulating the prospectus.
3. Please note that when you file a pre-effective amendment that
includes your price range, it must be bona fide. We interpret
this
to mean that your range may not exceed $2 if you price below $20
and
10% if you price above $20.
4. Please note that where we provide examples to illustrate what
we
mean by our comments, they are examples and not complete lists.
If
our comments are applicable to portions of the filing that we have
not cited as examples, please make the appropriate changes in
accordance with our comments.
5. We note that you have requested confidential treatment for
several
of your exhibits under Rule 406 of the Securities Act; we will
furnish comments for your request under separate cover. Please be
advised, we will not act on any request for acceleration of
effectiveness until we have cleared comments on your request for
confidential treatment.
Cover page
6. Please tell us supplementally what percentage of the shares
that
will be outstanding after the public offering will be held by
Pfizer.
We may have further comment.
Prospectus Summary, page 1
7. As you have chosen to include a summary of your strategy,
please
balance this discussion by including a discussion of the risks and
obstacles you must address in implementing this strategy. This
discussion should be at least as prominent as the discussion of
your
strategy. Additionally, include a discussion of your history of
losses, accumulated deficit, that you have no commercially viable
products or FDA approved products, and that you expect to continue
incurring substantial losses for the foreseeable future and may
never
achieve profitability to further balance the discussion in the
summary.
8. Please limit the discussion of your product candidates to the
designed indication, stage of clinical trials and identification
of
any collaborative partners. The current discussion is too
detailed
for the summary. Results of clinical trials are not appropriate
for
disclosure in the summary.
9. Please eliminate jargon and technical terms from the forepart
of
the prospectus and provide a "Plain English" explanation or
substitute. For example, these words and phrases appear in your
summary and in other parts of the prospectus:
* "randomized"
* "vaccine adjuvant"
* "solid and hematologic malignancies"
* "renal cell carcinoma"
* "cutaneous T-cell lymphoma"
* "basal cell carcinoma"
* "squamous cell carcinoma"
* "adenocarcinoma"
* "subcutaneous injection"
* "toxicities"
If you must include technical terms in the body of your prospectus
that are understood only by industry experts you must make every
effort to concisely explain these terms where you first use them.
Risk Factors
10. To the extent material, please consider including a separate
stand alone risk factor pertaining to operations of your foreign
subsidiaries, Coley Ltd. and Coley GmbH. Please consider
including
in your risk factor a discussion of foreign currency risks,
financial
reporting results, interest on euro-denominated debt and interest
rate risk among others.
11. We note the proceeds from the up front payment from the Pfizer
agreement are dependent on receipt of antitrust clearance of your
license agreement. In an appropriate location in your document,
discuss the antitrust clearance, including the criteria that will
be
used to determine whether clearance is warranted and who makes
such
determination. Also, consider including a risk factor discussing
the
consequences if the clearance is not obtained.
12. On page 25 we note the bullet point indicating that the
understanding of the intentions of your collaborative partners are
forward looking statements. Please revise to elaborate by
including
a risk factor describing your understanding of these intentions
and
the potential consequences if your understanding is not correct.
We have limited sources of revenue and if we are unable to secure
additional ..., page 8
13. If you do not receive the proceeds from Pfizer, please
indicate
how long you could continue to run your operations. Similarly,
provide this information in the discussion of "Funding
Requirements"
on pages 42 - 43.
Our TLR Therapeutic product candidates are at an early stage of
product ..., page 11
14. To the extent you are aware of any undesirable side effects or
other characteristics of any of your lead products that may delay
or
preclude regulatory approval or limit their commercial use, please
disclose them in a separate risk factor.
We depend on third-party contractors in the conduct of our
preclinical studies ..., page 14
15. You indicate that you rely on third parties to conduct your
clinical trials. In addition to Pfizer, please identify the third
parties that you substantially rely on for conducting your
clinical
trials and to perform data collection and analysis. Also, to the
extent you have any agreements with such parties, please so
indicate
and describe in your Business section the material terms of the
agreements. You should also file the agreements as exhibits to
your
document.
16. In addition, if you have experienced delays or other
difficulties
due to a clinical research organization`s ability to perform,
please
describe the situation and actual or expected consequences.
Because we have limited manufacturing experience, we depend on
third-
party ..., page 14
17. Please identify any sole source suppliers that you or your
manufacturers rely on for the production of the compounds you need
for preclinical and clinical purposes. To the extent you have any
formal agreements with them, please describe the material terms of
such agreements under the Manufacturing section on page 77. You
should also file the agreements as exhibits to your document. If
you
believe you are not substantially dependent on these suppliers,
provide us with an analysis supporting your determination.
18. If you do not have any long term agreements, please disclose
this
information and disclose when any short-term supply agreements
expire. Additionally, please indicate if these parties currently
meet your manufacturing requirements.
If we are unable to retain our management, scientific staff and
scientific advisors ..., page 15
19. To the extent known, please disclose the projected time frame
of
your hiring the additional scientific and technical personnel.
As we evolve from a company primarily involved in drug research
....,
page 15
20. As currently written, this risk factor could apply to any
issuer
or offering. See Item 503(c) of Regulation S-K. While we
understand
that the risks you describe in this subsection are risks the
company
encounters because it is in the drug development business, you
should
state how this risk relates specifically to your company.
If the combination of patents, trade secrets and contractual
provisions ..., page 16
21. Please revise the discussion to identify your product
candidates
that would be affected if Dynavax`s actions are successful.
If third parties successfully assert that we have infringed their
patents ..., page 17
22. The last sentence of this discussion disclosed a separate
risk.
Please revise to include it as a separate risk factor. The
discussion should identify the personnel you consider to be key
and
the related work product that would be affected if they were to
leave
the company.
If we are unable to protect our trade secrets, we may be unable to
protect our ..., page 18
23. If your business has been materially and adversely affected by
the disclosure of proprietary information, please discuss the
situation and its consequences.
If we fail to comply with our obligations in the agreements under
which ..., page 18
24. In addition, with respect to patents you obtained from third
parties, please disclose who has the obligations to take necessary
actions to protect patents under your license agreements. If you
do
not have the obligation to take action, do you have the right to
take
necessary actions if the other party does not?
There is a substantial risk of product liability claims in our
business. If we are ..., page 20
25. Please indicate if you believe your $10 million product
liability
insurance coverage is adequate.
If there are substantial sales of our common stock, our stock
price
could ..., page 22
26. Please revise the third paragraph of your risk factor to
include
the conversion price of the warrants. If the warrants are
exercisable at varying prices, please provide the range or
weighted
exercise price.
Use of Proceeds, page 26
27. Please disclose the approximate amount and timing of the
proceeds
you plan to use for the purposes you list in this section.
Additionally, please specify how much you anticipate spending for
product development, which products you expect to develop using
these
proceeds and indicate where in the drug development process you
expect to be after the expenditure of these proceeds.
Management`s Discussion and Analysis of Financial Condition and
Results of Operations
Overview, page 32
28. We note your statement that Pfizer will fund nearly all future
development as it relates to ProMune. Please disclose what costs
Coley Pharmaceutical Group will be responsible for going forward
under the license agreement with Pfizer.
Clinical Development Strategy and Ongoing Clinical Programs, page
33
29. Please revise your statement, "[a]fter antitrust clearance of
our
license agreement with Pfizer..." As currently worded the
statement
presupposes authorities will give you antitrust clearance.
Research and Development Cost Allocations, page 34
30. Please expand your disclosure to include additional
information.
Refer to the Division of Corporation Finance "Current Issues and
Rulemaking Projects Quarterly Update" under section VIII -
Industry
Specific Issues - Accounting and Disclosure by Companies Engaged
in
Research and Development Activities. You can find it at the
following website address:
http://www.sec.gov/divisions/corpfin/cfcrq032001.htm#secviii.
Please
disclose the following information for each of your major research
and development projects:
a. We note that you do not track internal R&D costs on a project
basis. Please revise this discussion to include the external
costs
by project to the extent available;
b. The nature, timing and estimated costs of the efforts necessary
to
complete the project;
c. The anticipated completion dates;
d. The risks and uncertainties associated with completing
development
on schedule, and the consequences to operations, financial
position
and liquidity if the project is not completed timely; and finally
e. The period in which material net cash inflows from significant
projects are expected to commence.
Liquidity and Capital Resources, page 40
31. We note you have yet to fill in the blank indicating the
number
of years your current cash and cash equivalents together with the
proceeds from this offering will last. Notwithstanding your
determination of this figure, please indicate if you expect to
raise
additional funds in the next 24 months. If you are unable to
determine whether you will or not, please disclose the reasons.
Business
General
32. We note your license agreement with the Trustees of Boston
University. Please describe the material provisions of this
agreement in the Business section. Your discussion should
include:
* All material rights and obligations of the parties to the
agreement;
* Duration of the agreement;
* Quantification of all payments made to date and aggregate
potential
payments;
* Termination provisions, including consequences of early
termination; and
* Any other terms that may be considered material.
Please include a discussion of these material provisions in
your
next amendment. We may have further comment.
33. To the extent that you discuss the results of clinical trials,
discuss whether the results were statistically significant.
Disclose
p values, where applicable, and the meaning of the p values.
Additionally, the discussion of the results should be qualified by
a
statement that later stage clinical trials might not support these
results.
Overview, page 45
34. Please revise the first sentence in the fifth paragraph to
state
after you receive antitrust clearance you expect Pfizer will
initiate
a Phase III clinical trial of ProMune. Also, make similar changes
throughout the document where appropriate.
ProMune for Cancer, page 49
35. We note your statement, "[t]he worldwide cancer drug market is
expected to increase from $39 billion in 2003 to $50 billion by
2007." You should only include the size of your potential target
market in which you will compete. Please confirm the $39 billion
and
$50 billion accurately reflects your target market or revise
accordingly.
36. On page 56 you state that subcutaneous administration of
ProMune
is safe. Safety and efficacy are determinations that only the FDA
can make. Please revise to delete this statement. We do not
object
to the statement that it appeared to be relatively well tolerated
by
most patients.
Pfizer Collaboration, page 66
37. Please revise to disclose when the last of the licensed
patents
is scheduled to expire.
sanofi-aventis Collaboration, page 67
38. Please disclose the duration of your agreement with sanofi-
aventis.
Other Commercial Collaborations, page 68
39. Please disclose the duration of your agreements with
GlaxoSmithKline plc and Chiron Corporation.
40. Please disclose the total aggregate amount you may be entitled
to
receive under the terms of your license agreement with Qiagen (now
Merial Limited). Additionally, disclose the duration of this
agreement.
Government Contracts and Grants, page 68
41. Please revise to disclose the amounts already received under
each
of these contracts or grants.
Technology In-Licenses, page 69
42. Please revise to identify your product candidates that are
dependent on each of these licenses.
43. Quantify the royalties to UIRF that are past due.
44. If you made up front payments to acquire these licenses,
please
disclose the payments made to date and any payments you still need
to
make.
Intellectual Property, page 71
45. Please describe the 42 issued patents, including the subject
protected by the patent, expiration and products dependent on the
patent. You may discuss related patents together as a group.
Government Regulation, page 73
46. Please revise to include a discussion of the antitrust
clearance.
Property and Facilities, page 77
47. Please revise to disclose the amount of your annual lease
payments for the four properties listed.
48. Please disclose whether you intend to negotiate a renewal of
your
lease in Langenfeld, Germany, which expires in March 2006.
Employees, page 78
49. Please disclose the number of part-time employees you have, if
any.
Legal Proceedings, page 78
50. Supplementally, please provide us your analysis why you do not
believe your current litigation with Dynavax to be material. We
note
that you intend to use some of the proceeds from the offering for
prosecution and maintenance of your patents.
Executive Compensation, page 84
51. We note that all of the executive officers you describe in
this
section receive stock option awards as part of their compensation.
Please describe how these individuals` performance is determined
and
what factors are considered in evaluating it. For example, if the
grants are based on company performance, please describe how
company
performance is measured.
Related Party Transactions
Other Transactions, page 90
52. Please revise to disclose the amount of the $50 million up-
front
payment from Pfizer you will be required to pay to the University
of
Iowa. Additionally, disclose how much of this amount Dr. Krieg
will
receive.
Principal Stockholders, page 92
53. Please provide the full name(s) of the natural persons having
voting, dispositive or investment powers over the shares held by
the
entities listed in the 5% or more stockholders table.
Description of Capital Stock
Warrants, page 97
54. Please state whether the expiration date on the warrants may
be
extended and, if so, how. Please also clarify whether the
warrants
are callable and, if so, how and when you could call the warrants.
Underwriting, page 108
55. We note you plan to conduct a directed share offering. Please
provide us with any material you intend to use to sell to
potential
purchasers such as a "friends and family" letter. Tell us when you
intend to send them to these potential purchasers. In addition,
tell
us the procedures you will employ in making the offering and how
you
will assure that this offer will meet the requirements of Section
5
of the Securities Act and Rule 134. We may have further comments.
56. We note that certain of the underwriters may distribute
prospectuses electronically. Please tell us the procedures they
will
use in their selling efforts and how they intend to comply with
the
requirements of Section 5 of the Securities Act of 1933,
particularly
with regard to how offers and final confirmations will be made and
how and when purchasers will fund their purchases. Provide us
copies
of all electronic communications including the proposed web pages.
57. Please tell us and briefly disclose in the prospectus whether
you
intend to use any forms of prospectus other than print and
electronic
version, such as CD-ROMs, videos, etc., and provide all such
prospectuses for our examination. Please refer to SEC Releases
No.
33-7233 and NO. 33-7289. We may have additional comments.
58. Please indicate if your underwriters have arrangements with a
third party to host or access your preliminary prospectus on the
Internet. If so, identify the party and provide the address of
the
website. Please also describe the material terms of the agreement
and provide us with a copy of any written agreement. You should
also
provide us with copies of all information concerning your company
or
the offering that appears on the third party website. We may have
further comments.
Quotation on Nasdaq National Market, page 109
59. Please revise the statement that you expect your common stock
to
be approved for quotation on the Nasdaq National Market to state
that
you have applied for quotation or intend to apply for quotation as
opposed to stating that you expect to be approved.
Notes to the Consolidated Financial Statements
1. Nature of Business, page F-7
60. Please explain to us why you appear to provide going concern
language in this portion of the document, but the auditors do not
include a going concern opinion.
3. Summary of Significant Accounting Policies
Deferred Royalty Fees, page F-11
61. It appears based on this disclosure that you defer the royalty
fees paid related to the sublicenses over the revenue recognition
period. Please provide to us the references to the specific
paragraphs within the applicable authoritative literature that
support this treatment.
7. Long-Term Debt and Capital Lease Obligations, page F-17
62. On the face of the balance sheet, you refer to the loan to the
German Bank as "convertible notes payable". However, it is
unclear
based on the disclosure why this amount reflects convertible debt.
Please revise your disclosure to include the conversion features,
and
explain the pertinent rights and privileges of the convertible
debt,
or tell us why this is not appropriate.
8. Redeemable Convertible Preferred Stock
Financing History, pages F-18 - F-19
63. In order for us to fully understand the equity fair market
valuations reflected in your financial statements, please provide
an
itemized chronological schedule covering all equity instruments
issued since January 1, 2004 through the date of your response.
Please provide the following information separately for each
equity
issuance:
a. The date of the transaction;
b. The number of shares/options issued/granted;
c. The exercise price or per share amount paid;
d. Management`s fair market value per share estimate and how the
estimate was made;
e. The identity of the recipient, indicating if the recipient
was a
related party;
g. Nature and terms of concurrent transactions; and,
h. The amount of any compensation or interest expense element
including the effect on issuances accounted for under the guidance
of
APB 28.
Progressively bridge management`s fair market value determinations
to
the current estimated IPO price range. Please reconcile and
explain
the differences between the mid-point of your estimated offering
price range and the fair values included in your analysis.
64. Consider the need to provide a table that discloses the
proceeds
received from each offering described here. Also include a
discussion of the original conversion ratios of each of these
issuances of preferred shares.
Dividends, page F-20
65. It is unclear how you treated the obligation to issue
additional
shares to pay the in kind dividends related to the Series F
shares.
Please explain to us and disclose the accounting treatment applied
to
this obligation. Also clarify how these dividends affect the
liquidation preference disclosed on page F-20.
Conversion Rights, page F-21
66. Please clarify what "weighted average" antidilution adjustment
are. Also include a detailed discussion of any accounting
implications that such adjustments would involve as well as
whether
any such adjustments have been made in the past.
Restructuring of Series A Through E Preferred Stock, F-22
67. Please tell us and disclose the nature of the amendments, and
if
necessary, provide your analysis of any potential accounting
impact
resulting from these amendments.
Warrants, page F-22
68. Please disclose the fair value of the warrants issued in
connection with each issuance discussed in this disclosure.
10. Stock Option Plan
69. Please disclose the price of the repurchase rights related to
the
ability to immediately exercise these options. Also provide to us
supplementally your analysis of the accounting implication related
to
these repurchase rights.
14. Significant Research and Development and Licensing Agreements,
page F-28
70. Please provide the disclosure required by paragraph 14(b) of
SFAS
68 related to these agreements.
15. Subsequent Events
Pfizer, page F-32
71. Please disclose the amounts that are owed to the University of
Iowa related to this agreement with Pfizer.
Item 15. Recent Sales of Unregistered Securities, page II-2
72. Please indicate if any underwriters were employed in
connection
with any of the transactions set forth in Item 15.
73. Please revise to identify to whom you issued the 1,722,034
shares
of Series F Convertible Preferred Stock on August 19, 2004 and
September 24, 2004.
Item 16. Exhibits and Financial Statement Schedules, page II-3
74. Please file your remaining exhibits, including the legal
opinion
with your next amendment or as soon as it becomes available as we
will need time to review it prior to granting effectiveness of the
registration statement.
75. Please revise the footnote about your confidential treatment
request to state that portions of the exhibits have been omitted
pursuant to a confidential treatment request and that this
information has been filed separately with the Commission.
* * *
As appropriate, please amend your registration statement in
response to these comments. You may wish to provide us with
marked
copies of the amendment to expedite our review. Please furnish a
cover letter with your amendment that keys your responses to our
comments and provides any requested supplemental information.
Detailed cover letters greatly facilitate our review. Please
understand that we may have additional comments after reviewing
your
amendment and responses to our comments.
We urge all persons who are responsible for the accuracy and
adequacy of the disclosure in the filings reviewed by the staff to
be
certain that they have provided all information investors require
for
an informed decision. Since the company and its management are in
possession of all facts relating to a company`s disclosure, they
are
responsible for the accuracy and adequacy of the disclosures they
have made.
Notwithstanding our comments, in the event the company
requests
acceleration of the effective date of the pending registration
statement, it should furnish a letter, at the time of such
request,
acknowledging that:
* should the Commission or the staff, acting pursuant to delegated
authority, declare the filing effective, it does not foreclose the
Commission from taking any action with respect to the filing;
* the action of the Commission or the staff, acting pursuant to
delegated authority, in declaring the filing effective, does not
relieve the company from its full responsibility for the adequacy
and
accuracy of the disclosure in the filing; and
* the company may not assert this action as a defense in any
proceeding initiated by the Commission or any person under the
federal securities laws of the United States.
In addition, please be advised that the Division of
Enforcement
has access to all information you provide to the staff of the
Division of Corporation Finance in connection with our review of
your
filing or in response to our comments on your filing.
We will consider a written request for acceleration of the
effective date of the registration statement as a confirmation of
the
fact that those requesting acceleration are aware of their
respective
responsibilities under the Securities Act of 1933 and the
Securities
Exchange Act of 1934 as they relate to the proposed public
offering
of the securities specified in the above registration statement.
We
will act on the request and, pursuant to delegated authority,
grant
acceleration of the effective date.
You may contact Tabitha Akins at (202) 551-3658 or Jim
Atkinson
at (202) 551-3674 if you have questions regarding comments on the
financial statements and related matters. Please contact Albert
Lee
at (202) 551-3654 or me at (202) 551-3715 with any other
questions.
Sincerely,
Jeffrey Riedler
Assistant Director
cc: William T. Whelan
Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
One Financial Center
Boston, MA 02111
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Robert L. Bratzler
Coley Pharmaceutical Group, Inc.
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