CORRESP: A correspondence can be sent as a document with another submission type or can be sent as a separate submission.
Published on January 4, 2011
Via
EDGAR
January
4, 2011
Mr.
Jeffrey P. Riedler
Assistant
Director
Division
of Corporation Finance - Mail Stop 4720
United
States Securities and Exchange Commission
Washington,
D.C. 20549
|
Re:
|
Novelos
Therapeutics, Inc.
|
|
|
Form
10-K
|
||
|
Filed
March 30, 2010
|
||
|
File
Number 333-119366
|
Dear Mr.
Riedler:
This
letter constitutes supplemental correspondence on behalf of Novelos
Therapeutics, Inc., a Delaware corporation (the “Company”), related to the
above-referenced filing (the “2010 Form 10-K”).
The
purpose of this letter is to respond to the comment contained in your letter
dated December 22, 2010 addressed to Mr. Harry Palmin, Chief Executive Officer
of the Company, concerning the 2010 Form 10-K. For your convenience,
we have repeated the Staff’s comment below in bold face type. Except as
otherwise indicated, all statements contained herein concerning factual matters
relating to the Company are based on information provided to us by the
Company.
|
1.
|
Please
include as an exhibit in your 2010 Form 10-K, your agreement with Lee’s
Pharm, or alternatively, tell us the basis for your belief that you are
not required to file the agreement pursuant to Item 601(b)(10)(ii)(B) of
Regulation S-K.
|
Item 601(b)(10) of Regulation S-K
requires the filing of agreements of a registrant that are both material and not
entered into in the ordinary course of business. As a license
agreement for the commercialization of Company products, the agreement falls
clearly within the rubric of agreements that “ordinarily accompan[y] the kind of
business conducted by” the Company and, hence, absent a specific exception in
Item 601(b)(10)(ii)(B), are entered into in the ordinary course of
business. The Company does not believe the agreement with Lee’s Pharm
falls within the exclusions from agreements made in the ordinary course of
business under Item 601(b)(10)(ii)(B), and therefore the Company concluded
filing of the agreement was not required.
Item 601(b)(10)(ii)(B) provides that an
agreement will be deemed not to have been made in the ordinary course of
business if it is a “contract upon which the registrant’s business is
substantially dependent,” including any agreement falling within either of the
following two categories:
|
·
|
any continuing contract to sell
the major part of registrant’s products or services or to purchase the
major part of registrant’s requirements of goods, services or raw
materials; or
|
|
·
|
any franchise or license or other
agreement to use a patent, formula, trade secret, process or trade name
upon which registrant’s business depends to a material
extent.
|
The Company’s business is not now, and
was not at the time it entered into the agreement with Lee’s Pharm,
substantially dependent on the agreement with Lee’s Pharm, and the two types of
agreements identified in 601(b)(10)(ii)(B) appear to be offered for illustrative
purposes only, and not as a categorical statement that a registrant’s business
is necessarily “substantially dependent” upon any agreement falling within the
two examples. Moreover, the agreement with Lee’s Pharm does not fall
into either of the two categories of agreement. As disclosed in the
2010 Form 10-K, the agreement with Lee’s Pharm is “a collaboration agreement …
under which [the Company] granted Lee’s Pharm exclusive rights to develop,
manufacture and commercialize NOV-002 for cancer and NOV-205 for hepatitis in
the Chinese Territory.” The “Chinese Territory” consists of China,
Hong Kong, Taiwan and Macau.
The agreement does not contemplate the
continuing sale of the Company’s products or services, but rather the exclusive
right to commercially develop and sell products based on the Company’s drug
compounds for limited indications and within a limited
territory. Accordingly, the agreement does not fall within the first
category.
While the
agreement does include a license to use the Company’s intellectual property in
connection with the development, manufacture and commercialization of NOV-002
and NOV-205 for the limited indications and within the limited territory set
forth in the agreement, it was never expected to be, and clearly is not, an
agreement on which the Company’s “business depends to a material
extent.” The Company viewed the agreement as a positive development,
but it represented a small part of an overall partnering strategy undertaken by
the Company that lead to a further collaboration agreement with Mundipharma with
respect to the far more commercially important territories of Europe and Japan
(which agreement the Company filed as an exhibit to its Form 10-K filed March
30, 2009).
Furthermore,
the Lee’s Pharm agreement contemplated an up-front license fee of only $500,000,
which is being amortized over a 15-year period, whereas the collaboration
agreement was entered into in the context of a $10 million equity investment in
the Company’s Series E preferred stock, at a price of $0.65 per share, by
companies associated with Mundipharma. (The market price of the
Company’s common stock on the trading day immediately preceding the closing of
the financing was $0.48 per share.) In addition, the agreement with
Mundipharma contemplates milestone payments of up to an aggregate $85 million,
in contrast to the maximum milestone payments achievable under the agreement
with Lee’s Pharm of $1.7 million.
- 2
-
While the
Company has not generated significant revenues during its operating history
against which to compare meaningfully the payments contemplated in the agreement
with Lee’s Pharm, when viewed in comparison to the substantial operating losses
of the Company during that period (e.g., $19,557,135 during the 2007 fiscal
year, the year in which the Lee’s Pharm agreement was executed), it appeared
highly unlikely at the time the Company entered into the agreement that the
up-front and milestone payments and royalties contemplated in the agreement with
Lee’s Pharm could have contributed in a substantial way to the Company’s
profitability even if NOV-OO2 and NOV-205 were successfully commercialized in
the Lee’s Pharm territory.
Based
upon the foregoing considerations, the Company did not expect its business to
depend on the successful commercialization of NOV-002 and NOV-205 in the Chinese
Territory. Accordingly, the Company concluded at the time it entered
into the agreement with Lee’s Pharm that, even if assumed to be material, it did
not fall outside the ordinary course of business for purposes of Item 601(b)(10)
and that filing of the agreement was, therefore, not required.
Should
the Staff have any additional comments or questions concerning this filing,
please contact the undersigned, Paul Bork, at (617)832-1113 or Matthew Eckert at
(617) 832-3057.
|
Very truly
yours,
|
|||
|
|
|
/s/ Paul Bork | |
|
Paul Bork
|
|||
|
cc:
|
Mr. Harry
Palmin
|
|
Mr.
Johnny Gharib
|
- 3
-