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QUARK PHARMACEUTICALS INC
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S-1/A
Jan 19, 5:29 PM ET
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QUARK PHARMACEUTICALS INC S-1/A
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356
Registration No. 333-169584
UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
Amendment No. 3ToForm S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
QUARK PHARMACEUTICALS, INC.
6501 Dumbarton Circle Fremont, CA 94555 (510) 402-4020
Daniel Zurr, Ph.D. Chief Executive Officer 6501 Dumbarton Circle Fremont, CA 94555 (510) 402-4020
Robert L. Jones, Esq. Robert J. Brigham, Esq. Michael E. Tenta, Esq. Cooley LLP 3175 Hanover Street Palo Alto, CA 94304-1130 (650) 843-5000
SUBJECT TO COMPLETION, DATED JANUARY 19, 2011
PRELIMINARY PROSPECTUS
QUARK PHARMACEUTICALS, INC.
Minimum Offering of UnitsMaximum Offering of Units Each Unit consisting of Shares of Common Stock and Warrants
QUARK PHARMACEUTICALS, INC. TABLE OF CONTENTS
SUMMARY
Our Business
RNAi Overview
Our Approach
Our Product Candidates
siRNA Technology Development
Israeli National siRNA Project Consortium
Our License Agreement with Pfizer
Our Option Agreement with Novartis
Corporate Information
THE OFFERING
The Auction Process
SUMMARY FINANCIAL DATA
RISK FACTORS
Risks Related to Our Business
Our success is dependent on the success of our lead product candidates, PF-655, QPI-1002 and QPI-1007, and we cannot be certain that they will achieve success in clinical trials, that they will receive regulatory approval or be successfully commercialized.
Other than PF-655, QPI-1002 and QPI-1007, all of our other programs are in preclinical studies or early stage research. If we are unable to develop and commercialize our early stage product candidates, our business will be adversely affected.
There is a limited amount of information upon which you can evaluate our business and prospects.
We have a history of losses and may never be profitable.
We will require substantial additional funds to continue our research and development activities. If additional funds are not available we may need to significantly scale back or cease our operations.
We expect to rely on revenues from our licensees and collaborators as an important source of revenue. If our relationships with Pfizer, Nitto Denko, Novartis or any future licensees and collaborators are unsuccessful, a collaborator terminates a collaboration or there is competition between us and a collaborator for the development of drugs targeting the same diseases, our business could be adversely affected.
Because we have licensed some of our drug candidates to third parties, we are more dependent on third parties for the successful development and commercialization of those drug candidates.
We may not be able to execute our business strategy if we are unable to enter into or maintain license or collaboration agreements with other companies that can provide capabilities and funds for the development and commercialization of our drug candidates. If we are unsuccessful in forming or maintaining these relationships, our business may be adversely affected.
RNAi-based drug development is unproven and may never lead to marketable products.
Any failure or delay in completing clinical trials for our product candidates could severely harm our business.
We may be unable to obtain U.S. or foreign regulatory approval and, as a result, be unable to commercialize our drug candidates.
Even if we obtain regulatory approvals, our marketed drugs will be subject to ongoing regulatory review. If we fail to comply with continuing U.S. and foreign regulations, we could lose our approvals to market drugs and our business would be seriously harmed.
Our product candidates may never achieve market acceptance even if we obtain regulatory approvals.
The pharmaceutical market is intensely competitive. If we are unable to compete effectively with existing drugs, new treatment methods and new technologies, we may be unable to commercialize any drugs that we develop.
It is difficult and costly to protect our proprietary rights, and we may not be able to ensure their protection.
We may incur substantial costs as a result of litigation or other proceedings relating to patent and other intellectual property rights.
If we fail to comply with our obligations under any inbound licenses or related agreements, we could lose license rights that are necessary for developing and protecting our RNAi technology and any related product candidates that we develop.
Confidentiality agreements with employees and others may not adequately prevent disclosure of trade secrets and other proprietary information.
We rely on third parties to conduct our clinical trials. If these third parties do not perform as contractually required or otherwise expected, we may not be able to obtain regulatory approval for or commercialize our product candidates.
We do not have manufacturing experience or resources and we must incur significant costs to develop this expertise or rely on third parties to manufacture our product candidates.
The loss of members of our management team could substantially disrupt our business operations.
We rely on highly skilled personnel and if we are unable to retain or motivate key personnel or hire qualified personnel, we may not be able to maintain our operations or grow effectively.
We lack marketing and commercialization experience for biopharmaceutical products and we may have to rely on third parties for these capabilities.
If any products we develop become subject to unfavorable pricing regulations, third-party reimbursement practices or healthcare reform initiatives, our business could be harmed.
We face potential product liability exposure, and if successful claims are brought against us, we may incur substantial liability for a product candidate and may have to limit its commercialization.
If we or our licensees, collaborators, manufacturers or service providers fail to comply with applicable laws and regulations, we or they could be subject to enforcement actions, which could affect our ability to market and sell our products and may harm our reputation.
We are subject to foreign exchange risk.
We may incur significant costs complying with environmental laws and regulations, and failure to comply with these laws and regulations could expose us to significant liabilities.
We have significant operations in Israel, which may be adversely affected by acts of terrorism or major hostilities.
We are subject to the risk of natural disasters, including earthquakes.
Risks Related to the Units, Our Common Stock and this Offering
We are selling this offering without an underwriter and may be unable to sell any units. Unless we are successful in selling the units and receiving the proceeds from this offering, we may have to seek alternative financing to implement our business plans.
The market price of our common stock may be highly volatile, and you may not be able to resell your shares at or above the price you paid for them in this offering.
The TASE members accepting orders in the auction process will not be bound by suitability protections for customers purchasing the units akin to FINRA Rule 2310.
Following the offering, we shall be subject to certain provisions of the Israel Securities Law — 1968, which deal mainly with disclosure issues, and to certain provisions of Israel Companies Law — 1999, which deal mainly with corporate governance issues. Both provisions differ from US securities laws and the default provisions generally applicable to California corporations, respectively. Certain of these provisions may be unenforceable and stockholder rights may be adversely affected.
Our largest shareholder and management beneficially own a significant percentage of our stock and will be able to exercise significant influence over matters subject to shareholder approval.
We will incur significant increased costs as a result of operating as a public company, and our management will be required to devote substantial time to new compliance initiatives.
Future sales of our common stock in the public market could cause our stock price to fall.
Anti-takeover provisions in our charter documents and under California law could make an acquisition of us, which may be beneficial to our shareholders, more difficult and may prevent attempts by our shareholders to replace or remove our current management.
If you purchase shares of common stock sold in this offering, you will experience immediate dilution. You will experience further dilution if we issue shares in future financing transactions or upon exercise of options or warrants.
Because our management will have broad discretion over the use of the net proceeds from this offering, you may not agree with how we use them and the proceeds may not be invested successfully.
We have not declared any dividends on our common stock to date, and we have no intention of declaring dividends in the foreseeable future.
Risks Related to the Auction Process for Our Offering
The auction process may result in a phenomenon known as the “winner’s curse,” and, as a result, investors may experience significant losses.
Successful bidders may receive the full number of units subject to their bids, so potential investors should not make bids for more units than they are prepared to purchase.
If research analysts publish or establish target prices for our common stock that are below the offering price for our units or the then current trading market price of our shares, the price of our shares of common stock may fall.
The mechanics of our bid process make it difficult for persons not having an account with a TASE member at the time of the bid process to place a bid for our units.
The amount of proceeds from this offering is dependent upon the outcome of the auction process.
FORWARD-LOOKING STATEMENTS
USE OF PROCEEDS
DIVIDEND POLICY
CAPITALIZATION
DILUTION
SELECTED FINANCIAL DATA
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
Financial Operations Overview
Revenues under Pfizer agreement,
Critical Accounting Policies and Significant Judgments and Estimates
Revenue Recognition
Agreement with Pfizer
Research Collaborations with Pharmaceutical Companies
Other short term service agreements:
Accrued Research and Development Costs
Stock-Based Compensation
Fair value of our common stock
Significant Factors, Assumptions and Methodologies Used in Determining Fair Value
Aggregate Intrinsic Value of Outstanding Stock Options
Preferred Stock Warrant Liability
Income taxes
Results of Operations
Comparison of Nine Months Ended September 30, 2010 and September 30, 2009
Comparison of Years Ended December 31, 2008 and 2009
Comparison of Years Ended December 31, 2007 and 2008
Liquidity and Capital Resources
Contractual Obligations
Off-Balance Sheet Arrangements
Recent Accounting Pronouncements
Quantitative and Qualitative Disclosures about Market Risk
Interest Rate Risk
Exchange Rate Risk
BUSINESS
Overview
RNAi Overview
Our Approach
Our Product Candidates
Clinical portfolio
PF-655 in Phase II Clinical Trials for Diabetic Macular Edema and Wet Age-Related Macular Degeneration
Development of PF-655 in Diabetic Macular Edema
Development of PF-655 in Age-related Macular Degeneration
QPI-1002 in Clinical Phase II for Acute Kidney Injury and Delayed Graft Function
QPI-1002 in Acute Kidney Injury
QPI-1002 in Delayed Graft Function
QPI-1007 in Non-arteritic Anterior Ischemic Optic Neuropathy
QPI-1007 Additional indications — Glaucoma
Preclinical pipeline and Other Research Programs
Israeli National siRNA Project Consortium
Our Strategy
Our License and Collaboration Agreements
Our License Agreement with Pfizer
Our Option Agreement with Novartis
Our Research Collaborations with other Pharmaceutical Companies
The Silence Therapeutics (formerly Atugen) Agreements
The Alnylam Agreements
Our Agreement with the University of Illinois at Chicago
Our Agreement with Dharmacon
Our Agreement with Nitto Denko
Our Collaboration With BioSpring GmbH
Competition
Manufacturing and Supply
Intellectual Property
Government Regulation
Other Regulatory Requirements
Employees
Facilities
Legal Proceedings
MANAGEMENT
Executive Officers and Directors
Board Composition
Director Independence
Director Independence Under Israeli Law
Board Committees
Audit Committee
Nominating and Corporate Governance Committee
Compensation Committee
COMPENSATION DISCUSSION AND ANALYSIS
Overview and Objectives
Role of the Board of Directors in Setting Executive Compensation
Compensation Components
Annual Compensation
Base salary
Bonuses
Long-term Incentives
Other Compensation
Tax Considerations
Summary Compensation Table
Summary Compensation Table for Fiscal Year 2010
Employment Agreements and Potential Payments Upon Termination or Change-in-Control
Daniel Zurr, Ph.D.
Sagit Reich
Smadar Samira Shakked
Shai Erlich, Ph.D.
Elena Feinstein, M.D., Ph.D.
Rami Skaliter, Ph.D.
Juliana Friedmann, M.Sc.
Grants of Plan-Based Awards
Grants of Plan-Based Awards
Outstanding Equity Awards At December 31, 2010
Option Exercises and Stock Vested
Pension Benefits
Nonqualified Deferred Compensation
Compensation of Non-Employee Directors
Director Compensation for Fiscal Year 2010
2007 Equity Incentive Plan
Stock Awards.
Eligibility.
Share Reserve.
Award Limits.
Administration.
Stock Options.
Special Rules for Incentive Stock Options.
Restricted Stock Awards.
Restricted Stock Unit Awards.
Stock Appreciation Rights.
Performance Stock Awards.
Performance Cash Awards.
Other Stock Awards.
Tax Withholding.
Changes to Capital Structure.
Corporate Transactions; Changes in Control.
Duration, Termination, and Amendment.
2010 Employee Stock Purchase Plan
Compensation Committee Interlocks and Insider Participation
Limitation of Liability and Indemnification
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Policies and Procedures for Related Party Transactions
Sale of Securities
Amended and Restated Investors’ Rights Agreement
Employment Agreements
Stock Options Granted to Executive Officers and Directors
Indemnification Agreements with Executive Officers and Directors
Loan to Chief Executive Officer
PRINCIPAL SHAREHOLDERS
DESCRIPTION OF CAPITAL STOCK
Units
Common Stock
Outstanding Shares.
Voting Rights.
Dividends.
Liquidation.
Rights and Preferences.
Fully Paid and Nonassessable.
Preferred Stock
Warrants
Warrants Issued Under the Units
Registration Rights
Demand Registration Rights.
“Piggyback” Registration Rights.
Form S-3 Registration Rights.
Expenses of Registration.
Expiration of Registration Rights.
Anti-Takeover Provisions of our Amended and Restated Articles of Incorporation and Amended and Restated Bylaws
Transfer Agent and Registrar
SHARES ELIGIBLE FOR FUTURE SALE
Rule 144
Rule 701
Restrictions on Transfer Imposed by the Tel Aviv Stock Exchange
Registration Rights
Equity Incentive Plans
MATERIAL U.S. FEDERAL INCOME AND ESTATE TAX CONSEQUENCES TO NON-U.S. HOLDERS
Distributions
Gain on disposition of common stock
Information reporting requirements and backup withholding
Recently enacted legislation affecting taxation of our common stock held by or through foreign entities
New healthcare legislation
Federal estate tax
PLAN OF DISTRIBUTION
The Tender to Sophisticated Investors
The Public Auction Process
Determination of Unit Price
Acceptance of Bids
LEGAL MATTERS
EXPERTS
WHERE YOU CAN FIND ADDITIONAL INFORMATION
QUARK PHARMACEUTICALS, INC. CONSOLIDATED FINANCIAL STATEMENTS U.S. DOLLARS IN THOUSANDS
INDEX
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Quark Pharmaceuticals, Inc.
QUARK PHARMACEUTICALS, INC. CONSOLIDATED BALANCE SHEETS U.S. dollars in thousands
QUARK PHARMACEUTICALS, INC. CONSOLIDATED BALANCE SHEETS U.S. dollars in thousands (except share and per share data)
QUARK PHARMACEUTICALS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS U.S. dollars in thousands (except share and per share data)
QUARK PHARMACEUTICALS, INC. STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIENCY) U.S. dollars in thousands (except share data)
QUARK PHARMACEUTICALS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS U.S. dollars in thousands
QUARK PHARMACEUTICALS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS U.S. dollars in thousands
QUARK PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands (except share and per share data)
NOTE 1:- GENERAL
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES
QUARK PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands (except share and per share data)
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES – (continued)
QUARK PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands (except share and per share data)
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES – (continued)
License agreement with Pfizer Inc. (“Pfizer”):
QUARK PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands (except share and per share data)
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES – (continued)
Development services to Pfizer:
QUARK PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands (except share and per share data)
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES – (continued)
Other short-term service agreements:
Deferred revenue:
Cost of revenue:
QUARK PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands (except share and per share data)
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES – (continued)
QUARK PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands (except share and per share data)
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES – (continued)
QUARK PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands (except share and per share data)
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES – (continued)
QUARK PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands (except share and per share data)
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES – (continued)
QUARK PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands (except share and per share data)
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES – (continued)
NOTE 3:- MAJOR RESEARCH AND DEVELOPMENT COLLABORATIONS
QUARK PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands (except share and per share data)
NOTE 3:- MAJOR RESEARCH AND DEVELOPMENT COLLABORATIONS – (continued)
QUARK PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands (except share and per share data)
NOTE 3:- MAJOR RESEARCH AND DEVELOPMENT COLLABORATIONS – (continued)
NOTE 4:- OTHER RECEIVABLES AND PREPAID EXPENSES
QUARK PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands (except share and per share data)
NOTE 5:- RELATED PARTIES
NOTE 6:- PROPERTY AND EQUIPMENT
QUARK PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands (except share and per share data)
NOTE 6:- PROPERTY AND EQUIPMENT – (continued)
NOTE 7:- OTHER PAYABLES AND ACCRUED EXPENSES
NOTE 8:- COMMITMENTS AND CONTINGENT LIABILITIES
QUARK PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands (except share and per share data)
NOTE 8:- COMMITMENTS AND CONTINGENT LIABILITIES – (continued)
QUARK PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands (except share and per share data)
NOTE 8:- COMMITMENTS AND CONTINGENT LIABILITIES – (continued)
QUARK PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands (except share and per share data)
NOTE 8:- COMMITMENTS AND CONTINGENT LIABILITIES – (continued)
NOTE 9:- INCOME TAXES
QUARK PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands (except share and per share data)
NOTE 9:- INCOME TAXES – (continued)
QUARK PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands (except share and per share data)
NOTE 9:- INCOME TAXES – (continued)
QUARK PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands (except share and per share data)
NOTE 9:- INCOME TAXES – (continued)
QUARK PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands (except share and per share data)
NOTE 9:- INCOME TAXES – (continued)
QUARK PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands (except share and per share data)
NOTE 9:- INCOME TAXES – (continued)
NOTE 10:- REDEEMABLE CONVERTIBLE PREFERRED STOCK
QUARK PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands (except share and per share data)
NOTE 10:- REDEEMABLE CONVERTIBLE PREFERRED STOCK – (continued)
QUARK PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands (except share and per share data)
NOTE 10:- REDEEMABLE CONVERTIBLE PREFERRED STOCK – (continued)
QUARK PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands (except share and per share data)
NOTE 10:- REDEEMABLE CONVERTIBLE PREFERRED STOCK – (continued)
NOTE 11:- SHARE CAPITAL
Dividends —
QUARK PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands (except share and per share data)
NOTE 11:- SHARE CAPITAL – (continued)
QUARK PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands (except share and per share data)
NOTE 11:- SHARE CAPITAL – (continued)
QUARK PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands (except share and per share data)
NOTE 11:- SHARE CAPITAL – (continued)
QUARK PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands (except share and per share data)
NOTE 11:- SHARE CAPITAL – (continued)
QUARK PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands (except share and per share data)
NOTE 11:- SHARE CAPITAL – (continued)
QUARK PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands (except share and per share data)
NOTE 11:- SHARE CAPITAL – (continued)
QUARK PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands (except share and per share data)
NOTE 12:- FINANCIAL INCOME (EXPENSES), NET
NOTE 13:- EARNINGS (LOSS) PER SHARE
QUARK PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands (except share and per share data)
NOTE 14:- MAJOR CUSTOMERS AND GEOGRAPHIC INFORMATION
NOTE 15:- SUBSEQUENT EVENTS
Units
QUARK PHARMACEUTICALS, INC.
Each Unit consisting of Shares of Common Stock and Warrants
PROSPECTUS
PART II INFORMATION NOT REQUIRED IN PROSPECTUS
SIGNATURES
EXHIBIT INDEX
Item 13.
Item 14.
ITEM 15.
Item 16.
Item 17.
Contents
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