(COOLEY GODWARD LLP LOGO) ATTORNEYS AT LAW Broomfield, CO
720 566-4000
4401 Eastgate Mall Palo Alto, CA
San Diego, CA 650 843-5000
92121
Main 858 550-6000 Reston, VA
Fax 858 550-6420 703 456-8000
www.cooley.com San Francisco, CA
415 693-2000
L. Kay Chandler
(858) 550-6014
chandlerlk@cooley.com
June 1, 2005
Securities and Exchange Commission - Mail Stop 6010
100 F Street, N.E.
Washington, D.C. 20549
Attention: Jeffrey Riedler, Esq.
Assistant Director
Division of Corporate Finance
RE: EPIMMUNE INC.
PRELIMINARY SCHEDULE 14A FILED APRIL 22, 2005, FILE NO. 1-19591
FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2004, FILE NO. 1-19591
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2005, FILE NO. 1-19591
Dear Mr. Riedler:
On behalf of Epimmune Inc. ("Epimmune" or the "Company"), we are electronically
transmitting a conformed copy of Amendment No. 1 (the "Amendment") to the
Company's Proxy Statement, marked to show changes from the Proxy Statement filed
with the Securities and Exchange Commission (the "Commission") on April 22, 2005
(the "Proxy Statement"). The Company is filing the Amendment in response to the
Staff's comments on the Company's Proxy Statement, Form 10-K for the year ended
December 31, 2004 (the "10-K") and Form 10-Q for the quarterly period ended
March 31, 2005 (the "10-Q"), received from the staff of the Commission (the
"Staff") by letter dated May 20, 2005. The Amendment also revises Proposal 3 to
change the range of potential reverse stock splits to be voted on by the
Company's stockholders and adds Proposal 7 regarding approval of the adoption of
an employee stock purchase plan for employees of IDM S.A.
We recognize that certain of the Staff's comments will require changes to the
10-K and 10-Q. The Company has provided herein a detailed explanation of the
changes it will make to the 10-K and the 10-Q in response to such comments. The
Company will undertake to file a Form 10-K/A (the "10-K/A") to amend the 10-K
and a Form 10-Q/A (the "10-Q/A") to amend the 10-Q once the Staff has accepted
the Company's responses with respect to the 10-K and 10-Q. In addition, we are
providing via express delivery three copies of the Amendment, a draft version of
the 10-K/A and a draft version of the 10-Q/A, each marked to show changes, and
three copies of this letter.
The following responses to the Staff's comments have been provided by the
Company, and for your convenience we have included the Staff's comments in bold
typeface before each response.
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The Company would like to file a definitive Proxy Statement as soon as possible.
Accordingly, the Staff's timely response to this letter is appreciated. Please
let us know if there is anything else we can do to facilitate your review.
PRELIMINARY SCHEDULE 14A
GENERAL
1. COMMENT: PLEASE NOTE THAT WHERE WE PROVIDE EXAMPLES TO ILLUSTRATE WHAT WE
MEAN BY OUR COMMENTS, THEY ARE EXAMPLES ONLY AND NOT INTENDED AS EXHAUSTIVE
LISTS. IF OUR COMMENTS ARE APPLICABLE TO PORTIONS OF YOUR FILING THAT WE
HAVE NOT CITED AS EXAMPLES, PLEASE MAKE THE APPROPRIATE CHANGES IN
ACCORDANCE WITH OUR COMMENTS.
Response: The Company acknowledges the Staff's comment.
2. COMMENT: IN ADDITION, PLEASE NOTE THAT YOU ARE REQUIRED TO FILE WITH THE
COMMISSION ANY WRITTEN INSTRUCTIONS, SCRIPTS, AND OUTLINES THAT WILL BE
USED BY ANY PERSON THAT SOLICITS PROXIES ON BEHALF OF EPIMMUNE THROUGH
PERSONAL INTERVIEW, TELEPHONE, OR TELEGRAM, AND ALL OTHER SOLICITING
MATERIAL THAT WILL BE FURNISHED TO EPIMMUNE SHAREHOLDERS. SEE RULES
14A-6(B) AND (C) OF THE EXCHANGE ACT OF 1934.
Response: The Company acknowledges the Staff's comment.
3. COMMENT: WE NOTE THAT THE PROXY CARD ASKS STOCKHOLDERS TO GRANT THE PROXIES
DISCRETIONARY AUTHORITY TO VOTE ON ANY OTHER MATTERS THAT MAY PROPERLY COME
BEFORE THE MEETING. PLEASE ENSURE THAT THE PROXY STATEMENT PROVIDES
APPROPRIATE DISCLOSURE TO EPIMMUNE STOCKHOLDERS OF THIS PROXY AUTHORITY.
Response: The Company acknowledges the Staff's comment. In addition to
existing disclosure in the Notice of Annual Meeting of Stockholders and on
page 9 of the Amendment, the Company has added the requested disclosure
on page 7 of the Amendment.
4. COMMENT: TO THE EXTENT THAT IDM RECEIVED ANY FINANCIAL INFORMATION ABOUT
EPIMMUNE IN THE COURSE OF THE PARTIES' DUE DILIGENCE AND NEGOTIATIONS THAT
IS NOT OTHERWISE DISCLOSED IN THE PROXY STATEMENT OR IN EPIMMUNE'S PUBLIC
FILINGS, PLEASE CONSIDER WHETHER SUCH INFORMATION SHOULD BE DISCLOSED IN
YOUR NEXT AMENDMENT TO THE PROXY STATEMENT. IN ADDITION, PLEASE TELL US BY
SUPPLEMENTARY RESPONSE WHETHER YOU ARE AWARE OF ANY SUCH INFORMATION AND
DESCRIBE THE NATURE OF THIS INFORMATION.
Response: The Company supplementally advises the Staff that during the
course of developing financial projections for the combined company,
Epimmune and IDM each
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June 1, 2005
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provided their respective five-year (2005-2009) internal projections to
management of the other party. These projections included statements of
operations and cash use for the five-year period in each case, with
projected expense and revenue details by product or research and
development project. The projections were then consolidated and adjusted
based on preliminary strategy and priorities of the combined company agreed
upon by management of both Epimmune and IDM. The projections were shared as
part of the strategic discussions of the combined company and were not used
by the parties in connection with the negotiation of the exchange ratio.
IDM did not share these projections with the IDM shareholders in connection
with the solicitation of their approval of the Share Exchange Agreement or
otherwise. The Company submits to the Staff that these projections are not
material to the Epimmune stockholders in deciding how to vote on the
proposals and could in fact be misleading to the stockholders. Except for
the projections, the proxy statement includes all of the financial
information relating to Epimmune that was shared with IDM.
INTRODUCTORY LETTER TO EPIMMUNE STOCKHOLDERS
5. COMMENT: WE NOTE YOUR STATEMENT THAT YOU ARE ENCLOSING YOUR ANNUAL REPORT
TO STOCKHOLDERS FOR THE YEAR ENDED DECEMBER 31, 2004 ALONG WITH YOUR PROXY
STATEMENT. IN ADDITION, YOU SHOULD ALSO ENCLOSE A COPY OF YOUR MOST RECENT
QUARTERLY REPORT ON FORM 10-Q. PLEASE CONFIRM THAT YOU WILL COMPLY WITH
THIS REQUEST AND REVISE YOUR LETTER TO STOCKHOLDERS ACCORDINGLY.
Response: The Company hereby confirms that it will comply with the Staff's
request to enclose a copy of its Quarterly Report on Form 10-Q for the
fiscal quarter ended March 31, 2005 with its proxy statement. In addition,
the Company revised its letter to stockholders, included with the
Amendment, to indicate that the Form 10-Q will be enclosed with the proxy
statement.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
6. COMMENT: WE NOTE THAT THE DEADLINE FOR RETURNING PROXIES APPEARS ON PAGE 6
OF THE PROXY STATEMENT UNDER THE CAPTION "HOW DO I VOTE?" PLEASE ALSO
INCLUDE THIS DEADLINE IN THE BOLDED LEGEND AT THE BOTTOM OF THE NOTICE.
Response: The Company has added the requested disclosure in the bolded
legend at the bottom of the Notice of Annual Meeting of Stockholders
included with the Amendment.
7. COMMENT: YOU STATE THAT THE TRANSACTIONS UNDER THE SHARE EXCHANGE AGREEMENT
WILL NOT CLOSE IF ANY OF PROPOSALS 1, 3 OR 4 DO NOT RECEIVE THE REQUIRED
VOTE BY EPIMMUNE STOCKHOLDERS UNLESS THE IDM SHAREHOLDERS WHO ARE PARTIES
TO THE SHARE EXCHANGE AGREEMENT WAIVE THIS CONDITION TO CONSUMMATION.
HOWEVER, WE NOTE THAT
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YOU ARE ALSO SEEKING STOCKHOLDER APPROVAL IN ACCORDANCE WITH THE RULES OF
THE NASDAQ STOCK MARKET REGARDING THE ISSUANCE OF SHARES OF EPIMMUNE'S
COMMON STOCK. THEREFORE, THE COMPANY SHOULD CLARIFY THAT IT IS ALSO SEEKING
APPROVAL TO COMPLY WITH NASD REQUIREMENTS AND THAT EVEN IF THE IDM
SHAREHOLDERS WERE TO WAIVE THE REQUIREMENT UNDER THE SHARE EXCHANGE
AGREEMENT, WITHOUT STOCKHOLDER APPROVAL EPIMMUNE WOULD FACE THE DELISTING
OF ITS SHARES ON THE NASDAQ STOCK MARKET.
Response: The Company has revised the Notice of Annual Meeting of
Stockholders to clarify that the Company is also seeking stockholder
approval of the proposed issuance of shares pursuant to proposal 1 in order
to comply with the rules of the Nasdaq Stock Market and stockholder
approval of the proposed reverse stock split pursuant to proposal 3 in
order to assure that the Company complies with the minimum bid price per
share under the Nasdaq National Market's listing requirements and that,
even if the IDM shareholders were to waive the requirement of Epimmune
stockholder approval of these matters under the Share Exchange Agreement,
that the Company would face the delisting of its shares on the Nasdaq Stock
Market if it issues the shares without stockholder approval or if it does
not meet the Nasdaq National Market's listing requirements.
CHAPTER 1 - OVERVIEW
QUESTIONS AND ANSWERS ABOUT THE EXCHANGE, PAGES 1-4
8. COMMENT: IN ADDITION TO THE MATTERS ALREADY ADDRESSED IN THIS SECTION,
PLEASE ALSO INCLUDE QUESTIONS AND ANSWERS ABOUT THE FOLLOWING:
- THE PERCENTAGE OF OUTSTANDING COMMON STOCK OF THE COMBINED COMPANY
THAT WILL BE OWNED BY EACH OF THE FORMER (I) NON-AFFILIATES AND (II)
AFFILIATES OF EPIMMUNE, ON A FULLY DILUTED BASIS;
- WHETHER THE CURRENT HOLDERS OF EPIMMUNE DERIVATIVE SECURITIES WILL BE
AFFORDED THE OPPORTUNITY TO VOTE THE SHARES OF COMMON STOCK UNDERLYING
THEIR DERIVATIVE SECURITIES FOR PURPOSES OF APPROVING THE MERGER; AND
- WHETHER CURRENT HOLDERS OF EPIMMUNE DERIVATIVE SECURITIES WILL BE
PERMITTED TO CONVERT SUCH HOLDINGS PRIOR TO THE STOCKHOLDERS' MEETING
AND, IF SO, THE MECHANICS FOR DOING SO
Response: The Company has added the requested disclosure regarding each of
the specified matters under "Questions and Answers about the Exchange" on
pages 4-5 of the Amendment.
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9. COMMENT: ON PAGE 4, IN YOUR DISCUSSION OF EPIMMUNE STOCKHOLDERS THAT HAVE
COMMITTED TO VOTE IN FAVOR OF THE TRANSACTION WITH IDM, PLEASE PROVIDE THE
PERCENTAGE OF OUTSTANDING EPIMMUNE COMMON STOCK, AS OF THE RECORD DATE,
THAT HAS AGREED TO VOTE IN THIS MANNER.
Response: The Company has added the requested disclosure on page 4 of the
Amendment.
10. COMMENT: PLEASE ADDRESS, EITHER IN THIS SECTION OR IN THE SUMMARY OF THE
EXCHANGE THAT BEGINS ON PAGE 10, ANY MATERIAL TAX EFFECTS TO EPIMMUNE
STOCKHOLDERS AS A RESULT OF THE SHARE EXCHANGE AGREEMENT AND RELATED
TRANSACTIONS. IF THERE ARE NO MATERIAL TAX EFFECTS, PLEASE MAKE THIS CLEAR.
Response: The Company advises the Staff that because the proposed
transaction does not include an exchange of shares by Epimmune stockholders
(as determined immediately before the Exchange), the closing of the
Exchange and related transactions under the Share Exchange Agreement do not
have material U.S. federal income tax consequences to Epimmune
stockholders. The Company has added an affirmative statement to such effect
under "Summary of the Exchange (Proposal 1)" on page 15 of the Amendment.
11. COMMENT: SIMILARLY, PLEASE DISCUSS ANY MATERIAL TAX EFFECTS TO EPIMMUNE AS
A RESULT OF THE SHARE EXCHANGE AGREEMENT AND RELATED TRANSACTIONS. IF THERE
ARE NONE, YOU SHOULD STATE AFFIRMATIVELY THAT SUCH IS THE CASE.
Response: The Exchange may, when considered with other transactions
occurring before and after the Exchange, result in an "ownership change"
under IRC section 382. If an ownership change occurs, Epimmune may be
limited in its ability to utilize its net operating loss carryforwards. We
have included an affirmative statement to such effect under "Summary of the
Exchange (Proposal 1)" on page 15 of the Amendment.
12. COMMENT: IN THE SECOND PARAGRAPH UNDER THE CAPTION "HOW ARE VOTES COUNTED?"
ON PAGE 8, PLEASE DISCLOSE WHICH OF EACH OF THE PROPOSALS BEING OFFERED FOR
SHAREHOLDER CONSIDERATION WOULD BE CONSIDERED DISCRETIONARY AND WHICH WOULD
BE CONSIDERED NON-DISCRETIONARY. IN ADDITION, WE ARE UNCLEAR WHY THE NEW
YORK STOCK EXCHANGE RULES ARE RELEVANT IN THIS CASE. PLEASE EXPLAIN OR
REVISE YOUR DISCLOSURE, AS APPROPRIATE.
Response: The Company has added the requested disclosure regarding which
proposals being offered for stockholder consideration would be considered
discretionary and which proposals would be considered non-discretionary in
the second paragraph under the caption "How are votes counted?" on page
10 of the Amendment. In regards to the
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reference to the rules of the New York Stock Exchange in the second
paragraph under the caption "How are votes counted?," the Company advises
the Staff that this reference is included as it governs the conduct of
brokers in regards to the voting of certain shares held in street name on
behalf of certain beneficial owners. Specifically, the Company notes to the
Staff to reference Rule 452 of the rules of the New York Stock Exchange.
13. COMMENT: ON PAGES 8-9 UNDER THE CAPTION "HOW MANY VOTES ARE NEEDED TO
APPROVE EACH PROPOSAL?," PLEASE CLARIFY WHETHER THE PREFERRED STOCKHOLDERS
VOTE AS A SINGLE CLASS WITH THE COMMON OR SEPARATELY.
Response: The Company has added disclosure on page 11 of the Amendment to
clarify that the preferred stockholder votes as a single class with the
holders of common stock on each proposal for the 2005 Annual Meeting.
14. COMMENT: ON PAGE 12 UNDER THE CAPTION "INTERESTS OF DIRECTORS, OFFICERS AND
AFFILIATES," PLEASE DISCLOSE THE NUMBER OF OPTIONS THAT WILL VEST IN FULL
FOR EACH OF THREE OFFICERS AND THE NUMBER OF OPTIONS FOR THE THREE MEMBERS
OF THE BOARD THAT WILL REMAIN EXERCISABLE. SIMILARLY, THE DISCLOSURE THAT
APPEARS IN THE BULLET POINTS ON PAGES 19-20 UNDER THE RISK FACTOR ENTITLED
"SOME OF THE DIRECTORS AND EXECUTIVE OFFICERS OF EPIMMUNE AND IDM MAY HAVE
INTERESTS IN THE EXCHANGE THAT ARE DIFFERENT FROM . . .," SHOULD BE MORE
SPECIFIC. FOR EXAMPLE, IN THE SECOND BULLET POINT, YOU SHOULD STATE THE
NUMBER OF OPTIONS THAT WILL VEST IN FULL FOR EACH PERSON. AS ANOTHER
EXAMPLE, IN THE FOURTH BULLET POINT, PLEASE STATE THE ACTUAL DOLLAR AMOUNT
OF EACH CASH BONUS.
Response: The Company has added the requested disclosure on pages 14 and
23 of the Amendment.
RISK FACTORS, PAGES 19-36
GENERAL
15. COMMENT: WHERE YOU LAY OUT BULLET POINTS HIGHLIGHTING SPECIFIC RISK
FACTORS, PLEASE ELABORATE ON ANY SPECIFIC PROBLEMS YOU HAVE FACED IN THE
PAST RELATING TO THOSE BULLET POINTS, ARE ONGOING, OR WHICH ARE LIKELY TO
OCCUR. PLEASE NOTE THAT IN DOING SO, YOUR RESULTING DISCLOSURE MIGHT BECOME
SIGNIFICANT ENOUGH TO WARRANT A SEPARATE RISK FACTOR. WE MAY HAVE FURTHER
COMMENTS ON YOUR DISCLOSURE.
Response: Where there are bullet points highlighting specific risk factors,
the Company has, to the extent applicable, added the requested disclosure,
including elaboration of any specific problems that it has faced in the
past, that are ongoing, or which it believes are likely to occur.
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16. COMMENT: IF EITHER EPIMMUNE OR IDM HAS MATERIAL AGREEMENTS THAT, BY THEIR
TERMS, MAY BE TERMINATED OR RENEGOTIATED AS A RESULT OF THE TRANSACTIONS
DESCRIBED IN THE PROXY STATEMENT, OR CANNOT BE ASSUMED BY THE COMBINED
COMPANY WITHOUT UNDUE DIFFICULTY, PLEASE ADD A SEPARATE RISK FACTOR THAT
ADDRESSES THIS POINT. YOU SHOULD ALSO DISCLOSE WHETHER ANY THIRD PARTY HAS
INDICATED ITS INTENTION TO TERMINATE ITS AGREEMENT WITH EITHER COMPANY OR
TO DEFER OR DELAY A DECISION AFFECTING ITS AGREEMENT WITH EITHER COMPANY IN
RESPONSE TO THE CONTEMPLATED TRANSACTIONS. WE NOTE, FOR INSTANCE, THE RISK
FACTOR ENTITLED "THE COMBINED COMPANY MAY NOT BE ABLE TO OBTAIN LICENSES .
. ." ON PAGE 27 WHICH DISCLOSES THAT "CERTAIN LICENSE AGREEMENTS TO WHICH
IDM IS A PARTY MAY NOT BE TRANSFERRED TO THE COMBINED COMPANY WITHOUT THE
LICENSOR'S CONSENT . . ."
Response: The Company has added a new risk factor addressing the specified
matter on page 31 of the Amendment.
17. COMMENT: WE NOTE THAT THE INDEMNITY ESCROW SHARES WILL BE THE SOLE AND
EXCLUSIVE REMEDY OF EPIMMUNE AND ITS AFFILIATES FOR ANY LOSSES ARISING OUT
OF ANY CLAIMS RELATING TO THE SHARE EXCHANGE AGREEMENT. WE REFER PAGE 71 OF
THE PROXY STATEMENT. PLEASE CONSIDER WHETHER THIS LIMITATION OF LIABILITY
PRESENTS A MATERIAL TRANSACTION RISK THAT SHOULD BE DISCLOSED AS A SEPARATE
RISK FACTOR. IF THE EPIMMUNE BOARD CONSIDERED THIS FEATURE OF THE SHARE
EXCHANGE AGREEMENT AS A NEGATIVE FACTOR WEIGHING AGAINST THE TRANSACTION
WITH IDM, THIS SHOULD ALSO BE DISCLOSED AS APPROPRIATE IN THE PROXY
STATEMENT.
Response: The Company does not view the indemnity escrow and corresponding
limitation on remedies as a material transaction risk. The Company believes
that two factors in particular mitigate any additional risk posed by the
limitation on remedies. First, the existence of the escrow, the contractual
claim resolution process and the Company's access to the escrow shares
greatly increases the Company's likelihood of successfully collecting
damages, especially in contrast to the difficulty of pursuing a breach of
contract claim through courts or other dispute resolution venues located in
the United States and France against one or more of the various IDM
shareholders. Second, upon consummation of the Exchange, the IDM
shareholders will own an aggregate of approximately 78% of the Company's
outstanding capital stock. The Company believes that any incentives that
the IDM shareholders might have to breach representations and warranties in
the Share Exchange Agreement are dramatically reduced by the fact that the
IDM shareholders are receiving stock of the combined entity as
consideration in the Exchange. As a result, the damage from any such breach
would be reflected in reduced value of the shares of the combined company
and borne primarily by the former IDM shareholders.
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Because it was aware of the preceding factors, the Company's board of
directors did not consider this feature of the Share Exchange Agreement as
a negative factor weighing against the transaction with IDM.
18. COMMENT: PLEASE CONSIDER WHETHER THERE IS A NEED FOR A RISK FACTOR THAT
ADDRESSES THE DIMINUTION OF VOTING CONTROL BY FORMER HOLDERS OF EPIMMUNE AS
A RESULT OF THE CONVERSION OF THEIR STAKE IN EPIMMUNE TO OWNERSHIP OF AN
INTEREST IN THE COMBINED COMPANY. IN OTHER WORDS, THE SHARES IN THE
COMBINED COMPANY HELD BY FORMER EPIMMUNE HOLDERS AS A GROUP WILL NO LONGER
EQUATE TO A CONTROLLING INTEREST IN THE SURVIVING COMPANY (AS THEY ONCE DID
WITH RESPECT TO EPIMMUNE), NOR WILL EACH INDIVIDUAL EPIMMUNE HOLDER EXERT
THE SAME DEGREE OF VOTING POWER WITH RESPECT TO THE COMBINED COMPANY THAT
IT DID WITH EPIMMUNE PRIOR TO THE CONSUMMATION OF THE TRANSACTIONS.
Response: The Company acknowledges the Staff's comment and submits to the
Staff that it does not believe that the diminution of voting control by
current holders of Epimmune as a result of the Exchange is a significant
risk to the Epimmune stockholders warranting inclusion of an additional
risk factor. Based upon the information provided under "Other Information
for the Annual Meeting of Epimmune's Stockholders - Security Ownership of
Certain Beneficial Owners and Management," no current stockholder of
Epimmune or group of stockholders acting as a group, as defined under the
Securities Exchange Act of 1934, as amended, owns more than approximately
11.8% of the outstanding voting stock of Epimmune held by the only
preferred stockholder. As of May 25, 2005, there were 16,023,786 shares of
common stock of Epimmune outstanding held of record by approximately 260
holders and 1,409,288 shares of preferred stock of Epimmune outstanding
held by one holder, which shares of preferred stock vote with the common
stock on an as-converted basis (into 1,787,572 shares of common stock which
represents approximately 11.8% of the voting power). Accordingly, the
shares of Epimmune stock are held broadly enough that none of the current
stockholders has voting control over the Company. Accordingly, although the
Exchange will increase the outstanding shares of common stock of Epimmune,
it will not result in any current stockholder or group of stockholders of
Epimmune that has voting control of Epimmune losing voting control of
Epimmune. The Company believes that the relevant risk for the Epimmune
stockholders is that principal shareholders, executive officers and
directors of IDM will own a significant percentage of Epimmune's common
stock as a result of the Exchange, and this risk has been described in the
risk factor entitled "IDM's principal shareholders, executive officers and
directors will own a significant percentage of shares of our common stock
following the closing of the Exchange and, as a result, the trading price
for shares of our common stock may be depressed. These shareholders may
make decisions that may be adverse to your interests." on page 40 of the
Amendment.
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19. COMMENT: THERE APPEARS TO BE A CONSIDERABLE AMOUNT OF UNNECESSARY
REDUNDANCY THROUGHOUT YOUR RISK FACTORS, ESPECIALLY WITH RESPECT TO YOUR
DISCUSSION OF THE RISKS ASSOCIATED WITH THE DEVELOPMENT AND
COMMERCIALIZATION OF THE COMPANIES' PRODUCT CANDIDATES. BY WAY OF EXAMPLE
ONLY:
- THE RISK FACTORS ENTITLED "IF THE COMBINED COMPANY DOES NOT
SUCCESSFULLY DEVELOP AND COMMERCIALIZE ITS PRODUCTS . . . (PAGES
28-29)," "THE COMBINED COMPANY WILL BE SUBJECT TO EXTENSIVE AND
UNCERTAIN GOVERNMENT REGULATION . . . (PAGE 29)" AND "THE LENGTHY
APPROVAL PROCESS AND UNCERTAINTY OF U.S. AND EUROPEAN GOVERNMENT
REGULATORY REQUIREMENTS . . . (PAGES 29-30)," ARE LARGELY DUPLICATIVE
OF THE RISK FACTORS ENTITLED "IDM'S LEAD PRODUCT CANDIDATE MEPACT, MAY
NEVER OBTAIN REGULATORY APPROVAL (PAGE 21)" AND "THE PROCESS OF
DEVELOPING IMMUNOTHERAPEUTIC PRODUCTS . . . (PAGE 22);"
- THE RISK FACTORS ENTITLED "THE COMBINED COMPANY WILL BE AT AN EARLY
STAGE OF DEVELOPMENT . . . (PAGE 25)" IS DUPLICATIVE OF THE RISK
FACTOR ENTITLED "THE PROCESS OF DEVELOPING IMMUNOTHERAPEUTIC PRODUCTS
. . . (PAGE 22);"
- THE RISK FACTOR ENTITLED "PRODUCT LIABILITY RISKS MAY EXPOSE THE
COMBINED COMPANY TO SIGNIFICANT LIABILITY . . . (PAGES 34-35)" IS
DUPLICATIVE OF THE RISK FACTOR ENTITLED "UNEXPECTED OR UNDESIRABLE
SIDE EFFECTS OR OTHER CHARACTERISTICS OF THE COMBINED COMPANY'S
TECHNOLOGY. . . (PAGE 25);"
- THE RISK FACTOR ENTITLED "THE COMBINED COMPANY'S TREATMENT APPROACH
MAY NOT PROVE EFFECTIVE (PAGE 26)" IS DUPLICATIVE OF THE RISK FACTOR
ENTITLED "THE COMBINED COMPANY'S RESEARCH AND DEVELOPMENT PROGRAMS MAY
NOT YIELD EFFECTIVE PRODUCT CANDIDATES . . . (PAGES 25-26);"
- THE RISK FACTOR ENTITLED "IF THE COMBINED COMPANY IS UNABLE TO COMPETE
EFFECTIVELY . . ." IS DUPLICATIVE OF THE RISK FACTOR ENTITLED "THE
COMBINED COMPANY'S COMPETITORS MAY DEVELOP PRODUCTS THAT ARE MORE
EFFECTIVE . . . (PAGE 31);" AND
- THE RISK FACTOR ENTITLED "UNCERTAIN THIRD-PARTY REIMBURSEMENT AND
HEALTH CARE REFORM MEASURES MAY DELAY MARKET ACCEPTANCE . . . (PAGE
34)" IS DUPLICATIVE OF THE RISK FACTOR ENTITLED "SUCCESSFUL
COMMERCIALIZATION OF FUTURE PRODUCTS OF THE COMBINED COMPANY WILL
DEPEND ON ITS ABILITY TO GAIN ACCEPTANCE . . . (PAGES 33-34)"
Response: In accordance with the Staff's request, the Company has deleted
the following risk factors to avoid unnecessary redundancy:
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(1) The risk factor entitled "If the combined company does not successfully
develop and commercialize its products . . . " (page 28 of the Proxy
Statement);
(2) The risk factor entitled "The combined company will be at an early
stage of development . . . " (page 25 of the Proxy Statement);
(3) The risk factor entitled "The combined company's research and
development programs may not yield effective product candidates . . . "
(pages 25-26 of the Proxy Statement);
(4) The risk factor entitled "The combined company's competitors may
develop products that are more effective . . . " (page 31 of the Proxy
Statement); and
(5) The risk factor entitled "Uncertain third-party reimbursement and
health care reform measures may delay market acceptance . . . " (page 34 of
the Proxy Statement).
The Company has not deleted the following risk factors referenced in the
Staff's request:
(6) The risk factor entitled "The combined company will be subject to
extensive and uncertain government regulation . . . " (pages 33-34 of the
Amendment); and
(7) The risk factor entitled "The length approval process and uncertainty
of U.S. and European government regulation requirements . . . " (pages
34-35 of the Amendment).
The Company respectfully submits to the Staff that the Company does not
believe that the risk factors referenced in (6) and (7) above are
duplicative of another risk factor, as such risk factors apply to all
potential products, not simply Mepact. In contrast, the risk factor
entitled "IDM's lead product candidate, Mepact, may never obtain regulatory
approval . . . " (pages 24-25 of the Amendment) simply applies to Mepact.
Further, the Company respectfully submits to the Staff that the Company
does not believe that the risk factors referenced in (6) and (7) above are
duplicative of the risk factor entitled "The process of developing
immunotherapeutic products . . . " (pages 25-26 of the Amendment), as the
risk factors referenced in (6) and (7) above elaborate on and fully explain
the impact of the regulatory process on the combined company.
In response to the Staff's comment regarding unnecessary redundancy
regarding the risk factor entitled "Product liability risks may expose the
combined company to significant liability . . . " (pages 34-35 of the Proxy
Statement) and the risk factor entitled "Unexpected or undesirable side
effects or other characteristics of the combined company's technology . . .
" (page 25 of the Proxy Statement), the Company advises the Staff that such
risk factors have been combined and revised where appropriate to avoid
redundancy.
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RISKS RELATED TO THE BUSINESS OF THE COMBINED COMPANY, PAGES 21-35
"SOME OF OUR RESEARCH AND DEVELOPMENT PROGRAMS ARE FUNDED BY THE U.S. GOVERNMENT
.. . .," PAGE 22
20. COMMENT: PLEASE DISCLOSE THE EXTENT TO WHICH SUCH PROGRAMS ARE EXCLUSIVELY
FUNDED BY THE U.S. GOVERNMENT AND THE PERCENT OF THE COMBINED COMPANY'S
REVENUE ATTRIBUTABLE TO SUCH FUNDING.
Response: The Company has added the requested disclosure on page 26 of
the Amendment.
"IDM'S PRINCIPAL SOURCE OF REVENUES AND OPERATING CASH FLOWS . . .," PAGES 22-23
21. COMMENT: PLEASE DISCLOSE THE PERCENT OF THE COMBINED COMPANY'S REVENUE AND
OPERATING CASH FLOW THAT WOULD HAVE BEEN ATTRIBUTABLE TO SANOFI-AVENTIS
S.A. FOR THE YEARS 2002, 2003 AND 2004.
Response: The Company has added the requested disclosure relating to the
percent of the combined Company's 2004 revenues on pages 26-27 of the
Amendment. The Company believes that pro forma information for the latest
fiscal year is the most relevant and providing pro forma information for
only 2004 is consistent with the provisions of Rule 3-05 of Regulation S-X.
In addition, the Company respectfully submits to the Staff that because
IDM had cash used from operations during each of the years ended December
31, 2002, 2003 and 2004 the Company does not believe the percent of the
combined company's operating cash flows attributable to Sanofi-Aventis is
meaningful. Accordingly, the Company has revised the risk factor on page
26 of the Amendment to characterize Sanofi-Aventis as the principal
source of revenues and cash receipts, rather than operating cash flows.
"EPIMMUNE'S AND IDM'S HISTORY OF OPERATING LOSSES . . .," PAGES 23-24
22. COMMENT: PLEASE REVISE TO DISCLOSE EACH COMPANY'S CUMULATIVE LOSSES SINCE
INCEPTION AND LOSSES IN EACH OF THE LAST THREE COMPLETED FISCAL YEARS.
Response: The Company has added the requested disclosure on page 27 of
the Amendment.
"THE COMBINED COMPANY MAY EXPERIENCE DIFFICULTIES MANAGING ITS GROWTH . . .,"
PAGE 25
23. COMMENT: YOUR DESCRIPTION IN THIS RISK FACTOR COULD APPLY TO ANY COMPANY IN
ANY INDUSTRY. THE DISCUSSION SHOULD BE HONED SO THAT IT IS SPECIFIC TO YOUR
COMPANY AND DESCRIBES WITH PARTICULARITY WHY THE COMBINED COMPANY IS
VULNERABLE TO THE RISK PRESENTED. PLEASE REVISE ACCORDINGLY. SEE ITEM
503(C) OF REGULATION S-K.
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June 1, 2005
Page Twelve
Response: The Company has revised the risk factor entitled "The combined
company may experience difficulties managing its growth, which could
adversely affect its results of operations." on page 29 of the Amendment
to respond to the Staff's comment.
"THE COMBINED COMPANY'S SUPPLIES CERTAIN MATERIALS . . .," PAGE 27
24. COMMENT: PLEASE DISCLOSE THE EXTENT TO WHICH:
- ANY OF THE CRITICAL MATERIALS SUPPLIED BY THIRD PARTIES ARE NOT
READILY OBTAINABLE FROM ALTERNATE VENDORS; AND
- THESE MATERIALS ARE SUPPLIED PURSUANT TO LONG-TERM CONTRACTS.
Response: The Company has added the requested disclosure on page 32
of the Amendment.
25. COMMENT: PLEASE ALSO ADDRESS WHETHER ANY OF THE KEY RAW MATERIALS USED BY
THE TWO COMPANIES ARE INHERENTLY SCARCE AND THE RISKS THIS MAY POSE.
Response: The Company has added the requested disclosure on page 32
of the Amendment.
"IF THE COMBINED COMPANY LOSES ITS KEY SCIENTIFIC AND MANAGEMENT PERSONNEL . .
..," PAGE 33
26. COMMENT: SINCE MOST COMPANIES RELY ON THEIR KEY PERSONNEL, CLEARLY EXPLAIN
HOW THIS SPECIFIC RISK FACTOR APPLIES TO YOUR COMPANY. FOR EXAMPLE,
IDENTIFY THE KEY PERSONNEL UPON WHOM YOU ARE DEPENDENT AND HOW YOU WOULD BE
SPECIFICALLY ADVERSELY AFFECTED IF ONE OR MORE OF THEM LEFT.
Response: The Company has added the requested disclosure on pages 28-29
of the Amendment.
27. COMMENT: PLEASE DISCLOSE WHETHER YOU HAVE REASON TO BELIEVE THAT KEY
EMPLOYEES WILL DEPART THE COMPANIES AS A RESULT OF THE IMPENDING
TRANSACTION OR, INDEPENDENT OF THE TRANSACTION, ANY INDIVIDUALS ARE
PLANNING TO LEAVE, RETIRE OR ARE NEARING RETIREMENT AGE. IF SO, PLEASE
IDENTIFY SUCH AND THE ANTICIPATED IMPACT ON THE COMBINED COMPANY GOING
FORWARD.
Response: The Company has added the requested disclosure on pages 28-29
of the Amendment.
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Page Thirteen
28. COMMENT: PLEASE DISCLOSE WHETHER YOU HAVE EMPLOYMENT CONTRACTS WITH YOUR
KEY SCIENTIFIC AND MANAGEMENT PERSONNEL AND THOSE CONTRACTS ARE AFFECTED,
IF AT ALL, BY THE CONTEMPLATED TRANSACTIONS.
Response: The Company has added the requested disclosure on pages 28-29 of
the Amendment.
"PRODUCT LIABILITY RISKS MAY EXPOSE THE COMBINED COMPANY TO SIGNIFICANT
LIABILITY . . .," PAGES 34-35
29. COMMENT: PLEASE DISCUSS THE EXTENT TO WHICH THE COMBINED COMPANY HAS
RECEIVED COMMITMENTS IN RESPECT OF PRODUCT LIABILITY INSURANCE.
Response: The Company has added the requested disclosure on page 30 of the
Amendment in the risk factor entitled "Unexpected and undesirable side
effects or other characteristics of the combined company's business and
technology may delay or otherwise hurt the development of the combined
company's product candidates, or may expose the combined company to
significant liability that could cause it to incur significant costs."
"THE COMBINED COMPANY'S USE OF HAZARDOUS MATERIALS . . .," PAGE 35
30. COMMENT: PLEASE BE MORE SPECIFIC ABOUT THE HAZARDOUS MATERIALS THAT YOU USE
IN YOUR BUSINESS. IN ADDITION, STATE WHETHER THE COMBINED COMPANY
ANTICIPATES CARRYING LIABILITY INSURANCE FOR CONTAMINATION OR INJURY
RESULTING FROM THE USE OF HAZARDOUS MATERIALS.
Response: The Company has added the requested disclosure on page 39 of the
Amendment.
RISKS RELATED TO OUR COMMON STOCK, PAGES 35-36
"FUTURE SALES OF SHARES OF OUR COMMON STOCK . . .," PAGE 36
31. COMMENT: PLEASE DISCLOSE THE NUMBER OF SHARES (INCLUDING THOSE UNDERLYING
DERIVATIVE SECURITIES) IN THE COMBINED COMPANY THAT WILL BE ELIGIBLE FOR
SALE IN THE PUBLIC MARKETS FOLLOWING EXPIRATION OF THE SIX-MONTH LOCK-UP
AGREEMENT.
Response: The Company has added the requested disclosure on page 40 of the
Amendment.
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Page Fourteen
CHAPTER TWO - PROPOSAL 1
BACKGROUND OF THE EXCHANGE, PAGES 37-46
GENERAL
32. COMMENT: PLEASE PROVIDE US SUPPLEMENTALLY WITH COPIES OF ANY NON-PUBLIC
INFORMATION -- DOCUMENTS, FINANCIAL FORECASTS, PROJECTIONS AND
PRESENTATIONS -- USED BY OR ON BEHALF OF EPIMMUNE IN THE MERGER
NEGOTIATIONS AND ANY SCHEDULES AND ATTACHMENTS TO THE MERGER AGREEMENT THAT
WERE NOT FILED WITH THE REGISTRATION STATEMENT. WE MAY HAVE ADDITIONAL
COMMENTS.
Response: The Company advises the Staff that it has supplementally
provided the following as exhibits to this response letter:
- Exhibit A- Individuals Entering Into Employment Agreements with
Epimmune;
- Exhibit B- Individuals Negotiating Employment Agreements with
Epimmune;
- Exhibit C- Form of Indemnity Escrow Agreement;
- Exhibit D- Form of Expense Escrow Agreement;
- Exhibit E- Form of Offer Notification;
- Exhibit F- Form of Joinder Agreement;
- Exhibit G- Executive Officers of Epimmune After the Closing
Date; and
- Exhibit H- Form of Power of Attorney.
The Company has supplementally provided additional materials, for which it
is seeking confidential treatment, as exhibits to a separate letter to the
Commission.
33. COMMENT: PLEASE PROVIDE US SUPPLEMENTALLY WITH ALL OF THE MATERIALS,
INCLUDING ANY FINANCIAL ANALYSES, USED BY JEFFERIES & COMPANY, INC. AT THE
SPECIAL MEETING OF THE EPIMMUNE BOARD ON MARCH 15, 2005
Response: The Company has supplementally provided the requested materials,
for which it is seeking confidential treatment, as an exhibit to a separate
letter to the Commission.
34. COMMENT: PLEASE IDENTIFY THE EPIMMUNE BOARD MEMBERS NOT PRESENT AT EACH OF
THE SPECIAL AND REGULAR MEETINGS DESCRIBED.
Response: The Company has added the requested disclosure on page 47 of the
Amendment. The Company advises the Staff that all six of the Company's
board members attended each of the special and regular meetings described
in the Proxy Statement, except as follows:
- Georges Hibon was not present at the special telephonic meeting
held on January 24, 2005; and
- John P. McKearn, Ph.D. was not present at the special meeting
held on February 4, 2005.
35. COMMENT: YOUR DESCRIPTION OF SOME OF THE MEETINGS IS SOMEWHAT VAGUE. YOU
SHOULD DESCRIBE IN GREATER DETAIL THE NATURE AND SUBSTANCE OF THE
DELIBERATIONS CONDUCTED AT THE VARIOUS MEETINGS FROM AUGUST 2004 THROUGH
MARCH 15, 2005. FOR EXAMPLE, WHEN YOU MENTION THAT THE BOARD REVIEWED THE
STRATEGIC BENEFITS AND RISKS
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Page Fifteen
OF THE POTENTIAL COMBINATION AND AVAILABLE
ALTERNATIVES AT ITS REGULAR MEETING HELD ON OCTOBER 26, 2004 (PAGE 39), YOU
SHOULD ELABORATE ON THE SPECIFICS OF THIS DISCUSSION. THE DISCLOSURE SHOULD
PROVIDE STOCKHOLDERS WITH AN UNDERSTANDING OF HOW, WHEN AND WHY THE TERMS
OF THE PROPOSED TRANSACTION EVOLVED DURING THE COURSE OF THE BOARD'S
DELIBERATIONS. AS ANOTHER EXAMPLE, WHEN YOU DISCLOSE THAT JEFFERIES
PRESENTED ITS ANALYSIS TO EPIMMUNE'S BOARD OR REVIEWED INFORMATION WITH
MANAGEMENT, YOUR DISCLOSURE SHOULD ALLOW STOCKHOLDERS TO UNDERSTAND THE
PARTICULAR INSIGHTS AND PERSPECTIVES PROVIDED TO EPIMMUNE'S
REPRESENTATIVES. BROAD GENERALIZATIONS ABOUT TOPICS COVERED DURING THESE
MEETINGS ARE NOT SUFFICIENT.
Response: The Company has added the requested disclosure on pages 43-45 of
the Amendment. The Company also supplementally advises the Staff that
Jefferies was retained to provide a fairness opinion to the Board of
Directors and did not participate in the negotiations of the transaction.
The Company has described in detail the analysis underlying the fairness
opinion prepared by Jefferies and does not believe that additional insight
or perspective was provided by Jefferies that warrants disclosure.
36. COMMENT: PLEASE DESCRIBE IN REASONABLE DETAIL HOW THE EXCHANGE RATIO WAS
DETERMINED AND NEGOTIATED.
Response: The Company has added the requested disclosure on pages 43-44 of
the Amendment.
OPINION OF EPIMMUNE'S FINANCIAL ADVISOR TO THE BOARD OF DIRECTORS, PAGES 46-51
COMPARABLE COMPANY ANALYSIS, PAGES 48-49
37. COMMENT: REGARDING THE COMPARABLE COMPANIES ANALYSIS DESCRIBED, JEFFERIES'
SELECTION CRITERIA SEEM OVERLY BROAD. TO THE EXTENT THAT ANY COMPANIES
MEETING THE CRITERIA WERE EXCLUDED FROM JEFFERIES' ANALYSIS, PLEASE REVISE
TO DISCLOSE THIS INFORMATION AND TO EXPLAIN THE BASIS FOR SUCH EXCLUSION.
Response: The Company has added the requested disclosure on page 55 of the
Amendment to reflect additional criteria.
38. COMMENT: AT THE BOTTOM OF PAGE 48, YOU STATE THAT THE "TRANSACTION VALUE OF
THE CONSIDERATION WAS APPROXIMATELY $61.8 MILLION . . ." PLEASE EXPLAIN THE
DIFFERENCE BETWEEN $61.8 MILLION DISCLOSED IN THIS SECTION AND THE $68.1
MILLION FIGURE DISCLOSED ON THE COVER PAGE OF THE SCHEDULE 14A AS THE
PROPOSED MAXIMUM AGGREGATE VALUE OF THE TRANSACTION.
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Page Sixteen
Response: The Company advises the Staff that the $61.8 million figure on
page 48 of the Proxy Statement was derived by multiplying the shares to be
issued in the exchange by Epimmune (79,226,275) by the closing share price
of Epimmune common stock on March 14, 2005 ($1.31), and subtracting the
cash on IDM's balance sheet on December 31, 2004 ($41.9 million) from the
result. Consistent with Exchange Act Rules 14a-6(i)(1) and 0-11, the $68.1
million figure on the cover page of the Proxy Statement was calculated by
multiplying the shares to be issued in the exchange by Epimmune
(79,226,275) by the average of the high and low share price of Epimmune
common stock on April 19, 2005 ($0.86), three days prior to the filing
date.
39. COMMENT: PLEASE CLARIFY WHETHER THIS FIGURE OF $61.8 MILLION, DESCRIBED AS
THE TRANSACTION VALUE, WAS USED AS THE "ENTERPRISE VALUE" FOR IDM FOR
PURPOSES OF JEFFERIES' COMPARABLE COMPANY ANALYSIS. IF NOT, PLEASE EXPLAIN
HOW JEFFERIES DERIVED THE IMPLIED ENTERPRISE VALUE FOR IDM.
Response: The Company respectfully advises the Staff that the $61.8 million
figure was not used as the "enterprise value" for IDM for purposes of
Jefferies' comparable company analysis. The median enterprise value of the
comparable companies was employed to provide an indicative enterprise value
of IDM to which the value of the Consideration of $61.8 million was
compared.
40. COMMENT: IN YOUR DISCUSSION OF JEFFERIES' COMPARABLE COMPANY ANALYSIS, IT
IS UNCLEAR HOW JEFFERIES DERIVED THE ENTERPRISE VALUE OF THE SELECTED
COMPANIES AND HOW IT DERIVED THE "IMPLIED ENTERPRISE VALUE" OF IDM. PLEASE
DISCLOSE JEFFERIES' METHODOLOGY. YOU SHOULD ALSO DISCLOSE THE ENTERPRISE
VALUES CALCULATED BY JEFFERIES FOR EACH COMPANY LISTED IN THE TABLE AT THE
TOP OF PAGE 49.
Response: The Company has added the requested disclosure on page 55 of the
Amendment.
41. COMMENT: YOU STATE ON PAGE 49 THAT JEFFERIES MADE NUMEROUS ASSUMPTIONS IN
EVALUATING THE COMPARABLES OF THE SELECTED COMPANIES. PLEASE DISCLOSE SUCH
ASSUMPTIONS.
Response: The Company has added the requested disclosure on page 55 of the
Amendment.
COMPARABLE M&A TRANSACTION ANALYSIS, PAGES 49-50
42. COMMENT: PLEASE DISCLOSE THE ENTERPRISE VALUES CALCULATED BY JEFFERIES FOR
EACH OF THE EIGHT ACQUISITION TRANSACTIONS LISTED ON PAGE 49.
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Response: The Company has added the requested disclosures on page 56 of the
Amendment.
43. COMMENT: PLEASE ALSO DISCLOSE THE ASSUMPTIONS THAT JEFFERIES MADE IN
EVALUATING THE COMPARABLES OF THE SELECTED TRANSACTIONS.
Response: The Company has added the requested disclosures on page 56 of the
Amendment.
44. COMMENT: TO THE EXTENT THAT ANY TRANSACTIONS MEETING THE CRITERIA WERE
EXCLUDED FROM JEFFERIES' ANALYSIS, PLEASE REVISE TO DISCLOSE THIS
INFORMATION AND TO EXPLAIN THE BASIS FOR SUCH EXCLUSION.
Response: The Company advises the Staff that no transactions meeting the
criteria were excluded from Jefferies' analysis.
DISCOUNTED CASH FLOW ANALYSIS, PAGE 50
45. COMMENT: PLEASE DISCLOSE ANY ADJUSTMENTS MADE BY JEFFERIES TO THE PROJECTS
GIVEN BY IDM'S MANAGEMENT AS TO THE POTENTIAL FUTURE PERFORMANCE OF IDM.
Response: The Company has added the requested disclosure on page 56 of the
Amendment.
46. COMMENT: PLEASE DISCLOSE THE WEIGHTED AVERAGE COST OF CAPITAL RATE USED BY
JEFFERIES IN ITS ANALYSIS.
Response: The Company has added the requested disclosure on page 56 of the
Amendment.
INTERESTS OF DIRECTORS, OFFICERS AND AFFILIATES, PAGES 51-52
47. COMMENT: PLEASE DISCLOSE THE NUMBER, EXERCISE PRICE AND VALUE OF THE
EXECUTIVE OPTIONS THAT WILL IMMEDIATELY VEST ON CONSUMMATION OF THE SHARE
EXCHANGE AGREEMENT.
Response: The Company has added the requested disclosure on page 58 of the
Amendment.
48. COMMENT: PLEASE ALSO DISCLOSE THE EXERCISE PRICE, EXPIRATION DATE AND
NUMBER OF THE VARIOUS OPTIONS HELD BY MESSRS. GREENE, JR., HIBON AND COMER.
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Page Eighteen
Response: The Company has added the requested disclosure on page 59 of
the Amendment.
DESCRIPTION OF DRAG-ALONG RIGHT UNDER THE IDM SHAREHOLDERS AGREEMENT, PAGES
52-53
49. COMMENT: IN YOUR NEXT AMENDMENT, PLEASE UPDATE YOUR DISCLOSURE TO STATE
WHETHER ONE OR MORE IDM SHAREHOLDERS SUBMITTED A COUNTERBID FOR SHARES OF
IDM STOCK BEFORE THE DEADLINE OF APRIL 29, 2005.
Response: The Company acknowledges the Staff's comment and has revised
disclosure on pages 3 and 60 of the Amendment to indicate that none of
the IDM shareholders submitted a counterbid prior to the April 29, 2005
deadline.
INFORMATION ABOUT IDM, PAGES 77-90
50. COMMENT: ON PAGE 78 YOU DESCRIBE THREE OF IDM'S CLINICAL TRIALS AS PHASE
I/II AND ANOTHER AS PHASE II/III. PLEASE SUPPLEMENTARILY PROVIDE US WITH
INFORMATION JUSTIFYING THE CHARACTERIZATION OF THESE TRIALS AS COMBINATION
TRIALS.
Response: The Company supplementally advises the Staff that human clinical
trials are usually conducted in three sequential phases that may overlap.
In Phase I, the drug is typically introduced into healthy human subjects or
patients with the disease to be treated to determine the initial safety
profile, identify acute side effects and evaluate dosage tolerance,
distribution and metabolism. In Phase II, the drug is studied in a limited
patient population with the target disease to determine preliminary
efficacy and optimal dosages and to expand the safety profile. In certain
cases, regulatory authorities may permit Phase I and Phase II to be
combined into a single Phase I/II trial by accepting a Phase II protocol in
which the first few patients are more specifically tested for safety and
tolerance. In Phase III, large-scale comparative trials are conducted in
patients with the target disease to provide sufficient data for the proof
of efficacy and safety required by regulatory agencies for marketing
approval. In certain cases, regulatory authorities may permit Phases II and
III to be combined into a large study with an interim analysis. This is
especially efficient in trials where large numbers of patients are required
to demonstrate an effect, but where an interim analysis is desired to
determine that the progress still warrants pursuing data that support
marketing goals. In Phase II/III trials, there is typically a scheduled
analysis at an interim endpoint (Phase II) for which a positive outcome
will allow the trial to continue. The progression to Phase III is more
efficient for two reasons: (i) the progression does not require completing
the Phase II, then starting a new Phase III, rather the study continues to
accrue patients at open centers, and (ii) the patients enrolled during the
Phase II portion of the study are included in the Phase III endpoint
analysis, thus reducing the total number of patients required if the
studies were done separately. Post-marketing (Phase IV) clinical trials may
also be
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Page Nineteen
needed for purposes such as to elucidate the long-term incidence of adverse
reactions, to explore a specific pharmacological effect, or to obtain more
information of a circumscribed nature. In most countries, clinical trials
must be conducted in accordance with the Good Clinical Practices
requirements published by the Food and Drug Administration and the
International Conference on Harmonization of Technical Requirements for
Registration of Pharmaceuticals for Human Use (ICH).
Bexidem is currently tested in a Phase II/III clinical trial in patients
with superficial bladder cancer at high risk of recurrence. This trial has
been designed as a Phase III trial with a control arm where patients are
randomly split between two groups. The first group receives Bexidem, while
the second group is treated with BCG, a vaccine that was developed for the
treatment of tuberculosis and is currently administered by oncologists to
bladder cancer patients. During the Phase II, the initial part of the
trial, 138 patients will be enrolled with a primary goal to compare the
respective safety profiles of both treatments, and gather some indication
of efficacy by measuring the length of recurrence free survival in both
groups. An interim analysis will be conducted to specify the number of
patients to be enrolled in Phase III, the second part of the trial. The
primary goal of this second part is to compare respective efficacy of
Bexidem versus BCG by measuring the length of recurrence free survival with
each product interim analysis of patients enrolled during the Phase II part
of the trial.
Since the study has been designed as a continuous combination study,
patient enrollment will continue during the interim analysis, and data
gathered with patients treated during the Phase II part of the trial will
be combined with data related to patients enrolled in the second part in
order to assess whether the primary endpoint of the Phase III has been
reached. This design shortens the overall time length of the clinical
program.
IDM-4, Collidem and Eladem are, or have been, similarly tested in
combination Phase I/II clinical trials. In each trial, the clinical
protocol has been designed such that the first few patients enrolled are
more specifically tested for safety and tolerance, which is the primary
goal of the Phase I part of the trials. Data related to all patients
enrolled are then used to assess preliminary efficacy and optimal dosage,
which is the primary objective of the Phase II part of the clinical
studies. Such a combined design allows faster assessment of safety profile
and preliminary efficacy of tested product candidates.
Each of Bexidem, Collidem and Eladem clinical trials have been submitted to
regulatory agencies for approval. In their submission, the clinical trials
were characterized as Phase II/III in the case of Bexidem, and Phase I/II
in the case of both Collidem and Eladem. Since each trial has been given
approval to proceed by the relevant regulatory authority, the regulators
have accepted this characterization.
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Page Twenty
51. COMMENT: PLEASE ALSO CONSIDER PROVIDING APPROPRIATE DISCLOSURE ABOUT THE
RESULTS OF THESE TRIALS, PARTICULARLY WITH RESPECT TO MEPACT. IN THIS
REGARD, WE NOTE THE RECENT PRESENTATION OF PHASE III CLINICAL TRIAL
RESULTS AT THE ASPHO ANNUAL MEETING IN WASHINGTON, D.C. ON MAY 16, 2005.
Response: The Company advises the Staff that it has added the requested
disclosure on pages 84-86 of the Amendment regarding the results
of clinical trials of certain of IDM's therapeutic products.
OPERATING AND FINANCIAL REVIEW AND PROSPECTS
RESULTS OF OPERATIONS, PAGES 83-86
52. COMMENT: PLEASE EXPAND YOUR DISCLOSURE BY REFERRING 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. THE CURRENT STATUS OF THE PROJECT;
B. THE COSTS INCURRED DURING EACH PERIOD PRESENTED AND TO DATE ON THE
PROJECT;
C. THE NATURE, TIMING AND ESTIMATED COSTS OF THE EFFORTS NECESSARY TO
COMPLETE THE PROJECT;
D. THE ANTICIPATED COMPLETION DATES;
E. 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
F. THE PERIOD IN WHICH MATERIAL NET CASH INFLOWS FROM SIGNIFICANT
PROJECTS ARE EXPECTED TO COMMENCE.
REGARDING B., IF YOU DO NOT MAINTAIN ANY RESEARCH AND DEVELOPMENT COSTS BY
PROJECT, DISCLOSE THAT FACT AND EXPLAIN WHY MANAGEMENT DOES NOT MAINTAIN
AND EVALUATE RESEARCH AND DEVELOPMENT COSTS BY PROJECT. PROVIDE OTHER
QUANTITATIVE OR QUALITATIVE DISCLOSURE THAT INDICATES THE AMOUNT OF THE
COMPANY'S RESOURCES BEING USED ON THE PROJECT.
REGARDING C. AND D., DISCLOSE THE AMOUNT OR RANGE OF ESTIMATED COSTS AND
TIMING TO COMPLETE THE PHASE IN PROCESS AND EACH FUTURE PHASE. TO THE
EXTENT THAT INFORMATION
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Page Twenty-One
IS NOT ESTIMABLE, DISCLOSE THOSE FACTS AND CIRCUMSTANCES INDICATING THE
UNCERTAINTIES THAT PRECLUDE YOU FROM MAKING A REASONABLE ESTIMATE.
Response: The Company acknowledges the Staff's comment regarding the
issues described in 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.
The Company advises the Staff that a table detailing the clinical and
preclinical development of each of IDM's product candidates, including the
current status of such product candidates is included on page 86 of the
Amendment.
The Company has added the requested disclosure on pages 93 and 95-96 of
the Amendment describing the costs incurred in connection with IDM's two
major research and development project categories: product candidates to
destroy residual cancer cells and product candidates to stimulate an
immune response and prevent tumor recurrence. These two categories are
used by IDM's management for internal reporting purposes. The costs in
each category include direct labor, fringe benefits, project specific
materials and subcontract costs.
In addition, the Company has expanded the disclosure on page 91 of the
Amendment to indicate (i) that IDM is not in a position to determine when,
if ever, its research and development projects might be completed or the
costs to complete these research and development projects and (ii) the
risks and uncertainties associated with completing development on
schedule, and the consequences to IDM's operations, financial position and
liquidity if the projects were not completed in a timely manner.
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Page Twenty-Two
CONTRACTUAL OBLIGATIONS, PAGE 87
53. COMMENT: PLEASE EXPAND YOU DISCLOSURES TO CLARIFY THE NATURE OF THE FIXED
MANDATORY PAYMENTS UNDER COLLABORATIVE, LICENSING OR CONSULTING AGREEMENTS
INCLUDED IN THE TABLE. DISCLOSE, TO THE EXTENT MATERIAL, THE AMOUNT AND
TIMING OF MILESTONE AND OTHER RELATED PAYMENTS UNDER LICENSING AND
COLLABORATION AGREEMENTS THAT ARE REASONABLY LIKELY TO BE PAID.
ADDITIONALLY, PLEASE CONSIDER ENHANCING YOUR DISCUSSION OF THESE POTENTIAL
PAYMENTS WITHIN LIQUIDITY AND CAPITAL RESOURCES. PLEASE REFER TO FINANCIAL
REPORTING RELEASE 72, SECTION IV.
Response: The Company has added the requested disclosure on pages 98 - 99
of the Amendment.
DISCLOSURE ABOUT MARKET RISK, PAGE 90
54. COMMENT: IT APPEARS THAT IDM MAY BE SUBJECT TO FOREIGN CURRENCY EXCHANGE
RATE RISK. PLEASE PROVIDE DISCLOSURE ABOUT THIS MARKET RISK AS REQUIRED BY
RULE 305 OF REGULATION S-K OR DISCLOSE THAT FOREIGN CURRENCY EXCHANGE RATE
RISK IS NOT MATERIAL.
Response: The Company has added the requested disclosure on page 101 of
the Amendment to clarify that foreign currency exchange rate risk
historically has not been material to IDM.
NOTES TO UNAUDITED PROFORMA CONDENSED COMBINED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION, PAGE 96
55. COMMENT: PLEASE DISCLOSE THE MATERIAL ASSUMPTIONS USED TO CALCULATE THE
ESTIMATED FAIR VALUE OF THE EPIMMUNE STOCK OPTIONS.
Response: The Company has added the requested disclosure on page 108 of
the Amendment.
56. COMMENT: IF THE ALLOCATION OF THE ESTIMATED PURCHASE PRICE IS PRELIMINARY,
PLEASE STATE, IF TRUE, THAT IN MANAGEMENT'S OPINION THE PRELIMINARY
ALLOCATION OF COST IS NOT EXPECTED TO MATERIALLY DIFFER FROM THE FINAL
ALLOCATION; OTHERWISE, PRESENT ADDITIONAL PRO FORMA INFORMATION TO GIVE
EFFECT TO THE RANGE OF POSSIBLE RESULTS. REFER TO RULE 11-02(B)(8) OF
REGULATION S-X.
Response: The Company has added the requested disclosure on page 109 of
the Amendment.
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Page Twenty-Three
57. COMMENT: PLEASE REFER TO YOUR DISCLOSURE REGARDING THE AMOUNT OF THE
PURCHASE PRICE ATTRIBUTABLE TO IN-PROCESS RESEARCH AND DEVELOPMENT. EXPAND
YOUR DISCLOSURES TO ADDRESS THE FOLLOWING:
- DISCLOSE THE FAIR VALUE ASSIGNED TO EACH SIGNIFICANT PROJECT.
- DISCLOSE THE VALUATION OF METHOD USED TO ESTIMATE FAIR VALUE.
- DISCLOSE THE SIGNIFICANT ASSUMPTIONS USED IN THE VALUATION OF EACH
PROJECT. INCLUDE:
A. THE STAGE OF COMPLETION AT THE ACQUISITION DATE FOR EACH
SIGNIFICANT PROJECT.
B. THE PERIOD IN WHICH MATERIAL NET CASH INFLOWS WERE EXPECTED TO
COMMENCE FOR SIGNIFICANT PROJECTS.
C. THE RISK ADJUSTED DISCOUNT RATE APPLIED TO THE PROJECT'S CASH
FLOWS.
Response: The Company has added the requested disclosure on page 109 of
the Amendment.
2. PRO FORMA ADJUSTMENTS, PAGE 97
58. COMMENT: PLEASE REMOVE PRO FORMA STATEMENT OF OPERATIONS ADJUSTMENTS (2)
AND (5) BECAUSE THE WRITE-OFF OF IPR&D WILL NOT HAVE A CONTINUING IMPACT
ON OPERATIONS. CLEARLY INDICATE IN YOUR FOOTNOTE DISCLOSURE THAT THESE
CHARGES WERE NOT CONSIDERED IN THE PRO FORMA CONDENSED STATEMENT OF
OPERATIONS. PLEASE REFER TO RULES 11-02(B)(5) AND 11-02(B)(6) OF
REGULATION S-X.
Response: The Company advises the Staff that it has removed the pro forma
statement of operations adjustments (2) and (5) and has added the
requested footnote disclosure on page 111 of the Amendment.
59. COMMENT: IT IS NOT CLEAR FROM YOUR DISCLOSURE WHY YOU ARE ELIMINATING
HISTORICAL COMPENSATION EXPENSE FROM THE STATEMENT OF OPERATIONS IN PRO
FORMA ADJUSTMENT (13). PLEASE REMOVE THIS ADJUSTMENT OR REVISE YOUR
DISCLOSURE TO CLARIFY YOUR BASIS FOR THIS ADJUSTMENT.
Response: The Company has revised the disclosure in adjustment (17),
formerly adjustment (13), on page 114 of the Amendment, to clarify the
basis for eliminating historical compensation expense from the statement
of operations.
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60. COMMENT: PLEASE EXPAND PRO FORMA ADJUSTMENT (14) DISCLOSURES TO CLARIFY
HOW THE ADJUSTMENT TO ADDITIONAL PAID-IN CAPITAL WAS COMPUTED.
Response: The Company has added the requested disclosure on page 113 of
the Amendment.
61. COMMENT: IT APPEARS THAT THE AMORTIZATION OF DEFERRED STOCK-BASED
COMPENSATION OVER 18 MONTHS DISCLOSED IN ADJUSTMENT (15) AND THE RETENTION
BONUSES DISCLOSED IN ADJUSTMENT (16) WILL NOT HAVE A CONTINUING IMPACT ON
OPERATIONS. PLEASE REMOVE THESE STATEMENT OF OPERATIONS ADJUSTMENTS OR
TELL US YOUR BASIS FOR THESE PRO FORMA ADJUSTMENTS UNDER RULE 11-02(B) OF
REGULATION S-X.
Response: The Company has modified the description of the referenced
activities in the Amendment and excluded the adjustments from the pro
forma statement of operations.
62. COMMENT: PLEASE EXPAND YOUR DISCLOSURES TO CLARIFY WHY THERE WERE NO PRO
FORMA TAX ADJUSTMENTS. CALCULATE THE TAX EFFECT OF ANY PRO FORMA
ADJUSTMENTS AT THE STATUTORY RATE IN EFFECT DURING THE PERIODS PRESENTED.
Response: The Company has added the requested disclosure on page 110 of
the Amendment.
WHERE YOU CAN FIND MORE INFORMATION, PAGE 146
63. COMMENT: PLEASE SPECIFICALLY INCORPORATE BY REFERENCE EPIMMUNE'S FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2005 AND ALL OTHER OMITTED
REPORTS, IF ANY, FILED SINCE THE END OF YOUR LAST COMPLETED FISCAL YEAR.
UPDATE THE FINANCIAL STATEMENTS AND INFORMATION INCLUDED IN THE PROXY
STATEMENT AS REQUIRED BY RULE 3-12 OF REGULATION S-X.
Response: The Company acknowledges the Staff's comment and has
incorporated by reference in the Amendment its Quarterly Report on Form
10-Q for the fiscal quarter ended March 31, 2005 and Current Report on
Form 8-K filed on May 23, 2005 on page 146 of the Amendment. In addition,
the Company has updated the financial statements and information included
in the Amendment to reflect the unaudited financial condition and results
of operations of the Company and IDM as of March 31, 2005.
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FINANCIAL STATEMENTS OF IDM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION, PAGE F-8
64. COMMENT: PLEASE EXPAND YOUR DISCLOSURES TO CLARIFY HOW YOU ASCRIBE FAIR
VALUE TO MILESTONE PAYMENTS AND THE CIRCUMSTANCES THAT WOULD PREVENT YOU
FROM ASCRIBING FAIR VALUE UPON THE ACHIEVEMENT OF A MILESTONE. CLARIFY
YOUR DISCLOSURES TO EXPLAIN WHY THE ENTIRE AMOUNT IS DEFERRED OVER THE
REMAINING DEVELOPMENT PERIOD AND WHY NO REVENUE IS RECOGNIZED FOR THE
PROPORTION OF THE EFFORTS COMPLETED TO DATE UPON ACHIEVING THE MILESTONE.
Response: The company has added the requested disclosure on page F-8 of
the Amendment.
65. COMMENT: PLEASE EXPAND YOUR DISCLOSURES TO CLARIFY WHY REIMBURSEMENT OF
RESEARCH AND DEVELOPMENT EXPENSES INCURRED PRIOR TO SELECTION OF A PRODUCT
BY A COLLABORATIVE PARTNER ARE CONSIDERED ADDITIONAL UP-FRONT PAYMENTS AND
DEFERRED OVER THE RESEARCH TERM. CLARIFY WHETHER AMOUNTS INCURRED ARE
RECOGNIZED AS REVENUE ONCE A PRODUCT IS SELECTED BY A COLLABORATIVE
PARTNER.
Response: The Company advises the Staff that it has been informed by IDM
that IDM has entered into one research and development collaborative
agreement with Sanofi-Aventis under which only one option has been
exercised. IDM believes that the value assigned to the funding of research
and development costs incurred prior to the selection of a product by a
collaborative partner is not representative of the fair value of the
corresponding research and development costs incurred prior to such
selection, and as a result should not
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Page Twenty-Six
be singled out. Therefore, IDM believes that the related upfront and
milestone payments should be spread over the remaining period of the
development phase. In addition, the Company has expanded the current
disclosure on page [F-8] of the Amendment to clarify that amounts incurred
are recognized on revenues once a product has been selected.
PREPAID EXPENSES, PAGE F-9
66. COMMENT: PLEASE TELL US AND EXPAND YOUR DISCLOSURES TO CLARIFY WHY
ACCOUNTING, LEGAL AND OTHER PROFESSIONAL SERVICE FEES ARE RECORDED AS
PREPAID EXPENSES AND NOT EXPENSED AS INCURRED.
Response: The Company has expanded the disclosure as requested on page
F-9 of the Amendment.
2. RESEARCH AND DEVELOPMENT AGREEMENTS, F-12 - F-14
67. COMMENT: FOR EACH RESEARCH AND DEVELOPMENT ARRANGEMENT, PLEASE DISCLOSE
THE AMOUNT OF COSTS INCURRED FOR EACH PERIOD PRESENTED. PLEASE REFER TO
PARAGRAPH 14 OF SFAS 68.
Response: The Company has added the requested disclosure on pages
F-12 - F-15 of the Amendment.
2.2. AGREEMENT WITH SANOFI-AVENTIS (RELATED PARTY), PAGE F-12
68. COMMENT: IT APPEARS THAT YOUR AGREEMENT WITH SANOFI-AVENTIS IS A REVENUE
ARRANGEMENT WITH MULTIPLE DELIVERABLES. PLEASE DISCLOSE YOUR ACCOUNTING
POLICY FOR RECOGNITION OF REVENUE FROM MULTIPLE-DELIVERABLE ARRANGEMENTS.
PLEASE EXPAND YOUR DISCLOSURE TO CLARIFY WHY THE THREE PAYMENTS MADE BY
SANOFI-AVENTIS IN 2001 DO NOT REPRESENT SEPARATE UNITS OF ACCOUNTING AND
WERE DEFERRED OVER THE DEVELOPMENT PERIOD.
Response: The Company has added the requested disclosure relating to the
accounting policy for recognition of revenue from multiple-deliverable
arrangements on page F-13 of the amendment.
The Company advises the Staff that it has been informed by IDM that IDM
has considered the provisions of EITF 00-21, even though the research and
development collaborative agreement with Sanofi-Aventis was signed prior
to the effective date of this accounting pronouncement. The three payments
made by Sanofi-Aventis in 2001 relate to the funding of research and
development costs incurred prior to the exercise of the related option by
Sanofi-Aventis, up-front fees and a milestone payment. As explained in the
Company's responses to comments 64 and 65, these payments relate to
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Page Twenty-Seven
activities incurred during the development phase, during which IDM
believes that no specific fair value can be ascribed to each single
component.
2.3 AGREEMENT WITH MEDAREX, PAGE F-14
69. COMMENT: PLEASE REFER TO YOUR REFERENCE TO THE VALUATION OF THE ABSOCRA,
THE LICENSES AND THE REPURCHASE OF A COMMERCIALIZATION OPTION BY AN
INDEPENDENT EXPERT. PLEASE DELETE THIS REFERENCE OR YOU WILL BE REQUIRED
TO NAME THE INDEPENDENT EXPERT AND PROVIDE THEIR CONSENT IF THESE
FINANCIAL STATEMENTS ARE INCLUDED IN A REGISTRATION STATEMENT.
Response: The Company has deleted all references to an independent
expert under the paragraph entitled "Agreements with Medarex" on page
F-14 of the Proxy Statement.
3. INTANGIBLE ASSETS- NET, PAGE F-15
70. COMMENT: PLEASE DISCLOSE THE FACTS AND CIRCUMSTANCES THAT LEAD TO THE
IMPAIRMENT CHARGES IN 2003 AND 2004. PLEASE EXPAND YOUR DISCLOSURES TO
CLARIFY HOW YOU DETERMINED THE FAIR VALUE OF THE MEDAREX LICENSES IN YOUR
IMPAIRMENT ANALYSES. TELL US WHY THE IMPAIRMENT CHARGE OF APPROXIMATELY
E5,500 WAS NOT RECORDED IN AN EARLIER YEAR.
Response: The Company advises the Staff that it has expanded the
disclosure relating to the impairment charges of the Medarex license in
a footnote on page F-15 of the Amendment.
The Company advises the Staff that it has been informed by IDM that, with
respect to the Medarex impairment charges, at the end of 2003, the license
for MDX-210, an antibody from Medarex used in IDM's Osidem-2 product, was
reflected as an intangible asset with a net book value of E6.5 million.
Following a successful Phase I/II clinical trial of Osidem, IDM had
initiated Phase III clinical trials of the product in May 2000 in Europe
and Australia. IDM also received approval for a Phase II clinical trial in
the United States in April 2002. This approval required that the product
be manufactured in a frozen form in compliance with Good Manufacturing
Practice ("GMP"). At that time, all of IDM's products, with the exception
of Osidem, were frozen and manufactured according to the FDA's GMP
standards. IDM therefore decided to stop the clinical trials underway in
Europe and Australia in order to begin work immediately on a frozen
version of Osidem, known as Osidem-2, to be manufactured in compliance
with the FDA's requirements in its two certified production centers in
Paris, France and Irvine, California.
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In September 2003, upon successful preclinical testing of Osidem-2, IDM
terminated the Phase III studies of Osidem in order to start a new
clinical development program for Osidem-2. IDM intended to either pursue
the development of Osidem-2 on its own, subject to appropriate financing,
or seek a strategic partnership to explore the potential of Osidem-2 as a
first-line treatment for advanced ovarian cancer.
In December 2003, IDM initiated preparation for an initial public offering
on the French "Nouveau Marche," partly in order to provide continued
financing for its research and development activities. The likelihood that
Osidem-2 would be further developed in Phase II and Phase III by IDM was
considered high, and no impairment of the MDX-210 license was considered
necessary. However, IDM agreed that if no clinical trials were undertaken
within one year, this position regarding impairment would have to be
revisited.
In June 2004, IDM postponed its initial public offering due to poor market
conditions. In September 2004, IDM reassessed market conditions and
determined with its bankers that French financial markets would not
provide the appropriate window for an initial public offering in the near
future. Without appropriate funding, IDM decided to focus on its most
advanced products and not to pursue its Osidem-2 development program.
Lacking appropriate business perspective, IDM accordingly impaired the
remaining value of the corresponding license for E5.5 million, as of
September 30, 2004. However, IDM may decide to pursue the Osidem-2
development program if IDM secures appropriate financing or enters into
new strategic partnerships with respect to such development program in the
future.
The Company advises the Staff that, with respect to other impairment
charges in 2003, all other IDM licenses and trademarks were reviewed for
impairment. Seven licenses and one trademark were impaired for a total
amount of E985 due to events that led to a reassessment of the
technological feasibility of related development programs without any
potential alternative use, with certain development programs being
cancelled or reduced in scope. The same review was undertaken in 2004,
leading to the impairment of other patents, licenses and trademarks for E
745 for the reasons mentioned above.
11. COMMITMENTS, F-21
71. COMMENT: IT APPEARS THAT YOUR OPERATING LEASE OBLIGATIONS DISCLOSED IN THE
CONTRACTUAL OBLIGATION TABLE IS INCONSISTENT WITH YOUR DISCLOSURE IN THIS
NOTE. PLEASE REVISE TO DISCLOSE YOUR FUTURE MINIMUM LEASE PAYMENTS FOR
EACH OF THE FIVE SUCCEEDING YEARS AS REQUIRED BY PARAGRAPH 23 OF SFAS 13
OR REVISE THE CONTRACTUAL OBLIGATION TABLE TO ELIMINATE THIS
INCONSISTENCY.
Response: The Company advises the Staff that IDM has clarified and
reconciled the operating lease obligations disclosed in the contractual
obligations table and has amended the disclosure in the table in Note 11
on page F-22 of the Amendment to ensure consistency.
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Page Twenty-Nine
EPIMMUNE, INC. FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 2004
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS RESULTS OF OPERATIONS, PAGE 32
72. COMMENT: PLEASE EXPAND YOUR DISCLOSURE BY REFERRING 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. THE COSTS INCURRED DURING EACH PERIOD PRESENTED AND TO DATE ON THE
PROJECT;
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 AND ARE EXPECTED TO COMMENCE.
REGARDING A., IF YOU DO NOT MAINTAIN ANY RESEARCH AND DEVELOPMENT COSTS BY
PROJECT; DISCLOSE THAT FACT AND EXPLAIN WHY MANAGEMENT DOES NOT MAINTAIN
AND EVALUATE RESEARCH AND DEVELOPMENT COSTS BY PROJECT. PROVIDE OTHER
QUANTITATIVE OR QUALITATIVE DISCLOSURE THAT INDICATES THE AMOUNT OF THE
COMPANY'S RESOURCES BEING USED ON THE PROJECT.
REGARDING B. AND C., DISCLOSE THE AMOUNT OR RANGE OF ESTIMATED COSTS AND
TIMING TO COMPLETE THE PHASE IN PROCESS AND EACH FUTURE PHASE. TO THE
EXTENT THAT INFORMATION IS NOT ESTIMABLE, DISCLOSE THOSE FACTS AND
CIRCUMSTANCES INDICATING THE UNCERTAINTIES THAT PRECLUDE YOU FROM MAKING A
REASONABLE ESTIMATE.
Response: The Company acknowledges the Staff's comment regarding the
issues described in 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. The Company respectfully submits to
the Staff that the majority of the disclosure requested by the Staff was
provided in various parts of the 10-K.
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Page Thirty
In "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Results of Operations" in the 10-K, the Company
described its major research and development projects, including the
largest of its current research and development contracts, an agreement
with the National Institute of Allergy and Infectious Diseases, an
institute of the National Institutes of Health (the "NIH") for developing
a preventative HIV vaccine, and its collaboration with Innogenetics for
research and development of vaccines to treat or prevent hepatitis B
virus, hepatitis C virus and human papilloma virus. The Company included
disclosure of the costs incurred under the NIH contract and the method for
determination of payment for work performed under the Innogenetics
collaboration, although specific costs were not disclosed because the
terms of the research and development funding under that collaboration are
confidential and have been granted confidential treatment by the SEC. The
Company has described the nature and timing of the Innogenetics
collaboration and the period during which research and development funding
are to be provided under this collaboration in the 10-K in the sections
entitled "Business - Collaborations and Licenses - Collaboration and
Technology In-License Agreements" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Results of
Operations," and the nature and timing of the NIH project and the period
during which funding may be provided under this contract in the 10-K in
the sections entitled "Business - Collaborations and Licenses - Government
Research Funding" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations." Other expenses within research and
development expenses, as discussed in "Management's Discussion and
Analysis of Financial Condition and Results of Operations" in the 10-K
were incurred with respect to the Company's internal research and
development activities, and the status and scope of these internal
research and development activities, which provides an indication of the
Company resources allocated to these internal projects, are described in
more detail in the 10-K in the section entitled "Business - Our Vaccine
Product Candidates."
The Company included in the 10-K in the section entitled "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Results of Operations" disclosure stating that the Company's programs are
in various stages of research and development and, given that plans for
additional research and development and, if applicable, commercialization
depend upon, among other things, the outcome of testing at each stage of
research and development and regulatory review, it is not possible for the
Company to determine when, if ever, these programs might be completed or
the costs to complete these programs. The disclosure also refers to the
risks and uncertainties associated with the Company's research and
development programs as described in more detail in the section entitled
"Risk Factors."
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Page Thirty-One
The Company described the risks and uncertainties associated with
completing development on schedule, and the consequences to its
operations, financial position and liquidity if the projects were not
completed in a timely manner in the 10-K in the section entitled "Risk
Factors," including, but not limited to, the risk factors entitled "Our
substantial additional financing requirements and limited access to
financing may adversely affect our ability to develop products and fund
our operations," "The process of developing therapeutic products requires
significant research and development, preclinical testing and clinical
trials, all of which are extremely expensive and time consuming and may
not result in a commercial product," "We are at an early stage of
development, and we may experience delays and other problems in entering
clinical trials," "Unexpected side effects or other characteristics of our
technology may delay or otherwise hurt the development of our vaccine
candidates," and "Our research and development programs may not yield
effective product candidates, which could prevent us from developing our
products," "If we are unable to compete effectively in the highly
competitive biotechnology industry, our business will fail," and "If our
collaboration or license arrangements are unsuccessful, our revenues and
product development may be limited."
In addition to the existing disclosure in the 10-K, the Company will add
the following table on page 33 of 10-K/A:
The table below shows the costs incurred in four major
research and development project categories: Cancer, HIV,
Collaborations and Other which includes basic research programs and
patent expenses. The costs in each project category include direct
labor and fringe benefits, project specific materials and
subcontract costs, as well as allocations for general supplies,
overhead and facilities costs.
2004 2003 2002
---- ---- ----
Cancer Programs $ 2,084,000 $ 2,221,000 $ 3,253,000
HIV Programs 5,982,000 2,620,000 2,249,000
Collaborations 1,365,000 2,481,000 2,525,000
Other Programs 1,464,000 3,173,000 3,230,000
$10,895,000 $10,495,000 $11,257,000
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Page Thirty-Two
CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION, PAGE F-7
73. COMMENT: PLEASE REFER TO YOUR DISCLOSURE IN NOTE 1 THAT CYTEL CORPORATION
WAS MERGED WITH ITS WHOLLY-OWNED SUBSIDIARY AND CHANGED ITS NAME TO
EPIMMUNE INC. IN 1999. PLEASE DISCLOSE THE SUBSIDIARIES INCLUDED IN THE
CONSOLIDATED FINANCIAL STATEMENTS AND DISCLOSE THE PRINCIPLES OF
CONSOLIDATION FOLLOWED. PLEASE REFER TO RULE 3A OF REGULATION S-X.
Response: The Company advises the Staff that the disclosure that Cytel
Corporation was merged with its wholly-owned subsidiary and changed its
name to Epimmune Inc. in 1999 is accurate. However, the reference to
"consolidated" financial statements was in error, as the Company had no
subsidiaries in any of the periods presented. The Company will correct the
error in the 10-K/A, as shown in the draft version of the 10-K/A provided
to the Staff in connection with this letter. The Company also notes that
it did not include any reference to "consolidated" financial statements in
its Quarterly Report on Form 10-Q for the quarter ended March 31, 2005.
PATENT COSTS, PAGE F-8
74. COMMENT: PLEASE DISCLOSE YOUR ACCOUNTING POLICY FOR PATENT COSTS AND IF
MATERIAL DISCLOSE THE AMOUNT OF AMORTIZATION RELATED TO PATENT COSTS FOR
EACH PERIOD PRESENTED.
Response: The Company will add the following disclosure on page F-8 of
the 10-K/A:
Patent Costs
Costs incurred to file patent applications are capitalized
when the Company believes there is a high likelihood that the patent
will issue and there will be future economic benefit associated with
the patent. These costs are amortized on a straight- line basis over
a ten-year life from the date of patent filing. All costs related to
abandoned patent applications are expensed. In addition, the Company
reviews the carrying value of patents for indicators of impairment
on a periodic basis and if it determines that the carrying value is
impaired, it values the patent at fair value. Patent amortization
costs were $601,500, $520,000 and $422,100 for 2004, 2003 and
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Page Thirty-Three
2002, respectively. The patent costs shown are net of accumulated
amortization of $2,132,000 and $1,553,000 at December 31, 2004 and
2003, respectively.
RESEARCH GRANTS AND CONTRACT REVENUE, PAGE F-8
75. COMMENT: PLEASE CLARIFY HOW PERFORMANCE IS MEASURED UNDER THESE CONTRACTS
AND EXPLAIN TO US. IT APPEARS THAT OUTPUT-BASED APPROACH IS THE
APPROPRIATE MODEL TO ESTIMATE PERFORMANCE UNDER THE CONTRACT RATHER THAN
USING AN INPUT MEASURE, SUCH AS COST. PLEASE REVISE YOUR DISCLOSURES
ACCORDINGLY.
Response: The Company will add the following disclosure on pages F-8 and
F-9 of the 10-K/A:
Research Grants and Contract Revenue
Research grants and contract revenue represent research and
development revenues primarily from the National Institutes of
Health and from the Company's collaboration agreement with
Innogenetics N.V. Revenues from grants are recognized on a cost
reimbursement or cost plus fixed fee basis in accordance with
applicable contract terms as related costs are incurred.
Total costs incurred for research grants and contract revenue
included in research and development are as follows:
2004 2003 2002
---- ---- ----
Cancer Programs $ 655,000 $ 57,000 $ --
HIV Programs 5,547,000 1,025,000 776,000
Collaborations 1,365,000 2,481,000 2,525,000
Other Programs 634,000 1,601,000 728,000
$8,201,000 $5,164,000 $4,029,000
LICENSE REVENUE AND EXPENSES, PAGE F-8
76. COMMENT: PLEASE REFER TO YOUR DISCLOSURE REGARDING REVENUE RECOGNITION OF
UPFRONT FEES FOR PERPETUAL LICENSES WHERE YOU HAVE NO PERFORMANCE
OBLIGATIONS. PLEASE
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Page Thirty-Four
EXPAND YOUR DISCLOSURE TO CLARIFY THE NATURE OF THE PRODUCTS DELIVERED OR
SERVICES PERFORMED THAT REPRESENT THE CULMINATION OF A SEPARATE EARNINGS
PROCESS. FOR EXAMPLE, TELL US YOUR BASIS FOR RECOGNIZING THE ENTIRE
UP-FRONT LICENSE FEE RECEIVED FROM ANOSYS INC. AND PHARMEXA A/S UPON
GRANTING THE NON-EXCLUSIVE LICENSES IN 2001. PLEASE REFER TO REVENUE
RECOGNITION OF NONREFUNDABLE UP-FRONT FEE IN SAB TOPIC 13A.3.
Response: The Company will add the following disclosure on page F-9 of
the 10-K/A:
License Revenues and Expenses
The Company recognizes revenues pursuant to Staff Accounting
Bulletin No. 104, "Revenue Recognition." Collaboration revenues
are earned and recognized as research costs are incurred in
accordance with the provisions of each agreement. License fees are
earned and recognized in accordance with the provisions of each
agreement. Upfront license fees for perpetual licenses where the
Company has no additional performance obligations are recognized
when received. This involves the Company conveying rights to
intellectual property it owns to a licensee upon signing of a
definitive agreement and where the Company has no further delivery
or performance obligations beyond the conveyance of those rights.
For example, the Company recognized the entire up-front license
fees received from Anosys Inc, and Pharmexa A/S upon granting
non-exclusive licenses to certain intellectual property it owned
to each of them in 2001. License fees with ongoing involvement or
performance obligations are recognized over the term of the
agreement. For example, in connection with the Company's
collaboration with Genencor, which has now been assigned to
Innogenetics, the upfront license fee is being amortized into
revenue over the collaboration term as the fair value of the
license fee was not separable from the collaboration research
services. Fees paid to initiate research projects are deferred and
recognized over the project period. Milestone payments are
recognized as revenue upon the completion of the milestone when
the milestone event was substantive, its achievability was not
reasonably assured at inception and the Company's performance
obligations after milestone achievement will continue to be funded
at a comparable level before the milestone achievement. The
Company defers revenue recognition until performance obligations
have been completed and collectibility is reasonably assured.
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Page Thirty-Five
6. REVENUES UNDER COLLABORATIVE RESEARCH AND DEVELOPMENT AGREEMENTS, PAGE
F-17
77. COMMENT: FOR EACH RESEARCH AND DEVELOPMENT ARRANGEMENT, PLEASE DISCLOSE
THE AMOUNT OF COSTS INCURRED FOR EACH PERIOD PRESENTED. PLEASE REFER TO
DISCLOSURES REQUIRED BY PARAGRAPH 14 OF SFAS 68.
Response: The Company references the Staff to SFAS No. 68 Research and
Development Arrangements, paragraph 14, footnote five, which indicates
that, "An enterprise that is a party to more than one research and
development arrangement need not separately disclose each arrangement
unless separate disclosure is necessary to understand the effects on the
financial statements. Aggregation of similar arrangements by type may be
appropriate." As described in the Company's response to comment 72 above,
the Company has added the requested disclosure for similar research and
development arrangements on pages 33 and F-9 of the 10-K/A.
78. COMMENT: PLEASE CONFIRM THAT YOU HAVE RELATED PARTY REVENUES WITH ONLY
GENENCOR INTERNATIONAL, INC., AND THAT NO OTHER DISCLOSURE IS REQUIRED BY
SFAS 57 OTHER THAN YOUR AGREEMENT WITH GENENCOR INTERNATIONAL ON PAGE
F-20.
Response: The Company hereby confirms that it has related party revenues
with only Genencor International, Inc. and that no other disclosure is
required by SFAS 57 other than its agreement with Genencor International
on pages F-20 and F-21 of the 10-K/A.
EPIMMUNE, INC. FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2005
79. COMMENT: BASED ON THE PRECEDING COMMENTS, PLEASE REVISE YOUR DISCLOSURES
AS APPROPRIATE.
Response: The Company acknowledges the Staffs comment and will revise the
10-Q/A accordingly, as shown in the draft 10-Q/A provided herewith.
80. COMMENT: WE NOTE THAT THE FOURTH PARAGRAPH ON PAGE 6 OF THE 10-Q SAYS THAT
THE COMBINED COMPANY EXPECTS TO BE ABLE TO MAINTAIN ITS CURRENT LEVEL OF
OPERATIONS THROUGH 2005. HOWEVER, YOUR SCHEDULE 14A ON PAGE 44
("EPIMMUNE'S REASONS FOR THE EXCHANGE") STATES:
THE COMBINATION WILL CREATE A COMPANY WITH . . . WORKING CAPITAL
THAT WE BELIEVE WILL BE SUFFICIENT TO FUND THE OPERATIONS OF THE
COMBINED COMPANY FOR 18 TO 24 MONTHS FROM JANUARY 1, 2005.
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Page Thirty-Six
PLEASE EXPLAIN THIS DISCREPANCY AND REVISE YOUR FILINGS AS NECESSARY SO
THAT THE DISCLOSURES IN YOUR SCHEDULE 14A AND 10-Q FOR THE FIRST QUARTER
OF THE CURRENT FISCAL YEAR ARE CONSISTENT.
Response: The Company acknowledges the Staff's comment and will revise the
disclosure on page 6 of the 10-Q/A, as shown in the draft 10-Q/A provided
herewith, to clarify that the Company believes the combined company will
have working capital sufficient to fund its operations through at least
June 30, 2006.
* * * * *
We trust that you will find the foregoing responsive to your comments. Please
direct any questions or comments regarding this filing to Jason Conger or me. My
phone number is (858) 550-6014, and Mr. Conger's phone number is (858) 550-6039.
Sincerely,
COOLEY GODWARD LLP
/s/ L. Kay Chandler
L. Kay Chandler
cc: Emile Loria, M.D., Epimmune Inc.