e424b5
Filed Pursuant to Rule 424(b)(5)
Registration No. 333-141946
Prospectus supplement
(to prospectus dated
April 26, 2007)
3,000,000 shares
Common stock
This is a public offering of 3,000,000 shares of common
stock of Genomic Health, Inc.
As part of this offering, the underwriters are selling an
aggregate of 1,000,000 shares of our common stock to
entities affiliated with Julian C. Baker, one of our directors
and principal stockholders.
Our common stock is traded on the NASDAQ Global Market under the
symbol GHDX. On May 21, 2007, the last reported sale price
of our common stock on the NASDAQ Global Market was
$15.69 per share.
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Per
share
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Total
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Public offering price
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$
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15.50
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$
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46,500,000
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Underwriting discount
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$
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0.93
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$
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2,790,000
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Proceeds, before expenses, to
Genomic Health
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$
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14.57
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$
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43,710,000
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We have granted the underwriters an option for a period of
30 days to purchase up to 450,000 additional shares of our
common stock to cover any overallotments.
Investing in our common stock involves a high degree of risk.
See Risk factors beginning on
page S-12
of this prospectus supplement.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or passed on the adequacy or accuracy of this
prospectus supplement or the accompanying prospectus. Any
representation to the contrary is a criminal offense.
Sole Book-Running
Manager
JPMorgan
Co-Lead Manager
Lehman Brothers
Co-Managers
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Piper
Jaffray |
JMP
Securities |
May 21, 2007
Table of
contents
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Page
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Prospectus supplement
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ii
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S-1
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S-12
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S-30
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S-32
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S-32
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S-33
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S-34
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S-35
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S-39
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S-44
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S-44
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Prospectus
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Genomic Health, the Genomic Health logo, Oncotype, Oncotype
DX and Recurrence Score are our trademarks or registered
trademarks. We also refer to trademarks of other corporations
and organizations in this prospectus supplement, the
accompanying prospectus and the documents incorporated by
reference into the prospectus.
In this prospectus supplement and the accompanying prospectus,
unless otherwise indicated, the terms Genomic
Health, we, us and our
refer to Genomic Health, Inc.
i
About this
prospectus supplement
This document is in two parts. The first part is this prospectus
supplement, which describes the terms of this offering of our
common stock and also adds to and updates information contained
in the accompanying prospectus and the documents incorporated by
reference into this prospectus supplement and the accompanying
prospectus. The second part is the accompanying prospectus,
which gives more general information. To the extent there is a
conflict between the information contained in this prospectus
supplement, on the one hand, and the information contained in
the accompanying prospectus or any document incorporated by
reference, on the other hand, the information in this prospectus
supplement shall control.
You should rely only on the information contained or
incorporated by reference in this prospectus supplement and the
accompanying prospectus. We have not authorized anyone else to
provide you with information that is different. We are offering
to sell, and seeking offers to buy, shares of our common stock
only in jurisdictions where offers and sales are permitted. The
information contained and incorporated by reference in this
prospectus supplement and the accompanying prospectus is
accurate only as of the dates of those documents, regardless of
the time of delivery of this prospectus supplement and the
accompanying prospectus, or of any sale of the common stock. It
is important for you to read and consider all information
contained or incorporated by reference in this prospectus
supplement and the accompanying prospectus in making your
investment decision. You should also read and consider the
information in the documents incorporated by reference that we
have referred you to in Where you can find more
information below.
ii
Prospectus
supplement summary
This summary contains basic information about us and this
offering. Because it is a summary, it does not contain all of
the information that you should consider before investing.
Before you decide to invest in our common stock, you should read
this entire prospectus supplement and the accompanying
prospectus carefully, including the section entitled Risk
factors, and our consolidated financial statements and the
related notes and other documents incorporated by reference in
the accompanying prospectus.
Our
company
We are a life science company focused on the development and
commercialization of genomic-based clinical diagnostic tests for
cancer that allow physicians and patients to make individualized
treatment decisions. Our diagnostic test, Oncotype DX, is
used for early-stage breast cancer patients to predict the
likelihood of cancer recurrence, the likelihood of patient
survival within ten years of diagnosis and the likelihood of
chemotherapy benefit. Oncotype DX utilizes quantitative
genomic analysis in standard tumor pathology specimens to
provide tumor-specific information, or the oncotype
of a tumor, in order to improve cancer treatment decisions. We
offer Oncotype DX as a clinical laboratory service, where
we analyze the expression levels of 21 genes in tumor tissue
samples in our laboratory and provide physicians with a
quantitative gene expression profile expressed as a single
quantitative score, which we call a Recurrence Score. The
current list price of our test is $3,460. We are conducting
clinical studies with the goal of expanding the clinical utility
of Oncotype DX in breast cancer. We are also conducting
research and early development studies in a variety of cancers
other than breast cancer. Over 600,000 treatment decisions were
expected to be made in the United States in 2006 for patients
diagnosed with early stages of breast, colon, prostate, renal
cell and lung cancers and melanoma.
When a particular oncotype is correlated with known clinical
outcomes, it can be useful in predicting the likelihood of an
individual patients tumor behavior, such as risk of
disease recurrence and magnitude of treatment benefit from
chemotherapy or other treatments. We developed our gene panel
for Oncotype DX by narrowing the field of approximately
30,000 human genes down to 250 cancer-related genes. These genes
were evaluated in three independent clinical studies on tumor
specimens from 447 patients to identify a 21-gene panel,
with which we developed the Recurrence Score. The higher the
Recurrence Score, the more aggressive the tumor and the more
likely it is to recur. The lower the Recurrence Score, the less
aggressive the tumor and the less likely it is to recur.
Moreover, we have demonstrated through clinical studies that the
Recurrence Score also correlates with the likelihood of
chemotherapy benefit, and we are undertaking further studies to
support this finding.
We have experienced a significant increase in demand for
Oncotype DX since the test was launched in January 2004.
For the three months ended March 31, 2007, more than 5,450
tests were delivered for use in treatment planning, compared to
more than 2,900 for the three months ended March 31, 2006.
As of March 31, 2007, more than 27,000 tests had been
delivered for use in treatment planning by more than 5,500
physicians. This increased demand is not necessarily indicative
of future growth rates. Moreover, we believe that each year we
may experience decreased demand for our test in the months of
April, July and August, which may be attributed to physicians
and patients scheduling vacations during this time. As of
March 31, 2007, our laboratory had the capacity to process
up to 8,000 tests per quarter, and we believe our existing
facilities allow us to increase capacity.
We believe the key factors that will drive broader adoption of
Oncotype DX will be acceptance by healthcare providers of
its clinical benefits, demonstration of the cost-effectiveness
of using our test, expanded reimbursement by third-party payors,
expansion of our sales force, increased marketing efforts and
the establishment of industry guidelines for use of Oncotype
DX.
S-1
Reimbursement of Oncotype DX by third-party payors is
essential to our commercial success. We are working with public
and private payors and health plans to secure coverage for
Oncotype DX based on clinical evidence showing the
utility of the test. We have reimbursement contracts with a
number of large national payors, including United HealthCare
Insurance Company, Aetna, Inc., Kaiser Foundation Health Plan,
Inc. and Cigna HealthCare. In addition, National Heritage
Insurance Company (NHIC), the local Medicare carrier for
California with jurisdiction for claims submitted by us for
Medicare patients nationwide, has a policy to provide coverage
for Oncotype DX for early-stage breast cancer
patients meeting coverage criteria. We believe that as much as
20% of our future test volume may be derived from Medicare
patients. In addition, we have reimbursement contracts with a
number of regional payors, including Humana, Highmark, Blue
Cross/Blue Shield of Alabama and Harvard Pilgrim. Further, a
number of insurers such as Blue Shield of California and Horizon
Blue Cross Blue Shield of New Jersey have established policies
to cover our test. As of April 30, 2007, health plans
covering approximately 125 million lives have approved
Oncotype DX for coverage through either a reimbursement
contract or policy.
Until we reach agreement with a payor on contract terms or a
payor establishes a policy for payment of Oncotype DX, we
recognize revenues on a cash basis. Where contracts or policies
are not in place, we pursue
case-by-case
reimbursement. We are working with many payors to establish
policy-level reimbursement which, if in place, should allow us
to recognize revenues upon completing our test, generating and
delivering a Recurrence Score report to the physician, and
submitting an invoice to the payor. We do not expect to
recognize the majority of revenues in this manner until the end
of 2007 or later.
New product
development
We developed Oncotype DX using the following multi-phased
clinical development program that we are also using to develop
future products for breast, colon and other cancers:
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Early development phase. In this phase, we establish
a product definition and development plan and select from the
approximately 30,000 genes in the human genome to identify
candidate genes. To date, we have compiled a library of over
1,300 individual cancer gene tests. Typically, we secure access
to archival tumor biopsy samples correlated with clinical data
in order to identify genes that correlate with a specific
clinical outcome.
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Development phase. If early development studies
successfully identify genes, we conduct additional clinical
studies to refine the gene set in the specific patient
population of interest. We select the final gene panel through
statistical modeling of the gene correlation data. With a gene
panel established, we then finalize the remaining assay
parameters.
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Validation phase. Once the gene panel, assay
chemistry, automation and analysis specifications are finalized,
tested and verified, we begin clinical validation. In this
phase, we conduct one or more validation studies with
prospectively designed endpoints to test our candidate gene
panel and the corresponding quantitative expression score. Since
we control the quality and reproducibility of our assays using
fixed paraffin embedded, or FPE, tissues, we are often able to
conduct large validation studies using archived samples with
years of clinical outcomes, thus saving clinical development
time.
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Commercialization and product expansion phase. Once
a test is commercialized, we may perform additional studies
designed to support the tests clinical utility and
potentially to broaden its use in additional patient populations
or for additional indications. These studies may include
prospective studies to verify that our test is changing
physician behavior as well as tests of a commercial product in
new populations.
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S-2
Product
development opportunities in breast cancer
The following table describes our current breast cancer product
and our other breast cancer product opportunities:
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2006 Estimated
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Breast
Cancer
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Breast
Cancer
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U.S. Treatment
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Anticipated
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Products
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Population
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Decisions
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Product
Attributes
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Product
Stage
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Oncotype DX
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N−, ER+
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130,000
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Recurrence
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Commercial
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Chemotherapy benefit
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Chemotherapy or other
therapeutic regimens benefit
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Product Expansion
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Single gene reporting N−, ER+
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130,000
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Chemotherapy or other
therapeutic regimens benefit
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Product Expansion
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N+
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70,000
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Recurrence
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Product Expansion
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Chemotherapy or other
therapeutic regimens benefit
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Single gene reporting N+
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70,000
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Chemotherapy or other
therapeutic regimens benefit
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Product Expansion
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Oncotype DX
Second Generation
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N−, ER+ and
N+
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200,000
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(1)
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Enhanced recurrence
Enhanced chemotherapy benefit
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Early Development
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New Product Opportunities
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N−, ER−
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30,000
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Taxane benefit(2)
Chemotherapy benefit
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Early Development
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Recurrence
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N+
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70,000
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(3)
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Taxane benefit
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Early Development
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Chemotherapy benefit
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N−, ER+
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130,000
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(4)
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Taxane benefit
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Early Development
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(1)
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Represents the sum of the 130,000
estimated treatment decisions in 2006 for node negative, or N-,
estrogen receptor positive, or ER+, patients and 70,000
estimated treatment decisions in 2006 for node positive, or N+,
breast cancer patients listed above.
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(2)
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Taxanes are a class of chemotherapy
drugs that are commonly used for breast cancer.
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(3)
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This figure is the same as the
70,000 treatment decisions listed above.
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(4)
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This figure is the same as the
130,000 treatment decisions listed above.
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Oncotype
DX
Approximately 70,000 patients were expected to be diagnosed
in the United States in 2006 with N+ breast cancer, and many may
not benefit from chemotherapy or may have other health issues
that increase the risk of chemotherapy treatment. Our early
clinical research studies with Rush University Medical Center
and Providence Saint Joseph Medical Center support further
investigation of Oncotype DX for prediction of recurrence
in this patient population. Results from studies of Oncotype
DX in N+ patients utilizing tumor samples from chemotherapy
treated patients (anthracycline plus cytoxin or anthracycline
plus taxotere) have been completed in collaboration with the
Eastern Cooperative Oncology Group and Aventis, Inc., a member
of the sanofi-aventis group, or Aventis, and results are
scheduled to be presented at the 2007 American Society of
Clinical Oncology, or ASCO, annual meeting. This was the first
of two planned studies in N+ cancer. The second study will be
conducted in conjunction with the Southwest Oncology Group to
study the ability of Oncotype DX to identify patients
more likely to benefit to anthracycline-based chemotherapy
regimens. If these N+ studies are successful, they could support
the launch of a commercial expansion of the utility of
Oncotype DX to include appropriate N+ patients in 2008.
S-3
Additionally, we believe that reporting individual gene scores
in addition to the Recurrence Score may have additional utility
in predicting outcomes for specific therapies or disease
subtypes. For example, a quantitative ER score may be a
clinically useful predictor of tamoxifen benefit based on our
studies of the National Surgical Adjuvant Breast and Bowel
Project, or NSABP, Study B-14 population. We are also conducting
studies to evaluate the clinical utility of individual
Oncotype DX genes and, if successful, plan to provide
single gene results for ER and progesterone receptor, or PR,
gene expression in test results by the end of 2007. We have also
signed an agreement to conduct studies of Oncotype DX
with clinical samples from postmenopausal women with breast
cancer who were treated with aromatase inhibitors. Aromatase
inhibitors and tamoxifen are both used as standard treatment for
early stage ER+ breast cancer patients.
Second generation
Oncotype DX
We are in the early development phase of investigating
additional genes and gene combinations that may add to the
predictive power of Oncotype DX. A second generation
product, if successful, could further refine and improve the
classification of patients and result in better information for
treatment decisions. We have identified multiple genes through
research and development studies that, in varying combinations,
may provide improved prediction of recurrence risk and
likelihood of chemotherapy benefit in breast cancer patients.
Recurrence and
benefit test for N-, ER- breast cancer
We are in the early development phase for a product to predict
the likelihood of recurrence and chemotherapy benefit in N-, ER-
breast cancer patients. This population was expected to
represent approximately 30,000 patients in the United
States in 2006. To date, we have conducted several clinical
research studies that included N-, ER- breast cancer patients,
and we plan to continue to explore opportunities in this
population, including tests to better define ER- patients based
on quantitative molecular pathology.
Taxane benefit
test
We are also in the early development phase for a product to
predict the likelihood of taxane benefit. Taxanes are a class of
chemotherapy drugs that are used in addition to traditional
chemotherapy regimens in some patients but have additional side
effects and are most often used in patients with aggressive or
later stage tumors. The potential population for this product
includes the estimated 70,000 N+ breast cancer patients in the
United States in 2006 as well as N-, ER- patients at high risk
and N- patients at high risk.
S-4
Product
development opportunities in other cancers
The following table describes our products in various stages of
development for cancers other than breast cancer:
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2006
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2006
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Estimated
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Estimated
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Total U.S.
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Addressable
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Anticipated
Product
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Product
Opportunity
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Incidence
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Population
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Attributes
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Product
Stage
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Colon Cancer
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120,000
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65,000
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Recurrence
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Development
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Prediction of drug
response
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Prostate Cancer
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260,000
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200,000
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Progression
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Early Development
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Recurrence
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Renal Cell Cancer
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40,000
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25,000
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Recurrence
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Early Development
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Prediction of drug
response
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Recurrence
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Non-small Cell Lung
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Cancer
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160,000
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45,000
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Prediction of drug
response
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Early Development
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Melanoma
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70,000
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60,000
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Recurrence
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Early Development
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Prediction of drug
response
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Colon cancer
recurrence and response test
Colon cancer was expected to affect approximately 120,000
individuals in the United States in 2006, of which approximately
65,000 early-stage patients needed to decide whether or not to
use chemotherapy for their cancer, as well as which chemotherapy
to use. Only a small percentage of colon cancer patients are
expected to have a survival benefit from additional treatment
after surgery. We developed an investigational 758-gene panel
for colon cancer and established a collaborative agreement with
the NSABP, as well as other academic groups, to access colon
tissue samples that have associated clinical outcome data. In
January 2007, we moved a potential test to predict the
likelihood of recurrence and chemotherapy benefit in patients
with early-stage colon cancer from early development to the
development phase based on two gene discovery studies, one of
which was presented at ASCO in June 2006. As a result of these
two studies we completed, we were able to narrow our gene list
to just over 300 genes, which we have now examined in two
additional clinical studies. In total, we have conducted studies
of our selected gene sets across over 1,800 patient samples
from these four clinical studies in order to identify clinically
useful markers. As a result, we have now identified 29 genes
that have been observed to be statistically significantly
correlated to clinical outcome across all four studies. We are
now in the process of finalizing the gene set, algorithm and
assay parameters for a colon cancer test, which we expect to
complete by the end of 2007. Once the test is finalized, we plan
to conduct a validation study in 2008, which, if successful,
could result in a commercial launch of a colon cancer test in
2009.
Prostate cancer
progression and recurrence test
We are in the early development phase for a test to predict the
likelihood of progression and recurrence of prostate cancer in
early-stage patients. Approximately 260,000 men were expected to
be diagnosed with prostate cancer in the United States in 2006,
approximately 200,000 of whom will need to make critical
decisions on whether or not to undergo local therapy, such as
surgery or radiation, and on whether or not to have additional
treatment after local therapy. Because the side effects of
surgery and local radiation therapy can be serious, a need
exists for a reliable test to determine the likelihood of
progression. There is also a need for a reliable test to
determine the likelihood of recurrence after local treatment,
because additional treatment, such as hormonal therapy and
chemotherapy, have significant side effects as well. We are in
the
S-5
process of defining our prostate cancer gene panel and we have
completed initial feasibility studies and gained access to
clinical samples correlated with outcome data in prostate cancer
under a collaborative agreement with an academic group.
Renal cell cancer
recurrence and response test
We are in the early development phase for a test to predict the
likelihood of recurrence and response to therapy in renal cell
cancer. Approximately 40,000 individuals were expected to be
diagnosed with renal cell cancer in the United States in 2006.
Recently reported studies suggest that some of these patients
may respond to new treatments. We have completed initial
feasibility studies to extract ribonucleic acid from renal cell
cancer specimens and are currently working to define potential
products for patients with renal cell cancer under a
collaborative agreement with an academic group that has access
to clinical samples correlated to outcome data.
Non-small cell
lung cancer recurrence and response test
We are in the early development phase for a test to predict the
likelihood of chemotherapy benefit in early-stage, non-small
cell lung cancer. Approximately 160,000 individuals were
expected to be diagnosed with non-small cell lung cancer in the
United States in 2006, of which approximately 45,000 patients
were expected to be diagnosed before the cancer spreads and will
need to make chemotherapy treatment decisions. Recent clinical
studies suggest that at least some of those early-stage patients
will benefit from chemotherapy. The use of chemotherapy in
early-stage non-small cell lung cancer is relatively recent and
is likely to accelerate. We have completed initial feasibility
studies in lung tissues as a part of our epidermal growth factor
receptor, or EGFR, inhibitor program described below and are in
the process of defining our lung cancer gene panel. We have a
collaborative agreement with an academic group that has access
to clinical samples correlated to outcome data.
Melanoma
recurrence and response test
We are in the early development phase for a test to predict the
likelihood of recurrence and response to therapy for patients
with melanoma. Approximately 70,000 individuals were expected to
be diagnosed with melanoma in the United States in 2006, of
which approximately 60,000 patients were expected to be
diagnosed before the cancer spreads and will need to make
chemotherapy decisions. Recently reported studies suggest that
some of these patients may respond to new treatments. We have
conducted initial feasibility studies to extract RNA from
melanoma cancer specimens and are currently working to define
potential products for melanoma under a collaborative agreement
with an academic group that has access to tissue samples that
have been correlated to outcome data.
Product
development opportunities for targeted cancer
therapeutics
Both anti-cancer drugs recently approved by the U.S. Food
and Drug Administration, or FDA, and new anti-cancer drugs in
clinical development are designed to provide more targeted
treatment, which should improve efficacy and reduce side
effects. A need exists to identify those patients who, based on
the genomic profile of their tumors, are most likely to benefit
from these therapies. We believe our individualized genomic
analysis has the potential to improve patient selection for
these therapies. We have had a number of discussions with
pharmaceutical companies regarding the use of Oncotype DX
or our clinical development platform to identify subsets of
patients more likely to respond to a particular therapy.
S-6
EGFR inhibitor
response test
We are in the early development phase to develop tests to
predict the likelihood of response to the EGFR inhibitor class
of drugs. The market opportunity for these tests will initially
be limited to metastatic disease in lung and colon cancer, with
an estimated 60,000 patients in the United States in 2006,
where such drugs are currently approved. We have conducted three
small clinical research studies in lung cancer, colon cancer and
head and neck cancer which allowed us to identify and file
patent applications on a number of genes which may predict the
response to EGFR inhibitors. Further clinical development may
require partnerships with pharmaceutical companies that have
access to appropriate clinical trial specimens.
In July 2005, we signed a collaborative agreement with
Bristol-Myers Squibb Company and ImClone Systems Incorporated to
develop a genomic test to predict the likelihood of response to
Erbitux in colorectal carcinoma. Erbitux is a targeted therapy
currently approved for the treatment of metastatic colorectal
carcinoma. The agreement provides for research funding support
and milestone payments and provides us commercial rights to
diagnostic tests that result from the collaboration. We are
currently conducting studies in collaboration with Bristol-Myers
Squibb and ImClone, the results of which will determine the next
steps in developing a test to predict Erbitux benefit.
Targeted
therapies in breast cancer
We entered into collaborative agreements with Aventis and the
Eastern Cooperative Oncology Group to investigate the ability of
gene expression in FPE tissues to predict the likelihood of
response to adjuvant chemotherapy, including the taxane
Taxotere, in patients with early breast cancer and zero to three
involved lymph nodes. The agreements provide us with commercial
rights to diagnostic tests that may result from the
collaboration. Initial studies are underway and the results will
guide us in determining the next steps in an effort to develop a
test to predict the likelihood of benefit from Taxotere.
Our
strategy
Our goal is to improve the quality of treatment decisions for
cancer patients by providing individualized information to
patients and their physicians through the genomic analysis of
tumor biopsies. Key elements of our strategy include:
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|
|
Deliver high-value genomic-based diagnostics. We
believe that treatment decisions are currently being made with
little understanding of the molecular profile of each tumor and
that economic inefficiencies result in the healthcare system
when crucial and expensive treatment decisions are made based on
inadequate and often subjective information. Our strategy is to
identify treatment decisions that can benefit from, and be
guided by, the patients individual genomic information. We
are focused on developing high-value tests that address these
treatment decisions, with the goal of making our genomic-based
tests a standard of care. Our value lies in our ability to
deliver individualized information during the crucial period of
time after diagnosis but prior to the decision to undergo a
specific cancer treatment.
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Achieve broad-based adoption and reimbursement. We
intend to continue to build a strong sales, marketing and
reimbursement effort by interacting directly with medical and
surgical oncologists, pathologists and payors. Because oncology
is a concentrated specialty, we believe that a focused marketing
organization and specialized sales force can effectively serve
the oncology community and provide us with a competitive
advantage. We believe our direct sales approach, coupled with
our plans to continue to conduct multiple clinical studies with
results published in peer-reviewed journals, will continue to
increase patient and physician demand and the number of
favorable reimbursement coverage decisions by payors.
|
S-7
|
|
|
Enhance existing products and technologies. Our goal
is to enhance our marketed products by validating additional
individualized patient information to improve treatment
planning. We also intend to deliver added value by expanding the
clinical categories of patients we can address within a cancer
population. For example, we plan to expand our breast cancer
product to address late-stage breast cancer patients as well as
questions about the responsiveness of an individual tumor to
therapeutic agents such as aromatase inhibitors and taxanes. We
believe that continuous innovation can sustain a competitive
advantage by delivering more information to physicians in
comparison with new competitive products entering the market.
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|
Apply our clinical development platform to other
cancers. We are applying our clinical development
platform to address multiple cancers for which quantitative
molecular pathology could improve the assessment of the risk of
disease progression and the prediction of response to therapy.
We are beginning to expand our focus beyond breast cancer and
have a colon cancer test in development. We plan to further
expand into prostate, renal cell and lung cancers and melanoma.
We designed our clinical development platform to enable us to
conduct clinical studies with clinical study groups and opinion
leaders using archived biopsy specimens with years of associated
patient data to correlate genomic information to clinical
outcomes.
|
Other
information
Genomic Health was incorporated in Delaware in August 2000. Our
executive offices are located at 301 Penobscot Drive, Redwood
City, California 94063. Our telephone number at this location is
(650) 556-9300.
Our website is www.genomichealth.com. Information on our website
is not part of this prospectus supplement or the accompanying
prospectus.
S-8
The
offering
|
|
|
Common stock offered by Genomic Health |
|
3,000,000 shares |
|
Common stock to be outstanding after this offering |
|
27,634,186 shares |
|
Use of proceeds |
|
We intend to use the net proceeds we receive from this offering
for general corporate purposes, including working capital and
capital expenditures. See Use of proceeds on
page S-32. |
|
Risk factors |
|
See the Risk factors section of this prospectus
supplement for a discussion of factors to consider before
deciding to purchase shares of our common stock. |
|
NASDAQ Global Market symbol |
|
GHDX |
Unless otherwise noted, all information in this prospectus
supplement assumes no exercise of the overallotment option
granted to the underwriters. The number of shares of common
stock to be outstanding after this offering is based on
24,634,186 shares of common stock outstanding as of
May 1, 2007 and excludes:
|
|
|
3,005,607 shares of common stock issuable upon the exercise
of stock options outstanding as of May 1, 2007 at a
weighted average exercise price of $9.94 per share; and
|
|
|
3,099,874 shares of common stock available for future
issuance under our stock option plan as of May 1, 2007.
|
As part of this offering, the underwriters are selling an
aggregate of 1,000,000 shares of our common stock to
entities affiliated with Julian C. Baker, one of our directors
and principal stockholders.
S-9
Summary
consolidated financial and operating data
We derived the summary consolidated financial data for the years
ended December 31, 2004 through 2006 from our audited
consolidated financial statements. The summary consolidated
financial information as of and for the three months ended
March 31, 2006 and 2007 has been derived from our unaudited
consolidated financial statements. Operating results for the
three months ended March 31, 2007 are not necessarily
indicative of the results that may be expected for the entire
year ending December 31, 2007. You should read this
information in conjunction with our consolidated financial
statements and the related notes contained in our annual and
quarterly reports that we have filed with the Securities and
Exchange Commission, or the SEC, and incorporated by reference
in this prospectus supplement and the accompanying prospectus.
The unaudited consolidated financial statements include, in the
opinion of management, all adjustments necessary for the fair
presentation of the financial information in those statements.
Historical results are not necessarily indicative of the results
to be expected in the future.
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months
ended
|
|
(in thousands,
|
|
Year ended
December 31,
|
|
|
March 31,
|
|
except share, per
share and operating data)
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2006
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
Consolidated statements of
operations data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product revenues
|
|
$
|
227
|
|
|
$
|
4,823
|
|
|
$
|
27,006
|
|
|
$
|
4,189
|
|
|
$
|
13,146
|
|
Contract revenues
|
|
|
100
|
|
|
|
379
|
|
|
|
2,168
|
|
|
|
871
|
|
|
|
942
|
|
|
|
|
|
|
|
Total revenues
|
|
|
327
|
|
|
|
5,202
|
|
|
|
29,174
|
|
|
|
5,060
|
|
|
|
14,088
|
|
Operating expenses(1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of product revenues
|
|
|
1,828
|
|
|
|
6,249
|
|
|
|
9,908
|
|
|
|
2,059
|
|
|
|
3,847
|
|
Research and development
|
|
|
10,040
|
|
|
|
9,465
|
|
|
|
12,841
|
|
|
|
2,711
|
|
|
|
5,170
|
|
Selling and marketing
|
|
|
9,856
|
|
|
|
15,348
|
|
|
|
24,625
|
|
|
|
5,095
|
|
|
|
8,153
|
|
General and administrative
|
|
|
3,869
|
|
|
|
6,485
|
|
|
|
12,765
|
|
|
|
2,622
|
|
|
|
4,089
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
25,593
|
|
|
|
37,547
|
|
|
|
60,139
|
|
|
|
12,487
|
|
|
|
21,259
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(25,266
|
)
|
|
|
(32,345
|
)
|
|
|
(30,965
|
)
|
|
|
(7,427
|
)
|
|
|
(7,171
|
)
|
Interest and other income
(expense), net
|
|
|
271
|
|
|
|
984
|
|
|
|
2,045
|
|
|
|
597
|
|
|
|
321
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(24,995
|
)
|
|
$
|
(31,361
|
)
|
|
$
|
(28,920
|
)
|
|
$
|
(6,830
|
)
|
|
$
|
(6,850
|
)
|
|
|
|
|
|
|
Basic and diluted net loss per share
|
|
$
|
(13.82
|
)
|
|
$
|
(4.15
|
)
|
|
$
|
(1.18
|
)
|
|
$
|
(0.28
|
)
|
|
$
|
(0.28
|
)
|
|
|
|
|
|
|
Shares used in computing basic and
diluted net loss per share
|
|
|
1,808,022
|
|
|
|
7,557,106
|
|
|
|
24,508,845
|
|
|
|
24,480,267
|
|
|
|
24,561,164
|
|
|
|
|
|
|
|
Operating data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tests delivered for use in
treatment planning
|
|
|
549
|
|
|
|
7,065
|
|
|
|
14,506
|
|
|
|
2,923
|
|
|
|
5,459
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Includes non-cash charges for
stock-based compensation expense as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
December 31,
|
|
Three months
ended March 31,
|
(in
thousands)
|
|
2004
|
|
2005
|
|
2006
|
|
2006
|
|
2007
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
(unaudited)
|
|
Cost of product revenues
|
|
$
|
5
|
|
$
|
53
|
|
$
|
167
|
|
$
|
32
|
|
$
|
78
|
Research and development
|
|
|
42
|
|
|
323
|
|
|
821
|
|
|
175
|
|
|
393
|
Selling and marketing
|
|
|
38
|
|
|
274
|
|
|
779
|
|
|
156
|
|
|
356
|
General and administrative
|
|
|
106
|
|
|
426
|
|
|
1,137
|
|
|
206
|
|
|
456
|
|
|
|
|
|
|
|
|
$
|
191
|
|
$
|
1,076
|
|
$
|
2,904
|
|
$
|
569
|
|
$
|
1,283
|
|
|
|
|
|
|
|
|
S-10
The as adjusted column in the consolidated balance sheet data
below gives effect to the sale of 3,000,000 shares of
common stock by us in this offering at $15.50 per share,
after deducting the underwriting discount and estimated offering
expenses we expect to pay.
|
|
|
|
|
|
|
|
|
|
|
As
of March 31, 2007 (in thousands)
|
|
Actual
|
|
|
As
adjusted
|
|
|
|
|
|
(unaudited)
|
|
|
Consolidated balance sheet
data:
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and
short-term investments
|
|
$
|
35,095
|
|
|
$
|
78,405
|
|
Working capital
|
|
|
30,963
|
|
|
|
74,273
|
|
Total assets
|
|
|
52,599
|
|
|
|
95,909
|
|
Notes payable, short-term
|
|
|
2,617
|
|
|
|
2,617
|
|
Notes payable, long-term
|
|
|
4,045
|
|
|
|
4,045
|
|
Accumulated deficit
|
|
|
(131,953
|
)
|
|
|
(131,953
|
)
|
Total stockholders equity
|
|
|
36,340
|
|
|
|
79,650
|
|
|
|
S-11
Risk
factors
Before you participate in this offering, you should be aware
that there are various risks in making an investment in our
common stock, including the ones listed below. You should
carefully consider these risk factors and the other information
contained in or incorporated by reference into this prospectus
supplement and the accompanying prospectus in evaluating this
offering.
The risks and uncertainties described below are not the only
ones we face. Additional risks and uncertainties not presently
known to us or that we currently deem immaterial may also impair
our business operations. If any of the following risks actually
occur, our business, financial condition and results of
operations could be materially and adversely affected.
Risks related to
our company
We are an
early stage company with a history of losses, and we expect to
incur net losses for the foreseeable future.
We have incurred substantial net losses since our inception. For
the three months ended March 31, 2007 and the year ended
December 31, 2006, we incurred net losses of
$6.9 million and $28.9 million, respectively. From our
inception in August 2000 through March 31, 2007, we had an
accumulated deficit of approximately $132.0 million. To
date, we have not achieved, and we may never achieve, revenues
sufficient to offset expenses. We expect to devote substantially
all of our resources to continue commercializing and enhancing
our existing test, Oncotype DX, and to develop future
tests.
We expect to incur additional losses in the future, and we may
never achieve profitability. We do not expect our losses to be
substantially mitigated by revenues from Oncotype DX or
future products, if any, for a number of years.
We expect to
continue to incur significant research and development expenses,
which may make it difficult for us to achieve
profitability.
In recent years, we have incurred significant costs in
connection with the development of Oncotype DX. Our
research and development expenses were $5.2 million for the
three months ended March 31, 2007 and $12.8 million
for the year ended December 31, 2006. We expect our
research and development expense levels to remain high for the
foreseeable future as we seek to expand the clinical utility of
our existing test and develop new tests. As a result, we will
need to generate significant revenues in order to achieve
profitability. Our failure to achieve profitability in the
future could cause the market price of our common stock to
decline.
If third-party
payors, including managed care organizations and Medicare, do
not provide reimbursement or rescind their reimbursement
policies for Oncotype DX, its commercial success could be
compromised.
Oncotype DX has a current list price of
$3,460. Physicians and patients may decide not to order
Oncotype DX unless third-party payors, such as managed
care organizations as well as government payors such as Medicare
and Medicaid, pay a substantial portion of the tests
price. There is significant uncertainty concerning third-party
reimbursement of any test incorporating new technology,
including Oncotype DX. Reimbursement by a third-party
payor may depend on a number of factors, including a
payors determination that tests using our technologies are:
|
|
|
not experimental or investigational,
|
|
|
medically necessary,
|
|
|
appropriate for the specific patient,
|
S-12
|
|
|
cost-effective, and
|
|
|
supported by peer-reviewed publications.
|
Since each payor makes its own decision as to whether to
establish a policy to reimburse, seeking these approvals is a
time-consuming and costly process. To date, we have secured
policy-level reimbursement approval from a limited number of
third-party payors and have a limited number of approvals for
state Medicaid programs. Payments from these payors represented
the majority of our revenues in the quarter ended March 31,
2007. We cannot be certain that coverage for Oncotype DX
will be provided in the future by any third-party payors.
Several entities conduct technology assessments of new medical
tests and devices and provide the results of their assessments
for informational purposes to other parties. These assessments
may be used by third-party payors and health care providers such
as Blue Cross and Blue Shield plans, which collectively provide
healthcare coverage for nearly one-third of all Americans, as
grounds to deny coverage for a test or procedure. Oncotype
DX has received negative assessments and may receive
additional negative assessments in the future. For example, in
early 2005, the Medical Advisory Panel of the Blue Cross and
Blue Shield Associations Technology Evaluation Center, a
technology assessment group, concluded that the existing
clinical data in support of Oncotype DX did not meet the
panels technology criteria for clinical effectiveness and
appropriateness.
In January 2006, NHIC, the California Medicare contractor with
responsibility for processing and paying claims submitted by us,
released a local coverage determination providing coverage for
Oncotype DX when used in accordance with the terms of the
determination. The local coverage determination is effective for
Oncotype DX tests provided on or after February 27,
2006. Until recently, there had been some question as to whether
claims for Oncotype DX tests performed on Medicare
beneficiaries who were hospital inpatients at the time the tumor
tissue samples were obtained may be billed by us to NHIC or must
be incorporated in the payment that the hospital receives for
their services related to the patients breast cancer. As
of March 31, 2007, the volume of patients who fell into
this category represented approximately 2% of our total testing
population.
Based on a final rule effective January 1, 2007, we are
permitted to submit claims to NHIC for Oncotype DX tests
performed on Medicare beneficiaries who were hospital inpatients
or outpatients at the time the tumor tissue samples were
obtained, but only if the test was ordered at least 14 days
following the date of the patients discharge from the
hospital and where other specified conditions are met. We are in
the process of making arrangements with hospitals for payment of
the test when performed for the small portion of Medicare
beneficiaries, representing approximately 3% of our total
testing population, who are hospital inpatients or outpatients
at the time specimens are collected and who do not meet criteria
under the final rule for billing by us. Finally, we have been
engaged in discussions with the Centers for Medicare/Medicaid
Services, or CMS, about the application of the final rule to
hospital outpatients, including the effective date and any
transition policy for compliance with the final rule. We believe
the final rule should not apply to the Oncotype DX tests
performed on tumor tissue samples obtained while the patient is
a hospital outpatient, and that tests performed on tissue
samples taken from hospital outpatients should be billable by us
under the Medicare program, regardless of when the testing of
such tissue samples takes place. While we are continuing to
pursue this matter, at this point, CMS intends for the final
rule to apply to outpatients as well as inpatients, and we are
notifying hospitals accordingly.
Insurers, including managed care organizations as well as
government payors such as Medicare, have increased their efforts
to control the cost, utilization and delivery of health care
services. From time to time, Congress has considered and
implemented changes in the Medicare fee schedules in conjunction
with budgetary legislation. Further reductions of reimbursement
for Medicare services may be implemented from time to time.
Reductions in the reimbursement
S-13
rates of other third-party payors have occurred and may occur in
the future. These measures have resulted in reduced prices,
added costs and decreased test utilization for the clinical
laboratory industry.
Medicare currently contracts with a large number of fiscal
intermediaries and carriers that are responsible for processing
and paying claims. Within the next few years, Medicare is
expected to reduce this number to fifteen regional Medical
Administrative Contractors, or MACs. Regardless which contractor
is awarded the MAC contract for the region covering California,
we cannot be certain that we will continue to have a favorable
local coverage determination under the Medicare program.
If we are unable to obtain reimbursement approval from private
payors and Medicare and Medicaid programs for Oncotype
DX, or if the amount reimbursed is inadequate, our ability
to generate revenues from Oncotype DX could be limited.
Even if we are being reimbursed, insurers may withdraw their
coverage policies or cancel their contracts with us at any time
or stop paying for our test which would reduce our revenue.
If FDA were to
begin regulating our test, we could be forced to stop sales of
Oncotype DX, we could experience significant delays in
commercializing any future products, we could incur substantial
costs and time delays associated with meeting requirements for
pre-market clearance or approval or we could experience
decreased demand for or reimbursement of our test.
Clinical laboratory tests like Oncotype DX are regulated
under the Clinical Laboratory Improvement Amendments of 1988, or
CLIA, as administered through the CMS, as well as by applicable
state laws. Diagnostic kits that are sold and distributed
through interstate commerce are regulated as medical devices by
FDA. Clinical laboratory tests that are developed and validated
by a laboratory for its own use are called laboratory
development tests, or LDTs. Most LDTs currently are not subject
to FDA regulation, although reagents or software provided by
third parties and used to perform LDTs may be subject to
regulation. We believe that Oncotype DX is not a
diagnostic kit and also believe that it is an LDT. As a result,
we believe Oncotype DX should not be subject to
regulation under established FDA policies. The container we
provide for collection and transport of tumor samples from a
pathology laboratory to our laboratory is a medical device
subject to FDA regulation but is currently exempt from
pre-market review by FDA.
In January 2006, we received a letter from FDA regarding
Oncotype DX inviting us to meet with FDA to discuss the
nature and appropriate regulatory status of our test and the
least burdensome ways that we may fulfill any FDA pre-market
review requirements that may apply. In September 2006, FDA
issued draft guidance on a new class of tests called In
Vitro Diagnostic Multivariate Index Assays. This draft
guidance represents the first public discussion surrounding
FDAs position regarding the regulation of certain
laboratory-developed tests. Under this draft guidance,
Oncotype DX could be classified as either a Class II
or a Class III medical device, which may require varying
levels of FDA pre-market review depending upon intended use and
on the level of control necessary to assure the safety and
effectiveness of the test. The draft guidance was open for
public comment until March 5, 2007, during which time we
and others submitted comments on the draft guidance. In
addition, FDA held a public meeting on February 8, 2007 at
which several interested parties commented on the draft guidance.
We cannot provide any assurance that FDA regulation, including
pre-market review, will not be required in the future for
Oncotype DX, either through new enforcement policies
adopted by FDA or new legislation enacted by Congress. On
March 1, 2007, Senator Edward Kennedy introduced the
Laboratory Test Improvement Act which, if enacted as introduced,
would deem laboratory-developed tests to be medical devices
subject to labeling and registration requirements for
laboratory-developed tests as set forth in the bill. On
March 23, 2007, Senator Barack Obama introduced the
Genomics and Personalized Medicine Act of 2007 which, if enacted
as
S-14
introduced, would call for an Institute of Medicine study to
make recommendations to improve federal oversight and regulation
of genetic tests and would also require the Secretary of the
U.S. Department of Health and Human Services, or HHS, to
implement a decision matrix, taking into consideration the
recommendations of the Institute of Medicine report, to improve
the oversight and regulation of genetic tests. In addition, on
May 9, 2007, the Senate passed the Food and Drug
Administration Revitalization Act, which included an amendment,
introduced by Senator Obama, calling for the Institute of
Medicine to conduct a study to assess the overall safety and
quality of genetic tests and prepare a report that includes
recommendations to improve federal oversight and regulation of
genetic tests. The House of Representatives has not considered
comparable legislation at this point. It is unclear whether any
of these proposals will be passed by Congress. If one of these
proposals does pass, it is unclear what the final legislative
language would be. It is possible that one of these proposals
will be enacted into law and may result in increased regulatory
burdens for us to continue to offer the Oncotype DX test.
On March 26, 2007, the Secretarys Advisory Committee
on Genetics, Health and Society discussed a charge the Committee
was given by the Secretary of HHS to make recommendations about
the oversight of genetic testing. Draft recommendations are
expected to be submitted to the Secretary in the summer of 2007.
On May 9, 2007, FDA issued a guidance document
Class II Special Controls Guidance Document: Gene
Expression Profiling Test System for Breast Cancer
Prognosis. This guidance document was developed to support
the classification of gene expression profiling test systems for
breast cancer prognosis into Class II. We do not believe
the release of this guidance document directly or immediately
impacts the status of FDAs draft guidance on In Vitro
Diagnostic Multivariate Index Assays. We are studying this
guidance document and may submit comments on the guidance to FDA
in the future.
If pre-market review is required, our business could be
negatively impacted until such review is completed and approval
or clearance to market is obtained, and FDA could require that
we stop selling our test pending pre-market clearance or
approval. If our test is allowed to remain on the market but
there is uncertainty about our test or if it is labeled
investigational by FDA, orders or reimbursement may decline. The
regulatory approval process may involve, among other things,
successfully completing additional clinical trials and
submitting a pre-market clearance notice or filing a pre-market
approval application with FDA. Further, if pre-market review is
required by FDA, there can be no assurance that our test will be
cleared or approved on a timely basis, if at all. If pre-market
review is required, there is no assurance that FDA-cleared or
approved indications for use would include use of our test for
treatment decision-making. If FDA-cleared or approved
indications for use do not include use of the
Oncotype DX for treatment decision-making or
expressly disclaim such use, this could negatively impact orders
and reimbursement. Ongoing compliance with FDA regulations would
increase the cost of conducting our business, and subject us to
inspection by FDA and to the requirements of FDA and penalties
for failure to comply with these requirements. It is possible we
may decide voluntarily to pursue FDA pre-market review of
Oncotype DX if we determine that doing so would be
appropriate.
Should any of the reagents obtained by us from vendors and used
in conducting our LDT be affected by future regulatory actions,
our business could be adversely affected by those actions,
including increasing the cost of testing or delaying, limiting
or prohibiting the purchase of reagents necessary to perform
testing. Pre-market review, whether mandatory or voluntary,
could require a significant diversion of funds currently
earmarked for new product development and could negatively
impact current and potential payor coverage policies.
S-15
If we were
required to conduct additional clinical trials prior to
marketing our test, those trials could lead to delays or failure
to obtain necessary regulatory approvals and harm our ability to
become profitable.
If FDA decides to regulate our test, it may require extensive
pre-market clinical testing prior to submitting a regulatory
application for commercial sales. If we are required to conduct
pre-market clinical trials, whether using prospectively acquired
samples or archival samples, delays in the commencement or
completion of clinical testing could significantly increase our
test development costs and delay commercialization. Many of the
factors that may cause or lead to a delay in the commencement or
completion of clinical trials may also ultimately lead to delay
or denial of regulatory approval. The commencement of clinical
trials may be delayed due to insufficient patient enrollment,
which is a function of many factors, including the size of the
patient population, the nature of the protocol, the proximity of
patients to clinical sites and the eligibility criteria for the
clinical trial. We may find it necessary to engage contract
research organizations to perform data collection and analysis
and other aspects of our clinical trials, which might increase
the cost and complexity of our trials. We may also depend on
clinical investigators, medical institutions and contract
research organizations to perform the trials properly. If these
parties do not successfully carry out their contractual duties
or obligations or meet expected deadlines, or if the quality,
completeness or accuracy of the clinical data they obtain is
compromised due to the failure to adhere to our clinical
protocols or for other reasons, our clinical trials may have to
be extended, delayed or terminated. Many of these factors would
be beyond our control. We may not be able to enter into
replacement arrangements without undue delays or considerable
expenditures. If there are delays in testing or approvals as a
result of the failure to perform by third parties, our research
and development costs would increase, and we may not be able to
obtain regulatory approval for our test. In addition, we may not
be able to establish or maintain relationships with these
parties on favorable terms, if at all. Each of these outcomes
would harm our ability to market our test, or to become
profitable.
Complying with
numerous regulations pertaining to our business is an expensive
and time-consuming process, and any failure to comply could
result in substantial penalties.
We are subject to CLIA, a federal law that regulates clinical
laboratories that perform testing on specimens derived from
humans for the purpose of providing information for the
diagnosis, prevention or treatment of disease. CLIA is intended
to ensure the quality and reliability of clinical laboratories
in the United States by mandating specific standards in the
areas of personnel qualifications, administration, and
participation in proficiency testing, patient test management,
quality control, quality assurance and inspections. We have a
current certificate of accreditation under CLIA to perform
testing. To renew this certificate, we are subject to survey and
inspection every two years. Moreover, CLIA inspectors may make
random inspections of our laboratory. Currently, CLIA
regulations do not include specific standards for a genetic
specialty. Recently introduced legislation as well as a citizen
petition submitted by a group of public policy organizations
have called for the creation of a genetic specialty under CLIA.
If a genetic specialty is created under CLIA, we may be required
to comply with new standards in order to maintain a certificate
of accreditation to perform testing.
We are also required to maintain a license to conduct testing in
California. California laws establish standards for
day-to-day
operation of our clinical laboratory, including the training and
skills required of personnel and quality control. Moreover,
several states require that we hold licenses to test specimens
from patients residing in those states. Other states have
similar requirements or may adopt similar requirements in the
future. Finally, we may be subject to regulation in foreign
jurisdictions as we seek to expand international distribution of
our test.
If we were to lose our CLIA accreditation or California license,
whether as a result of a revocation, suspension or limitation,
we would no longer be able to sell Oncotype DX, which
would limit our revenues and harm our business. If we were to
lose our license in other states
S-16
where we are required to hold licenses, we would not be able to
test specimens from those states.
We are subject to other regulation by both the federal
government and the states in which we conduct our business,
including:
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Medicare billing and payment regulations applicable to clinical
laboratories;
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the federal Medicare and Medicaid Anti-kickback Law and state
anti-kickback prohibitions;
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the federal physician self-referral prohibition, commonly known
as the Stark Law, and the state equivalents;
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the federal Health Insurance Portability and Accountability Act
of 1996;
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the Medicare civil money penalty and exclusion
requirements; and
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the federal civil and criminal False Claims Act.
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We have adopted policies and procedures designed to comply with
these laws, including policies and procedures relating to
financial arrangements between us and physicians who refer
patients to us. In the ordinary course of our business, we
conduct internal reviews of our compliance with these laws. Our
compliance is also subject to governmental review. The growth of
our business and sales organization may increase the potential
of violating these laws or our internal policies and procedures.
The risk of our being found in violation of these laws and
regulations is further increased by the fact that many of them
have not been fully interpreted by the regulatory authorities or
the courts, and their provisions are open to a variety of
interpretations. Any action brought against us for violation of
these laws or regulations, even if we successfully defend
against it, could cause us to incur significant legal expenses
and divert our managements attention from the operation of
our business. If our operations are found to be in violation of
any of these laws and regulations, we may be subject to any
applicable penalty associated with the violation, including
civil and criminal penalties, damages and fines, we could be
required to refund payments received by us, and we could be
required to curtail or cease our operations. Any of the
foregoing consequences could seriously harm our business and our
financial results.
Our financial
results depend on sales of one test, Oncotype DX, and we will
need to generate sufficient revenues from this and other tests
to run our business.
For the foreseeable future, we expect to derive substantially
all of our revenues from sales of one test, Oncotype DX.
We have been selling this test since January 2004. We are in
various stages of research and development for other tests that
we may offer as well as for enhancements to our existing test.
We do not currently expect to commercialize tests for colon
cancer until 2009, and we are not currently able to estimate
when we may be able to commercialize tests for other cancers or
whether we will be successful in doing so. If we are unable to
increase sales of Oncotype DX or to successfully develop
and commercialize other tests or enhancements, our revenues and
our ability to achieve profitability would be impaired, and the
market price of our common stock could decline.
We may
experience limits on our revenues if physicians decide not to
order our test.
If medical practitioners do not order Oncotype DX or any
future tests developed by us, we will likely not be able to
create demand for our products in sufficient volume for us to
become profitable. To generate demand, we will need to continue
to make oncologists, surgeons and pathologists aware of the
benefits of Oncotype DX and any products we may develop
in the future through published papers, presentations at
scientific conferences and
one-on-one
education by our sales force. In addition, we will need to
demonstrate our ability to obtain adequate reimbursement
coverage from third-party payors.
S-17
Existing guidelines and practices regarding the treatment of
breast cancer recommend that chemotherapy be considered in most
cases, including many cases in which our test may indicate that,
based on our clinical trial results, chemotherapy is of little
or no benefit. Accordingly, physicians may be reluctant to order
a test that may suggest recommending against chemotherapy in
treating breast cancer where current guidelines recommend
consideration of such treatment. Moreover, our test provides
quantitative information not currently provided by pathologists
and it is performed at our facility rather than by the
pathologist in a local laboratory, so pathologists may be
reluctant to order or support our test. These facts may make it
difficult for us to convince medical practitioners to order
Oncotype DX for their patients, which could limit our
ability to generate revenues and our ability to achieve
profitability.
We may
experience limits on our revenues if patients decide not to use
our test.
Some patients may decide not to order our test due to its price,
part or all of which may be payable directly by the patient if
the applicable payor denies reimbursement in full or in part.
Even if medical practitioners recommend that their patients use
our test, patients may still decide not to use Oncotype
DX, either because they do not want to be made aware of the
likelihood of recurrence or they wish to pursue a particular
course of therapy regardless of test results. If only a small
portion of the patient population decides to use our test, we
will experience limits on our revenues and our ability to
achieve profitability.
If we are
unable to develop products to keep pace with rapid
technological, medical and scientific change, our operating
results and competitive position would be harmed.
In recent years, there have been numerous advances in
technologies relating to the diagnosis and treatment of cancer.
For example, technologies in addition to ours now reportedly
permit measurement of gene expression in FPE tissue specimens.
Also, new hormonal therapies such as aromatase inhibitors are
viewed by physicians as promising therapies for breast cancer
with more tolerable side effects than those associated with
tamoxifen, the hormonal therapy commonly used today in
treatment. For advanced cancer, new chemotherapeutic strategies
are being developed that may increase survival time and reduce
toxic side effects. These advances require us continuously to
develop new products and enhance existing products to keep pace
with evolving standards of care. Our test could become obsolete
unless we continually innovate and expand our product to
demonstrate recurrence and treatment benefit in patients treated
with new therapies. New treatment therapies typically have only
a few years of clinical data associated with them, which limits
our ability to perform clinical studies and correlate sets of
genes to a new treatments effectiveness. If we are unable
to demonstrate the applicability of our test to new treatments,
then sales of our test could decline, which would harm our
revenues.
Our rights to
use technologies licensed from third parties are not within our
control, and we may not be able to sell our products if we lose
our existing rights or cannot obtain new rights on reasonable
terms.
We license from third parties technology necessary to develop
our products. For example, we license technology from Roche
Molecular Systems, Inc. that we use to analyze genes for
possible inclusion in our tests and that we use in our
laboratory to conduct our test. In return for the use of a third
partys technology, we may agree to pay the licensor
royalties based on sales of our products. Royalties are a
component of cost of product revenues and impact the margin on
our test. We may need to license other technology to
commercialize future products. Our business may suffer if these
licenses terminate, if the licensors fail to abide by the terms
of the license or fail to prevent infringement by third parties,
if the licensed patents or other rights are found to be invalid
or if we are unable to enter into necessary licenses on
acceptable terms.
S-18
Our
competitive position depends on maintaining intellectual
property protection.
Our ability to compete and to achieve and maintain profitability
depends on our ability to protect our proprietary discoveries
and technologies. We currently rely on a combination of patent
applications, copyrights, trademarks, trade secret laws and
confidentiality agreements, material data transfer agreements,
license agreements and invention assignment agreements to
protect our intellectual property rights. We also rely upon
unpatented know-how and continuing technological innovation to
develop and maintain our competitive position. Patents may be
granted to us jointly with other organizations, and while we may
have a right of first refusal, we cannot guarantee that a joint
owner will not license rights to another party, and cannot
guarantee that a joint owner will cooperate with us in the
enforcement of patent rights.
As of March 31, 2007, we had two issued patents, one of
which was issued jointly to us and to the NSABP. Our pending
patent applications may not result in issued patents, and we
cannot assure you that our issued patent or any patents that
might ultimately be issued by the U.S. Patent and Trademark
Office will protect our technology. Any patents that may be
issued to us might be challenged by third parties as being
invalid or unenforceable, or third parties may independently
develop similar or competing technology that avoids our patents.
We cannot be certain that the steps we have taken will prevent
the misappropriation and use of our intellectual property,
particularly in foreign countries where the laws may not protect
our proprietary rights as fully as in the United States.
From time to time, the United States Supreme Court, other
federal courts, the U.S. Congress or the U.S. Patent
and Trademark Office may change the standards of patentability
and any such changes could have a negative impact on our
business.
We may face
intellectual property infringement claims that could be
time-consuming and costly to defend and could result in our loss
of significant rights and the assessment of treble
damages.
We have received notices of claims of infringement,
misappropriation or misuse of other parties proprietary
rights and may from time to time receive additional notices.
Some of these claims may lead to litigation. We cannot assure
you that we will prevail in such actions, or that other actions
alleging misappropriation or misuse by us of third-party trade
secrets, infringement by us of third-party patents and
trademarks or the validity of our patents, will not be asserted
or prosecuted against us. We may also initiate claims to defend
our intellectual property. Intellectual property litigation,
regardless of outcome, is expensive and time-consuming, could
divert managements attention from our business and have a
material negative effect on our business, operating results or
financial condition. If there is a successful claim of
infringement against us, we may be required to pay substantial
damages (including treble damages if we were to be found to have
willfully infringed a third partys patent) to the party
claiming infringement, develop non-infringing technology, stop
selling our test or using technology that contains the allegedly
infringing intellectual property or enter into royalty or
license agreements that may not be available on acceptable or
commercially practical terms, if at all. Our failure to develop
non-infringing technologies or license the proprietary rights on
a timely basis could harm our business. In addition, revising
our test to include the non-infringing technologies would
require us to re-validate our test, which would be costly and
time consuming. Also, we may be unaware of pending patent
applications that relate to our test. Parties making
infringement claims on future issued patents may be able to
obtain an injunction that would prevent us from selling our test
or using technology that contains the allegedly infringing
intellectual property, which could harm our business.
S-19
There are a number of patents and patent applications that may
constitute prior art in the field of genomic-based diagnostics.
We may be required to pay royalties, damages and costs to firms
who own the rights to these patents, or we might be restricted
from using any of the inventions claimed in those patents.
If we are
unable to compete successfully, we may be unable to increase or
sustain our revenues or achieve profitability.
Our principal competition comes from existing diagnostic methods
used by pathologists and oncologists. These methods have been
used for many years and are therefore difficult to change or
supplement. In addition, companies offering capital equipment
and kits or reagents to local pathology laboratories represent
another source of potential competition. These kits are used
directly by the pathologist, which facilitates adoption more
readily than tests like Oncotype DX that are performed
outside the pathology laboratory. In addition, few diagnostic
methods are as expensive as Oncotype DX.
We also face competition from many companies that offer products
or have conducted research to profile genes, gene expression or
protein expression in breast cancer, including Agendia B.V.,
Applied Genomics, Inc., AviaraDX, Celera Genomics, a business
segment of Applera Corporation, and Exagen Diagnostics, Inc.
Commercial laboratories with strong distribution networks for
diagnostic tests, such as Genzyme Corporation, Laboratory
Corporation of America Holdings and Quest Diagnostics
Incorporated, may become competitors. Other potential
competitors include companies that develop diagnostic tests such
as Bayer Diagnostics, a division of Siemens AG, Roche
Diagnostics, a division of F. Hoffmann-La Roche Ltd, and
Veridex LLC, a Johnson & Johnson company, as well as
other companies and academic and research institutions. Our
competitors may invent and commercialize technology platforms
that compete with ours. In addition, in December 2005, the
federal government allocated a significant amount of funding to
The Cancer Genome Atlas, a project aimed at developing a
comprehensive catalog of the genetic mutations and other genomic
changes that occur in cancers and maintaining the information in
a free public database. As more information regarding cancer
genomics becomes available to the public, we anticipate that
more products aimed at identifying targeted treatment options
will be developed and these products may compete with ours.
Our test is considered relatively expensive for a diagnostic
test, and we expect to raise prices in the future. This could
impact reimbursement of and demand for Oncotype DX. Many
of our present and potential competitors have widespread brand
recognition and substantially greater financial and technical
resources and development, production and marketing capabilities
than we do. Others may develop lower-priced, less complex tests
that could be viewed by physicians and payors as functionally
equivalent to our test, which could force us to lower the list
price of our test and impact our operating margins and our
ability to achieve profitability. Some competitors have
developed tests cleared for marketing by FDA. There may be a
marketing differentiation or perception that an FDA-cleared test
is more desirable than Oncotype DX, and that may
discourage adoption and reimbursement of our test. If we are
unable to compete successfully against current or future
competitors, we may be unable to increase market acceptance for
and sales of our test, which could prevent us from increasing or
sustaining our revenues or achieving or sustaining profitability
and could cause the market price of our common stock to decline.
Our research
and development efforts will be hindered if we are not able to
contract with third parties for access to archival tissue
samples.
Under standard clinical practice in the United States, tumor
biopsies removed from patients are chemically preserved and
embedded in paraffin wax and stored. Our clinical development
relies on our ability to secure access to these archived tumor
biopsy samples, as well as information pertaining to their
associated clinical outcomes. Others have demonstrated their
ability to study
S-20
archival samples and often compete with us for access.
Additionally, the process of negotiating access to archived
samples is lengthy since it typically involves numerous parties
and approval levels to resolve complex issues such as usage
rights, institutional review board approval, privacy rights,
publication rights, intellectual property ownership and research
parameters. If we are not able to negotiate access to archival
tumor tissue samples with hospitals and collaborators, or if
other laboratories or our competitors secure access to these
samples before us, our ability to research, develop and
commercialize future products will be limited or delayed.
If we cannot
maintain our current clinical collaborations and enter into new
collaborations, our product development could be
delayed.
We rely on and expect to continue to rely on clinical
collaborators to perform a substantial portion of our clinical
trial functions. If any of our collaborators were to breach or
terminate its agreement with us or otherwise fail to conduct its
collaborative activities successfully and in a timely manner,
the research, development or commercialization of the products
contemplated by the collaboration could be delayed or
terminated. If any of our collaboration agreements is
terminated, or if we are unable to renew those collaborations on
acceptable terms, we would be required to seek alternative
collaborations. We may not be able to negotiate additional
collaborations on acceptable terms, if at all, and these
collaborations may not be successful.
In the past, we have entered into clinical trial collaborations
with highly regarded organizations in the cancer field,
including the NSABP and Northern California Kaiser Permanente.
Our success in the future depends in part on our ability to
enter into agreements with other leading cancer organizations.
This can be difficult due to internal and external constraints
placed on these organizations. Some organizations may limit the
number of collaborations they have with any one company so as to
not be perceived as biased or conflicted. Organizations may also
have insufficient administrative and related infrastructure to
enable collaborations with many companies at once, which can
extend the time it takes to develop, negotiate and implement a
collaboration. Additionally, organizations often insist on
retaining the rights to publish the clinical data resulting from
the collaboration. The publication of clinical data in
peer-reviewed journals is a crucial step in commercializing and
obtaining reimbursement for a test such as ours, and our
inability to control when, if ever, results are published may
delay or limit our ability to derive sufficient revenues from
any product that may result from a collaboration.
From time to time we expect to engage in discussions with
potential clinical collaborators which may or may not lead to
collaborations. However, we cannot guarantee that any
discussions will result in clinical collaborations or that any
clinical studies which may result will be enrolled or completed
in a reasonable time frame or with successful outcomes. Once
news of discussions regarding possible collaborations are known
in the medical community, regardless of whether the news is
accurate, failure to announce a collaborative agreement or the
entitys announcement of a collaboration with an entity
other than us may result in adverse speculation about us, our
product or our technology, resulting in harm to our reputation
and our business.
New test
development involves a lengthy and complex process, and we may
be unable to commercialize any of the tests we are currently
developing.
We have multiple tests in various stages of development and
devote considerable resources to research and development. For
example, we are currently in the development stage of the
application of our technology to predict recurrence and the
therapeutic benefit of chemotherapy in colon cancer, and we are
conducting early development studies in prostate, renal cell and
lung cancers and melanoma. We plan to complete two studies in N+
breast cancer with Oncotype DX in 2007. There can be no
assurance that our technologies will be capable of reliably
predicting the recurrence of other types of breast cancer or
other cancers, such as colon, with the sensitivity and
specificity necessary to be clinically and commercially useful
for the treatment of other cancers, or that we can develop those
technologies at all. In addition, before
S-21
we can develop diagnostic tests for new cancers and
commercialize any new products, we will need to:
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conduct substantial research and development;
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conduct validation studies;
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expend significant funds; and
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develop and scale our laboratory processes to accommodate
different tests.
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This process involves a high degree of risk and takes several
years. Our product development efforts may fail for many
reasons, including:
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failure of the product at the research or development stage;
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difficulty in accessing archival tissue samples, especially
tissue samples with known clinical results; or
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lack of clinical validation data to support the effectiveness of
the product.
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Few research and development projects result in commercial
products, and success in early clinical trials often is not
replicated in later studies. At any point, we may abandon
development of a product candidate or we may be required to
expend considerable resources repeating clinical trials, which
would adversely impact the timing for generating potential
revenues from those product candidates. In addition, as we
develop products, we will have to make significant investments
in product development, marketing and selling resources. If a
clinical validation study fails to demonstrate the prospectively
defined endpoints of the study, we would likely abandon the
development of the product or product feature that was the
subject of the clinical trial, which could harm our business.
The loss of
key members of our senior management team or our inability to
retain highly skilled scientists, clinicians and salespeople
could adversely affect our business.
Our success depends largely on the skills, experience and
performance of key members of our executive management team and
others in key management positions. The efforts of each of these
persons together will be critical to us as we continue to
develop our technologies and testing processes and as we attempt
to transition to a company with more than one commercialized
product. If we were to lose one or more of these key employees,
we may experience difficulties in competing effectively,
developing our technologies and implementing our business
strategies.
Our research and development programs and commercial laboratory
operations depend on our ability to attract and retain highly
skilled scientists and technicians, including geneticists,
licensed laboratory technicians, chemists, biostatisticians and
engineers. We may not be able to attract or retain qualified
scientists and technicians in the future due to the intense
competition for qualified personnel among life science
businesses, particularly in the San Francisco Bay Area. We
also face competition from universities and public and private
research institutions in recruiting and retaining highly
qualified scientific personnel. In addition, our success depends
on our ability to attract and retain salespeople with extensive
experience in oncology and close relationships with medical
oncologists, surgeons, pathologists and other hospital
personnel. We may have difficulties locating, recruiting or
retaining qualified salespeople, which could cause a delay or
decline in the rate of adoption of our products. If we are not
able to attract and retain the necessary personnel to accomplish
our business objectives, we may experience constraints that will
adversely affect our ability to support our discovery,
development and sales programs. All of our employees are at-will
employees, which means that either we or the employee may
terminate their employment at any time.
S-22
If our sole
laboratory facility becomes inoperable, we will be unable to
perform our test and our business will be harmed.
We do not have redundant laboratory facilities. We perform all
of our diagnostic testing in our laboratory located in Redwood
City, California. Redwood City is situated on or near earthquake
fault lines. Our facility and the equipment we use to perform
our tests would be costly to replace and could require
substantial lead time to repair or replace. The facility may be
harmed or rendered inoperable by natural or man-made disasters,
including earthquakes, flooding and power outages, which may
render it difficult or impossible for us to perform our tests
for some period of time. The inability to perform our tests may
result in the loss of customers or harm our reputation, and we
may be unable to regain those customers in the future. Although
we possess insurance for damage to our property and the
disruption of our business, this insurance may not be sufficient
to cover all of our potential losses and may not continue to be
available to us on acceptable terms, or at all.
In order to rely on a third party to perform our tests, we could
only use another facility with established state licensure and
CLIA accreditation under the scope of which Oncotype DX
could be performed following validation and other required
procedures. We cannot assure you that we would be able to find
another CLIA-certified facility willing to adopt Oncotype
DX and comply with the required procedures, or that this
laboratory would be willing to perform the tests for us on
commercially reasonable terms. In order to establish a redundant
laboratory facility, we would have to spend considerable time
and money securing adequate space, constructing the facility,
recruiting and training employees, and establishing the
additional operational and administrative infrastructure
necessary to support a second facility. Additionally, any new
clinical laboratory facility opened by us would be subject to
certification under CLIA and licensed by several states,
including California and New York, which can take a significant
amount of time and result in delays in our ability to begin
operations.
Changes in
healthcare policy could subject us to additional regulatory
requirements that may interrupt commercialization of Oncotype DX
and increase our costs.
Healthcare policy has been a subject of extensive discussion in
the executive and legislative branches of the federal and many
state governments. We developed our commercialization strategy
for Oncotype DX based on existing healthcare policies.
Changes in healthcare policy, such as the creation of broad
limits for diagnostic products in general or requirements that
Medicare patients pay for portions of tests or services
received, could substantially interrupt the sales of Oncotype
DX, increase costs and divert managements attention.
For example, in 1989, the U.S. Congress passed federal
self-referral prohibitions commonly known as the Stark Law,
significantly restricting, regulating and changing
laboratories relationships with physicians. We cannot
predict what changes, if any, will be proposed or adopted or the
effect that such proposals or adoption may have on our business,
financial condition and results of operations.
We rely on a
limited number of suppliers or, in some cases, a sole supplier,
for some of our laboratory instruments and materials and may not
be able to find replacements in the event our supplier no longer
supplies that equipment.
We rely solely on Applied Biosystems, a division of Applera
Corporation, to supply some of the laboratory equipment on which
we perform our tests. We periodically forecast our needs for
laboratory equipment and enter into standard purchase orders
with Applied Biosystems based on these forecasts. We believe
that there are relatively few equipment manufacturers other than
Applied Biosystems that are currently capable of supplying the
equipment necessary for Oncotype DX. Even if we were to
identify other suppliers, there can be no assurance that we will
be able to enter into agreements with such suppliers on a timely
basis on acceptable terms, if at all. If we should encounter
delays or difficulties in securing from Applied Biosystems the
quality and quantity of equipment we require for Oncotype
DX, we may need to reconfigure
S-23
our test process, which would result in delays in
commercialization or an interruption in sales. If any of these
events occur, our business and operating results could be
harmed. Additionally, if Applied Biosystems deems us to have
become uncreditworthy, it has the right to require alternative
payment terms from us, including payment in advance. We are also
required to indemnify Applied Biosystems against any damages
caused by any legal action or proceeding brought by a third
party against Applied Biosystems for damages caused by our
failure to obtain required approval with any regulatory agency.
We also rely on a several sole suppliers for certain laboratory
materials which we use to perform our tests. While we have
developed alternate sourcing strategies for these materials, we
cannot be certain that these strategies will be effective. If we
should encounter delays or difficulties in securing these
laboratory materials, delays in commercialization or an
interruption in sales could occur.
If we are
unable to support demand for our test, our business may
suffer.
We recently completed the expansion of our clinical laboratory
facilities and have ramped up our testing capacity. We have
begun to implement increases in scale and related processing,
customer service, billing and systems process improvements, and
to expand our internal quality assurance program to support
testing on a larger scale. We will also need additional
certified laboratory scientists and other scientific and
technical personnel to process our tests. We cannot assure you
that any increases in scale, related improvements and quality
assurance will be successfully implemented or that appropriate
personnel will be available. Failure to implement necessary
procedures or to hire the necessary personnel could result in
higher cost of processing or an inability to meet market demand.
There can be no assurance that we will be able to perform tests
on a timely basis at a level consistent with demand. If we
encounter difficulty meeting market demand for Oncotype
DX, our reputation could be harmed and our future prospects
and our business could suffer.
We may be
unable to manage our future growth effectively, which would make
it difficult to execute our business strategy.
Future growth will impose significant added responsibilities on
management, including the need to identify, recruit, train and
integrate additional employees. In addition, rapid and
significant growth will place strain on our administrative and
operational infrastructure, including customer service and our
clinical laboratory. Our ability to manage our operations and
growth will require us to continue to improve our operational,
financial and management controls, reporting systems and
procedures. If we are unable to manage our growth effectively,
it may be difficult for us to execute our business strategy.
If we were
sued for product liability, we could face substantial
liabilities that exceed our resources.
The marketing, sale and use of our test could lead to the filing
of product liability claims if someone were to allege that our
test failed to perform as it was designed. We may also be
subject to liability for errors in the information we provide to
customers or for a misunderstanding of, or inappropriate
reliance upon, the information we provide. A product liability
claim could result in substantial damages and be costly and time
consuming for us to defend. Although we believe that our
existing product liability insurance is adequate, we cannot
assure you that our insurance would fully protect us from the
financial impact of defending against product liability claims.
Any product liability claim brought against us, with or without
merit, could increase our insurance rates or prevent us from
securing insurance coverage in the future. Additionally, any
product liability lawsuit could cause injury to our reputation,
result in the recall of our products, or cause current
collaborators to terminate existing agreements and
S-24
potential collaborators to seek other partners, any of which
could impact our results of operations.
If we use
biological and hazardous materials in a manner that causes
injury, we could be liable for damages.
Our activities currently require the controlled use of
potentially harmful biological materials, hazardous materials
and chemicals and may in the future require the use of
radioactive compounds. We cannot eliminate the risk of
accidental contamination or injury to employees or third parties
from the use, storage, handling or disposal of these materials.
In the event of contamination or injury, we could be held liable
for any resulting damages, and any liability could exceed our
resources or any applicable insurance coverage we may have.
Additionally, we are subject on an ongoing basis to federal,
state and local laws and regulations governing the use, storage,
handling and disposal of these materials and specified waste
products. The cost of compliance with these laws and regulations
might be significant and could negatively affect our operating
results.
Our dependence
on distributors for foreign sales of Oncotype DX could limit or
prevent us from selling our test in foreign markets and from
realizing long-term international revenue growth.
International sales as a percentage of net revenues are expected
to remain minimal in the near term as we focus our efforts on
the sale of Oncotype DX in the United States. We have
established an exclusive distribution network to sell
Oncotype DX in Israel and may enter into other similar
arrangements in other countries in the future. Over the long
term, we intend to grow our business internationally, and to do
so we will need to attract additional distributors to expand the
territories in which we sell Oncotype DX. Distributors
may not commit the necessary resources to market and sell
Oncotype DX to the level of our expectations. If current
or future distributors do not perform adequately, or we are
unable to locate distributors in particular geographic areas, we
may not realize long-term international revenue growth.
We may acquire
other businesses or form joint ventures that could harm our
operating results, dilute our stockholders ownership,
increase our debt or cause us to incur significant
expense.
As part of our business strategy, we may pursue acquisitions of
complementary businesses and assets, as well as technology
licensing arrangements. We also may pursue strategic alliances
that leverage our core technology and industry experience to
expand our product offerings or distribution. We have no
experience with respect to acquiring other companies and limited
experience with respect to the formation of collaborations,
strategic alliances and joint ventures. If we make any
acquisitions, we may not be able to integrate these acquisitions
successfully into our existing business, and we could assume
unknown or contingent liabilities. Any future acquisitions by us
also could result in significant write-offs or the incurrence of
debt and contingent liabilities, any of which could harm our
operating results. Integration of an acquired company also may
require management resources that otherwise would be available
for ongoing development of our existing business. We may not
identify or complete these transactions in a timely manner, on a
cost-effective basis, or at all, and we may not realize the
anticipated benefits of any acquisition, technology license,
strategic alliance or joint venture.
To finance any acquisitions, we may choose to issue shares of
our common stock as consideration, which would dilute the
ownership of our stockholders. If the price of our common stock
is low or volatile, we may not be able to acquire other
companies for stock. Alternatively, it may be necessary for us
to raise additional funds for acquisitions through public or
private financings. Additional funds may not be available on
terms that are favorable to us, or at all.
S-25
Our inability
to raise additional capital on acceptable terms in the future
may limit our ability to develop and commercialize new tests and
technologies.
We expect capital outlays and operating expenditures to increase
over the next several years as we expand our infrastructure,
commercial operations and research and development activities.
Specifically, we may need to raise capital to, among other
things:
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sustain commercialization of our initial test or enhancements to
that test;
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increase our selling and marketing efforts to drive market
adoption and address competitive developments;
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further expand our clinical laboratory operations;
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expand our technologies into other areas of cancer;
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fund our clinical validation study activities;
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expand our research and development activities;
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acquire or license technologies; and
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finance capital expenditures and our general and administrative
expenses.
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Our present and future funding requirements will depend on many
factors, including:
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the level of research and development investment required to
maintain and improve our technology position;
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costs of filing, prosecuting, defending and enforcing patent
claims and other intellectual property rights;
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our need or decision to acquire or license complementary
technologies or acquire complementary businesses;
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changes in product development plans needed to address any
difficulties in commercialization;
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changes in the regulatory environment, including any decision by
FDA to regulate our activities;
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competing technological and market developments;
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the rate of progress in establishing reimbursement arrangements
with third-party payors; and
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changes in regulatory policies or laws that affect our
operations.
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If we raise funds by issuing equity securities, dilution to our
stockholders could result. Any equity securities issued also may
provide for rights, preferences or privileges senior to those of
holders of our common stock. If we raise funds by issuing debt
securities, these debt securities would have rights, preferences
and privileges senior to those of holders of our common stock,
and the terms of the debt securities issued could impose
significant restrictions on our operations. If we raise funds
through collaborations and licensing arrangements, we might be
required to relinquish significant rights to our technologies or
products, or grant licenses on terms that are not favorable to
us. If adequate funds are not available, we may have to scale
back our operations or limit our research and development
activities.
S-26
We must
implement additional and expensive finance and accounting
systems, procedures and controls as we grow our business and
organization and to satisfy new reporting requirements, which
will increase our costs and require additional management
resources.
As a public reporting company, we are required to comply with
the Sarbanes-Oxley Act of 2002 and the related rules and
regulations of the SEC, including expanded disclosures and
accelerated reporting requirements and more complex accounting
rules. Compliance with Section 404s requirements as
to the effectiveness over our internal control over financial
reporting and other requirements has increased our costs and
required additional management resources. We will need to
continue to implement additional finance and accounting systems,
procedures and controls as we grow our business and organization
and to satisfy existing reporting requirements. If we fail to
maintain or implement adequate controls, if we are unable to
complete the required Section 404 assessment as to the
adequacy of our internal control over financial reporting in
future
Form 10-K
filings, or if our independent registered public accounting firm
is unable to provide us with an unqualified report as to the
effectiveness of our internal control over financial reporting
in future
Form 10-K
filings, our ability to obtain additional financing could be
impaired. In addition, investors could lose confidence in the
reliability of our internal control over financial reporting and
in the accuracy of our periodic reports filed under the
Securities Exchange Act of 1934. A lack of investor confidence
in the reliability and accuracy of our public reporting could
cause our stock price to decline.
Risks related to
our common stock and this offering
Our operating
results may fluctuate, which could cause our stock price to
decrease.
Fluctuations in our operating results may lead to fluctuations,
including declines, in our share price. Our operating results
and our share price may fluctuate from period to period due to a
variety of factors, including:
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demand by physicians and patients for Oncotype DX;
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reimbursement decisions by third-party payors and announcements
of those decisions;
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clinical trial results and publication of results in
peer-reviewed journals or the presentation at medical
conferences;
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the inclusion or exclusion of our products in large clinical
trials conducted by others;
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new or less expensive products and services or new technology
introduced or offered by our competitors or us;
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the level of our development activity conducted for new
products, and our success in commercializing these developments;
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the level of our spending on Oncotype DX
commercialization efforts, licensing and acquisition
initiatives, clinical trials, and internal research and
development;
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changes in the regulatory environment, including any
announcement from FDA regarding its decisions in regulating our
activities;
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the impact of seasonality on our business;
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changes in recommendations of securities analysts or lack of
analyst coverage;
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failure to meet analyst expectations regarding our operating
results;
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additions or departures of key personnel; and
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general market conditions.
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Variations in the timing of our future revenues and expenses
could also cause significant fluctuations in our operating
results from period to period and may result in unanticipated
earning shortfalls or losses. In addition, the NASDAQ Global
Market in general, and the market for life
S-27
science companies in particular, have experienced significant
price and volume fluctuations that have often been unrelated or
disproportionate to the operating performance of those companies.
Our management
has significant flexibility in using the net proceeds of this
offering.
We intend generally to use the net proceeds from this offering
for general corporate purposes. However, depending on future
developments and circumstances, we may use some of the proceeds
for other purposes. Therefore, our management will have
significant flexibility in applying the net proceeds of this
offering. The actual amounts and timing of expenditures will
vary significantly depending on a number of factors, including
the amount of cash used in our operations and our research and
development efforts. Managements failure to use these
funds effectively would have an adverse effect on the value of
our common stock and could make it more difficult and costly to
raise funds in the future.
You will
experience immediate dilution in the book value per share of the
common stock you purchase.
Because the price per share of our common stock being offered is
substantially higher than the net tangible book value per share
of our common stock, you will suffer substantial dilution in the
net tangible book value of the common stock you purchase in this
offering. If you purchase shares of common stock in this
offering at the public offering price of $15.50 per share, you
will suffer immediate and substantial dilution of
$12.62 per share in the net tangible book value of the
common stock. If the underwriters exercise their overallotment
option, you will experience additional dilution.
If our
principal stockholders, executive officers and directors choose
to act together, they may be able to control our management and
operations, which may prevent us from taking actions that may be
favorable to you.
Our executive officers, directors and principal stockholders,
and entities affiliated with them, will beneficially own in the
aggregate approximately 49.6% of our common stock following this
offering, including the 1,000,000 shares being purchased by
entities affiliated with Julian C. Baker, one of our directors
and principal stockholders, in this offering. To the extent our
principal stockholders, executive officers and directors
purchase additional shares, in this offering or otherwise, this
ownership concentration would increase. This significant
concentration of share ownership may adversely affect the
trading price of our common stock because investors often
perceive disadvantages in owning stock in companies with
controlling stockholders. Our executive officers, directors and
principal stockholders, acting together, will have the ability
to exert substantial influence over all matters requiring
approval by our stockholders, including the election and removal
of directors and any proposed merger, consolidation or sale of
all or substantially all of our assets. In addition, these
stockholders, acting together, may have the ability to control
the management and affairs of our company. This concentration of
ownership could have the effect of delaying, deferring or
preventing a change in control of us or impeding a merger or
consolidation, takeover or other business combination that could
be favorable to you.
Future sales
of shares by our stockholders could cause the market price of
our common stock to drop, even if our business is doing
well.
We cannot predict the effect, if any, that future sales of our
common stock or the availability for future sale of shares of
our common stock or securities convertible into or exercisable
for our common stock will have on the market price of our common
stock prevailing from time to time. As of May 1, 2007, our
executive officers, directors and principal stockholders, and
entities affiliated with them, beneficially owned in the
aggregate approximately 12,942,000 shares of our common
stock. Other stockholders or groups of stockholders also hold
significant amounts of our common stock. In addition, some of
our existing stockholders have rights to require us to
S-28
register their shares for public resale. The market price of our
common stock could drop, and that drop could be significant, if
stockholders sell substantial amounts of our shares, or are
perceived by the market as intending to sell substantial
amounts. These declines in our stock price could occur even if
our business is otherwise doing well.
We do not
expect to pay dividends in the foreseeable future. As a result,
you must rely on stock appreciation for any return on your
investment.
We do not anticipate paying cash dividends on our common stock
in the foreseeable future. Any payment of cash dividends will
also depend on our financial condition, results of operations,
capital requirements and other factors and will be at the
discretion of our board of directors. Accordingly, you will have
to rely on capital appreciation, if any, to earn a return on
your investment in our common stock. Furthermore, we may in the
future become subject to contractual restrictions on, or
prohibitions against, the payment of dividends.
Anti-takeover
provisions in our charter and bylaws and under Delaware law may
make it difficult for you to change our management and may also
make a takeover difficult.
Our corporate documents and Delaware law contain provisions that
limit the ability of stockholders to change our management and
may also enable our management to resist a takeover. These
provisions include limitations on persons authorized to call a
special meeting of stockholders and advance notice procedures
required for stockholders to make nominations of candidates for
election as directors or to bring matters before an annual
meeting of stockholders. These provisions might discourage,
delay or prevent a change of control or in our management. These
provisions could also discourage proxy contests and make it more
difficult for you and other stockholders to elect directors and
cause us to take other corporate actions. In addition, the
existence of these provisions might hinder or delay an attempted
takeover other than through negotiations with our board of
directors.
S-29
Forward-looking
statements
This prospectus supplement, the accompanying prospectus, and the
documents incorporated by reference contain forward-looking
statements. When used in this prospectus, the words
expects, anticipates,
intends, estimates, plans,
believes, and similar expressions are intended to
identify forward-looking statements. These forward-looking
statements include statements in this prospectus supplement
under the captions Our company and Risk
factors as to our expectation that, for the foreseeable
future, substantially all of our revenues will be derived from
Oncotype DX; the factors we believe to be driving demand
for Oncotype DX and our ability to sustain such demand;
our expectation that our research and development expense levels
will remain high as we seek to enhance Oncotype DX and
develop new tests; our expectation that our general and
administrative and sales and marketing expenses will increase
and our anticipated uses of those funds; our expectations
regarding capital expenditures; the factors that may impact our
financial results; the expected timing of presentations or
publications; the extent and duration of our net losses; our
ability to comply with the requirements of being a public
company; our ability to attract and retain experienced
personnel; the impact changes in healthcare policy or regulation
could have on our business; the adequacy of our product
liability insurance; our ability to recognize revenues other
than on a cash basis and when we expect we will recognize a
majority of revenues upon providing tests; the level of
investment in our sales force; the capacity of our commercial
laboratory to process tests and our expected expanded capacity;
our dependence on collaborative relationships and the success of
those relationships; whether any tests will result from our
collaborations; our belief that clinical results support our
development of additional tests or enhancements to our current
test; the applicability of clinical results to actual outcomes;
our estimates and assumptions with respect to disease incidence;
the ability of our test to impact treatment decisions; the
economic benefits of our test to the healthcare system, our
compliance with federal, state and foreign regulatory
requirements; our expectation that product revenues will
increase; how we intend to spend our existing cash and cash
equivalents and how long we expect our existing cash to last;
our expected future sources of cash; the potential impact
resulting from any regulation of Oncotype DX by FDA
and our belief that Oncotype DX is properly regulated
under CLIA; our beliefs regarding reimbursement for Medicare
inpatients; our plans to pursue reimbursement on a
case-by-case
basis; our ability, and expectations as to the amount of time it
will take, to achieve successful reimbursement from third-party
payors and government insurance programs; our intent to enter
into additional foreign distribution arrangements; the factors
that we believe will drive the establishment of coverage
policies; the amount of future revenues that we may derive from
Medicare patients or categories of patients; increases in
patient and physician demand resulting from our direct sales
approach; plans for enhancements of Oncotype DX to
address different patient populations of breast cancer or to
report single gene results; plans for, and the timeframe for the
development and commercial launch of, future tests addressing
multiple cancers; our expectations regarding when we may move
another potential test into development; the outcome, timing or
success of clinical trials; our intellectual property and our
strategies regarding filing additional patent applications to
strengthen our intellectual property rights; the impact of
accounting pronouncements and our critical accounting policies,
estimates, models and assumptions on our financial results; our
anticipated cash needs and our estimates regarding our capital
requirements and our needs for additional financing; our
expectations regarding the use of net proceeds from this
offering; and anticipated trends and challenges in our business
and the markets in which we operate.
Forward-looking statements are subject to risks and
uncertainties that could cause actual results to differ
materially from those expected. These risks and uncertainties
include, but are not limited to, those risks discussed in
Risk factors, as well as our ability to develop and
commercialize new products; the risk of unanticipated delays in
research and development efforts; the risk that we may not
obtain reimbursement for our existing test and any future tests
or test enhancements we may develop; the risks and uncertainties
associated with the regulation
S-30
of our test by FDA; the ability to compete against third
parties; our ability to obtain capital when needed; and our
history of operating losses. These forward-looking statements
speak only as of the date of this prospectus supplement and we
expressly disclaim any obligation or undertaking to update or
revise any forward-looking statements contained herein to
reflect any change in our expectations with regard thereto or
any change in events, conditions or circumstances on which any
such statement is based.
This prospectus supplement, the accompanying prospectus and the
documents incorporated by reference contain statistical data
that we obtained from reports generated by the American Cancer
Society and by DaVinci Oncology Specialists, a division of The
Mattson Jack Group, Inc., or that we derived from information
contained in these reports. These reports generally indicate
that they have obtained their information from sources believed
to be reliable but do not guarantee the accuracy and
completeness of their information. Although we believe that the
reports are reliable, we have not independently verified their
data.
S-31
Use of
proceeds
We estimate that the net proceeds from the sale of the
3,000,000 shares of our common stock that we are offering
will be approximately $43.3 million, based on the public
offering price of $15.50 per share, after deducting the
underwriting discount and estimated offering expenses we expect
to pay. If the underwriters exercise their overallotment option
in full, we estimate that the net proceeds will be approximately
$49.9 million.
We currently expect to use the net proceeds of this offering for
general corporate purposes, including expanding our selling and
marketing capabilities, funding research and development
activities and expanding our laboratory operations.
Our board of directors has broad discretion in determining how
the proceeds of this offering will be applied. The timing and
amount of our actual expenditures cannot be precisely determined
at this time and will be based upon many factors, including:
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the progress of our product development;
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our research and development activities;
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regulatory requirements;
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our commercialization efforts;
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our progress in obtaining reimbursement;
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our future capital expenditures; and
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the amount of cash required by our operations.
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A portion of the proceeds may be used to acquire or invest in
complementary businesses, technologies, services or products,
although we have no current agreements or commitments for any
such acquisition or investment.
Until we use the net proceeds of this offering, we intend to
invest the funds in short-term, interest-bearing
investment-grade securities.
Dividend
policy
We have never declared or paid any cash dividends on our capital
stock, and do not currently intend to pay any cash dividends on
our common stock in the foreseeable future. We expect to retain
future earnings, if any, to fund the development and growth of
our business. Our board of directors will determine future cash
dividends, if any.
S-32
Capitalization
The following table describes our cash, cash equivalents and
short-term investments and our capitalization as of
March 31, 2007:
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on an actual basis; and
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as adjusted to give effect to the sale of 3,000,000 shares
of common stock in this offering, after deducting the
underwriting discount and estimated offering expenses we expect
to pay.
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You should read this information in conjunction with our
consolidated financial statements and other financial
information that are included in or incorporated by reference in
this prospectus supplement and the accompanying prospectus.
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As
of March 31, 2007
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(in thousands,
except share data)
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Actual
|
|
As
adjusted
|
|
|
|
(unaudited)
|
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Cash, cash equivalents and
short-term investments
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|
$
|
35,095
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$
|
78,405
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|
Notes payable, long-term
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4,045
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|
4,045
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Stockholders equity:
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|
|
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Preferred stock, $0.0001 par
value; 5,000,000 shares authorized; none issued and
outstanding actual and as adjusted
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Common stock, $0.0001 par
value; 100,000,000 shares authorized;
24,570,241 shares issued and outstanding actual,
27,570,241 shares issued and outstanding as adjusted
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2
|
|
|
|
2
|
|
Additional paid-in capital
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|
|
168,287
|
|
|
|
211,597
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Accumulated other comprehensive
income
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|
4
|
|
|
|
4
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Accumulated deficit
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|
(131,953
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)
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|
|
(131,953
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)
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|
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Total stockholders equity
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|
36,340
|
|
|
|
79,650
|
|
|
|
|
|
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Total capitalization
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$
|
40,385
|
|
|
$
|
83,695
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|
|
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The actual and as adjusted information set forth in the table
excludes:
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3,016,344 shares of common stock issuable upon the exercise
of stock options outstanding as of March 31, 2007 with a
weighted average exercise price of $9.60 per share; and
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3,156,151 shares of common stock available for future
issuance under our stock option plan as of March 31, 2007.
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S-33
Dilution
Our net tangible book value as of March 31, 2007 was
$36.0 million, or $1.46 per share of common stock. Net
tangible book value per share is calculated by subtracting our
total liabilities from our total tangible assets, which is total
assets less intangible assets, and dividing this amount by the
number of shares of our common stock outstanding on that date.
After giving effect to the sale by us of the
3,000,000 shares of our common stock at the public offering
price of $15.50 per share, less the underwriting
discount and estimated offering expenses we expect to pay, our
net tangible book value as of March 31, 2007 would have
been $79.3 million, or $2.88 per share of common
stock. This represents an immediate increase in the net tangible
book value of $1.42 per share to our existing stockholders
and an immediate dilution in net tangible book value of
$12.62 per share to new investors purchasing shares of
common stock in this offering. The following table illustrates
this per share dilution:
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Public offering price per share
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$
|
15.50
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Net tangible book value per share
before this offering
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|
$
|
1.46
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Increase per share attributable to
new investors
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1.42
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|
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Net tangible book value per share
after this offering
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|
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|
2.88
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|
|
|
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|
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Dilution per share to new investors
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|
|
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|
$
|
12.62
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|
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|
If the underwriters exercise their overallotment option in full,
our net tangible book value per share after this offering would
increase to $3.06, which represents an increase in the net
tangible book value of $1.60 per share to our existing
stockholders and an immediate dilution in net tangible book
value of $12.44 per share to new investors purchasing
shares of common stock in this offering.
The number of shares of common stock outstanding as of
March 31, 2007 excludes:
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3,016,344 shares of common stock issuable upon the exercise
of stock options outstanding as of March 31, 2007 with a
weighted average exercise price of $9.60 per share; and
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3,156,151 shares of common stock available for future
issuance under our stock option plan as of March 31, 2007.
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To the extent that any outstanding options are exercised, there
may be further dilution to new investors.
S-34
Material
U.S. federal income tax considerations for
non-U.S. holders
The following is a summary of the material U.S. federal
income tax considerations relating to the purchase, ownership
and disposition of our common stock applicable to
non-U.S. holders,
as we define that term below, that acquire our common stock
pursuant to this offering. This summary is based upon the
provisions of the Internal Revenue Code of 1986, as amended (the
Code), Treasury regulations promulgated thereunder,
administrative rulings and judicial decisions, all as of the
date hereof. These authorities may be changed, possibly
retroactively, so as to result in U.S. federal income tax
consequences different from those set forth below. We have not
sought any ruling from the Internal Revenue Service with respect
to the statements made and the conclusions reached in the
following summary, and there can be no assurance that the
Internal Revenue Service will agree with such statements and
conclusions.
The term
non-U.S. holder
means a beneficial owner of our common stock that, for
U.S. federal income tax purposes, is neither a partnership
(or other entity or arrangement treated as a partnership for
U.S. federal income tax purposes) nor any of the following:
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an individual citizen or resident of the United States;
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a corporation or other entity taxable as a corporation for
U.S. federal income tax purposes created or organized in
the United States or under the laws of the United States,
any state thereof, or the District of Columbia;
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an estate, the income of which is subject to U.S. federal
income taxation regardless of its source; or
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a trust that (1) is subject to the primary supervision of a
U.S. court and the control of one or more U.S. persons
or (2) has a valid election in effect under applicable
Treasury regulations to be treated as a U.S. person.
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If a partnership (or other entity or arrangement treated as a
partnership for U.S. federal income tax purposes) holds our
common stock, the U.S. federal income tax treatment of a
partner generally will depend on the status of the partner and
the activities of the partnership. Partners of partnerships that
will hold our common stock should consult their tax advisers.
This summary is limited to holders who hold our common stock as
a capital asset within the meaning of
section 1221 of the Code (generally, property held for
investment). This summary does not address U.S. federal
estate or gift tax considerations, nor does it address the tax
considerations arising under the laws of any foreign, state or
local jurisdiction. In addition, this discussion does not
address tax considerations applicable to an investors
particular circumstances or to investors that may be subject to
special tax rules, including, without limitation:
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banks, insurance companies, or other financial institutions;
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tax-exempt organizations;
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dealers in securities or currencies;
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traders in securities that elect to use a
mark-to-market
method of accounting for their securities holdings;
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persons that are, or are holding our common stock through,
S-corporations, partnerships or other pass-through entities;
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persons that own, or are deemed to own, more than 5% of our
company, except to the extent specifically set forth below;
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certain former citizens or long-term residents of the United
States;
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S-35
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persons holding our common stock as a position in a hedging
transaction, straddle, conversion transaction or other risk
reduction transaction; or
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persons deemed to sell the common stock under the constructive
sale provisions of the Code.
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You are urged to consult your tax advisor with respect to the
application of the U.S. federal income tax laws to your
particular situation, as well as any tax consequences of the
purchase, ownership and disposition of our common stock arising
under the federal estate or gift tax rules or under the laws of
any state, local, foreign or other taxing jurisdiction or under
any applicable tax treaty.
Distributions on
common stock
We have not made any distributions on our common stock, and we
do not plan to make any distributions for the forseeable future.
If we make cash or other property distributions on our common
stock, such distributions will constitute dividends for
U.S. federal income tax purposes to the extent paid from
our current or accumulated earnings and profits, as determined
under U.S. federal income tax principles. Distributions in
excess of our earnings and profits will constitute a return of
capital that will first be applied against and reduce the
non-U.S. holders
adjusted tax basis in our common stock, but not below zero. Any
remaining excess will be treated as gain realized on the sale or
other disposition of the common stock and will be treated as
described under Gain on disposition of common
stock below.
Dividends paid to a
non-U.S. holder
that are not effectively connected with the
non-U.S. holders
conduct of a trade or business in the United States will
generally be subject to withholding of U.S. federal income
tax at the rate of 30%, or if a tax treaty applies, a lower rate
specified by the treaty.
Non-U.S. holders
should consult their tax advisors regarding their entitlement to
benefits under a relevant income tax treaty.
Dividends that are effectively connected with a
non-U.S. holders
conduct of a trade or business in the United States and, if an
income tax treaty applies, are attributable to a permanent
establishment in the United States, are taxed on a net income
basis at the regular graduated U.S. federal income tax
rates in much the same manner as if the
non-U.S. holder
was a U.S. person. In such cases, we will not have to
withhold U.S. federal income tax if the
non-U.S. holder
complies with applicable certification requirements. In
addition, if the
non-U.S. holder
is a corporation, a branch profits tax equal to 30%
(or lower applicable treaty rate) may be imposed on a portion of
its effectively connected earnings and profits for the taxable
year.
Non-U.S. holders
should consult their tax advisors with respect to any applicable
tax treaties that may provide for different rules.
To claim the benefit of a tax treaty or an exemption from
withholding because the dividends are effectively connected with
the conduct of a trade or business in the United States, a
non-U.S. holder
must either (a) provide a properly executed Internal
Revenue Service
Form W-8BEN
or
Form W-8ECI
(as applicable) before the payment of dividends or (b) if
our common stock is held through certain foreign intermediaries,
satisfy the relevant certification requirements of applicable
U.S. Treasury regulations. These forms must be periodically
updated.
Non-U.S. holders
may obtain a refund of any excess amounts withheld by timely
filing an appropriate claim for refund.
S-36
Gain on
disposition of common stock
A
non-U.S. holder
generally will not be subject to U.S. federal income tax or
any withholding thereof with respect to gain recognized on a
sale or other disposition of our common stock unless one of the
following applies:
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the gain is effectively connected with the
non-U.S. holders
conduct of a trade or business in the United States and, if an
income tax treaty applies, is attributable to a permanent
establishment maintained by the
non-U.S. holder
in the United States; in these cases, the
non-U.S. holder
generally will be taxed on its net gain derived from the
disposition at the regular graduated U.S. federal income
tax rates in much the same manner as if the
non-U.S. holder
were a U.S. person and, if the
non-U.S. holder
is a foreign corporation, the branch profits tax
described above may also apply;
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the
non-U.S. holder
is an individual who is present in the United States for
183 days or more in the taxable year of the disposition and
meets certain other requirements; in this case, the
non-U.S. holder
will be subject to U.S. federal income tax at a rate of 30%
(or a reduced rate under an applicable treaty) on the amount by
which capital gains (including gain recognized on a sale or
other disposition of our common stock) from U.S. sources
exceed capital losses from U.S. sources; or
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our common stock constitutes a United States real property
interest by reason of our status as a United States
real property holding corporation, or a
USRPHC, for U.S. federal income tax purposes at
any time during the shorter of the
5-year
period ending on the date you dispose of our common stock or the
period you held our common stock (the applicable
period). The determination of whether we are a USRPHC
depends on the fair market value of our United States real
property interests relative to the fair market value of our
other business assets. We believe that we are currently not and
do not anticipate becoming a USRPHC. However, there is no
assurance that our determination is correct or that we will not
become a USRPHC in the future as a result of a change in our
assets or operations.
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Even if we are or later become a USRPHC, as long as our common
stock is regularly traded on an established securities
market within the meaning of Section 897(c)(3) of the
Code, such common stock will be treated as a United States real
property interest only if you owned directly or indirectly more
than 5% of such regularly traded common stock at any time during
the applicable period. If we are or were to become a USRPHC, and
a
non-U.S. holder
owned directly or indirectly more than 5% of our common stock at
any time during the applicable period or our common stock were
not considered to be regularly traded on an established
securities market, then any gain recognized by a
non-U.S. holder
on the sale or other disposition of our common stock would be
treated as effectively connected with a U.S. trade or
business (except for purposes of the branch profits tax) and
would be subject to U.S. federal income tax at regular
graduated U.S. federal income tax rates in much the same
manner as if the
non-U.S. holder
was a U.S. person. In such case, the
non-U.S. holder
would be subject to withholding on the gross proceeds realized
with respect to the sale or other disposition of our common
stock, and any amount withheld in excess of the tax owed as
determined in accordance with the preceding sentence may be
refundable if the required information is timely furnished to
the IRS.
Backup
withholding and information reporting
We must report annually to the Internal Revenue Service and to
each
non-U.S. holder
the amount of dividends paid to that holder and the tax withheld
from those dividends. These reporting requirements apply
regardless of whether withholding was reduced or eliminated by
an applicable tax treaty. Copies of the information returns
reporting those dividends and withholding may also be made
available to the tax authorities in the country in which the
S-37
non-U.S. holder
is a resident under the provisions of an applicable income tax
treaty or agreement.
Under some circumstances, U.S. Treasury regulations require
additional information reporting and backup withholding on
dividend payments on common stock. The gross amount of dividends
paid to a
non-U.S. holder
that fails to certify its
non-U.S. holder
status in accordance with applicable U.S. Treasury
regulations and does not otherwise establish an exemption from
backup withholding generally will be subject to backup
withholding at the applicable rate, currently 28%.
The payment of the proceeds of the sale or other disposition of
common stock (including a redemption) by a
non-U.S. holder
through the U.S. office of any broker, United
States or foreign, generally will be reported to the
Internal Revenue Service and subject to backup withholding,
unless the
non-U.S. holder
either certifies its status as a
non-U.S. holder
under penalties of perjury or otherwise establishes an
exemption. The payment of the proceeds of the disposition of
common stock by a
non-U.S. holder
through a
non-U.S. office
of a
non-U.S. broker
will not be subject to backup withholding or reported to the
Internal Revenue Service, unless the
non-U.S. broker
has certain enumerated connections with the United States. In
general, the payment of proceeds from the disposition of common
stock through a
non-U.S. office
of a broker that is a U.S. person or has certain enumerated
connections with the United States will be reported to the
Internal Revenue Service (but will not be subject to backup
withholding), unless the broker receives a statement from the
non-U.S. holder
that certifies its status as a
non-U.S. holder
under penalties of perjury or the broker has documentary
evidence in its files that the holder is a
non-U.S. holder.
Backup withholding is not an additional tax. Any amounts
withheld under the backup withholding rules from a payment to a
non-U.S. holder
can be refunded or credited against the
non-U.S. holders
U.S. federal income tax liability, if any, provided that
the required information is furnished to the Internal Revenue
Service in a timely manner. These backup withholding and
information reporting rules are complex and
non-U.S. holders
are urged to consult their own advisors regarding the
application of these rules to them.
S-38
Underwriting
We are offering the shares of common stock described in this
prospectus supplement through a number of underwriters.
J.P. Morgan Securities Inc. is acting as sole book-running
manager of the offering and, along with Lehman Brothers Inc.,
Piper Jaffray & Co., and JMP Securities LLC, as
representatives of the underwriters. We have entered into an
underwriting agreement with the underwriters. Subject to the
terms and conditions of the underwriting agreement, we have
agreed to sell to the underwriters, and each underwriter has
severally agreed to purchase, at the public offering price less
the underwriting discount set forth on the cover page of this
prospectus supplement, the number of shares of common stock
listed next to its name in the following table:
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Underwriters
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Number
of shares
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J.P. Morgan Securities
Inc.
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1,425,000
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Lehman Brothers Inc.
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750,000
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Piper Jaffray & Co.
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450,000
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JMP Securities LLC
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375,000
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Total
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3,000,000
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The underwriters are committed to purchase all the common shares
offered by us if they purchase any shares. The underwriting
agreement also provides that if an underwriter defaults, the
purchase commitments of non-defaulting underwriters may also be
increased or the offering may be terminated.
The underwriters propose to offer the common shares directly to
the public at the public offering price set forth on the cover
page of this prospectus supplement and to certain dealers at
that price less a concession not in excess of $0.56 per
share. Any such dealers may resell shares to certain other
brokers or dealers at a discount of up to $0.10 per share
from the public offering price. After the public offering of the
shares, the offering price and other selling terms may be
changed by the underwriters.
The underwriters have an option to buy up to 450,000 additional
shares of common stock from us to cover sales of shares by the
underwriters which exceed the number of shares specified in the
table above. The underwriters have 30 days from the date of
this prospectus supplement to exercise this overallotment
option. If any shares are purchased with this overallotment
option, the underwriters will purchase shares in approximately
the same proportion as shown in the table above. If any
additional shares of common stock are purchased, the
underwriters will offer the additional shares on the same terms
as those on which the shares are being offered.
The underwriting discount is equal to the public offering price
per share of common stock less the amount paid by the
underwriters to us per share of common stock. The underwriting
discount is $0.93 per share. The following table shows the per
share and total underwriting discount to be paid to the
underwriters assuming both no exercise and full exercise of the
underwriters option to purchase additional shares.
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Without
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With full
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overallotment
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overallotment
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exercise
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exercise
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Per share
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$
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0.93
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$
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0.93
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Total
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$
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2,790,000
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$
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3,208,500
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S-39
We estimate that the total expenses of this offering, including
registration, filing and listing fees, printing fees and legal
and accounting expenses, but excluding the underwriting
discount, will be approximately $400,000.
We, our directors and executive officers, and certain of our
principal stockholders have entered into
lock-up
agreements with the underwriters prior to the commencement of
this offering pursuant to which we and each of these persons or
entities, with limited exceptions (including, for transfers by
stockholders, pursuant to certain pre-existing written trading
plans under
Rule 10b5-1),
for a period of 90 days after the date of this prospectus
supplement, may not, without the prior written consent of
J.P. Morgan Securities Inc., (1) offer, pledge,
announce the intention to sell, sell, contract to sell, sell any
option or contract to purchase, purchase any option or contract
to sell (except for entering into a 10b5-1 trading plan under
which the first trade could not be made until after the
expiration of the restrictions under the
lock-up
agreements), grant any option, right or warrant to purchase, or
otherwise transfer or dispose of (or enter into any transaction
or device, that is designed to, or could be expected to, result
in the disposition by an person at any time in the future of),
directly or indirectly, any shares of our common stock or any
securities convertible or exercisable or exchangeable for common
stock (including, without limitation, common stock which may be
deemed to be beneficially owned by such persons or entities in
accordance with the rules and regulations of the SEC and
securities which may be issued upon exercise of a stock option
or warrant) (provided, however, that stock options granted to
these parties may be exercised for cash) or (2) enter into
any swap or other agreement that transfers, in whole or in part,
any of the economic consequences of ownership of the common
stock, whether any such transaction described in clause (1)
or (2) above is to be settled by delivery of common stock
or such other securities, in cash or otherwise.
Notwithstanding the foregoing, if (1) during the last
17 days of the
90-day
restricted period, our company issues an earnings release or
material news or a material event relating to our company
occurs; or (2) prior to the expiration of the
90-day
restricted period, our company announces that it will release
earnings results during the
16-day
period beginning on the last day of the
90-day
period, the restrictions imposed by the lock up agreement shall
continue to apply until the expiration of the
18-day
period beginning on the issuance of the earnings release or the
occurrence of the material news or material event.
We have agreed to indemnify the underwriters against certain
liabilities, including liabilities under the Securities Act of
1933.
In connection with this offering, the underwriters may engage in
stabilizing transactions, which involves making bids for,
purchasing and selling shares of common stock in the open market
for the purpose of preventing or retarding a decline in the
market price of the common stock while this offering is in
progress. These stabilizing transactions may include making
short sales of the common stock, which involves the sale by the
underwriters of a greater number of shares of common stock than
they are required to purchase in this offering, and purchasing
shares of common stock on the open market to cover positions
created by short sales. Short sales may be covered
shorts, which are short positions in an amount not greater than
the underwriters overallotment option referred to above,
or may be naked shorts, which are short positions in
excess of that amount. The underwriters may close out any
covered short position either by exercising their overallotment
option, in whole or in part, or by purchasing shares in the open
market. In making this determination, the underwriters will
consider, among other things, the price of shares available for
purchase in the open market compared to the price at which the
underwriters may purchase shares through the overallotment
option. A naked short position is more likely to be created if
the underwriters are concerned that there may be downward
pressure on the price of the common stock in the open market
that could adversely affect investors who purchase in this
offering. To the extent that the underwriters create a naked
short position, they will purchase shares in the open market to
cover the position.
S-40
The underwriters have advised us that, pursuant to
Regulation M of the Securities Act of 1933, they may also
engage in other activities that stabilize, maintain or otherwise
affect the price of the common stock, including the imposition
of penalty bids. This means that if the representatives of the
underwriters purchase common stock in the open market in
stabilizing transactions or to cover short sales, the
representatives can require the underwriters that sold those
shares as part of this offering to repay the underwriting
discount received by them.
These activities may have the effect of raising or maintaining
the market price of the common stock or preventing or retarding
a decline in the market price of the common stock, and, as a
result, the price of the common stock may be higher than the
price that otherwise might exist in the open market. If the
underwriters commence these activities, they may discontinue
them at any time. The underwriters may carry out these
transactions on the NASDAQ Global Market, in the
over-the-counter
market or otherwise.
Certain of the underwriters and their affiliates have provided
in the past to us and our affiliates and may provide from time
to time in the future certain commercial banking, financial
advisory, investment banking and other services for us and such
affiliates in the ordinary course of their business, for which
they have received and may continue to receive customary fees
and commissions. In addition, from time to time, certain of the
underwriters and their affiliates may effect transactions for
their own account or the account of customers, and hold on
behalf of themselves or their customers, long or short positions
in our debt or equity securities or loans, and may do so in the
future.
This prospectus supplement and the accompanying prospectus in
electronic format may be made available on the websites
maintained by one or more underwriters, or selling group
members, if any, participating in the offering. The underwriters
may agree to allocate a number of shares to underwriters and
selling group members for sale to their online brokerage account
holders. Internet distributions will be allocated by the
representatives to underwriters and selling group members that
may make internet distributions on the same basis as other
allocations.
In relation to each Member State of the European Economic Area
which has implemented the Prospectus Directive (each, a
Relevant Member State), each underwriter has
represented and agreed that with effect from and including the
date on which the European Union Prospectus Directive (the
EU Prospectus Directive) is implemented in that
Relevant Member State (the Relevant Implementation
Date) it has not made and will not make an offer of common
stock to the public in that Relevant Member State prior to the
publication of a prospectus in relation to the shares which has
been approved by the competent authority in that Relevant Member
State or, where appropriate, approved in another Relevant Member
State and notified to the competent authority in that Relevant
Member State, all in accordance with the EU Prospectus
Directive, except that it may, with effect from and including
the Relevant Implementation Date, make an offer of shares to the
public in that Relevant Member State at any time:
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to legal entities which are authorized or regulated to operate
in the financial markets or, if not so authorized or regulated,
whose corporate purpose is solely to invest in securities;
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to any legal entity which has two or more of (1) an average
of at least 250 employees during the last financial year;
(2) a total balance sheet of more than 43,000,000 and
(3) an annual net turnover of more than 50,000,000,
as shown in its last annual or consolidated accounts;
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to fewer than 100 natural or legal persons (other than qualified
investors as defined in the EU Prospectus Directive) subject to
obtaining the prior consent of the book-running manger for any
such offer; or
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in any other circumstances which do not require the publication
by the Issuer of a prospectus pursuant to Article 3 of the
Prospectus Directive.
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S-41
For the purposes of this provision, the expression an
offer of shares to the public in relation to any
shares in any Relevant Member State means the communication in
any form and by any means of sufficient information on the terms
of the offer and the shares to be offered so as to enable an
investor to decide to purchase or subscribe the shares, as the
same may be varied in that Member State by any measure
implementing the EU Prospectus Directive in that Member State
and the expression EU Prospectus Directive means Directive
2003/71/EC
and includes any relevant implementing measure in each Relevant
Member State.
The underwriters have not made and will not make an offer of our
common stock to the public in the United Kingdom within the
meaning of section 102B of the Financial Services and
Markets Act 2000 (as amended), or the FSMA, except to legal
entities which are authorized or regulated to operate in the
financial markets or whose corporate purpose is solely to invest
in securities or otherwise in circumstances which do not require
the publication by the company of a prospectus as required by
the Prospectus Rules of the Financial Services Authority. The
underwriters have only communicated and will only communicate an
invitation or inducement to engage in investment activity
(within the meaning of section 21 of FSMA) to persons who
have professional experience in matters relating to investments
falling within Article 19(5) of the Financial Services and
Markets Act 2000 (Financial Promotion) Order 2005 or in
circumstances in which section 21 of FSMA does not apply to
the company, and the underwriters have complied with and will
comply with all applicable provisions of FSMA with respect to
anything done by them in relation to our common stock in, from
or otherwise involving the United Kingdom.
Neither this prospectus supplement nor any offering material
relating to our common stock has been or will be submitted to
the Commission des Opérations de Bourse
for approval (Visa), in France. The
underwriters have not offered or sold and will not offer or sell
any of our common stock or distribute or cause to be distributed
any copies of this prospectus supplement or any offering
material relating to our common stock, directly or indirectly,
in France, except (a) with the prior authorization of the
French Ministry for Economy and Finance in accordance with
Articles 9 and 10 of the Décret of
December 29, 1989 regulating financial relations between
France and foreign countries, or (b) to qualified investors
(investisseurs qualifiés),
and/or a
restricted group of investors (cercle restreint
dinvestisseurs), in each case acting for their
account, all as defined in, and in accordance with,
Article L.
411-1 and L.
411-2 of the
Monetary and Financial Code and Décret
no. 98-880
dated October 1, 1998.
This prospectus supplement and the accompanying prospects are
not a Securities Selling Prospectus within the meaning of the
German Securities Sales Prospectus Act of September 9, 1998
and have not been filed with and approved by the German Federal
Supervisory Authority (Bundesanstalt für
Finanzdienstleistungsaufsicht) or any other competent German
governmental authority under the relevant laws. The underwriters
have not offered or sold and will not offer or sell any of our
common stock or distribute copies of this prospectus supplement
and the accompanying prospects or any document relating to our
common stock, directly or indirectly, in Germany except to
persons falling within the scope of section 2 numbers 1
(persons who as part of their profession, occupation or
business, purchase or sell securities for their own account or
for the account of third parties), 2 (a restricted circle of
persons) and 3 (employees by their employer or related group
companies) of the German Securities Sales Prospectus Act of
September 8, 1998 and by doing so have not taken, and will
not take, any steps which would constitute a public offering of
our common stock in Germany.
The offering of our common stock in Italy has not been
registered with the Commissione Nazionale per le Società e
la Borsa (CONSOB) pursuant to Italian securities
legislation and, accordingly: (i) our common stock cannot
be offered, sold or delivered in the Republic of Italy
(Italy) in a solicitation to the public at large
(sollecitazione allinvestimento) within the meaning
of Article 1 paragraph 1, letter (t) of
Legislative Decree no. 58 of February 24, 1998 (the
Financial Services Act), nor may any copy of this
prospectus supplement or any other
S-42
document relating to our common stock be distributed in Italy,
(ii) our common stock cannot be offered, sold
and/or
delivered, nor may any copy of this prospectus supplement or any
other document relating to our common stock be distributed,
either in the primary or in the secondary market, to individuals
in Italy, and (iii) sales of our common stock in Italy
shall only be: (a) negotiated with Professional
Investors (operatori qualificati), as defined under
Article 31, paragraph 2, of CONSOB Regulation
no. 11522 of July 1, 1998, as amended (CONSOB
Regulation no. 11522), (b) made by an
investment firm, bank or financial intermediary permitted to
conduct such activities in Italy in accordance with the Italian
Banking Act, the Financial Services Act, CONSOB Regulation
no. 11522 and all the other relevant provisions of Italian
law, and (c) effected in accordance with any other Italian
securities, tax and exchange control and other applicable laws
and regulations and any other applicable requirement or
limitation which may be imposed by CONSOB or the Bank of Italy.
This prospectus supplement and the accompanying prospectus do
not constitute a prospectus within the meaning of
Article 652a and Art. 1156 of the Swiss Code of Obligations
(Schweizerisches Obligationenrecht), and none of this
offering of our common stock has been or will be approved by any
Swiss regulatory authority.
Our common stock is traded on the NASDAQ Global Market under the
symbol GHDX.
As part of this offering, the underwriters are selling an
aggregate of 1,000,000 shares of our common stock to
entities affiliated with Julian C. Baker, one of our directors
and principal stockholders.
S-43
Legal
matters
The validity of the common stock offered by this prospectus
supplement will be passed upon for us by Pillsbury Winthrop Shaw
Pittman LLP, San Francisco and Palo Alto, California.
Certain attorneys of Pillsbury Winthrop Shaw Pittman LLP own
beneficially an aggregate of 10,365 shares of our common
stock. Selected legal matters relating to the offering will be
passed on for the underwriters by Simpson Thacher &
Bartlett LLP, Palo Alto, California.
Where you can
find more information
We have filed a registration statement on
Form S-3
with the SEC under the Securities Act of 1933. This prospectus
supplement and the accompanying prospectus are part of the
registration statement but the registration statement includes
and incorporates by reference additional information and
exhibits. We file annual, quarterly and current reports, proxy
statements and other information with the SEC. You may read and
copy the registration statement and any document we file with
the SEC at the public reference room maintained by the SEC at
100 F Street, N.E., Washington, D.C. 20549. You may obtain
information on the operation of the public reference room by
calling the SEC at
1-800-SEC-0330.
The SEC also maintains a web site that contains reports, proxy
and information statements and other information regarding
companies, such as ours, that file documents electronically with
the SEC. The address of that site on the world wide web is
http://www.sec.gov. The information on the
SECs web site is not part of this prospectus supplement or
the accompanying prospectus, and any references to this web site
or any other web site are inactive textual references only.
The SEC permits us to incorporate by reference the
information contained in documents we file with the SEC, which
means that we can disclose important information to you by
referring you to those documents rather than by including them
in this prospectus supplement and the accompanying prospectus.
Information that is incorporated by reference is considered to
be part of this prospectus supplement and the accompanying
prospectus and you should read it with the same care that you
read this prospectus supplement and the accompanying prospectus.
Later information that we file with the SEC will automatically
update and supersede the information that is either contained,
or incorporated by reference, in this prospectus supplement and
the accompanying prospectus, and will be considered to be a part
of this prospectus supplement and the accompanying prospectus
from the date those documents are filed. We have filed with the
SEC, and incorporate by reference in this prospectus supplement
and the accompanying prospectus:
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our Annual Report on
Form 10-K
for the year ended December 31, 2006, as amended;
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our Quarterly Report on
Form 10-Q
for the quarter ended March 31, 2007;
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our Current Report on
Form 8-K
filed on February 7, 2007, as amended by our Current Report
on
Form 8-K/A
filed on March 13, 2007;
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our Proxy Statement for our 2007 annual meeting of
stockholders; and
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the description of our common stock contained in our
Registration Statement on
Form 8-A
filed on September 26, 2005.
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We also incorporate by reference all additional documents that
we file with the SEC under Sections 13(a), 13(c), 14 or
15(d) of the Securities Exchange Act of 1934 that are made
between the date of this prospectus supplement and the
termination of any offering of securities offered by this
prospectus supplement and the accompanying prospectus. We are
not, however, incorporating, in each case, any documents or
information that we are deemed to furnish and not file in
accordance with SEC rules.
S-44
You may request a copy of any or all of the documents
incorporated by reference but not delivered with this prospectus
supplement and the accompanying prospectus, at no cost, by
writing or telephoning us at the following address and number:
Investor Relations, Genomic Health, Inc., 301 Penobscot Drive,
Redwood City, California 94063, telephone
(650) 556-9300.
We will not, however, send exhibits to those documents, unless
the exhibits are specifically incorporated by reference in those
documents.
S-45
PROSPECTUS
$100,000,000
GENOMIC HEALTH,
INC.
Debt
Securities
Common Stock
Preferred Stock
Depositary Shares
Warrants
We may, from time to time, offer and sell debt securities,
preferred stock, either separately or represented by depositary
shares, common stock or warrants, either separately or in units,
in one or more offerings. The debt securities, preferred stock
and warrants may be convertible into or exercisable or
exchangeable for common or preferred stock or debt securities.
We will specify in the accompanying prospectus supplement more
specific information about any such offering. The aggregate
initial offering price of all securities sold under this
prospectus will not exceed $100,000,000, including the
U.S. dollar equivalent if the public offering of any such
securities is denominated in one or more foreign currencies,
foreign currency units or composite currencies.
We may offer these securities independently or together in any
combination for sale directly to investors or through
underwriters, dealers or agents. We will set forth the names of
any underwriters, dealers or agents and their compensation in
the accompanying prospectus supplement.
This prospectus may not be used to sell any of these securities
unless accompanied by a prospectus supplement.
Our common stock is traded on the NASDAQ Global Market under the
symbol GHDX. On April 23, 2007, the closing
price of our common stock on the NASDAQ Global Market was
$17.615 per share.
Investing in our securities involves risks. See the section
entitled Risk Factors in the accompanying prospectus
supplement and in the documents we incorporate by reference in
this prospectus.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or passed upon the adequacy or accuracy of this
prospectus. Any representation to the contrary is a criminal
offense.
The date of this prospectus is April 26, 2007.
TABLE OF
CONTENTS
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You should rely only on the information incorporated by
reference or provided in this prospectus, any prospectus
supplement and the registration statement. We have not
authorized anyone else to provide you with different
information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not
making an offer to sell these securities in any state where the
offer or sale is not permitted. You should assume that the
information in this prospectus and any prospectus supplement, or
incorporated by reference, is accurate only as of the dates of
those documents. Our business, financial condition, results of
operations and prospects may have changed since those dates.
ABOUT THIS
PROSPECTUS
This prospectus is part of a registration statement that we
filed with the Securities and Exchange Commission, or SEC, using
a shelf registration, or continuous offering,
process. Under this shelf registration process, we may, from
time to time, issue and sell any combination of debt securities,
preferred stock, either separately or represented by depositary
shares, common stock or warrants, either separately or in units,
in one or more offerings with a maximum aggregate offering price
of $100,000,000, including the U.S. dollar equivalent if
the public offering of any such securities is denominated in one
or more foreign currencies, foreign currency units or composite
currencies.
This prospectus provides you with a general description of the
securities we may offer. Each time we sell securities, we will
provide a prospectus supplement that will contain specific
information about the terms of that offering and the offered
securities. Any prospectus supplement may also add, update or
change information contained in this prospectus. Any statement
that we make in this prospectus will be modified or superseded
by any inconsistent statement made by us in a prospectus
supplement. The registration statement we filed with the SEC
includes exhibits that provide more detail of the matters
discussed in this prospectus. You should read this prospectus
and the related exhibits filed with the SEC and any prospectus
supplement, together with additional information described under
the heading Where You Can Find More Information,
before making your investment decision.
Unless the context otherwise requires, references in this
prospectus and the accompanying prospectus supplement to
Genomic Health, we, us and
our refer to Genomic Health, Inc.
RISK
FACTORS
Investing in our securities involves risk. The prospectus
supplement relating to a particular offering will contain a
discussion of risks applicable to an investment in the
securities offered. Prior to making a decision about investing
in our securities, you should carefully consider the specific
factors discussed under the heading Risk Factors in
the applicable prospectus supplement together with all of the
other information contained in the prospectus supplement or
appearing or incorporated by reference in this prospectus.
GENOMIC HEALTH,
INC.
Genomic Health is a life science company focused on the
development and commercialization of genomic-based clinical
diagnostic tests for cancer that allow physicians and patients
to make individualized treatment decisions. In January 2004, we
launched our first test under the brand name Oncotype DX for
early stage breast cancer patients. We believe that Oncotype DX
is the first genomic test with clinical evidence supporting its
ability to predict the likelihood of cancer recurrence, the
likelihood of patient survival within 10 years of diagnosis
and the likelihood of chemotherapy benefit. Our initial test is
focused on patients with early stage, node negative, or
N−, estrogen receptor positive, or ER+, breast cancer who
will be treated with tamoxifen, a frequently used hormonal
therapy.
Genomic Health was incorporated in Delaware in August 2000. Our
principal executive offices are located at 301 Penobscot Drive,
Redwood City, California 94063, and our telephone number is
(650) 556-9300.
FORWARD-LOOKING
STATEMENTS
When used in this prospectus, the words expects,
believes, anticipates,
estimates, may, could,
intends, and similar expressions are intended to
identify forward-
2
looking statements. These statements are subject to known and
unknown risks and uncertainties that could cause actual results
to differ materially from those projected or otherwise implied
by the forward-looking statements. These forward-looking
statements speak only as of the date of this prospectus. Given
these risks and uncertainties, you should not place undue
reliance on these forward-looking statements. We will discuss
many of these risks and uncertainties in greater detail in any
prospectus supplement under the heading Risk
Factors. Additional cautionary statements or discussions
of risks and uncertainties that could affect our results or the
achievement of the expectations described in forward-looking
statements may also be contained in the documents we incorporate
by reference into this prospectus.
These forward-looking statements speak only as of the date of
this prospectus. We expressly disclaim any obligation or
undertaking to release publicly any updates or revisions to any
forward-looking statements contained herein to reflect any
change in our expectations with regard thereto or any change in
events, conditions or circumstances on which any such statement
is based. You should, however, review additional disclosures we
make in our Annual Report on
Form 10-K,
Quarterly Reports on
Form 10-Q,
and Current Reports on
Form 8-K
filed with the SEC.
USE OF
PROCEEDS
Unless we state otherwise in the accompanying prospectus
supplement, we intend to use the net proceeds from the sale of
the securities offered by this prospectus for general corporate
purposes. General corporate purposes may include additions to
working capital, research and development, clinical studies,
financing of capital expenditures, repayment or redemption of
existing indebtedness, and future acquisitions and strategic
investment opportunities. Pending the application of net
proceeds, we expect to invest the net proceeds in investment
grade, interest-bearing securities.
RATIO OF EARNINGS
TO FIXED CHARGES
The ratio of earnings to fixed charges for each of the periods
indicated are set forth in the following table. Our earnings
were insufficient to cover fixed charges for each of those
periods. We have not included a ratio of earnings to combined
fixed charges and preferred stock dividends because we do not
have any preferred stock outstanding as of the date of this
prospectus.
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Year Ended
December 31,
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2002
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2003
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2004
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2005
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2006
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Ratio of earnings to fixed charges
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(1
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The ratio of earnings to fixed charges is computed by dividing
loss before taxes plus fixed charges by fixed charges. Fixed
charges consist of interest expense (including interest expense
from capital leases) and the estimated portion of rental expense
deemed by us to be representative of the interest factor of
rental payments under operating leases. Earnings were
insufficient to cover fixed charges by $11,068,000 for the year
ended December 31, 2002, $15,250,000 for the year ended
December 31, 2003, $24,995,000 for the year ended
December 31, 2004, $31,361,000 for the year ended
December 31, 2005, and $28,920,000 for the year ended
December 31, 2006. |
DESCRIPTION OF
DEBT SECURITIES
The following is a summary of the general terms of the debt
securities. We will file a prospectus supplement that may
contain additional terms when we issue debt securities. The
terms presented here, together with the terms in a related
prospectus supplement, will be a
3
description of the material terms of the debt securities. You
should also read the indenture under which the debt securities
are to be issued. We have filed a form of indenture governing
different types of debt securities with the SEC as an exhibit to
the registration statement of which this prospectus is a part.
All capitalized terms have the meanings specified in the
indenture.
We may issue, from time to time, debt securities, in one or more
series. The debt securities we offer will be issued under an
indenture between us and the trustee named in the indenture.
These debt securities that we may issue include senior debt
securities, subordinated debt securities, convertible debt
securities and exchangeable debt securities. The following is a
summary of the material provisions of the indenture filed as an
exhibit to the registration statement of which this prospectus
is a part. For each series of debt securities, the applicable
prospectus supplement for the series may change and supplement
the summary below.
General Terms of
the Indenture
The indenture does not limit the amount of debt securities that
we may issue. It provides that we may issue debt securities up
to the principal amount that we may authorize and they may be in
any currency or currency unit that we may designate. Except for
the limitations on consolidation, merger and sale of all or
substantially all of our assets contained in the indenture, the
terms of the indenture do not contain any covenants or other
provisions designed to give holders of any debt securities
protection against changes in our operations, financial
condition or transactions involving us. For each series of debt
securities, any restrictive covenants for those debt securities
will be described in the applicable prospectus supplement for
those debt securities.
We may issue the debt securities issued under the indenture as
discount securities, which means they may be sold at
a discount below their stated principal amount. These debt
securities, as well as other debt securities that are not issued
at a discount, may, for United States federal income tax
purposes, be treated as if they were issued with original
issue discount, or OID, because of interest payment and
other characteristics. Special United States federal income tax
considerations applicable to debt securities issued with
original issue discount will be described in more detail in any
applicable prospectus supplement.
You should refer to the prospectus supplement relating to a
particular series of debt securities for a description of the
following terms of the debt securities offered by that
prospectus supplement and by this prospectus:
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the title and authorized denominations of those debt securities;
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any limit on the aggregate principal amount of that series of
debt securities;
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the date or dates on which principal and premium, if any, of the
debt securities of that series is payable;
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interest rates, and the dates from which interest, if any, on
the debt securities of that series will accrue, and the dates
when interest is payable and the maturity;
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the right, if any, to extend the interest payment periods and
the duration of the extensions;
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if the amount of payments of principal or interest is to be
determined by reference to an index or formula, or based on a
coin or currency other than that in which the debt securities
are stated to be payable, the manner in which these amounts are
determined and the calculation agent, if any, with respect
thereto;
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the place or places where and the manner in which principal of,
premium, if any, and interest, if any, on the debt securities of
that series will be payable and the
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place or places where those debt securities may be presented for
transfer and, if applicable, conversion or exchange;
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the period or periods within which, the price or prices at
which, the currency or currencies in which, and other terms and
conditions upon which those debt securities may be redeemed, in
whole or in part, at our option or the option of a holder of
those securities, if we or a holder is to have that option;
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our obligation or right, if any, to redeem, repay or purchase
those debt securities pursuant to any sinking fund or analogous
provision or at the option of a holder of those securities, and
the terms and conditions upon which the debt securities will be
redeemed, repaid or purchased, in whole or in part, pursuant to
that obligation;
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the terms, if any, on which the debt securities of that series
will be subordinate in right and priority of payment to our
other debt;
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the denominations in which those debt securities will be
issuable;
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if other than the entire principal amount of the debt securities
when issued, the portion of the principal amount payable upon
acceleration of maturity as a result of a default on our
obligations;
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whether those debt securities will be issued in fully registered
form without coupons or in a form registered as to principal
only with coupons or in bearer form with coupons;
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whether any securities of that series are to be issued in whole
or in part the form of one or more global securities and the
depositary for those global securities;
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if other than United States dollars, the currency or currencies
in which payment of principal of or any premium or interest on
those debt securities will be payable;
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if the principal of or any premium or interest on the debt
securities of that series is to be payable, or is to be payable
at our election or the election of a holder of those securities,
in securities or other property, the type and amount of those
securities or other property, or the manner of determining that
amount, and the period or periods within which, and the terms
and conditions upon which, any such election may be made;
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the events of default and covenants relating to the debt
securities that are in addition to, modify or delete those
described in this prospectus;
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conversion or exchange provisions, if any, including conversion
or exchange prices or rates and adjustments thereto;
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whether and upon what terms the debt securities may be defeased,
if different from the provisions set forth in the indenture;
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the nature and terms of any security for any secured debt
securities;
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the terms applicable to any debt securities issued at a discount
from their stated principal amount; and
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any other specific terms of any debt securities.
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The applicable prospectus supplement will present material
United States federal income tax considerations for holders of
any debt securities and the securities exchange or quotation
system on which any debt securities are to be listed or quoted.
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Conversion or
Exchange Rights
Debt securities may be convertible into or exchangeable for
shares of our equity securities or other securities. The terms
and conditions of conversion or exchange will be stated in the
applicable prospectus supplement. The terms will include, among
others, the following:
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the conversion or exchange price;
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the conversion or exchange period;
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provisions regarding our ability or the ability of any holder to
convert or exchange the debt securities;
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events requiring adjustment to the conversion or exchange
price; and
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provisions affecting conversion or exchange in the event of our
redemption of the debt securities.
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Consolidation,
Merger or Sale
We cannot consolidate or merge with or into, or transfer or
lease all or substantially all of our assets to, any person,
unless the successor corporation or person to which our assets
are transferred or leased is organized under the laws of the
United States, any state of the United States or the District of
Columbia and it expressly assumes our obligations under the debt
securities and the indenture. In addition, we cannot complete
such a transaction unless immediately after completing the
transaction, no event of default under the indenture, and no
event that, after notice or lapse of time or both, would become
an event of default under the indenture, has occurred and is
continuing. When the person to whom our assets are transferred
or leased has assumed our obligations under the debt securities
and the indenture, we will be discharged from all our
obligations under the debt securities and the indenture except
in limited circumstances.
This covenant would not apply to any recapitalization
transaction, a change of control affecting us or a highly
leveraged transaction, unless the transaction or change of
control were structured to include a merger or consolidation or
transfer or lease of all or substantially all of our assets.
Events of
Default
The indenture provides that the following will be events
of default with respect to any series of debt securities:
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failure to pay interest for 30 days after the date payment
is due and payable;
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failure to pay principal or premium, if any, on any debt
security when due, either at maturity, upon any redemption, by
declaration or otherwise and, in the case of technical or
administrative difficulties, only if such default persists for a
period of more than three business days;
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failure to make sinking fund payments when due and continuance
of such default for a period of 30 days;
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failure to perform other covenants for 60 days after notice
that performance was required;
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events in bankruptcy, insolvency or reorganization relating to
us; or
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any other event of default provided in the applicable
officers certificate, resolution of our board of directors
or the supplemental indenture under which we issue a series of
debt securities.
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An event of default for a particular series of debt securities
does not necessarily constitute an event of default for any
other series of debt securities issued under the indenture. For
each series of debt securities, any modifications to the above
events of default will be described in the applicable prospectus
supplement for those debt securities.
The indenture provides that if an event of default specified in
the first, second, third, fourth or sixth bullets above occurs
and is continuing, either the trustee or the holders of at least
25% in aggregate principal amount of the outstanding debt
securities of that series may declare the principal amount of
all those debt securities (or, in the case of discount
securities or indexed securities, that portion of the principal
amount as may be specified in the terms of that series) to be
due and payable immediately. If an event of default specified in
the fifth bullet above occurs and is continuing, then the
principal amount of all those debt securities (or, in the case
of discount securities or indexed securities, that portion of
the principal amount as may be specified in the terms of that
series) will be due and payable immediately, without any
declaration or other act on the part of the trustee or any
holder. In certain cases, holders of a majority in principal
amount of the outstanding debt securities of any series may, on
behalf of holders of all those debt securities, rescind and
annul a declaration of acceleration.
The indenture imposes limitations on suits brought by holders of
debt securities against us. Except for actions for payment of
overdue principal or interest, no holder of debt securities of
any series may institute any action against us under the
indenture unless:
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the holder has previously given to the trustee written notice of
default and continuance of such default;
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the holders of at least 25% in principal amount of the
outstanding debt securities of the affected series have
requested that the trustee institute the action;
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the requesting holders have offered the trustee indemnity for
the reasonable expenses and liabilities that may be incurred by
bringing the action;
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the trustee has not instituted the action within 60 days of
the request and offer of indemnity; and
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the trustee has not received inconsistent direction by the
holders of a majority in principal amount of the outstanding
debt securities of the affected series.
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We will be required to file annually with the trustee a
certificate, signed by one of our officers, stating whether or
not the officer knows of any default by us in the performance,
observance or fulfillment of any condition or covenant of the
indenture.
Discharge,
Defeasance and Covenant Defeasance
We can discharge or decrease our obligations under the indenture
as stated below.
We may discharge obligations to holders of any series of debt
securities that have not already been delivered to the trustee
for cancellation and that have either become due and payable or
are by their terms to become due and payable, or are scheduled
for redemption, within one year. We may effect a discharge by
irrevocably depositing with the trustee cash or government
obligations denominated in the currency of the debt securities,
as trust funds, in an amount certified to be enough to pay when
due, whether at maturity, upon redemption or otherwise, the
principal of, and any premium and interest on, the debt
securities and any mandatory sinking fund payments.
Unless otherwise provided in the applicable prospectus
supplement, we may also discharge any and all of our obligations
to holders of any series of debt securities at any time, which
we refer to as defeasance. We may also be released from the
obligations imposed by any covenants of any outstanding series
of debt securities and provisions of the indenture, and we
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may omit to comply with those covenants without creating an
event of default under the trust declaration, which we refer to
as covenant defeasance. We may effect defeasance and covenant
defeasance only if, among other things:
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we irrevocably deposit with the trustee cash or government
obligations denominated in the currency of the debt securities,
as trust funds, in an amount certified to be enough to pay at
maturity, or upon redemption, the principal (including any
mandatory sinking fund payments) of, and any premium and
interest on, all outstanding debt securities of the
series; and
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we deliver to the trustee an opinion of counsel from a
nationally recognized law firm to the effect that the holders of
the series of debt securities will not recognize income, gain or
loss for U.S. federal income tax purposes as a result of
the defeasance or covenant defeasance and that defeasance or
covenant defeasance will not otherwise alter the holders
U.S. federal income tax treatment of principal, and any
premium and interest payments on, the series of debt securities.
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In the case of a defeasance by us, the opinion we deliver must
be based on a ruling of the Internal Revenue Service issued, or
a change in U.S. federal income tax law occurring, after
the date of the indenture, since such a result would not occur
under the U.S. federal income tax laws in effect on that
date.
Although we may discharge or decrease our obligations under the
indenture as described in the two preceding paragraphs, we may
not avoid, among other things, our duty to register the transfer
or exchange of any series of debt securities, to replace any
temporary, mutilated, destroyed, lost or stolen series of debt
securities or to maintain an office or agency in respect of any
series of debt securities.
Modification of
the Indenture
The indenture provides that we and the trustee may enter into
supplemental indentures without the consent of the holders of
debt securities to:, among other things
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evidence the assumption by a successor entity of our obligations;
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add to our covenants for the benefit of the holders of debt
securities, or to surrender any rights or power conferred upon
us;
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add any additional events of default;
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cure any ambiguity or correct any inconsistency or defect in the
indenture;
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add to, change or eliminate any of the provisions of the
indenture in a manner that will become effective only when there
is no outstanding debt security which is entitled to the benefit
of the provision as to which the modification would apply;
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secure any debt securities;
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establish the forms or terms of debt securities of any series;
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evidence and provide for the acceptance of appointment by a
successor trustee and add to or change any of the provisions of
the indenture as is necessary for the administration of the
trusts by more than one trustee;
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modify, eliminate or add to the provisions of the indenture as
shall be necessary to effect the qualification of the indenture
under the Trust Indenture Act of 1939 or under any similar
federal statute later enacted, and to add to the indenture such
other provisions as may be expressly required by the Trust
Indenture Act; and
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make any other provisions with respect to matters or questions
arising under the indenture that will not be inconsistent with
any provision of the indenture as long as the new provisions do
not adversely affect the interests of the holders of any
outstanding debt securities of any series created prior to the
modification.
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The indenture also provides that we and the trustee may, with
the consent of the holders of not less than a majority in
aggregate principal amount of debt securities of each series of
debt securities affected by such supplemental indenture then
outstanding, add any provisions to, or change in any manner,
eliminate or modify in any way the provisions of, the indenture
or any supplemental indenture or modify in any manner the rights
of the holders of the debt securities. We and the trustee may
not, however, without the consent of the holder of each
outstanding debt security affected thereby:
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extend the final maturity of any debt security;
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reduce the principal amount or premium, if any;
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reduce the rate or extend the time of payment of interest;
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reduce the amount of the principal of any debt security issued
with an original issue discount that is payable upon
acceleration;
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change the currency in which the principal, and any premium or
interest, is payable;
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impair the right to institute suit for the enforcement of any
payment on any debt security when due;
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if applicable, adversely affect the right of a holder to convert
or exchange a debt security; or
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reduce the percentage of holders of debt securities of any
series whose consent is required for any modification of the
indenture or for waivers of compliance with or defaults under
the indenture with respect to debt securities of that series.
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The indenture provides that the holders of not less than a
majority in aggregate principal amount of the then outstanding
debt securities of any series, by notice to the relevant
trustee, may on behalf of the holders of the debt securities of
that series waive any default and its consequences under the
indenture except:
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a default in the payment of, any premium and any interest on, or
principal of, any such debt security held by a nonconsenting
holder; or
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a default in respect of a covenant or provision of the indenture
that cannot be modified or amended without the consent of the
holder of each outstanding debt security of each series affected.
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Registered Global
Securities and Book Entry System
The debt securities of a series may be issued in whole or in
part in book-entry form and will be represented by one or more
fully registered global securities. We will deposit any
registered global securities with a depositary or with a nominee
for a depositary identified in the applicable prospectus
supplement and registered in the name of such depositary or
nominee. In such case, we will issue one or more registered
global securities denominated in an amount equal to the
aggregate principal amount of all of the debt securities of the
series to be issued and represented by such registered global
security or securities. This means that we will not issue
certificates to each holder.
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Unless and until it is exchanged in whole or in part for debt
securities in definitive registered form, a registered global
security may not be transferred except as a whole:
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by the depositary for the registered global security to its
nominee;
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by a nominee of the depositary to the depositary or another
nominee of the depositary; or
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by the depositary or its nominee to a successor of the
depositary or a nominee of the successor.
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The prospectus supplement relating to a series of debt
securities will describe the specific terms of the depositary
arrangement involving any portion of the series represented by a
registered global security. We anticipate that the following
provisions will apply to all depositary arrangements for debt
securities:
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ownership of beneficial interests in a registered global
security will be limited to persons that have accounts with the
depositary for such registered global security, these persons
being referred to as participants, or persons that
may hold interests through participants;
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upon the issuance of a registered global security, the
depositary for the registered global security will credit, on
its book-entry registration and transfer system, the
participants accounts with the respective principal
amounts of the debt securities represented by the registered
global security beneficially owned by the participants;
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any dealers, underwriters, or agents participating in the
distribution of the debt securities will designate the accounts
to be credited; and
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ownership of beneficial interest in the registered global
security will be shown on, and the transfer of such ownership
interest will be effected only through, records maintained by
the depositary for the registered global security for interests
of participants, and on the records of participants for
interests of persons holding through participants.
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The laws of some states may require that specified purchasers of
securities take physical delivery of the securities in
definitive form. These laws may limit the ability of those
persons to own, transfer or pledge beneficial interests in
registered global securities.
So long as the depositary for a registered global security, or
its nominee, is the registered owner of the registered global
security, the depositary or such nominee, as the case may be,
will be considered the sole owner or holder of the debt
securities represented by the registered global security for all
purposes under the indenture. Except as stated below, owners of
beneficial interests in a registered global security:
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will not be entitled to have the debt securities represented by
a registered global security registered in their names;
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will not receive or be entitled to receive physical delivery of
the debt securities in the definitive form; and
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will not be considered the owners or holders of the debt
securities under the relevant indenture.
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Accordingly, each person owning a beneficial interest in a
registered global security must rely on the procedures of the
depositary for the registered global security and, if the person
is not a participant, on the procedures of a participant through
which the person owns its interest, to exercise any rights of a
holder under the indenture.
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We understand that under existing industry practices, if we
request any action of holders or if an owner of a beneficial
interest in a registered global security desires to give or take
any action that a holder is entitled to give or take under the
indenture, the depositary for the registered global security
would authorize the participants holding the relevant beneficial
interests to give or take the action, and the participants would
authorize beneficial owners owning through the participants to
give or take the action or would otherwise act upon the
instructions of beneficial owners holding through them.
We will make payments of principal and premium, if any, and
interest, if any, on debt securities represented by a registered
global security registered in the name of a depositary or its
nominee to the depositary or its nominee, as the case may be, as
the registered owners of the registered global security. Neither
we nor the trustee, or any other agent of ours or the trustee
will be responsible or liable for any aspect of the records
relating to, or payments made on account of, beneficial
ownership interests in the registered global security or for
maintaining, supervising or reviewing any records relating to
the beneficial ownership interests.
We expect that the depositary for any debt securities
represented by a registered global security, upon receipt of any
payments of principal and premium, if any, and interest, if any,
in respect of the registered global security, will immediately
credit participants accounts with payments in amounts
proportionate to their respective beneficial interests in the
registered global security as shown on the records of the
depositary. We also expect that standing customer instructions
and customary practices will govern payments by participants to
owners of beneficial interests in the registered global security
held through the participants, as is now the case with the
securities held for the accounts of customers in bearer form or
registered in street name. We also expect that any
of these payments will be the responsibility of the participants.
If the depositary for any debt securities represented by a
registered global security is at any time unwilling or unable to
continue as depositary or stops being a clearing agency
registered under the Exchange Act, we will appoint an eligible
successor depositary. If we fail to appoint an eligible
successor depositary within 90 days, we will issue the debt
securities in definitive form in exchange for the registered
global security. In addition, we may at any time and in our sole
discretion decide not to have any of the debt securities of a
series represented by one or more registered global securities.
In that event, we will issue debt securities of the series in a
definitive form in exchange for all of the registered global
securities representing the debt securities. The trustee will
register any debt securities issued in definitive form in
exchange for a registered global security in the name or names
as the depositary, based upon instructions from its
participants, shall instruct the trustee.
We may also issue bearer debt securities of a series in the form
of one or more global securities, referred to as bearer
global securities. We will deposit these securities with a
depositary identified in the prospectus supplement relating to
the series. The prospectus supplement relating to a series of
debt securities represented by a bearer global security will
describe the applicable terms and procedures. These will include
the specific terms of the depositary arrangement and any
specific procedures for the issuance of debt securities in
definitive form in exchange for a bearer global security, in
proportion to the series represented by a bearer global security.
Concerning the
Trustee
The indenture provides that there may be more than one trustee
under the indenture, each for one or more series of debt
securities. If there are different trustees for different series
of debt securities, each trustee will be a trustee of a trust
under the indenture separate and apart from the trust
administered by any other trustee under that indenture. Except
as otherwise indicated in this prospectus or any prospectus
supplement, any action permitted to be
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taken by a trustee may be taken by such trustee only on the one
or more series of debt securities for which it is the trustee
under the indenture. Any trustee under the indenture may resign
or be removed from one or more series of debt securities. All
payments of principal of, and any premium and interest on, and
all registration, transfer, exchange, authentication and
delivery of, the debt securities of a series will be effected by
the trustee for that series at an office designated by the
trustee in New York, New York.
The indenture provides that, except during the continuance of an
event of default, the trustee will perform only such duties as
are specifically set forth in the indenture. During the
existence of an event of default, the trustee will exercise
those rights and powers vested in it under the indenture and use
the same degree of care and skill in its exercise as a prudent
person would exercise under the circumstances in the conduct of
such persons own affairs.
If the trustee becomes a creditor of ours, the indenture places
limitations on the right of the trustee to obtain payment of
claims or to realize on property received in respect of any such
claim as security or otherwise. The trustee may engage in other
transactions. If it acquires any conflicting interest relating
to any duties concerning the debt securities, however, it must
eliminate the conflict or resign as trustee.
No Individual
Liability of Incorporators, Stockholders, Officers or
Directors
The indenture provides that no past, present or future director,
officer, stockholder or employee of ours, any of our affiliates,
or any successor corporation, in their capacity as such, shall
have any individual liability for any of our obligations,
covenants or agreements under the debt securities or the
indenture.
Governing
Law
The indenture and the debt securities will be governed by, and
construed in accordance with, the laws of the State of New York.
DESCRIPTION OF
PREFERRED STOCK
As of March 31, 2007, our authorized preferred stock, par
value $0.0001 per share, was 5,000,000 shares, none of
which were issued and outstanding. We may issue preferred stock
in series, with such designations, powers, preferences and other
rights and qualifications, limitations or restrictions as our
board of directors may authorize, without further action by our
stockholders, including:
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the distinctive designation of each series and the number of
shares that will constitute the series;
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the voting rights, if any, of shares of the series and the terms
and conditions of the voting rights;
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the dividend rate on the shares of the series, the dates on
which dividends are payable, any restriction, limitation or
condition upon the payment of dividends, whether dividends will
be cumulative, and the dates from and after which dividends
shall accumulate;
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the prices at which, and the terms and conditions on which, the
shares of the series may be redeemed, if the shares are
redeemable;
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the terms and conditions of a sinking or purchase fund for the
purchase or redemption of shares of the series, if such a fund
is provided;
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any preferential amount payable upon shares of the series in the
event of the liquidation, dissolution or winding up of, or upon
the distribution of any of our assets; and
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the prices or rates of conversion or exchange at which, and the
terms and conditions on which, the shares of the series may be
converted or exchanged into other securities, if the shares are
convertible or exchangeable.
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The particular terms of any series of preferred stock, and the
transfer agent and registrar for that series, will be described
in a prospectus supplement. All preferred stock offered, when
issued, will be fully paid and nonassessable. Any material
United States federal income tax consequences and other special
considerations with respect to any preferred stock offered under
this prospectus will also be described in the applicable
prospectus supplement.
DESCRIPTION OF
DEPOSITARY SHARES
The following description of the depositary shares does not
purport to be complete and is subject to and qualified in its
entirety by the relevant deposit agreement and the depositary
receipts with respect to the depositary shares relating to any
particular series of preferred stock. You should read these
documents as they, and not this description, will define your
rights as a holder of depositary shares. Forms of these
documents will be filed with the SEC in connection with the
offering of depositary shares.
General
If we elect to offer fractional interests in shares of preferred
stock, we will provide for the issuance by a depositary to the
public of receipts for depositary shares. Each depositary share
will represent fractional interests of preferred stock. We will
deposit the shares of preferred stock underlying the depositary
shares under a deposit agreement between us and a bank or trust
company selected by us. The bank or trust company must have its
principal office in the United States and a combined capital and
surplus of at least $50 million. The depositary receipts
will evidence the depositary shares issued under the deposit
agreement.
The deposit agreement will contain terms applicable to the
holders of depositary shares in addition to the terms stated in
the depositary receipts. Each owner of depositary shares will be
entitled to all the rights and preferences of the preferred
stock underlying the depositary shares in proportion to the
applicable fractional interest in the underlying shares of
preferred stock. The depositary will issue the depositary
receipts to individuals purchasing the fractional interests in
shares of the related preferred stock according to the terms of
the offering described in a prospectus supplement.
Dividends and
Other Distributions
The depositary will distribute all cash dividends or other cash
distributions received for the preferred stock to the entitled
record holders of depositary shares in proportion to the number
of depositary shares that the holder owns on the relevant record
date. The depositary will distribute only an amount that can be
distributed without attributing to any holder of depositary
shares a fraction of one cent. The depositary will add the
undistributed balance to and treat it as part of the next sum
received by the depositary for distribution to holders of
depositary shares.
If there is a non-cash distribution, the depositary will
distribute property received by it to the entitled record
holders of depositary shares, in proportion, insofar as
possible, to the number of depositary shares owned by the
holders, unless the depositary determines, after consultation
with us, that it is not feasible to make such distribution. If
this occurs, the depositary may, with our approval, sell such
property and distribute the net proceeds from the
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sale to the holders. The deposit agreement also will contain
provisions relating to how any subscription or similar rights
that we may offer to holders of the preferred stock will be
available to the holders of the depositary shares.
Conversion,
Exchange, Redemption and Liquidation
If any series of preferred stock underlying the depositary
shares may be converted or exchanged, each record holder of
depositary receipts will have the right or obligation to convert
or exchange the depositary shares represented by the depositary
receipts.
The terms on which the depositary shares relating to the
preferred stock of any series may be redeemed, and any amounts
distributable upon our liquidation, dissolution or winding up,
will be described in the relevant prospectus supplement.
Voting
When the depositary receives notice of a meeting at which the
holders of the preferred stock are entitled to vote, the
depositary will mail the particulars of the meeting to the
record holders of the depositary shares. Each record holder of
depositary shares on the record date may instruct the depositary
on how to vote the shares of preferred stock underlying the
holders depositary shares. The depositary will try, if
practical, to vote the number of shares of preferred stock
underlying the depositary shares according to the instructions.
We will agree to take all reasonable action requested by the
depositary to enable it to vote as instructed.
Amendments
We and the depositary may agree to amend the deposit agreement
and the depositary receipt evidencing the depositary shares. Any
amendment that (a) imposes or increases certain fees, taxes
or other charges payable by the holders of the depositary shares
as described in the deposit agreement or that (b) otherwise
prejudices any substantial existing right of holders of
depositary shares, will not take effect until 30 days after
the depositary has mailed notice of the amendment to the record
holders of depositary shares. Any holder of depositary shares
that continues to hold its shares at the end of the
30-day
period will be deemed to have agreed to the amendment.
Termination
We may direct the depositary to terminate the deposit agreement
by mailing a notice of termination to holders of depositary
shares at least 30 days prior to termination. In addition,
a deposit agreement will automatically terminate if:
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the depositary has redeemed all related outstanding depositary
shares, or
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we have liquidated, terminated or wound up our business and the
depositary has distributed the preferred stock of the relevant
series to the holders of the related depositary shares.
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Payment of Fees
and Expenses
We will pay all fees, charges and expenses of the depositary,
including the initial deposit of the preferred stock and any
redemption of the preferred stock. Holders of depositary shares
will pay transfer and other taxes and governmental charges and
any other charges as are stated in the deposit agreement for
their accounts.
Resignation and
Removal of Depositary
At any time, the depositary may resign by delivering notice to
us, and we may remove the depositary. Resignations or removals
will take effect upon the appointment of a successor
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depositary and its acceptance of the appointment. The successor
depositary must be appointed within 60 days after delivery
of the notice of resignation or removal and must be a bank or
trust company having its principal office in the United States
and having a combined capital and surplus of at least
$50 million.
Reports
The depositary will forward to the holders of depositary shares
all reports and communications from us that are delivered to the
depositary and that we are required by law, the rules of an
applicable securities exchange or our restated certificate of
incorporation to furnish to the holders of the preferred stock.
Neither we nor the depositary will be liable if the depositary
is prevented or delayed by law or any circumstances beyond its
control in performing its obligations under the deposit
agreement. The deposit agreement limits our obligations and the
depositarys obligations to performance in good faith of
the duties stated in the deposit agreement. Neither we nor the
depositary will be obligated to prosecute or defend any legal
proceeding connected with any depositary shares or preferred
stock unless the holders of depositary shares requesting us to
do so furnish us with satisfactory indemnity. In performing our
obligations, we and the depositary may rely upon the written
advice of our counsel or accountants, on any information that
competent people provide to us and on documents that we believe
are genuine.
DESCRIPTION OF
COMMON STOCK
This section describes the general terms and provisions of the
shares of our common stock, par value $0.0001 per share.
This description is only a summary and is qualified in its
entirety by reference to the description of our common stock
incorporated by reference in this prospectus. Our restated
certificate of incorporation and our bylaws have been filed as
exhibits to our periodic reports filed with the SEC, which are
incorporated by reference in this prospectus. You should read
our restated certificate of incorporation and our bylaws for
additional information before you buy any of our common stock or
other securities. See Where You Can Find More
Information.
We have 100,000,000 shares of authorized common stock. As
of March 31, 2007, there were 24,570,241 shares of
common stock issued and outstanding. Each holder of common stock
is entitled to one vote for each share of common stock held on
all matters submitted to a vote of stockholders. We have not
provided for cumulative voting for the election of directors in
our restated certificate of incorporation. This means that the
holders of a majority of the shares voted can elect all of the
directors then standing for election. Subject to preferences
that may apply to shares of preferred stock outstanding at the
time, the holders of outstanding shares of our common stock are
entitled to receive dividends out of assets legally available at
the times and in the amounts that our board of directors may
determine from time to time. Upon our liquidation, dissolution
or
winding-up,
the holders of common stock are entitled to share ratably in all
assets remaining after payment of all liabilities and the
liquidation preferences of any outstanding preferred stock.
Holders of common stock have no preemptive or conversion rights
or other subscription rights. There are no redemption or sinking
fund provisions applicable to the common stock. All outstanding
shares of common stock are fully paid and nonassessable, and the
shares of common stock offered, when issued, will be fully paid
and nonassessable.
Certain
Provisions of Delaware Law and of the Charter and
Bylaws
The provisions of Delaware law, our restated certificate of
incorporation and our bylaws described below may have the effect
of delaying, deferring or discouraging another party from
acquiring control of us.
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Delaware Law. We are subject to the provisions of
Section 203 of the Delaware General Corporation Law
regulating corporate takeovers. In general, those provisions
prohibit a Delaware corporation from engaging in any business
combination with any interested stockholder for a period of
three years following the date that the stockholder became an
interested stockholder, unless:
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the transaction is approved by the board before the date the
interested stockholder attained that status;
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upon consummation of the transaction that resulted in the
stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the
corporation outstanding at the time the transaction
commenced; or
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on or after the date the business combination is approved by the
board and authorized at a meeting of stockholders by at least
two-thirds of the outstanding voting stock that is not owned by
the interested stockholder.
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Section 203 defines business combination to
include the following:
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any merger or consolidation involving the corporation and the
interested stockholder;
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any sale, transfer, pledge or other disposition of 10% or more
of the assets of the corporation involving the interested
stockholder;
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subject to certain exceptions, any transaction that results in
the issuance or transfer by the corporation of any stock of the
corporation to the interested stockholder;
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any transaction involving the corporation that has the effect of
increasing the proportionate share of the stock of any class or
series of the corporation beneficially owned by the interested
stockholder; or
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the receipt by the interested stockholder of the benefit of any
loans, advances, guarantees, pledges or other financial benefits
provided by or through the corporation.
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In general, Section 203 defines an interested stockholder
as any entity or person beneficially owning 15% or more of the
outstanding voting stock of the corporation and any entity or
person affiliated with or controlling or controlled by any of
these entities or persons.
A Delaware corporation may opt out of these provisions either
with an express provision in its original certificate of
incorporation or in an amendment to its certificate of
incorporation or bylaws approved by its stockholders. However,
we have not opted out, and do not currently intend to opt out
of, these provisions. The statute could prohibit or delay
mergers or other takeover or change in control attempts and,
accordingly, may discourage attempts to acquire us.
Charter and Bylaws. Our restated certificate of
incorporation and bylaws provide that:
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our bylaws may be amended or repealed only by a two-thirds vote
of our board of directors or a two-thirds stockholder vote;
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no action can be taken by stockholders except at an annual or
special meeting of the stockholders called in accordance with
our bylaws, and stockholders may not act by written consent;
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stockholders may not call special meetings of the stockholders
or fill vacancies on the board;
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the approval of holders of two-thirds of the shares entitled to
vote at an election of directors is required to amend or repeal
the provisions of our certificate of incorporation regarding the
inability of stockholders to take action by written consent;
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our board of directors is authorized to issue preferred stock
without stockholder approval; and
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we will indemnify officers and directors against losses that
they may incur in investigations and legal proceedings resulting
from their services to us, which may include services in
connection with takeover defense measures.
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Transfer
Agent
The transfer agent and registrar for our common stock is
Computershare Trust Company, Inc.
DESCRIPTION OF
WARRANTS
We may issue warrants for the purchase of debt securities,
preferred stock, common stock, depositary shares, or any
combination thereof. We may issue warrants independently or
together with any other securities offered by any prospectus
supplement and may be attached to or separate from the other
offered securities. Each series of warrants will be issued under
a separate warrant agreement to be entered into by us with a
warrant agent. The warrant agent will act solely as our agent in
connection with the warrants and will not assume any obligation
or relationship of agency or trust for or with any holders or
beneficial owners of warrants. Further terms of the warrants and
the applicable warrant agreements will be set forth in the
applicable prospectus supplement.
The applicable prospectus supplement relating to any particular
issue of warrants will describe the terms of the warrants,
including, as applicable, the following:
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the title of the warrants;
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the aggregate number of the warrants;
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the price or prices at which the warrants will be issued;
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the designation, terms and number of shares of debt securities,
preferred stock or common stock purchasable upon exercise of the
warrants;
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the designation and terms of the offered securities, if any,
with which the warrants are issued and the number of the
warrants issued with each offered security;
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the date, if any, on and after which the warrants and the
related debt securities, preferred stock or common stock will be
separately transferable;
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the price at which each share of debt securities, preferred
stock or common stock purchasable upon exercise of the warrants
may be purchased;
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the date on which the right to exercise the warrants shall
commence and the date on which that right shall expire;
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the minimum or maximum amount of the warrants which may be
exercised at any one time;
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information with respect to book-entry procedures, if any;
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a discussion of certain federal income tax
considerations; and
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any other terms of the warrants, including terms, procedures and
limitations relating to the exchange and exercise of the
warrants.
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We and the warrant agent may amend or supplement the warrant
agreement for a series of warrants without the consent of the
holders of the warrants issued thereunder to effect changes that
are not inconsistent with the provisions of the warrants and
that do not materially and adversely affect the interests of the
holders of the warrants.
PLAN OF
DISTRIBUTION
We may sell the securities offered by this prospectus to one or
more underwriters or dealers for public offering and sale by
them or to investors directly or through agents. The
accompanying prospectus supplement will set forth the terms of
the offering and the method of distribution and will identify
any firms acting as underwriters, dealers or agents in
connection with the offering, including:
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the name or names of any underwriters, dealers or agents;
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the purchase price of the securities and the proceeds to us from
the sale;
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any underwriting discounts and other items constituting
compensation to underwriters, dealers or agents;
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any public offering price;
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any discounts or concessions allowed or reallowed or paid to
dealers; and
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any securities exchange or market on which the securities
offered in the prospectus supplement may be listed.
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Only those underwriters identified in such prospectus supplement
are deemed to be underwriters in connection with the securities
offered in the prospectus supplement.
The distribution of the securities may be effected from time to
time in one or more transactions at a fixed price or prices,
which may be changed, or at prices determined as the applicable
prospectus supplement specifies. The securities may be sold
through a rights offering, forward contracts or similar
arrangements. In connection with the sale of the securities,
underwriters, dealers or agents may be deemed to have received
compensation from us in the form of underwriting discounts or
commissions and also may receive commissions from securities
purchasers for whom they may act as agent. Underwriters may sell
the securities to or through dealers, and the dealers may
receive compensation in the form of discounts, concessions or
commissions from the underwriters or commissions from the
purchasers for whom they may act as agent. Some of the
underwriters, dealers or agents who participate in the
securities distribution may engage in other transactions with,
and perform other services for, us or our subsidiaries in the
ordinary course of business.
We will provide in the applicable prospectus supplement
information regarding any underwriting discounts or other
compensation that we pay to underwriters or agents in connection
with the securities offering, and any discounts, concessions or
commissions which underwriters allow to dealers. Underwriters,
dealers and agents participating in the securities distribution
may be deemed to be underwriters, and any discounts and
commissions they receive and any profit they realize on the
resale of the securities may be deemed to be underwriting
discounts and commissions under the Securities Act of 1933.
Underwriters and their controlling persons, dealers and agents
may be entitled, under agreements entered into with us, to
indemnification against and contribution toward specific civil
liabilities, including liabilities under the Securities Act.
The securities may or may not be listed on a national securities
exchange. In connection with an offering, the underwriters may
purchase and sell securities in the open market. These
transactions may include short sales, stabilizing transactions
and purchases to cover positions created by short sales. Short
sales involve the sale by the underwriters of a greater number
of
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securities than they are required to purchase in an offering.
Stabilizing transactions consist of bids or purchases made for
the purpose of preventing or retarding a decline in the market
price of the securities while an offering is in progress. The
underwriters also may impose a penalty bid. This occurs when a
particular underwriter repays to the underwriters a portion of
the underwriting discount received by it because the
underwriters have repurchased securities sold by or for the
account of that underwriter in stabilizing or short-covering
transactions. These activities by the underwriters may
stabilize, maintain or otherwise affect the market price of the
securities. As a result, the price of the securities may be
higher than the price that otherwise might exist in the open
market. If these activities are commenced, they may be
discontinued by the underwriters at any time.
LEGAL
MATTERS
The validity of any securities offered by this prospectus will
be passed upon for us by Pillsbury Winthrop Shaw Pittman LLP,
San Francisco, California.
EXPERTS
The consolidated financial statements of Genomic Health, Inc.
appearing in Genomic Health, Inc.s Annual Report on
Form 10-K
for the year ended December 31, 2006, and Genomic Health,
Inc. managements assessment of the effectiveness of
internal control over financial reporting as of
December 31, 2006 included therein, have been audited by
Ernst & Young LLP, independent registered public
accounting firm, as set forth in their reports therein, included
therein, and incorporated herein by reference. Such consolidated
financial statements and managements assessment referred
to above are incorporated herein by reference in reliance upon
such reports given on the authority of such firm as experts in
accounting and auditing.
WHERE YOU CAN
FIND MORE INFORMATION
We have filed a registration statement on
Form S-3
with the SEC under the Securities Act of 1933. This prospectus
is part of the registration statement but the registration
statement includes and incorporates by reference additional
information and exhibits. We file annual, quarterly and current
reports, proxy statements and other information with the SEC.
You may read and copy the registration statement and any
document we file with the SEC at the public reference room
maintained by the SEC at 100 F Street, N.E.,
Washington, D.C. 20549. You may obtain information on
the operation of the public reference room by calling the SEC at
1-800-SEC-0330.
The SEC also maintains a web site that contains reports, proxy
and information statements and other information regarding
companies, such as ours, that file documents electronically with
the SEC. The address of that site on the world wide web is
http://www.sec.gov. The information on the SECs web site
is not part of this prospectus, and any references to this web
site or any other web site are inactive textual references only.
The SEC permits us to incorporate by reference the
information contained in documents we file with the SEC, which
means that we can disclose important information to you by
referring you to those documents rather than by including them
in this prospectus. Information that is incorporated by
reference is considered to be part of this prospectus and you
should read it with the same care that you read this prospectus.
Later information that we file with the SEC will automatically
update and supersede the information that is either contained,
or incorporated by reference, in this prospectus, and will be
considered to be a part of this prospectus from the date those
documents are filed. We have filed with the SEC, and incorporate
by reference in this prospectus:
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our Annual Report on
Form 10-K
for the year ended December 31, 2006, filed on
March 16, 2007, as amended on March 23, 2007 and
April 6, 2007; and
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the description of our common stock contained in our
Registration Statement on
Form 8-A
filed on September 26, 2005, including any amendment or
report filed for the purpose of updating such description.
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We also incorporate by reference all additional documents that
we file with the SEC under the terms of Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act that are made after the
initial filing date of the registration statement of which this
prospectus is a part and the effectiveness of the registration
statement, as well as between the date of this prospectus and
the termination of any offering of securities offered by this
prospectus. We are not, however, incorporating, in each case,
any documents or information that we are deemed to furnish and
not file in accordance with SEC rules.
You may request a copy of any or all of the documents
incorporated by reference but not delivered with this
prospectus, at no cost, by writing or telephoning us at the
following address and number: Investor Relations, Genomic
Health, Inc., 301 Penobscot Drive, Redwood City, California
94063, telephone
(650) 556-9300.
We will not, however, send exhibits to those documents, unless
the exhibits are specifically incorporated by reference in those
documents.
20
3,000,000 shares
Common stock
Sole Book-Running
Manager
JPMorgan
Co-Lead Manager
Lehman Brothers
Co-Managers
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Piper
Jaffray |
JMP
Securities |