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Dendreon 10-K 2007 Documents found in this filing:
UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-K/A
(Amendment No. 1)
ANNUAL REPORT PURSUANT TO
SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2006
Commission file number
000-30681
(206) 256-4545
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the
Act:
COMMON STOCK, $0.001 PAR VALUE
PREFERRED STOCK PURCHASE RIGHTS
Securities registered pursuant to Section 12(g) of the
Act:
none
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o No þ
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Exchange
Act. Yes o No þ
Indicate by check mark whether the registrant: (1) has
filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past
90 days. Yes þ No
o
Indicate by a check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, or a non-accelerated
filer. See definition of “accelerated filer and large
accelerated filer” in
Rule 12b-2
of the Exchange Act.
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
The aggregate market value of the common stock held by
non-affiliates of the registrant based on the closing sale price
of the registrant’s common stock on June 30, 2006, as
reported on the National Association of Securities Dealers
Automated Market, was $310,054,233.
As of April 11, 2007, the registrant had outstanding
83,189,286 shares of common stock.
This Amendment No. 1 on
Form 10-K/A
amends our Annual Report on
Form 10-K
for the year ended December 31, 2006 originally filed
March 14, 2007 (“Original Annual Report”) solely
to incorporate information previously omitted from
Part III, Items 10, 11, 12, 13 and 14. Other than
as set forth herein, the registrant has not undertaken to update
any information provided in the Original Annual Report.
Executive officers are elected annually by the Board of
Directors and serve at the discretion of the Board. The
following table sets forth certain information regarding our
directors and executive officers as of April 11, 2007.
Mitchell H. Gold, M.D. has served as our Chief
Executive Officer since January 1, 2003, and as a director
since May 2002. Dr. Gold also served as the Company’s
Vice President of Business Development from June 2001 to May
2002, and as the Company’s Chief Business Officer from May
2002 through December 2002. From April 2000 to May 2001,
Dr. Gold served as Vice President of Business Development
and Vice President of Sales and Marketing for Data Critical
Corporation, a company engaged in wireless transmission of
critical healthcare data, now a division of GE Medical. From
1995 to April 2000, Dr. Gold was the President and Chief
Executive Officer, and a co-founder of Elixis Corporation, a
medical information systems company. From 1993 to 1998,
Dr. Gold was a resident physician in the Department of
Urology at the University of Washington. Dr. Gold currently
serves on the boards of the University of Washington/Fred
Hutchinson Cancer Research Center Prostate Cancer Institute and
the Washington Biotechnology and BioMedical Association.
Dr. Gold received his B.S. from the University of
Wisconsin-Madison and his M.D. from Rush Medical College.
Richard F. Hamm, Jr. has served as our Senior
Vice President, Corporate Development, General Counsel and
Secretary of Dendreon Corporation since December 2005 and as our
Senior Vice President, General Counsel and Secretary since
November 2004. Mr. Hamm also served as our principal
financial officer from January to December 2006. Prior to
November 2004, Mr. Hamm was the Vice President and Deputy
General Counsel of Medtronic, Inc., a leading medical technology
company. Prior to Medtronic, Mr. Hamm was the Vice
President, Corporate Development and Planning at Carlson
Companies, Inc., a global travel, hospitality and marketing
services company. For more than five years prior thereto, he was
Senior Vice President, Legal and Business Development and Vice
President and General Counsel at Tropicana Products, Inc., a
manufacturer of fruit juices. Mr. Hamm is a director of
EMCOR Group, Inc., an electrical and mechanical construction and
facilities services company, and Axsys Technologies, Inc., a
manufacturer of precision optical components and systems for
aerospace, defense and other high technology markets.
Mr. Hamm received a B.S. in Business Administration from
Arizona State University, a J.D. from Harvard Law School and an
M.B.A. from the Wharton School at the University of Pennsylvania.
Gregory T. Schiffman joined us in December 2006 as
Senior Vice President, Chief Financial Officer and Treasurer.
Prior to that time, Mr. Schiffman was the Executive Vice
President and Chief Financial Officer of Affymetrix, Inc., a
manufacturer of genetic analysis products. He served as
Affymetrix’s Vice President of Finance from March 2001 and
was appointed Vice President and Chief Financial Officer in
August 2001. Mr. Schiffman was promoted to Senior Vice
President in October 2002 and to Executive Vice President in
February 2005. Prior to joining Affymetrix, Mr. Schiffman
was Vice President, Controller of Applied Biosystems, Inc. from
October 1998. From 1987 through 1998, Mr. Schiffman held
various managerial and financial positions at Hewlett Packard
Company. Mr. Schiffman serves as a director of Entelos, a
biopharmaceutical company and Vnus Medical Technologies, Inc., a
medical device company. Mr. Schiffman received a B.S. from
DePaul University and an M.B.A. from the Kellogg School at
Northwestern University.
David L. Urdal, Ph.D. has served as our Senior
Vice President and Chief Scientific Officer since June 2004. In
January 2006, Dr. Urdal assumed oversight of manufacturing
operations for the Company. Prior to June 2004, he served as
Vice Chairman of the Company’s Board of Directors and Chief
Scientific Officer since joining the Company in July 1995.
He served as the Company’s President from January 2001 to
December 2003, and he served as the Company’s Executive
Vice President from January 1999 through December 2000. From
1982 until July 1995, Dr. Urdal held various positions with
Immunex Corporation, a biotechnology company, including
President of Immunex Manufacturing Corporation, Vice President
and Director of Development, and head of the departments of
biochemistry and membrane biochemistry. Dr. Urdal also
serves as a director of Gene Logic Inc., a biopharmaceutical
development company. Dr. Urdal received a B.S. and M.S. in
Public Health and a Ph.D. in Biochemical Oncology from the
University of Washington.
Richard B. Brewer, has served as our Chairman of the
Board of Directors since June 2004 and has served as one of our
directors since February 2004. He is the founding partner of
Crest Asset Management, a management advisory and investment
firm, a position he has held since January 2003. Since 2006,
Mr. Brewer has served as the President and CEO of Arca
Discovery, Inc., a privately-held biotechnology company focused
on genetically-targeted therapies for heart failure. From
September 1998 until February 2004, Mr. Brewer served as
Chief Executive Officer and President of Scios Inc., a
biopharmaceutical company. From 1996 until 1998, Mr. Brewer
served as the Chief Operating Officer at Heartport, a
cardiovascular device company. From 1984 until 1995,
Mr. Brewer was employed by Genentech, Inc., a biotechnology
company, and served as its Senior Vice President of Sales and
Marketing, and Senior Vice President of Genentech Europe and
Canada. Mr. Brewer is an advisory board member for the
Stanford Research Institute, a non-profit research organization.
Mr. Brewer also serves as a director for Agensys, Inc., a
privately-held biotechnology company. He is an advisory board
member at the Kellogg Graduate School of Management Center for
Biotechnology at Northwestern University. Mr. Brewer holds
a B.S. from Virginia Polytechnic Institute and an M.B.A. from
Northwestern University.
Susan B. Bayh, has served as one of our directors
since our acquisition of Corvas International, Inc.
(“Corvas”), a biotechnology company, in July 2003.
Prior to that, she had served as a director of Corvas since June
2000. Since 1994, she has been a Distinguished Visiting
Professor at the College of Business Administration at Butler
University in Indianapolis, Indiana. From 1994 to 2000, she was
a Commissioner for the International Joint Commission of the
Water Treaty Act between the United States and Canada. From 1989
to 1994, Ms. Bayh served as an attorney in the
Pharmaceutical Division of Eli Lilly and Company, a
pharmaceutical company. She currently serves on the Boards of
Directors of Wellpoint, Inc., a health benefits company, Dyax
Corp., a biotechnology company, Curis, Inc., a therapeutic drug
development company, Emmis Communications, a diversified media
company, Novavax, Inc., a biopharmaceutical company, and Nastech
Pharmaceutical Co. Inc., a biotechnology company. Ms. Bayh
received a B.S. from the University of California, Berkeley and
her J.D. from the University of Southern California Law School.
Gerardo Canet, has served as one of our directors since
December 1996. Mr. Canet is Chairman of the Board of
Directors of IntegraMed America, Inc., and from 1994 to 2005,
served as its Chief Executive Officer. IntegraMed provides
services to patients and medical practices that specialize in
the diagnosis and treatment of infertility. From 1989 to 1994,
Mr. Canet held various executive management positions with
Curative Health Services, Inc., a health services company, and
upon his departure was Executive Vice President and President of
its Wound Care Business Unit. Mr. Canet received a B.A. in
Economics from Tufts University and an M.B.A. from Suffolk
University.
Bogdan Dziurzynski, D.P.A., has served as one of our
directors since May 2001. Since 2001, Dr. Dziurzynski has
been a consultant in strategic regulatory management to the
biotechnology industry and serves on the Board of Directors of
the Biologics Consulting Group, Inc. Dr. Dziurzynski serves
as the president and board member of the Regulatory Affairs
Professional Society. From 1994 to 2001, Dr. Dziurzynski
was the Senior Vice President of Regulatory Affairs and Quality
Assurance for MedImmune, Inc., a biotechnology company. From
1988 to 1994, Dr. Dziurzynski was Vice President of
Regulatory Affairs and Quality Assurance for Immunex
Corporation, a biotechnology company. Dr. Dziurzynski has a
B.A. in Psychology from Rutgers University, an M.B.A. from
Seattle University and a Doctorate in Public Administration from
the University of Southern California.
M. Blake Ingle, Ph.D., has served as one of our
directors since our acquisition of Corvas in July 2003. Prior to
that, Dr. Ingle had served as Chairman of Corvas since June
1999 and as a director of Corvas since January 1994. Since 1998,
Dr. Ingle has been a general partner of Inglewood Ventures,
a venture capital firm. From March 1993 to February 1996 when it
was acquired by Schering-Plough, he was the President and Chief
Executive Officer of Canji, Inc., a biopharmaceutical company.
From 1980 to 1993, he was employed in a variety of capacities
with the IMCERA Group, Inc., a healthcare company consisting of
Mallinckrodt Medical, Mallinckrodt Specialty Chemicals and
Pitman Moore, last serving as President and Chief Executive
Officer. Dr. Ingle currently serves on the Board of
Directors of Bridgetech Holdings International, Inc.
Ruth B. Kunath, has served as one of our directors since
December 1999. Ms. Kunath has been a private investor since
November 2003. Ms. Kunath was a biotechnology portfolio
manager for Vulcan Inc., a venture capital firm, from 1991 until
November 2003. Prior to her employment at Vulcan Inc.,
Ms. Kunath spent nine years at Seattle Capital Management,
a financial management company, and eight years as the Senior
Portfolio Manager for the healthcare sector of Bank of America
Capital Management, a financial management company.
Ms. Kunath received a B.A. from DePauw University and is a
Chartered Financial Analyst.
Douglas G. Watson, has served as one of our directors
since February 2000. Mr. Watson is Chief Executive Officer
of Pittencrieff Glen Associates, a consulting firm that he
founded in July 1999. From January 1997 to May 1999,
Mr. Watson served as President and Chief Executive Officer
of Novartis Corporation, the U.S. subsidiary of Novartis
AG. From April 1996 to December 1996, Mr. Watson served as
President and Chief Executive Officer of Ciba-Geigy Corporation,
which merged into Novartis Corporation in December 1996.
Mr. Watson’s career spanned 33 years with
Novartis, having joined Geigy (UK) Ltd. in 1966. Mr. Watson
also currently serves as chairman of OraSure Technologies, Inc.,
a medical diagnostics company, and Javelin Pharmaceuticals,
Inc., a pharmaceutical company, and as a director of Genta
Incorporated, a biopharmaceutical company, and BioMimetic
Therapeutics, Inc., a pharmaceutical company. Mr. Watson
received an M.A. in Pure Mathematics from Churchill College,
Cambridge University and holds an ACMA qualification as an
Associate of the Chartered Institute of Management Accountants.
We have a standing Audit Committee established in accordance
with applicable Securities Exchange Act rules. The Audit
Committee is currently composed of Mr. Watson (Chair),
Dr. Ingle and Ms. Kunath, each of whom the Board of
Directors has determined is independent under SEC rules and
Nasdaq listing standards. The Board of Directors has determined
that Mr. Watson, Dr. Ingle and Ms. Kunath are
each an “audit committee financial expert,” as that
term is defined in Item 401(h)(2) of
Regulation S-K.
Our Corporate Governance Committee evaluates any stockholder
recommendations for Board membership. The charter for our
Corporate Governance Committee is available on our investor
relations website. We did not implement any changes to our
process for stockholder recommendations of director nominees
during 2006.
No member of our Compensation Committee has been an officer or
employee of our company at any time. None of our executive
officers during 2006 served as a director or as a member of the
compensation committee of another entity that has an executive
officer who served as a director of the Company or on our
Compensation Committee during 2006.
Our Board of Directors has adopted a Code of Business Conduct
applicable to our directors and all of our officers and
employees. The Code of Business Conduct is available, free of
charge, through the investor relations section of our website at
http://investor.dendreon.com/governance.cfm. We intend to
disclose any amendment to, or waiver from, the Code of Business
Conduct by posting such amendment or waiver, as applicable, on
our website.
Section 16(a) of the Exchange Act requires our directors
and executive officers and persons who own more than ten percent
of our Common Stock to file with the SEC initial reports of
ownership and reports of changes in ownership of the Common
Stock. Our directors and executive officers and greater than ten
percent stockholders are required by SEC regulation to furnish
us with copies of all forms that each has filed pursuant to
Section 16(a) of the Exchange Act.
To our knowledge, based solely on a review of the copies of such
reports furnished to us during 2006, SEC filings and certain
written representations that no other reports were required,
during the fiscal year ended December 31, 2006, our
officers, directors and greater than ten percent stockholders
complied with all applicable Section 16(a) filing
requirements, with the exception of Ms. Kunath and
Dr. Ingle for whom Form 4s — Change in
Beneficial Ownership, were filed late on December 11, 2006
reporting December 6, 2006 stock option grants and for
Ms. Kunath for whom a Form 5 — Annual
Statement of Beneficial Ownership of Securities was filed in
August 2006 to report a purchase and sale of our Common Stock by
her former husband in 2002.
Compensation
Discussion and Analysis
The goals of our compensation program are to align employee
compensation with the furtherance of our company’s business
objectives and performance and to enable us to attract and
retain the highest quality executive officers and other
employees, reward them for our progress, and motivate them to
enhance long-term stockholder value as well as assist us in
achieving our mission, which is to discover, develop and
commercialize new therapeutics that target cancer and have the
power to transform lives.
Our company’s compensation policies and practices are
developed by the Compensation Committee of our Board of
Directors and implemented by our Board of Directors upon the
recommendation of the Compensation Committee. The Compensation
Committee’s responsibility is to review and consider
annually the performance of our management in achieving both
corporate and individual goals and objectives and to assure that
our company’s compensation policies and practices are
competitive and effective to incentivize management. The
responsibilities of the Compensation Committee, as stated in its
charter, include:
In 2006, our Compensation Committee retained an independent
compensation consultant to review our compensation practices and
policies and provide a market assessment of the competitiveness
of our pay practices. Mercer Human Resource Consulting
(“Mercer”) was engaged by and directed by the
Compensation Committee to review, among other things, the
compensation payable to our named executive officers and eight
other vice president-level positions within our company. Mercer,
in collaboration with the Compensation Committee, developed a
peer group of companies within our industry with a similar
business focus, and with a market capitalization within a range
of 50% to 200% of our company’s September 2006 market
capitalization of $318 million. After identifying this peer
group, Mercer benchmarked compensation levels for each of our
named executive officer positions against executives within this
peer group in the same or similar positions and performing
similar functions, over both one-year and three-year periods.
The peer group of companies identified was: CV Therapeutics
Inc.; Progenics Pharmaceutical Inc.; Geron Corp.; Acadia
Pharmaceuticals Inc.; Encysive Pharmaceuticals Inc.; Cell
Genesys Inc.; and NPS Pharmaceuticals Inc.
In addition, Mercer reviewed and benchmarked data for the eight
identified vice president positions within our company using
publicly available survey sources. Based on the Mercer study, we
determined that the overall compensation, as well as the various
components, to be paid to our named executive officers in
respect of 2006 and established for 2007 were competitive with
those paid by the comparator group, and our pay practices for
our vice president positions were also competitive. In addition,
our compensation committee used these data to review the
structure of our compensation practices for executives as
allocated among cash payments and equity incentives, and
short-term and long-term components, and made appropriate
recommendations for adjustments and allocations for 2007.
In June 2006, our Compensation Committee initiated a practice of
reviewing a tally sheet setting forth all components of total
compensation paid and payable to our named executive officers,
including base compensation, annual cash incentive, long-term
incentive and equity awards, accumulated realized and unrealized
stock option and restricted stock award gains, and potential
change of control and termination benefits. The tally sheets
show the effect of compensation decisions made over time on the
total annual compensation to a named executive officer and allow
the Compensation Committee to review historical amounts on the
same page for comparative purposes.
Compensation Committee activities in 2006 included a total of
four meetings, discussions with management, ongoing approval of
Compensation Plan awards and approval of amendments to our
equity-based Compensation Plans to conform to new regulatory
requirements; the review of elements and structure of total
compensation during 2006; and the determination to approve the
amendment of our executive employment agreements and the related
termination of our former Executive Change of Control Severance
Plan.
The purpose of our compensation programs is to attract, motivate
and retain highly qualified employees. Historically, given our
lack of profitability to date and also as a performance
incentive, we have heavily weighted equity incentive award
compensation as compared to cash compensation. Our long-term
incentive programs, in particular, are sized and structured so
that a significant portion of total direct compensation is
delivered in the form of equity (stock options, and, more
recently restricted stock awards ), rather than cash, to create
incentives for long-term performance and to promote alignment
with stockholder returns over the relevant periods. We expect
this practice to continue for at least the next two
years as we focus on sustainable business growth. We offer
compensation programs that are flexible and take into
consideration our overall strategic advancement during the
relevant calendar year with respect to designated corporate
goals as well as individual contributions. Each element of our
compensation program has been chosen to appropriately award,
motivate and incentivize our executives within the highly
competitive biotechnology industry and geographic region of our
operations. We focus on important individual contributors to our
company’s success and attempt to appropriately award and
incentivize extraordinary efforts and achievement. In addition,
we focus on achievement of significant company goals, such as
the filing with the U.S. Food and Drug Administration and
acceptance of our biologics license application (our
“BLA”) for
Provenge®
(sipuleucel-T), our most advanced active cellular immunotherapy
product candidate. During 2006, we granted equity incentive
awards with performance goals tied to our advancement of our
commercialization efforts for Provenge.
The Compensation Committee determines the amount to recommend
for each compensation element, consisting of base salary, annual
target bonus, short-term and long-term incentive compensation
through discussions with our executives, use of benchmarking
data discussed above, past performance and future corporate and
individual objectives. The elements of our compensation program
and our decisions regarding each element fit into our overall
compensation objectives and affect decisions regarding other
elements through synthesizing the elements into the total
compensation arrangement for each executive, and evaluating the
totality of the compensation provided to each executive
individually and in comparison to our other executives.
We maintain and encourage appropriate involvement by our
executives in determining compensation practices. Our
Compensation Committee recommends compensation levels for our
executive officers after considering data and recommendations
made by outside compensation consultants and management.
We place significant focus on pay for performance. The still
early-growth stage of our company means individual performance
is critical in our achievement of our corporate goals, and we
seek to encourage and reward this performance. We establish
annual corporate operating goals, as well as expected individual
contributions. Annual cash incentive, or bonus, opportunities
are based on a target percentage of base salary for each
executive. Bonuses are earned primarily based on our
company’s performance measured against a set of
pre-established strategic goals as well as an assessment of
individual performance.
Our goals for 2006 included:
Bonus awards for 2006 were made after taking into consideration
our success in achievement of these goals, and individual
contributions. It was determined by our Board of Directors,
based upon the recommendation of our Compensation Committee,
that achievement of our company’s goals in 2006 merited a
125% payout of target bonus awards. Our Compensation Committee
retains the discretion to adjust target bonus amounts to take
into account changes in corporate circumstances and individual
opportunities and performance throughout the year. In March
2006, Mr. Hamm received an option grant in the amount of
51,513 shares and a restricted stock award for
25,756 shares in recognition for his serving as our
principal financial officer. In December 2006,
Mr. Schiffman received a new hire restricted stock award
for 200,000 shares. Also in December 2006, our Board
approved the Compensation Committee’s recommendation to
grant (i) time-vested stock options to Dr. Gold in the
amount of 75,000 options and to Mr. Hamm and Dr. Urdal
each in the amount of 22,500 options,
(ii) 37,500 shares of restricted stock to
Dr. Gold and 11,250 shares to each of Mr. Hamm and
Dr. Urdal, which restricted stock awards were granted
effective as of the third Thursday of January, 2007, and
(iii) performance-based restricted stock awards to
Dr. Gold in the amount of 112,500 shares and to each
of Dr. Urdal and Mr. Hamm in the amount of
33,750 shares. These performance-based restricted stock
grants made to Drs. Gold and Urdal and Mr. Hamm
provided for 40% vesting upon acceptance by the FDA of our BLA
for Provenge, which occurred in January 2007, and for the
remaining 60% to vest upon the approval of commercialization of
Provenge by the FDA. See “Grants of Plan-Based Awards.”
As discussed above, we review our total compensation (cash and
equity) and the elements in comparison with an identified
comparator group to ensure competitiveness of our compensation
programs, and also the appropriate levels for named executive
officer positions as well as within management at our company
generally.
The principal components for the compensation of our named
executive officers are:
Base Salary. Base salary serves as a
foundation of our compensation program. We determine the other
key components of the program with reference to base salary,
including short-term and long-term incentives and termination
payments. We aim to manage base salaries for our executives
within wide bands set around the median base pay levels of the
identified peer group companies. Annual base salary increases
are determined based on market competitive data and an
assessment of individual performance.
Our Compensation Committee and Board of Directors annually
reviews each executive officer’s base salary. When
reviewing base salaries, the Compensation Committee and Board of
Directors considers individual and corporate performance, levels
of responsibility, prior experience, breadth of knowledge and
competitive pay practices. Base salaries for executive officers
set for 2007 were increased 3.2% – 4.5% as compared to
fiscal year 2006. The increases were due to the executive
officers’ and our fiscal year 2006 performance, including,
among other things, the sale to the public of approximately
$45 million of our common stock in November 2006, the
filing of our BLA during 2006 and the progress of our clinical
programs and commercialization efforts.
Annual Target Bonus. In December 2006, the
Compensation Committee recommended, and the Board of Directors
met and approved cash bonuses for performance for 2006 for all
executive officers. The actual cash bonus awarded depends on the
achievement of specified goals of our company and individual
performance objectives for each executive officer. Cash bonuses
awarded to executive officers for performance in 2006 ranged
from 50% to 63% of the executive officer’s respective base
salary. Target bonuses ranged from 40% to 50% of base salary and
it was determined that achievement of our company’s goals
in 2006 merited a 125% payout. Each of our Compensation
Committee and our Board of Directors reviews and approves the
annual performance objectives for our company. Our objectives
consist of operating, strategic and financial goals that are
considered to be critical to our fundamental long-term goal of
building stockholder value.
Short-term and long-term incentives. We
provide short-term and long-term incentive opportunities
sufficient to effect motivation to achieve specific operating
goals and to generate rewards that bring total compensation to
competitive levels.
Our long-term incentive program for our officers consists of
stock option and restricted stock grants pursuant to our amended
2000 Equity Incentive Plan (the “2000 Plan”) and our
amended 2002 Broad-Based Equity Incentive Plan (the “2002
Plan”), and the opportunity to purchase common stock
through our 2000 Employee Stock Purchase Plan. Stock options and
restricted stock granted to our executive officers under the
2000 or 2002 Plan generally vest over a four-year period to
encourage employees to remain with us. We believe in the
inherent performance nature of options and their ability to link
executive interests with stockholder interests. We also believe
that performance-based restricted stock grants allow us to
target specific performance targets and reward if those targets
are met. Finally, we believe that time vested restricted stock
grants serve as a strong retention vehicle at this critical
juncture in our company’s history. Through stock option and
restricted stock grants, executives and employees receive
significant equity as an incentive to assist us in building
long-term stockholder value. Stock option grants in 2006 were
made at an exercise price of 100% of the fair market value of
our common stock on the date of grant, as defined under our 2000
and 2002 Plans. Executive officers receive value from these
grants only if our common stock appreciates over the long-term.
Our Compensation Committee does consider the number of
outstanding options, both vested and unvested, held by executive
officers when awarding new grants. In addition, in the event
that an executive officer or a designated key employee is hired
during the year, a grant may be made at the time of his or her
commencement of employment.
In December 2006, our 2000 Plan and 2002 Plan were amended to
change the fair market value determination for awards granted
under the plans to the closing sales price as of the date of
approval by our Board of Directors or its delegated
representative. Previously, the fair market value determination
under the plans used the closing sales price as of the last
market trading day prior to the date of action by our Board of
Directors.
Perquisites and Other Elements of
Compensation. We do not provide significant
perquisites, or “perks” to our named executive
officers. We do cover certain expenses that we believe are in
furtherance of our business goals and involve activities that
executives pursue to our benefit, or that are undertaken by an
executive at our request. In 2006, we covered executive
disability insurance premiums for Drs. Gold and Urdal and
Mr. Hamm. In addition, we paid for the cost
of certain health and non-health executive club memberships,
which may frequently involve business entertainment by
executives.
Dr. Gold’s base salary as Chief Executive Officer in
2006 was $475,000. His bonus for the fiscal year consisted of
$296,875 in cash, which was paid during the first quarter of
2007. Dr. Gold’s 2006 base salary and bonus were
determined by the Board of Directors upon recommendation of the
Compensation Committee in accordance with the criteria set forth
above for all executive officers. In 2006, we achieved a number
of key objectives, including, among others, the sale to the
public of approximately $45 million of our common stock in
November 2006, the submission of our BLA to the FDA, and the
progress in our clinical programs and commercialization efforts.
In December 2005, the Compensation Committee granted
Dr. Gold options to purchase 75,000 shares of Common
Stock at an exercise price of $4.41 per share and in
December 2006, a performance-based restricted stock award for
112,500 shares, and, in January 2007, a time vested
restricted stock award of 37,500 shares.
We have entered into employment agreements with each of our
named executive officers. All of these agreements are on an
at-will basis.
In December 2006, our Compensation Committee approved and
recommended to the Board of Directors the amendment of each of
our executive employment agreements to incorporate change of
control provisions previously detailed in our Executive Change
of Control Severance Plan. The objective of this exercise was to
streamline our executive compensatory and severance
arrangements, eliminate any inconsistencies between the
executive employment agreements and the Executive Change of
Control Severance Plan, and create a comprehensive form of
executive employment agreement easier to administer and evaluate
as a total compensation package for each executive. In
conjunction with the amendment of our executive employment
agreements, the Board of Directors terminated the Executive
Change of Control Severance Plan.
Each of our executive employment agreements contains restrictive
covenants following termination of employment as follows: a
one-year non-compete for our chief executive officer and
president, and a nine months non-compete for our senior vice
presidents, and one-year post-termination non-solicitation
obligation applicable to all of our executives.
The executive employment agreements entered into with our named
executive officers provide for post-termination payments and
benefits as follows:
Upon termination without cause or for good reason, our senior
vice presidents will receive a lump-sum payment equal to 75% of
their base salary and
662/3%
of the target bonus identified for the relevant year; our chief
executive officer and president would receive a lump-sum payment
equal to 100% of his base salary for the relevant year and 100%
of the target bonus identified for the relevant year. In
addition, each executive would receive full acceleration of all
stock options and restricted stock awards, is entitled to
payment by our company for continued health benefits coverage
for up to 18 months, and would receive up to $10,000 for
outplacement services.
Upon termination for cause or voluntary termination by an
executive, there would be no benefits paid by us other than for
accrued and unpaid salary and vacation.
In the event of termination without cause or for good reason,
our senior vice presidents would receive a lump-sum payment
equal to 150% of their base salary and 100% of the target bonus
identified for the relevant year; our chief executive officer
and president would receive a lump-sum payment equal to 200% of
his base salary, and 100% of the identified target bonus for the
relevant year. In addition, each executive would receive full
acceleration of all stock options and restricted stock awards,
is entitled to payment by our company for continued health
benefits coverage for up to 18 months, and would receive up
to $10,000 for outplacement services.
Upon death, an executive officer’s beneficiary would
continue to receive the executive’s base salary up to the
earlier of six months or the commencement of death benefits, and
full acceleration of all stock options and restricted stock
awards.
Upon disability, an executive officer would continue to receive
the executive’s base salary, less short-term disability
payments, up to the earlier of six months or the commencement of
long-term disability payments, and full acceleration of all
stock options and restricted stock awards.
None of our executive officer employment agreements includes a
gross-up on
excise taxes that would be payable by an executive on benefits
in excess of the amount permitted under Section 280G of the
Internal Revenue Code of 1986, as amended (the
“Code”). The agreements provide that we will either
pay the entire severance amount to the executive, who will be
subject to and responsible for the excise tax, or we will reduce
the severance to be paid to an amount low enough to avoid the
tax to the executive, whichever alternative is the better result
for the executive.
We have not adopted stock ownership or equity retention
guidelines for our executive officers. To date, our compensation
programs have been heavily weighted in long-term equity
incentives, and each of our named executive officers has a
sizable equity interest in the company, in both stock options
exercisable for shares and also restricted stock. We may
consider adopting equity ownership guidelines in the future if
we determine it is appropriate and in the best interests of our
company and our stockholders.
Section 162(m) of the Code limits us to a deduction for
federal income tax purposes of no more than $1 million of
compensation paid to certain executive officers in a taxable
year. Compensation above $1 million may be deducted if it
is performance-based compensation within the meaning of the
Code. The Compensation Committee’s policy with respect to
Section 162(m) is to try and preserve the deductibility of
compensation payable to executive officers, although
deductibility is only one among a number of factors considered
in determining appropriate levels or means of compensation for
these officers.
The Compensation Committee has determined that stock options
granted under the 2000 Equity Plan and the 2002 Equity Plan with
an exercise price at least equal to the fair market value of our
Common Stock on the date of grant shall be treated as
performance-based compensation.
Section 409A of the Code requires that “nonqualified
deferred compensation” be deferred and paid under plans or
arrangements that satisfy the requirements of the statute with
respect to the timing of deferral elections, timing of payments
and certain other matters. Failure to satisfy these requirements
can expose employees to accelerated income tax liabilities and
penalty taxes and interest on their vested compensation under
such plans. Accordingly, as a general matter, it is our
intention to design and administer our compensation and benefits
plans and arrangements for all of our employees, including our
named executive officers, so that they are either exempt from,
or satisfy the requirements of, Section 409A.
The Compensation Committee reviewed and discussed the
Compensation Discussion and Analysis required by
Item 402(b) of
Regulation S-K
and contained within this report on
Form 10-K/A
with management and, based on such review and discussions,
recommended to the Board that the Compensation Discussion and
Analysis be included in this report and incorporated into our
Annual Report on
Form 10-K
for the fiscal year ended December 31, 2006.
From the members of the Compensation Committee of the Board of
Directors.
Gerardo Canet (Chair)
Susan B. Bayh
Bogdan Dziurzynski, D.P.A.
Summary
Compensation Table
The table below summarizes the total compensation earned during
2006 by our principal executive officer, principal financial
officer, and each of our other executive officers as defined
under the applicable rules of the SEC (collectively, the
“named executive officers”), determined as of
December 31, 2006.
In January 2007, we entered into a new form of executive
employment agreement with each of Messrs. Gold, Hamm,
Schiffman and Urdal in connection with the termination of our
Executive Change in Control Severance Plan. The agreements, as
amended, provide for annual base salaries as of calendar year
2007 as follows: Dr. Gold, $500,000; Mr. Hamm,
$329,175; Mr. Schiffman, $360,000 and Dr. Urdal,
$391,875. If targets set in advance by the Board of Directors
are met, each executive is eligible under his employment
agreement for a bonus as determined by the Board of up to 50% of
base salary for Dr. Gold, and up to 40% of base salary for
Mr. Hamm, Mr. Schiffman and Dr. Urdal.
Our executive employment agreements have no specified term, and
the employment relationship may be terminated by the executive
officers or by us at any time. If we terminate the executive
officer’s employment without cause, or if the executive
officer resigns for good reason, the executive will be entitled
to severance payments as detailed under the section heading
“Potential Payments Upon Termination.” As defined in
each executive’s employment agreement, an executive is
entitled to “good reason” resignation upon the
occurrence of the following:
Each agreement requires the executive not to compete with us
after termination of employment, for a period of one year for
Dr. Gold and nine months for our other senior executives,
and provides a one-year post-termination non-solicitation
obligation for all of the executives.
Stock Option Awards. On December 6, 2006,
each of our named executive officers (with the exception of
Mr. Schiffman, who joined our company on December 18,
2006, and Dr. Hershberg who departed early in the year)
received a stock option award. These options vest over a
four-year period with 25% vesting upon the one-year anniversary
of the grant date and the remainder vesting pro-rata on a
monthly basis over the next 36 months. Vested options may
be exercised for ten years from the date of grant, assuming
continued employment. The stock option award granted to
Mr. Hamm on March 24, 2006 provides for our standard
vesting schedule over a four-year period with 25% vesting upon
the one-year anniversary of the grant date and the remainder
vesting pro-rata on a quarterly basis over the next
36 months, however the award would accelerate and fully
vest in the event of the approval of Provenge for
commercialization by the FDA.
Restricted Stock Awards. In 2005, our company
achieved a number of key objectives, including, among others,
the sale to the public of approximately $49 million of our
company’s Common Stock in December 2005, the achievement of
regulatory goals and progress in our company’s clinical and
preclinical programs and commercialization efforts generally. In
December 2005, the Compensation Committee recommended to and the
Board of Directors granted on January 19, 2006, to each
named executive officer (with the exception of
Mr. Schiffman) an award of restricted stock, which vests
over a four-year period with 25% vesting upon the one-year
anniversary of the grant date and the remainder vesting pro-rata
on a quarterly basis over the next 36 months. The
restricted stock award granted to Mr. Hamm on
March 24, 2006 provides for our standard vesting schedule
over a four-year period with 25% vesting upon the one-year
anniversary of the grant date and the remainder vesting pro-rata
on a monthly basis over the next 36 months, provided,
however, that the award will accelerate and fully vest in the
event of the approval of Provenge for commercialization by the
FDA. The December 6,
2006 restricted stock awards granted to all the named executive
officers (except Mr. Schiffman and Dr. Hershberg) were
performance based and do not have any time-vesting features.
These awards will vest as follows:
Upon commencement of his employment with our company on
December 18, 2006, Mr. Schiffman received a restricted
stock award of 200,000 shares.
Treatment of stock options and restricted stock awards upon an
executive’s termination of employment under various
scenarios are summarized in the “Potential Payments upon
Termination” section below.
Grants Of
Plan-Based Awards
for Fiscal Year Ended December 31, 2006
Outstanding
Equity Awards at Fiscal Year-end
The table below summarizes the named executive officers’
equity awards that were unvested or unexercised, as applicable,
as of December 31, 2006.
None of the named executive officers exercised stock options
during 2006. Dr. Hershberg was the only named executive
officer to receive shares upon the vesting of a restricted stock
award in the amount of 11,250 shares, at a realized value
of $50,900. This represented the release to Dr. Hershberg
of his restricted stock award due to his resignation of
employment.
The discussion and tables below reflect the estimated severance
benefits that would be paid or accrue to each of the named
executive officers in the event of the following hypothetical
scenarios:
The amounts shown in the tables below assume that the noted
triggering event occurred on December 31, 2006. Other
relevant assumptions and explanations are provided in the
footnotes following the tables. The amounts shown reflect only
the additional payments or benefits that a named executive
officer would have received upon the occurrence of the
respective triggering events listed below; they do not include
the value of payments or benefits that would have been earned,
or any amounts associated with equity awards that would have
vested absent the triggering event.
Potential
Payments on Termination (without cause or following
change-in-control)
As of Year Ended December 31, 2006(1)
Potential
Payments on Disability or Death
As of Year Ended December 31, 2006
Only non-employee directors are compensated for serving as our
directors. Our Board of Directors has adopted guidelines for the
compensation of our non-employee directors. Under these
guidelines, for each year of service non-employee directors
receive a retainer of $35,000, payable ratably at the end of
each quarter. In addition, the Chairman of the Board receives an
additional $75,000 per annum. The chairs of our Audit,
Compensation and Corporate Governance Committees receive an
additional $10,000, $8,000, and $4,000, respectively, per annum
for such service. These amounts are also paid ratably at the end
of each quarter. In 2006, the total compensation earned by
non-employee directors was $342,000. The members of the Board of
Directors are also eligible for reimbursement of their expenses
incurred in connection with attendance at Board of Directors
meetings in accordance with Company policy.
Upon first joining the Board of Directors, non-employee
directors are also granted a stock option to acquire
22,500 shares of Common Stock under our Amended 2000 Equity
Incentive Plan (the “2000 Plan”). Of this award, 7,500
options vest on the grant date and the remainder will vest in
equal annual installments over a two-year period. Our Board of
Directors approved an amendment to the 2000 Plan in December
2006. Previously, in the third December following a
director’s election to the Board of Directors and each
December thereafter, the director would receive an annual grant
exercisable for 10,000 shares, which would be immediately
vested. As amended by the Board of Directors in December 2006,
the 2000 Plan provides that each director will receive, in the
third December following a director’s election to the Board
of Directors and each December thereafter, an annual grant to
purchase the number of shares of Common Stock determined by
dividing $100,000 by the value of an option to purchase one
share of Common Stock as of the date of grant. The value of an
option to purchase one share of our company’s Common Stock
is to be determined annually by the compensation consultants
hired by the Compensation Committee utilizing the
Black-Scholes-Merton option valuation methodology and
assumptions used by us in our financial statements to estimate
the value of compensatory stock options. All options granted to
non-employee directors are granted at the fair market value of
our Common Stock on the date of grant.
The table below sets forth, for each non-employee director, the
amount of cash compensation paid and the number of stock options
received for his or her service during 2006.
The aggregate number of option awards outstanding for each of
our directors as of December 31, 2006 is provided in the
table below:
Under the corporate governance principles adopted by our Board
of Directors in 2005, our non-employee directors are encouraged
to own stock of our company in an amount equal to one times the
annual general Board service retainer fee paid each non-employee
director. This ownership target is intended to be achieved
within twenty-four months of an individual’s joining our
board, and be considered a long-term investment. As of
December 31, 2006, approximately 40% of our non-employee
directors met their applicable ownership guidelines.
Security
Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information regarding the
beneficial ownership of our Common Stock as of April 11,
2007, based on 83,189,286 shares outstanding as of that
date, by (1) each person or group who is known to us to be
the beneficial owner of more than five percent of our
outstanding Common Stock, (2) each director of the Company,
(3) each executive officer named (“named executive
officer”) in the Summary Compensation Table under
“Executive Compensation”, and (4) all of our
directors and executive officers as a group.
Dendreon maintains the 2000 Equity Plan, the 2002 Equity Plan
and the Employee Stock Purchase Plan (“ESPP”),
pursuant to which it may grant equity awards to eligible
persons. Dendreon also has issued warrants as compensation to
consultants and contractors for goods and services provided to
Dendreon. The following table provides information as of
December 31, 2006, regarding the 2000 Equity Plan, the 2002
Equity Plan and the ESPP and certain other compensatory
arrangements pursuant to which Dendreon has issued, or agreed to
issue, warrants to purchase shares of Common Stock:
We have entered into indemnity agreements with our directors,
executive officers and certain other members of senior
management that provide, among other things, that we will
indemnify such officer or director, under the circumstances and
to the extent provided for therein, for expenses, damages,
judgments, fines and settlements he or she may be required to
pay in actions or proceedings in which he or she is or may be
made a party by reason of his or her position as a director,
officer or other agent of the Company, and otherwise to the full
extent permitted under Delaware law and our Amended and Restated
Bylaws.
In January 2007, we entered into new executive employment
agreements with each of our named executive officers, the terms
of which are described above. Otherwise, we have not since
January 1, 2006, entered into any, nor are there any
pending, transactions in which our directors or executive
officers have a direct or indirect material interest.
Our Audit Committee is responsible for reviewing and approving,
in advance, all related party transactions. Related parties
include any of our directors or executive officers, certain of
our stockholders and their immediate family members. To identify
any related party transactions, each year, we submit and require
our directors and officers to complete Director and Officer
Questionnaires identifying any transactions with us in which the
executive officer or director or their family members has an
interest. We review related party transactions due to the
potential for a conflict of interest. A conflict of interest
occurs when an individual’s private interest interferes, or
appears to interfere, with our interests. In addition, our
Corporate Governance Committee determines, on an annual basis,
which members of our Board of Directors meet the definition of
independent director as defined in Rule 4200 of
Nasdaq’s Marketplace Rules. Our Corporate Governance
Committee reviews and discusses any relationships with directors
that would potentially interfere with his or her exercise of
independent judgment in carrying out the responsibilities of a
director. Finally, our Code of Business Conduct, also available
on our investor relations website, establishes the corporate
standards of behavior for all our employees, officers, and
directors.
Our Corporate Governance Committee and our Board, have
determined that each of our non-employee directors, which
includes all three nominees for election to the Board at the
Annual Meeting, is independent under Nasdaq listing
standards. Dr. Gold, and Dr. Urdal, are not
independent based on their service as our Chief Executive
Officer and President, and our Senior Vice President and Chief
Scientific Officer, respectively. In making its independence
determinations, the Corporate Governance Committee each year
reviews any transactions and relationships between the director,
or any member of his or her immediate family, and is based on
information provided by the director, company records and
publicly available information during the year. Specifically,
the Corporate Governance Committee will consider the following
types of relationships and transactions: (i) principal
employment of and other public company directorships held by
each non-employee director; (ii) contracts or arrangements
that are ongoing or which existed during any of the past three
fiscal years between our company and any entity for which the
non-employee director, or his or her immediate family member, is
an executive officer or greater-than-10% shareholder; and
(iii) contracts or arrangements that are ongoing or which
existed during any of the past three fiscal years between our
company and any other public company for which the non-employee
director serves as a director. During 2006, there were no
relationships or transactions in these categories reviewed by
the Corporate Governance Committee, nor were there any other
similar relationships or transactions the Corporate Governance
Committee considered.
Audit Fees. During the fiscal years ended
December 31, 2005 and 2006, the aggregate fees billed by
Ernst & Young for the audit of our financial statements
for such fiscal years, the reviews of our interim financial
statements, Sarbanes-Oxley Section 404 attestation services
and assistance with registration statements were $718,000 and
$881,000, respectively.
Audit-Related Fees. During the fiscal years
ended December 31, 2005 and 2006, Ernst & Young
did not bill us for any audit-related services related to the
performance of the audit or review beyond the fees disclosed
under “Audit Fees” above.
Tax Fees. During the fiscal years ended
December 31, 2005 and 2006, the aggregate fees billed by
Ernst & Young for preparing state and federal income
tax returns were $25,000 and $32,000, respectively. During 2005
and 2006, Ernst & Young fees for other tax services
were $30,000 and $72,000, respectively. The 2005 and 2006
services were related to the study of the income and sales tax
implications to us in connection with the potential
commercialization of Provenge.
All Other Fees. During the fiscal years ended
December 31, 2005 and 2006, all other fees billed by
Ernst & Young were $1,800 and $1,500, respectively.
These fees were principally related to a subscription for an
online financial reporting and accounting research tool.
The Audit Committee has determined that the rendering of these
non-audit services by Ernst & Young is compatible with
maintaining its independence.
Audit Committee Pre-Approval Policy. All
services to be performed by Ernst & Young for us must
be pre-approved by the Audit Committee. Pre-approval is granted
usually at regularly scheduled meetings of the Audit Committee.
If unanticipated items arise between meetings of the Audit
Committee, the Audit Committee has delegated authority to the
Chairman of the Audit Committee to pre-approve services
involving fees of up to $15,000, in which case the Chairman
communicates such pre-approval to the full Audit Committee at
its next meeting. All other services must be approved in advance
by the full Audit Committee. During 2005 and 2006, all services
billed by Ernst & Young were pre-approved by the Audit
Committee in accordance with this policy.
The following documents are being filed as part of this report
on
Form 10-K/A:
(b) Exhibits:
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, as amended, the registrant has
duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Seattle,
State of Washington, on this 13th day of April 2007.
Mitchell H. Gold, M.D.
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, as amended, this Annual Report on
Form 10-K/A
has been signed below by the following persons in the capacities
and on the dates indicated.
Richard F. Hamm, Jr.
Attorney-in-fact
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