Unassociated Document
UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
(Mark
One)
þ
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QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For
the Quarterly Period Ended June 30, 2009
Or
o
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For
the transition period from
to
Commission
file number 000-49839
Idenix
Pharmaceuticals, Inc.
(Exact
name of registrant as specified in its charter)
Delaware
(State
or Other Jurisdiction of
Incorporation
or Organization)
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45-0478605
(IRS
Employer Identification No.)
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60
Hampshire Street
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Cambridge,
MA
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02139
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(Address
of Principal Executive Offices)
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(Zip
Code)
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Registrant’s
telephone number, including area code:
(617) 995-9800
Indicate
by check mark whether the registrant: (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to
such filing requirements for the past 90 days. Yes þ No o
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes o No o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check
one):
Large
accelerated filer:
o
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Accelerated
filer:
þ
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Non-accelerated
filer: o
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Smaller
reporting company:
o
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(Do
not check if a smaller reporting
company)
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Indicate
by check mark whether the registrant is a shell company (as defined by
Rule 12b-2 of the Exchange Act). Yes o No þ
As of
July 20, 2009, the number of shares of the registrant’s common stock, par
value $.001 per share, outstanding was 59,078,996 shares.
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Page
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Part
I-Financial Information
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Item
1. Financial Statements
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Unaudited
Condensed Consolidated Balance Sheets at June 30, 2009 and December 31,
2008
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3
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Unaudited
Condensed Consolidated Statements of Operations for the Three Months ended
June 30, 2009 and 2008
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4
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Unaudited
Condensed Consolidated Statements of Operations for the Six Months ended
June 30, 2009 and 2008
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5
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Unaudited
Condensed Consolidated Statements of Cash Flows for the Six Months ended
June 30, 2009 and 2008
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6
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Notes
to the Unaudited Condensed Consolidated Financial
Statements
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7
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Item
2. Management’s Discussion and Analysis of Financial Condition and Results
of Operations
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20
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Item
3. Quantitative and Qualitative Disclosures About Market
Risk
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28
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Item
4. Controls and Procedures
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28
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Part
II—Other Information
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Item
1. Legal Proceedings
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28
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Item
1A. Risk Factors
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28
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Item
2. Unregistered Sales of Equity Securities and Use of
Proceeds
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47
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Item
3. Defaults Upon Senior Securities
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47
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Item
4. Submission of Matters to a Vote of Security Holders
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47
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Item
5. Other Information
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47
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Item
6. Exhibits
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47
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Signatures
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48
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Exhibit
Index
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49
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EX.
21.1 Subsidiaries of the Registrant
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EX-31.1
Section 302 Certification of CEO
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EX-31.2
Section 302 Certification of CFO
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EX-32.1
Section 906 Certification of CEO
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EX-32.2
Section 906 Certification of CFO
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IDENIX
PHARMACEUTICALS, INC.
CONDENSED
CONSOLIDATED BALANCE SHEETS
(IN
THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
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June 30,
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December 31,
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2009
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2008
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ASSETS
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Current
assets:
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Cash
and cash equivalents
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$ |
50,128 |
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$ |
41,509 |
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Restricted
cash
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411 |
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411 |
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Marketable
securities
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- |
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1,424 |
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Receivables
from related party
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843 |
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894 |
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Income
taxes receivable
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1,782 |
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3,526 |
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Prepaid
expenses and other current assets
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1,536 |
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2,277 |
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Total
current assets
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54,700 |
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50,041 |
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Intangible
asset, net
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11,806 |
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12,387 |
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Property
and equipment, net
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11,367 |
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13,238 |
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Restricted
cash
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750 |
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750 |
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Marketable
securities
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1,584 |
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3,145 |
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Income
taxes receivable
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997 |
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- |
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Other
assets
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1,588 |
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219 |
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Total
assets
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$ |
82,792 |
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$ |
79,780 |
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LIABILITIES
AND STOCKHOLDERS' EQUITY (DEFICIT)
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Current
liabilities:
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Accounts
payable
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$ |
2,649 |
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$ |
3,868 |
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Accrued
expenses
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9,959 |
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9,268 |
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Deferred
revenue
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1,025 |
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- |
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Deferred
revenue, related party
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6,110 |
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5,965 |
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Other
current liabilities
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592 |
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475 |
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Total
current liabilities
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20,335 |
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19,576 |
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Long-term
obligations
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13,506 |
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12,789 |
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Deferred
revenue, net of current portion
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19,905 |
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4,272 |
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Deferred
revenue, related party, net of current portion
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33,607 |
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35,790 |
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Total
liabilities
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87,353 |
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72,427 |
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Commitments
and contingencies (Note 11)
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Stockholders'
equity (deficit):
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Common
stock, $0.001 par value; 125,000,000 shares authorized at June 30,
2009 and December 31, 2008; 59,078,996 and 56,538,859 shares issued
and outstanding at June 30, 2009 and December 31, 2008,
respectively
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59 |
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57 |
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Additional
paid-in capital
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533,042 |
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515,883 |
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Accumulated
other comprehensive income
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541 |
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375 |
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Accumulated
deficit
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(538,203 |
) |
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(508,962 |
) |
Total
stockholders' equity (deficit)
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(4,561 |
) |
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7,353 |
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Total
liabilities and stockholders' equity (deficit)
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$ |
82,792 |
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$ |
79,780 |
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The
accompanying notes are an integral part of these condensed consolidated
financial statements.
IDENIX
PHARMACEUTICALS, INC.
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN
THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
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Three Months Ended June 30,
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2009
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2008
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Revenues:
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Collaboration
revenue - related party
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$ |
2,182 |
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$ |
1,433 |
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Other
revenue
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267 |
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159 |
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Total
revenues
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2,449 |
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1,592 |
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Operating
expenses:
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Cost
of revenues
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492 |
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415 |
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Research
and development
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11,400 |
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14,136 |
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General
and administrative
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5,357 |
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6,651 |
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Restructuring
charges
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1,506 |
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37 |
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Total
operating expenses
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18,755 |
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21,239 |
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Loss
from operations
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(16,306 |
) |
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(19,647 |
) |
Other
income (expense), net
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(249 |
) |
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485 |
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Loss
before income taxes
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(16,555 |
) |
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(19,162 |
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Income
tax benefit
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241 |
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256 |
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Net
loss
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$ |
(16,314 |
) |
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$ |
(18,906 |
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Basic
and diluted net loss per common share
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$ |
(0.28 |
) |
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$ |
(0.34 |
) |
Shares
used in computing basic and diluted net loss per common
share
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|
59,077 |
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56,359 |
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The
accompanying notes are an integral part of these condensed consolidated
financial statements.
IDENIX
PHARMACEUTICALS, INC.
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN
THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
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Six Months Ended June 30,
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2009
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2008
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Revenues:
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Collaboration
revenue - related party
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$ |
6,098 |
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$ |
3,478 |
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Other
revenue
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362 |
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157 |
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Total
revenues
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6,460 |
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3,635 |
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Operating
expenses:
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Cost
of revenues
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954 |
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810 |
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Research
and development
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22,250 |
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29,004 |
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General
and administrative
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11,373 |
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14,972 |
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Restructuring
charges
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1,506 |
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297 |
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Total
operating expenses
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36,083 |
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|
45,083 |
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Loss
from operations
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(29,623 |
) |
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(41,448 |
) |
Other
income (expense), net
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(297 |
) |
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1,425 |
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Loss
before income taxes
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(29,920 |
) |
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(40,023 |
) |
Income
tax benefit
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|
679 |
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|
657 |
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Net
loss
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$ |
(29,241 |
) |
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$ |
(39,366 |
) |
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Basic
and diluted net loss per common share
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$ |
(0.50 |
) |
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$ |
(0.70 |
) |
Shares
used in computing basic and diluted net loss per common
share
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|
58,014 |
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|
56,316 |
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The
accompanying notes are an integral part of these condensed consolidated
financial statements.
IDENIX
PHARMACEUTICALS, INC.
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN
THOUSANDS)
(UNAUDITED)
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Six Months Ended June 30,
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2009
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2008
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Cash
flows from operating activities:
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|
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Net
loss
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$ |
(29,241 |
) |
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$ |
(39,366 |
) |
Adjustments
to reconcile net loss to net cash used in operating
activities:
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Depreciation
and amortization
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2,851 |
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2,938 |
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Share-based
compensation expense
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2,446 |
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|
2,882 |
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Revenue
adjustment for contingently issuable shares
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(1,362 |
) |
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|
3,142 |
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Other
|
|
|
269 |
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6 |
|
Changes
in operating assets and liabilities:
|
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|
|
|
|
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Receivables
from related party
|
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|
51 |
|
|
|
9,469 |
|
Income
taxes receivable
|
|
|
2,958 |
|
|
|
(367 |
) |
Prepaid
expenses and other current assets
|
|
|
(77 |
) |
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|
2,161 |
|
Income
taxes receivable, non-current
|
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|
(946 |
) |
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|
(461 |
) |
Other
assets
|
|
|
(557 |
) |
|
|
700 |
|
Accounts
payable
|
|
|
(1,221 |
) |
|
|
(3,354 |
) |
Accrued
expenses and other current liabilities
|
|
|
263 |
|
|
|
(2,638 |
) |
Deferred
revenue
|
|
|
16,658 |
|
|
|
- |
|
Deferred
revenue, related party
|
|
|
(3,077 |
) |
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|
(4,197 |
) |
Other
liabilities
|
|
|
(370 |
) |
|
|
(898 |
) |
Net
cash used in operating activities
|
|
|
(11,355 |
) |
|
|
(29,983 |
) |
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
Purchases
of property and equipment
|
|
|
(220 |
) |
|
|
(1,479 |
) |
Purchases
of marketable securities
|
|
|
- |
|
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(15,145 |
) |
Sales
and maturities of marketable securities
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|
|
2,748 |
|
|
|
51,877 |
|
Net
cash provided by investing activities
|
|
|
2,528 |
|
|
|
35,253 |
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds
from exercise of common stock options
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|
|
97 |
|
|
|
421 |
|
Proceeds
from issuance of common stock to related party
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|
20 |
|
|
|
2 |
|
Proceeds
from issuance of common stock
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|
17,000 |
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|
|
- |
|
Net
cash provided by financing activities
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|
|
17,117 |
|
|
|
423 |
|
Effect
of changes in exchange rates on cash and cash equivalents
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|
|
329 |
|
|
|
109 |
|
Net
increase in cash and cash equivalents
|
|
|
8,619 |
|
|
|
5,802 |
|
Cash
and cash equivalents at beginning of period
|
|
|
41,509 |
|
|
|
48,260 |
|
Cash
and cash equivalents at end of period
|
|
$ |
50,128 |
|
|
$ |
54,062 |
|
Supplemental
disclosure of noncash investing and financing activities:
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|
|
|
|
|
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|
Change
in value of shares of common stock contingently issuable or issued to
related party
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|
$ |
2,401 |
|
|
$ |
6,465 |
|
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
IDENIX
PHARMACEUTICALS, INC.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1.
BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
The
condensed consolidated financial statements reflect the operations of Idenix
Pharmaceuticals, Inc. and our wholly owned subsidiaries, which we reference
as Idenix, we, us or our. All intercompany accounts and transactions have
been eliminated in consolidation.
The
accompanying condensed consolidated financial statements are unaudited and have
been prepared by us in accordance with accounting principles generally accepted
in the United States of America for interim reporting. Accordingly, these
interim financial statements do not include all the information and footnotes
required by generally accepted accounting principles for complete financial
statements and should be read in conjunction with the audited financial
statements for the year ended December 31, 2008, which are included in our
Annual Report on Form 10-K filed with the Securities and Exchange Commission, or
SEC, on March 4, 2009. The interim financial statements are unaudited, but
in the opinion of management, reflect all adjustments (including normal
recurring accruals) necessary for a fair statement of the financial position and
results of operations for the interim periods presented. The year end
consolidated balance sheet data presented for comparative purposes was derived
from audited financial statements, but does not include all disclosures required
by accounting principles generally accepted in the United States.
The
results of operations for the interim periods are not necessarily indicative of
the results of operations to be expected for any future period or the fiscal
year ending December 31, 2009.
Certain
financial statement items have been reclassified to conform to the current
period presentation.
In June
2009, we adopted Statement of Financial Accounting Standards, or SFAS, No. 165,
Subsequent Events, or SFAS No. 165. This
standard establishes general standards of accounting for and disclosure of
events that occur after the balance sheet date but before financial statements
are issued. The adoption of this statement did not impact our financial
statements. We evaluated all events or transactions that occurred after
June 30, 2009 through July 31, 2009, the date we issued these financial
statements. During this period we did not have any material recognizable
subsequent events.
Revenue
Recognition
Revenue
is recognized in accordance with the SEC’s Staff Accounting Bulletin
No. 101, Revenue
Recognition in Financial Statements, or SAB No. 101, as amended by SEC
Staff Accounting Bulletin No. 104, Revenue Recognition, and,
for revenue arrangements entered into after June 30, 2003, Emerging Issues
Task Force, or EITF, No. 00-21, Revenue Arrangements with Multiple
Deliverables, or EITF No. 00-21. We record revenue provided that
there is persuasive evidence that an arrangement exists, delivery has occurred
or services have been rendered, the price is fixed or determinable and
collectability is reasonably assured.
Where we
have continuing performance obligations under the terms of a collaborative
arrangement, non-refundable license fees are recognized as revenue over the
period in which we complete our performance obligations. When our level of
effort is relatively constant over the performance period or no other
performance pattern is evident, the revenue is recognized on a straight-line
basis. The determination of the performance period involves judgment on the part
of management.
We
entered into a collaboration arrangement with Novartis Pharma AG, or Novartis,
in May 2003, which we refer to as the development and commercialization
agreement. Under this arrangement, we have received non-refundable license fees,
milestones, collaborative research and development funding and royalties, which
are classified as collaboration revenue – related party in our condensed
consolidated statements of operations. This arrangement has several joint
committees in which we and Novartis participate. We participate in these
committees as a means to govern or protect our interests. The committees span
the period from early development through commercialization of drug candidates
licensed by Novartis. As a result of applying the provisions of SAB No. 101,
which was the applicable revenue guidance at the time the collaboration was
executed, our revenue recognition policy attributes revenue to the development
period of the drug candidates licensed under the development and
commercialization agreement. We have not attributed revenue to our involvement
in the committees following the commercialization of the licensed products as we
have determined that our participation on the committees, as such participation
relates to the commercialization of drug candidates, is protective. Our
determination is based in part on the fact that our expertise is, and has been,
the discovery and development of drugs for the treatment of human viral
diseases. Novartis, on the other hand, has considerable commercialization
expertise and the infrastructure necessary for the commercialization of such
drug candidates. Accordingly, we believe our obligation to participate in these
committees post commercialization is inconsequential.
Royalty
revenue consists of revenue earned under our license agreement with Novartis for
sales of Tyzeka®/Sebivo®. Royalty revenue is recognized when reported from
Novartis and classified as collaboration revenue - related party in our
condensed consolidated statements of operations. Royalty revenue is equal to a
percentage of telbivudine (Tyzeka®/Sebivo®) net sales, with such percentage
increasing according to specified tiers of net sales. The royalty percentage
varies based upon the territory and the aggregate dollar amount of net
sales.
IDENIX
PHARMACEUTICALS, INC.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
- CONTINUED
In
February 2009, we entered into a license agreement with GlaxoSmithKline, or GSK,
which we refer to as the GSK license agreement. Under the GSK license agreement,
we granted GSK an exclusive license to develop, manufacture and commercialize
our non-nucleoside reverse transcriptase inhibitor, or NNRTI, compounds,
including IDX899, for the treatment of human diseases, including human
immunodeficiency virus, or HIV, and acquired immune deficiency syndrome, or
AIDS, on a worldwide basis. Under this agreement, in March 2009, we received a
$17.0 million non-refundable license fee payment. This agreement has performance
obligations that we assessed under EITF No. 00-21, including joint committee
participation and GSK’s right to license other NNRTI compounds that we may
develop in the future. We concluded that this arrangement should be accounted
for as a single unit of accounting in accordance with EITF No. 00-21. The $17.0
million payment was recorded as deferred revenue and is being recognized as
revenue over the life of the agreement, which is estimated to be seventeen
years. This license fee revenue is classified as other revenue in our condensed
consolidated statements of operations.
We have
entered into cooperative agreements in which we have co-developed or acquired
licenses for certain of our antiviral technology from third parties. These
cooperative agreements generally require royalty or other payments to be paid by
us to the co-developers or licensors when we out-license rights to or
commercialize these certain technologies to our collaboration partners. These
payments to the co-developers or licensors are deferred and are recognized as
expense over the same period that we recognize the related revenue under our
collaborative arrangements.
In
January 2009, we adopted EITF No. 07-01, Accounting for Collaborative
Arrangements Related to the Development and Commercialization of Intellectual
Property, or EITF No. 07-01. EITF No. 07-01 prescribes that certain
transactions between collaborators be recorded in the income statement on either
a gross or net basis, depending on the characteristics of the collaboration
relationship, and provides for enhanced disclosure of collaborative
relationships. In accordance with EITF No. 07-01, we evaluated our
collaborative agreements for proper income statement classification based on the
nature of the underlying activity. If payments to and from our collaboration
partners are not within the scope of other authoritative accounting literature,
the income statement classification for the payments is based on a reasonable,
rational analogy to authoritative accounting literature that is applied in a
consistent manner. The adoption of EITF No. 07-01 did not have a significant
impact on our financial statements.
Marketable
Securities
We
classify our marketable securities with remaining final maturities of 12 months
or less from the purchase date as current marketable securities in our
condensed consolidated balance sheets, exclusive of those categorized as cash
equivalents. We classify our marketable securities with remaining final
maturities greater than 12 months as non-current marketable securities. We
classify all of our marketable debt securities as available-for-sale. We report
available-for-sale investments at fair value as of each balance sheet date and
include any unrealized gains and, to the extent deemed temporary, unrealized
losses in stockholders’ equity. Realized gains and losses are determined using
the specific identification method and are included in other income (expense),
net.
Investments
are considered to be impaired when a decline in fair value below cost basis is
determined to be other-than-temporary. We evaluate whether a decline in fair
value below cost basis is other-than-temporary using available evidence
regarding our investments. In the event that the cost basis of a security
significantly exceeds its fair value, we evaluate, among other factors, the
duration of the period that, and extent to which, the fair value is less than
cost basis, the financial health of and business outlook for the issuer,
including industry and sector performance, and operational and financing cash
flow factors, overall market conditions and trends, our intent to sell the
investment and if it is more likely than not that we would be required to sell
the investment before its anticipated recovery. Once a decline in fair value is
determined to be other-than-temporary, a write-down is recorded in the condensed
consolidated statements of operations and a new cost basis in the security is
established. In April 2009, we adopted Financial Accounting Standards
Board, or FASB, Staff Position, or FSP, FAS 115-2
and FAS 124-2,
Recognition and Presentation of Other-Than-Temporary
Impairment. This standard provides additional guidance in assessing the
credit and noncredit component of an other-than-temporary impairment event and
modifies the presentation and disclosures when an other-than-temporary
impairment event has occurred. The adoption of this standard did not have a
significant impact on our financial statements.
Fair
Value Measurements
Our
assets and liabilities that are measured at fair value on a recurring basis as
of June 30, 2009 and December 31, 2008 are measured in accordance with SFAS No.
157, Fair Value
Measurements, or SFAS No. 157. Fair values determined by Level 1
inputs utilize observable data such as quoted prices in active markets. Fair
values determined by Level 2 inputs utilize data points other than quoted
prices in active markets that are observable either directly or indirectly. Fair
values determined by Level 3 inputs utilize unobservable data points in
which there is little or no market data, which require the reporting entity to
develop its own assumptions.
IDENIX
PHARMACEUTICALS, INC.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
- CONTINUED
The
following table represents our assets and liabilities measured at fair value on
a recurring basis at June 30, 2009:
|
|
Other
|
|
|
|
|
|
|
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
|
|
|
Inputs
|
|
|
Inputs
|
|
|
|
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Total
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Money
market funds
|
|
$ |
22,783 |
|
|
$ |
- |
|
|
$ |
22,783 |
|
Auction
rate security
|
|
|
- |
|
|
|
1,584 |
|
|
|
1,584 |
|
|
|
$ |
22,783 |
|
|
$ |
1,584 |
|
|
$ |
24,367 |
|
The
following table represents our assets and liabilities measured at fair value on
a recurring basis at December 31, 2008:
|
|
Other
|
|
|
|
|
|
|
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
|
|
|
Inputs
|
|
|
Inputs
|
|
|
|
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Total
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Money
market funds
|
|
$ |
19,993 |
|
|
$ |
- |
|
|
$ |
19,993 |
|
Corporate
debt securities
|
|
|
2,633 |
|
|
|
- |
|
|
|
2,633 |
|
U.S.
obligations
|
|
|
201 |
|
|
|
- |
|
|
|
201 |
|
Auction
rate security
|
|
|
- |
|
|
|
1,710 |
|
|
|
1,710 |
|
|
|
$ |
22,827 |
|
|
$ |
1,710 |
|
|
$ |
24,537 |
|
The
following table is a rollforward of our assets whose fair value is determined on
a recurring basis using significant unobservable inputs (Level 3):
|
|
Three
and Six Months Ended
|
|
|
|
June
30, 2009
|
|
|
|
Fair Value
|
|
|
|
(In
thousands)
|
|
Beginning
balance
|
|
$ |
1,710 |
|
Purchases,
sales, and settlements
|
|
|
- |
|
Total
unrealized losses recognized in earnings
|
|
|
(126 |
) |
Ending
balance
|
|
$ |
1,584 |
|
In
accordance with SFAS No. 157, our cash equivalents were valued at June 30,
2009 using calculated net asset values and are therefore classified as Level 2.
As of June 30, 2009 and December 31, 2008, we held one investment in an
auction rate security, which has failed auctions since the first quarter of
2008. This security was classified as Level 3 in accordance with
SFAS No. 157 and represented 6.5% of the total assets that were
measured at fair value on a recurring basis as of June 30, 2009. We
determined the fair value of this security based on a cash flow model which
incorporated a three-year discount period, a 2.33% per annum coupon rate, a
0.664% per coupon payment discount rate (which integrated a liquidity discount
rate, 3-year swap forward rate and credit spread), as well as coupon history as
of June 30, 2009. We also considered in determining the fair value that our
holding in the auction rate security was backed by the U.S. government and
that the security was rated A3 at June 30, 2009. Due to the fair value being
less than the cost basis and our intent to sell the investment, the decline was
deemed to be an other-than-temporary impairment. We recorded an impairment
charge of $0.1 million in the three months ended June 30, 2009 and
adjusted the fair value of the security to $1.6 million in our condensed
consolidated balance sheet at June 30, 2009.
We
adopted several new standards regarding the fair value and disclosures of
financial and non-financial assets in 2009. In January 2009, we implemented
SFAS No. 157 as it relates to our non-financial assets and liabilities that
are remeasured at fair value on a non-recurring basis. The adoption of SFAS No.
157 did not have a significant impact on our financial statements. In April
2009, we also adopted FSP FAS 157-4, Determining Fair Value When the
Volume and Level of Activity for the Asset or Liability Have Significantly
Decreased and Identifying Transactions That Are Not Orderly, or FSP
FAS 157-4. FSP FAS 157-4 provides guidelines for estimating fair value
when the volume and level of activity has significantly decreased. This standard
also provides additional authoritative guidance in determining whether a market
is active or inactive and whether a transaction is distressed. It is applicable
to all assets and liabilities (i.e. financial and non-financial) and requires
enhanced disclosures. The adoption of this standard did not have a
significant impact on our financial statements. In April 2009, we adopted
FSP FAS 107-1 and Accounting Principles Board Opinion, or APB, 28-1, Interim Disclosures about Fair
Value of Financial Instruments, or FSP FAS 107-1 and APB 28-1. FSP
FAS 107-1 and APB 28-1, amends FASB Statement No. 107, Disclosures about Fair Value of
Financial Instruments, to require disclosures about fair value of
financial instruments in interim as well as in annual financial statements. This
FSP also amends APB 28,
Interim Financial Reporting, to require those disclosures in all interim
financial statements. The adoption of this standard did not have an impact on
our financial statements.
IDENIX
PHARMACEUTICALS, INC.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
- CONTINUED
Share-Based
Compensation
We
recognize share-based compensation in accordance with SFAS No. 123
(revised 2004), Share-Based
Payment, which requires share-based transactions for employees and
directors to be accounted for using a fair value based method that results in
expense being recognized in our financial statements.
Income Taxes
Deferred
tax assets and liabilities are recognized based on the expected future tax
consequences, using current tax rates, of temporary differences between the
financial statement carrying amounts and the income tax basis of assets and
liabilities. A valuation allowance is applied against any net deferred tax asset
if, based on the weighted available evidence, it is more likely than not that
some or all of the deferred tax assets will not be realized.
We
account for uncertain tax positions that meet “a more likely than not” threshold
in accordance with FASB Interpretation No. 48, Accounting for Uncertain Tax
Positions, which requires us to recognize the benefit of uncertain tax
positions in our financial statements.
2.
NET LOSS PER COMMON SHARE
We
account for and disclose net loss per common share in accordance with SFAS No.
128, Earnings Per
Share, or SFAS No. 128. Under the provisions of SFAS No. 128,
basic net loss per common share is computed by dividing the net loss available
to common stockholders by the weighted average number of common shares
outstanding during the period. Diluted net loss per common share is computed by
dividing the net loss available to common stockholders by the weighted average
number of common shares and other potential common shares then outstanding.
Potential common shares consist of common shares issuable upon the assumed
exercise of outstanding stock options (using the treasury stock method),
issuance of contingently issuable shares subject to Novartis’ subscription
rights (see Note 4) and restricted stock awards.
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands, except
|
|
|
(In thousands, except
|
|
|
|
per
share data)
|
|
|
per
share data)
|
|
Basic
and diluted net loss per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$ |
(16,314 |
) |
|
$ |
(18,906 |
) |
|
$ |
(29,241 |
) |
|
$ |
(39,366 |
) |
Basic
and diluted weighted average number of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
common
shares outstanding
|
|
|
59,077 |
|
|
|
56,359 |
|
|
|
58,014 |
|
|
|
56,316 |
|
Basic
and diluted net loss per common share
|
|
$ |
(0.28 |
) |
|
$ |
(0.34 |
) |
|
$ |
(0.50 |
) |
|
$ |
(0.70 |
) |
The
following potential common shares were excluded from the calculation of diluted
net loss per common share because their effect was anti-dilutive:
|
|
Three and Six Months
Ended
June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
Options
|
|
|
6,511 |
|
|
|
6,153 |
|
Contingently
issuable shares to related party
|
|
|
681 |
|
|
|
2,754 |
|
|
|
|
7,192 |
|
|
|
8,907 |
|
IDENIX
PHARMACEUTICALS, INC.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
- CONTINUED
In
addition to the contingently issuable shares to related party listed in the
table above, Novartis is entitled to additional shares under its stock purchase
rights which would be anti-dilutive based on our current stock
price.
In
January 2009, we adopted FSP EITF 03-6-1, Determining Whether Instruments
Granted in Share-Based Payment Transactions Are Participating Securities,
or FSP EITF 03-6-1. FSP EITF 03-6-1 addresses whether instruments
granted in share-based payment transactions are participating securities prior
to vesting and therefore need to be included in the earnings allocation in
computing earnings per share under the two-class method as described in SFAS
No. 128. Under the guidance of FSP EITF 03-6-1, unvested share-based
payment awards that contain nonforfeitable rights to dividends or dividend
equivalents, whether paid or unpaid, are participating securities and shall
be included in the computation of earnings per share pursuant to the two-class
method. Our awards do not have nonforfeitable rights to dividends or dividend
equivalents and therefore the adoption of this FSP did not impact our financial
statements.
3.
COMPREHENSIVE LOSS
For the
three and six months ended June 30, 2009 and 2008, respectively,
comprehensive loss was as follows:
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$ |
(16,314 |
) |
|
$ |
(18,906 |
) |
|
$ |
(29,241 |
) |
|
$ |
(39,366 |
) |
Changes
in other comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation adjustment
|
|
|
553 |
|
|
|
93 |
|
|
|
135 |
|
|
|
585 |
|
Unrealized
gain (loss) on marketable securities
|
|
|
30 |
|
|
|
(47 |
) |
|
|
31 |
|
|
|
(95 |
) |
Total
comprehensive loss
|
|
$ |
(15,731 |
) |
|
$ |
(18,860 |
) |
|
$ |
(29,075 |
) |
|
$ |
(38,876 |
) |
4.
NOVARTIS RELATIONSHIP
Overview
In May
2003, we entered into a collaboration with Novartis relating to the worldwide
development and commercialization of our drug candidates. In May 2003, Novartis
also purchased approximately 54% of our common stock. Since this date, Novartis
has had the ability to exercise control over our strategic direction, research
and development activities and other material business decisions.
Pursuant
to the development and commercialization agreement, we have granted Novartis the
option to license any of our development-stage drug candidates, so long as
Novartis maintains at least 40% ownership of our common stock, at amounts
to be determined in the future. Novartis may exercise this option generally
after early demonstration of activity and safety in a proof-of-concept clinical
study. If Novartis licenses a drug candidate, it is obligated to fund a portion
of the development expenses that we incur in accordance with development plans
agreed upon by us and Novartis. Under the development and commercialization
agreement, we also granted Novartis an exclusive worldwide license to market and
sell Tyzeka®/Sebivo®, valtorcitabine and valopicitabine, subject to our
commercialization rights. These commercialization rights include our right to
co-promote or co-market all licensed products in the United States, United
Kingdom, France, Germany, Italy and Spain. We will grant Novartis similar
commercialization rights for other drug candidates that Novartis chooses to
license at amounts to be determined in the future.
In
September 2007, we entered into an amendment to the development and
commercialization agreement, which we refer to as the 2007 amendment. Pursuant
to the 2007 amendment, we transferred to Novartis our development,
commercialization and manufacturing rights and obligations, including ongoing
related expenses pertaining to telbivudine (Tyzeka®/Sebivo®) on a worldwide
basis. Effective October 1, 2007, we began receiving royalty payments equal
to a percentage of net sales of Tyzeka®/Sebivo®, with such percentage increasing
according to specified tiers of net sales. We recognized $0.8 million and
$0.6 million in royalty revenue from Novartis’ sales of Tyzeka®/Sebivo®
during the three months ended June 30, 2009 and 2008, respectively. We
recognized $1.6 million and $1.2 million in royalty revenue from
Novartis’ sales of Tyzeka®/Sebivo® during the six months ended June 30,
2009 and 2008, respectively. The majority of the $0.8 million and $0.9
million receivables from related party balance at June 30, 2009 and December 31,
2008, respectively, consisted of royalty payments associated with product sales
of Tyzeka®/Sebivo® from Novartis.
IDENIX
PHARMACEUTICALS, INC.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
- CONTINUED
To date,
the sum of non-refundable payments received from Novartis has totaled
$117.2 million. We do not expect to receive any additional regulatory
milestones for telbivudine, valtorcitabine or valopicitabine. The payments of
$117.2 million have been recorded as deferred license fee revenue and are being
recognized over the development period of the licensed drug candidates, which
represents the period of our continuing obligations. This period is estimated
based on current judgments related to the product development timeline of our
licensed product and drug candidates and is currently estimated to be
approximately twelve and a half years following the effective date of the
development and commercialization agreement that we entered into with Novartis,
or December 2015. We review our assessment and judgment on a quarterly basis
with respect to the expected duration of the development period of
our licensed drug candidates. If the estimated performance period changes, we
will adjust the periodic revenue that is being recognized and will record the
remaining unrecognized license fee payments over the remaining development
period during which our performance obligations will be completed. Significant
judgments and estimates are involved in determining the estimated development
period and different assumptions could yield materially different
results.
As
mentioned above, in addition to the collaboration, in May 2003, Novartis
purchased approximately 54% of our outstanding common stock from our then
existing stockholders. The stockholders received $255.0 million in cash from
Novartis with an additional aggregate amount of up to $357.0 million
contingently payable to these stockholders if we achieve predetermined
development milestones relating to specific hepatitis C virus, or HCV, drug
candidates. As of July 20, 2009, Novartis owned approximately 53% of our
outstanding stock.
Stockholders’
Agreement
In
connection with Novartis’ purchase of stock from our stockholders, we, Novartis
and substantially all of our stockholders at that time entered into a
stockholders’ agreement, which we refer to as the stockholders’ agreement. The
stockholders’ agreement was amended and restated in 2004 in connection with our
initial public offering of our common stock. The stockholders’ agreement
provides, among other things, that we will use our reasonable best efforts to
nominate for election as a director at least two designees of Novartis for so
long as Novartis and its affiliates own at least 35% of our voting stock and at
least one designee of Novartis for so long as Novartis and its affiliates own at
least 19.4% of our voting stock. As long as Novartis and its affiliates continue
to own at least 19.4% of our voting stock, Novartis will have approval rights
over a number of corporate actions that we may take, including the authorization
or issuance of additional shares of capital stock and significant acquisitions
and dispositions.
Novartis’
Stock Purchase Rights
Novartis
has the right to purchase, at par value of $0.001 per share, such number of
shares as is required to maintain its percentage ownership of our voting stock
if we issue shares of capital stock in connection with the acquisition or
in-licensing of technology through the issuance of up to 5% of our stock in any
24-month period. These purchase rights of Novartis remain in effect until the
earlier of: a) the date that Novartis and its affiliates own less than
19.4% of our voting stock; or b) the date that Novartis becomes obligated
to make the additional contingent payments of $357.0 million to holders of
our stock who sold shares to Novartis on May 8, 2003.
In
addition to the right to purchase shares of our stock at par value as described
above, if we issue any shares of our capital stock, other than in certain
situations, Novartis has the right to purchase such number of shares required to
maintain its percentage ownership of our voting stock for the same consideration
per share paid by others acquiring our stock.
In
connection with the closing of our initial public offering in July 2004,
Novartis terminated a common stock subscription right with respect to
1,399,106 shares of common stock issuable by us as a result of the exercise
of stock options granted after May 8, 2003 pursuant to the 1998 equity
incentive plan. In exchange for Novartis’ termination of such right, we issued
1,100,000 shares of common stock to Novartis for a purchase price of $0.001
per share. The fair value of these shares was determined to be
$15.4 million at the time of issuance. As a result of the issuance of these
shares, Novartis’ rights to purchase additional shares as a result of future
option grants and stock issuances under the 1998 equity incentive plan was
terminated and no additional adjustments to revenue and deferred revenue are
required. Prior to the termination of the stock subscription rights under the
1998 equity incentive plan, as we granted options that were subject to this
stock subscription right, the fair value of our common stock that would be
issuable to Novartis, less par value, was recorded as an adjustment of the
license fee and payments received from Novartis. We remain subject to potential
revenue adjustments with respect to grants of options and stock awards under our
stock incentive plans other than the 1998 equity incentive plan.
Upon the
grant of options and stock awards under stock incentive plans, with the
exception of the 1998 equity incentive plan, the fair value of our common stock
that would be issuable to Novartis, less the exercise price, if any is payable
by the option or award holder, is recorded as a reduction of the license fees
associated with the Novartis collaboration. The amount is attributed
proportionately between cumulative revenue recognized through that date and the
remaining amount of deferred revenue. These amounts will be adjusted through the
date that Novartis elects to purchase the shares to maintain its percentage
ownership based upon changes in the value of our common stock and in Novartis’
percentage ownership.
IDENIX
PHARMACEUTICALS, INC.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
- CONTINUED
For the
six months ended June 30, 2009, the impact of Novartis’ stock subscription
rights has reduced the license fee by $2.4 million, which has been recorded
as additional paid-in capital. Of this amount, $1.0 million has been
recorded as an increase to deferred revenue as of June 30, 2009 with the
remaining amount of $1.4 million recorded as an increase to license fee
revenue. As of June 30, 2009, the aggregate impact of Novartis’ stock
subscription rights has reduced the license fee by $16.2 million, which has
been recorded as additional paid-in capital. Of this amount, $5.2 million
has been recorded as a reduction of deferred revenue with the remaining
amount of $11.0 million as a reduction of license fee revenue.
Master
Manufacturing and Supply Agreements
In May
2003, we entered into a master manufacturing and supply agreement in which we
appointed Novartis to manufacture or have manufactured the clinical supply of
the active pharmaceutical ingredient, or API, for each drug candidate licensed
under the development and commercialization agreement and certain other drug
candidates. We have the ability to appoint Novartis or a third-party to
manufacture the commercial supply of the API based on a competitive bid process.
Novartis has the right to match the best third-party bid.
Product Sales
Arrangements
In
connection with the drug candidates that Novartis licenses under the development
and commercialization agreement, we have retained the right to co-promote or
co-market all licensed products, with the exception of Tyzeka®/Sebivo®, in
the United States, United Kingdom, France, Germany, Italy and Spain. In the
United States, we would act as the lead party and record revenue from product
sales and share equally the net benefit from co-promotion from the date of
product launch. In the United Kingdom, France, Germany, Italy and Spain,
Novartis would act as the lead party, record revenue from product sales and
would share with us the net benefit from co-promotion and co-marketing. The net
benefit is defined as net product sales minus related cost of sales. In the
United Kingdom, France, Germany, Italy and Spain, the amount of the net benefit
that would be shared with us would start at 15% for the first 12-month period
following the date of launch, increasing to 30% for the second 12-month period
following the date of launch and 50% thereafter. In other countries, we would
effectively sell products to Novartis for their further sale to third parties.
Novartis would pay us for such products at a price that is determined under the
terms of our manufacturing and supply agreement with Novartis and we would
receive a royalty payment from Novartis on net product sales.
5.
GLAXOSMITHKLINE LICENSE AND STOCK PURCHASE AGREEMENT
In
February 2009, we entered into the GSK license agreement and granted GSK an
exclusive license to develop, manufacture and commercialize our NNRTI compounds,
including IDX899, for the treatment of human diseases, including HIV/AIDS, on a
worldwide basis. We also entered into a stock purchase agreement with GSK in
February 2009, which we refer to as the GSK stock purchase agreement. Under the
GSK stock purchase agreement, GSK purchased 2,475,728 shares of our common
stock at an aggregate purchase price of $17.0 million, or a per share price
of $6.87. These agreements became effective in March 2009.
In March
2009, we received $34.0 million from GSK, which consisted of a $17.0 million
license fee payment under the GSK license agreement and $17.0 million under the
GSK stock purchase agreement. Pursuant to the GSK license agreement, we could
also potentially receive up to $416.5 million in milestone payments as well
as double-digit tiered royalties on worldwide product sales. The parties have
agreed that if GSK, its affiliates or its sublicensees desire to develop IDX899
for an indication other than HIV, or if GSK intends to develop any other
licensed compound for any indication, the parties will mutually agree on a
separate schedule of milestone and royalty payments prior to the start of
development.
The GSK
license agreement has performance obligations that we assessed under EITF No.
00-21, including joint committee participation and GSK’s right to license other
NNRTI compounds that we may develop in the future. We concluded that this
arrangement should be accounted for as a single unit of accounting in accordance
with EITF No. 00-21. The $17.0 million license fee payment was recorded as
deferred revenue and is being recognized as revenue over the life of the
agreement, which is estimated to be seventeen years. We recognized $0.3 million
of license fee revenue for the three and six months ended June 30,
2009.
Under the
terms of the GSK stock purchase agreement, in June 2009, we filed a registration
statement with the SEC covering the shares GSK purchased from us. We have also
agreed to cooperate in one underwritten offering of the purchased shares,
including the entry into an underwriting agreement with customary terms,
provided that such underwritten offering occurs after the first anniversary of
the closing date.
GSK may
terminate the GSK license agreement, in its sole discretion, by providing us
with 90 days written notice. If either we or GSK materially breach the GSK
license agreement and do not cure such breach within 60 days, the
non-breaching party may terminate the GSK license agreement in its entirety.
Either party may also terminate the GSK license agreement, effective
immediately, if the other party files for bankruptcy, is dissolved or has a
receiver appointed for substantially all of its assets. We may terminate the GSK
license agreement if GSK, its affiliates or its sublicensees challenges the
validity or enforceability of the patents licensed to GSK under the GSK license
agreement.
IDENIX
PHARMACEUTICALS, INC.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
– CONTINUED
GSK has
also become a party to the cooperative research program and exclusive license
agreement we have with the Universita degli Studi di Cagliari, or University of
Cagliari, the co-owner of certain patents and patent applications licensed by us
to GSK under the GSK
license agreement. Under these arrangements, we are liable for certain payments
to the University of Cagliari if we receive license fees or milestone payments
with respect to such technology. We have made certain payments to the University
of Cagliari based on the $34.0 million payment received from GSK in 2009.
Although certain patent rights licensed to GSK are owned solely by us and do not
fall under the arrangements with the University of Cagliari, we have entered
into an arrangement whereby if it is ever deemed that any patent owned solely by
us and licensed to GSK was co-developed by anyone on the faculty of the
University of Cagliari, such co-development would fall within our existing
arrangements with the University of Cagliari and no additional payments would be
due by us.
As a
result of the GSK license agreement and stock purchase agreement, Novartis
waived and amended certain rights under the development and commercialization
agreement and amended a letter agreement related to the selection and
appointment of our chief financial officer. Novartis also executed a waiver and
consent under the amended and restated stockholders’ agreement. These waivers
and amendments are more fully described in Note 19 to our consolidated financial
statements included in our Annual Report on Form 10-K for the year ended
December 31, 2008.
6.
MARKETABLE SECURITIES
We
invest our cash in accounts held at large U.S. based financial institutions and
consider our investment portfolio as marketable securities available-for-sale as
defined in SFAS No. 115,
Accounting for Certain Investments in Debt and Equity Securities.
Accordingly, these marketable securities are recorded at fair value based on
Level 2 and Level 3 inputs as described by SFAS No. 157. The fair values of
available-for-sale investments by type of security, contractual maturity and
classification in our condensed consolidated balance sheets as of June 30,
2009 and December 31, 2008 are as follows:
|
|
June 30, 2009
|
|
|
|
Amortized
|
|
|
Gross
Unrealized
|
|
Gross
Unrealized
|
|
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Market Value
|
|
|
|
(In
thousands)
|
|
Type
of security:
|
|
|
|
|
|
|
|
|
|
|
|
|
Money
market funds
|
|
$ |
22,783 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
22,783 |
|
Auction
rate security
|
|
|
1,584 |
|
|
|
- |
|
|
|
- |
|
|
|
1,584 |
|
Accrued
interest
|
|
|
2 |
|
|
|
- |
|
|
|
- |
|
|
|
2 |
|
|
|
$ |
24,369 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
24,369 |
|
|
|
December 31, 2008
|
|
|
|
Amortized
|
|
|
Gross
Unrealized
|
|
Gross
Unrealized
|
|
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Market Value
|
|
|
|
(In
thousands)
|
|
Type
of security:
|
|
|
|
|
|
|
|
|
|
|
|
|
Money
market funds
|
|
$ |
19,993 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
19,993 |
|
Corporate
debt securities
|
|
|
2,665 |
|
|
|
- |
|
|
|
(32 |
) |
|
|
2,633 |
|
U.S.
government obligations
|
|
|
200 |
|
|
|
1 |
|
|
|
- |
|
|
|
201 |
|
Auction
rate security
|
|
|
1,710 |
|
|
|
- |
|
|
|
- |
|
|
|
1,710 |
|
Accrued
interest
|
|
|
42 |
|
|
|
- |
|
|
|
- |
|
|
|
42 |
|
|
|
$ |
24,610 |
|
|
$ |
1 |
|
|
$ |
(32 |
) |
|
$ |
24,579 |
|
IDENIX
PHARMACEUTICALS, INC.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
- CONTINUED
|
|
June
30,
|
|
|
December
31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In
thousands)
|
|
Contractual
maturity:
|
|
|
|
|
|
|
Maturing
in one year or less
|
|
$ |
22,785 |
|
|
$ |
21,434 |
|
Maturing
after one year through two years
|
|
|
- |
|
|
|
70 |
|
Maturing
after two years through ten years
|
|
|
- |
|
|
|
1,158 |
|
Maturing
after ten years
|
|
|
1,584 |
|
|
|
1,917 |
|
|
|
$ |
24,369 |
|
|
$ |
24,579 |
|
|
|
June
30,
|
|
|
December
31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In
thousands)
|
|
Classification
in balance sheets:
|
|
|
|
|
|
|
Cash
equivalents
|
|
$ |
22,785 |
|
|
$ |
20,010 |
|
Marketable
securities
|
|
|
- |
|
|
|
1,424 |
|
Marketable
securities, non-current
|
|
|
1,584 |
|
|
|
3,145 |
|
|
|
$ |
24,369 |
|
|
$ |
24,579 |
|
The cash
equivalent amounts of $22.8 million and $20.0 million at June 30, 2009
and December 31, 2008, respectively, are included as part of cash and cash
equivalents in our condensed consolidated balance sheets.
7.
INTANGIBLE ASSET, NET
Our
intangible asset relates to a settlement agreement entered into by and among us
along with our chief executive officer in his individual capacity, the
Universite Montpellier II, or University of Montpellier, Le Centre National de
la Recherche Scientifique, or CNRS, the Board of Trustees of the University of
Alabama on behalf of the University of Alabama at Birmingham, or UAB, the
University of Alabama at Birmingham Research Foundation, or UABRF, and Emory
University as described more fully in Note 11. The settlement agreement, entered
into in July 2008 and effective as of June 1, 2008, included a full
release of all claims, contractual or otherwise, by the parties.
We are
amortizing $15.0 million related to this settlement payment to UAB and
related entities over the period of the expected economic benefit of the related
asset. The $15.0 million asset consists of a $4.0 million upfront
payment and $11.0 million of accrued minimum payments. The amount of
amortization each period is determined as the greater of straight-line or
economic consumption. Amortization expense pertaining to the asset was $0.3
million and $0.6 million for the three and six months ended June 30, 2009,
respectively, which was recorded as cost of revenues. As of June 30, 2009,
accumulated amortization was $3.1 million. Amortization expense for this
asset is anticipated to be $1.2 million per year through 2013 and
$6.6 million through the remaining term of the expected economic benefit of
the asset.
In
January 2009, we implemented FSP FAS 142-3, Determination of the Useful Life of
Intangible Assets, or FSP FAS 142-3. FSP FAS 142-3 provides
guidance for determining the useful life of a recognized intangible asset and
requires enhanced disclosures so that users of financial statements are able to
assess the extent to which the expected future cash flows associated with the
asset are affected by our intent and/or ability to renew or extend the
arrangement. The adoption of this FSP did not impact our financial
statements.
8.
ACCRUED EXPENSES
Accrued
expenses consist of the following:
IDENIX
PHARMACEUTICALS, INC.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
- CONTINUED
|
|
June
30,
|
|
|
December
31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
Research
and development contract costs
|
|
$ |
1,847 |
|
|
$ |
785 |
|
Payroll
and benefits
|
|
|
3,436 |
|
|
|
4,407 |
|
License
fees
|
|
|
- |
|
|
|
1,000 |
|
Professional
fees
|
|
|
542 |
|
|
|
455 |
|
Short-term
portion of accrued settlement payment
|
|
|
651 |
|
|
|
657 |
|
Restructuring
|
|
|
1,509 |
|
|
|
- |
|
Other
|
|
|
1,974 |
|
|
|
1,964 |
|
|
|
$ |
9,959 |
|
|
$ |
9,268 |
|
The
accrued restructuring liability of $1.5 million at June 30, 2009 represents
costs related to the June 2009 closing of our lab facility in Cagliari, Italy
(Note 10). The accrual amount consists of employee severance costs and contract
terminations costs associated with closing the facility.
9. SHARE-BASED
COMPENSATION
The
following table shows share-based compensation expense as reflected in our
condensed consolidated statements of operations:
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(In
thousands)
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development
|
|
$ |
408 |
|
|
$ |
467 |
|
|
$ |
847 |
|
|
$ |
1,127 |
|
General
and administrative
|
|
|
783 |
|
|
|
876 |
|
|
|
1,599 |
|
|
|
1,755 |
|
Total
share-based compensation expense
|
|
$ |
1,191 |
|
|
$ |
1,343 |
|
|
$ |
2,446 |
|
|
$ |
2,882 |
|
The table
below illustrates the fair value per share and Black-Scholes option pricing
model with the following assumptions used for grants issued during the three and
six months ended June 30, 2009 and 2008:
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average fair value of options
|
|
$ |
2.12 |
|
|
$ |
3.76 |
|
|
$ |
3.14 |
|
|
$ |
2.99 |
|
Risk-free
interest rate
|
|
|
2.52 |
% |
|
|
3.27 |
% |
|
|
1.93 |
% |
|
|
2.83 |
% |
Expected
dividend yield
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Expected
option term (in years)
|
|
|
5.10 |
|
|
|
5.14 |
|
|
|
5.14 |
|
|
|
5.14 |
|
Expected
volatility
|
|
|
71.5 |
% |
|
|
63.2 |
% |
|
|
70.2 |
% |
|
|
63.2 |
% |
The
expected option term and expected volatility were determined by examining the
expected option term and expected volatilities of similarly sized biotechnology
companies as well as expected term and expected volatility of our
stock.
A summary
of stock option activity under our stock option plans for the six months ended
June 30, 2009 is as follows:
|
|
|
|
|
Weighted
|
|
|
|
Number
of
|
|
|
Average
Exercise
|
|
|
|
Shares
|
|
|
Price per Share
|
|
Options
outstanding at December 31, 2008
|
|
|
5,677,988 |
|
|
$ |
8.64 |
|
Granted
|
|
|
1,211,500 |
|
|
$ |
5.29 |
|
Cancelled
|
|
|
(321,553 |
) |
|
$ |
11.85 |
|
Exercised
|
|
|
(56,514 |
) |
|
$ |
1.71 |
|
Options
outstanding at June 30, 2009
|
|
|
6,511,421 |
|
|
$ |
7.92 |
|
Options
exercisable at June 30, 2009
|
|
|
3,566,504 |
|
|
$ |
9.91 |
|
IDENIX
PHARMACEUTICALS, INC.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
- CONTINUED
As of
June 30, 2009, we have an aggregate of $9.3 million of stock
compensation remaining to be amortized over a weighted average life of
2.8 years.
10.
CLOSING OF LAB FACILITY
In June
2009, we closed our lab facility in Cagliari, Italy and eliminated eighteen
employee positions as a result of continuing cost saving initiatives. We have
accounted for the one-time termination benefits and closing of the lab facility
in accordance with SFAS No. 146, Accounting for Costs Associated with
Exit of Disposal Activities. We recorded a restructuring charge and
liability of $1.5 million for the quarter ended June 30, 2009. This amount
consisted of $1.2 million of severance costs and a $0.3 million accrual for
contract termination costs associated with closing the lab facility. We expect
the majority of the $1.5 million to be paid by July 31, 2009. We also recognized
$0.4 million of accelerated depreciation on assets that would no longer be used
as a result of closing the lab facility.
11.
LEGAL COMMITMENTS AND CONTINGENCIES
Hepatitis
C Drug Candidates
In
connection with the resolution of matters relating to certain of our HCV drug
candidates, we entered into a settlement agreement
with UAB which provides for a milestone payment of $1.0 million to UAB upon
receipt of regulatory approval in the United States to market and sell certain
HCV products invented or discovered by our chief executive officer during the
period from November 1, 1999 to November 1, 2000. This
settlement agreement also provides that we will pay UAB an amount equal to 0.5%
of worldwide net sales of such HCV products, which we refer to as the sales
based payments. We are obligated to make sales based payments of
at least $12.0 million over a specific period of time as set forth in the
settlement agreement.
We have
potential payment obligations under the license agreement with the University of
Cagliari, pursuant to which we have the exclusive worldwide right to make, use
and sell certain HCV and HIV technologies. We made certain payments to the
University of Cagliari under these arrangements based on the $34.0 million
payment we received from GSK in 2009 under the GSK license transaction. We are
also liable for certain payments to the University of Cagliari if we receive
license fees or milestone payments with respect to such technology from
Novartis, GSK or another collaborator.
In
October 2006, we entered into a two-year research collaboration agreement
with Metabasis Therapeutics, Inc., or Metabasis. Under the terms of the
agreement, Metabasis’ proprietary liver-targeted technology would have been
applied to one of our compounds to develop second-generation nucleoside analog
drug candidates for the treatment of HCV. In July 2007, we notified
Metabasis that we would exercise our option to terminate the research
collaboration on the first anniversary of the agreement in October 2007.
Prior to the termination of the agreement, Metabasis asserted that a certain
scientific milestone was met and thus a $1.0 million payment under the
collaboration agreement came due. We do not agree with Metabasis’ assessment
that the scientific milestone has been met and therefore do not believe that we
have any liability for this payment and initially so notified Metabasis. In
May 2008, we entered into a letter agreement with Metabasis whereby
Metabasis will apply its proprietary liver-targeted technology to a compound
developed by us. If the results are considered positive, as measured by efficacy
and safety in a predictive animal study, then we anticipate re-instating the
original 2006 agreement with Metabasis, which was terminated in
October 2007. If the original agreement with Metabasis were to be
re-instated, then we would remain obligated to all the terms and conditions
thereunder, including the $1.0 million milestone payment.
Hepatitis
B Product
Pursuant
to the license agreement between us and UAB, or UAB license agreement, we were
granted an exclusive license to the rights that UABRF, an affiliate of UAB,
Emory University and CNRS, collectively the 1998 licensors, have to a 1995
U.S. patent application and progeny thereof and counterpart patent
applications in Europe, Canada, Japan and Australia that cover the use of
certain synthetic nucleosides for the treatment of chronic hepatitis B virus, or
HBV.
In July
2008, we entered into a settlement agreement with UAB, UABRF and Emory
University relating to our telbivudine technology. Pursuant to this settlement
agreement, all contractual disputes relating to patents covering the use of
certain synthetic nucleosides for the treatment of the HBV virus and all
litigation matters relating to patents and patent applications related to the
use of ß-L-2’-deoxy-nucleosides for the treatment of HBV assigned to one or more
of Idenix, CNRS and the University of Montpellier and which cover the use of
Tyzeka®/Sebivo® (telbivudine) for the treatment of HBV have been resolved. UAB
also agreed to abandon certain continuation patent applications it filed in July
2005. Under the terms of the settlement agreement, we paid UABRF (on behalf of
UAB and Emory University) a $4.0 million upfront payment and will make
additional payments to UABRF equal to 20% of all royalty payments received by us
from Novartis from worldwide sales of telbivudine, subject to minimum payment
obligations aggregating $11.0 million. Our payment obligations under the
settlement agreement expire in August 2019. The settlement agreement was
effective on June 1, 2008 and included mutual releases of all claims and
covenants not to sue among the parties. It also included a release from a
third-party scientist who had claimed to have inventorship rights in certain
Idenix/CNRS/University of Montpellier patents.
IDENIX
PHARMACEUTICALS, INC.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
- CONTINUED
In
December 2001, we retained the services of Clariant (subsequently acquired
by Archimica Group), a provider of manufacturing services in the specialty
chemicals industry, in the form of a multiproject development and supply
agreement. Under the terms of the agreement with Clariant, we would, on an “as
needed” basis, utilize the Clariant process development and manufacture services
in the development of certain of our drug candidates, including telbivudine.
After reviewing respective bids from both Novartis and Clariant, the joint
manufacturing committee decided to proceed with Novartis as the primary
manufacturer of telbivudine. In late 2007, we transferred full responsibility to
Novartis for the development, commercialization and manufacturing of
telbivudine. As a result, in January 2008, we exercised our right under the
agreement with Clariant to terminate the agreement effective July 2008. In
February 2008, Clariant asserted that they should have been able to
participate in the manufacturing process for telbivudine as a non-primary
supplier and as a result are due an unspecified amount. We do not agree with
Clariant’s assertion and therefore have not recorded a liability associated with
this potential contingent matter. Clariant has not initiated legal proceedings.
If legal proceedings are initiated, we intend to vigorously defend against such
lawsuit.
Other
Legal Contingency
We have
been involved in a dispute with the City of Cambridge, Massachusetts, and its
License Commission pertaining to the level of noise emitted from certain rooftop
equipment at our research facility located at 60 Hampshire Street in
Cambridge. The License Commission has claimed that we are in violation of
the local noise ordinance pertaining to sound emissions, based on a complaint
from neighbors living adjacent to the property. We have contested this alleged
violation before the License Commission, as well as the Middlesex County,
Massachusetts, Superior Court. There is uncertainty of the potential outcome and
impact of this matter at this time. The parties are discussing possible
remedial action, and we have initiated some remedial steps and are considering
others to resolve this dispute. However, if the parties are unable to
resolve this matter through negotiations and remedial action and if our legal
challenge to the position of the City of Cambridge and the License Commission is
unsuccessful, we may be required to cease certain activity at the building. In
such event, we could be required to relocate to another facility which could
interrupt some of our business activities and could be time consuming and
costly.
Indemnification
We have
agreed to indemnify Novartis and its affiliates against losses suffered as a
result of any breach of representations and warranties in the development and
commercialization agreement. Under the development and commercialization
agreement and the stock purchase agreement, we made numerous representations and
warranties to Novartis regarding our HBV and HCV drug candidates, including
representations regarding our ownership of the inventions and discoveries
described above. If one or more of the representations or warranties were not
true at the time they were made to Novartis, we would be in breach of one or
both of these agreements. In the event of a breach by us, Novartis has the right
to seek indemnification from us and, under certain circumstances, us and our
stockholders who sold shares to Novartis, which include many of our directors
and officers, for damages suffered by Novartis as a result of such breach. While
it is possible that we may be required to make payments pursuant to the
indemnification obligations we have under the development and commercialization
agreement, we cannot reasonably estimate the amount of such payments or the
likelihood that such payments would be required.
Under the
GSK license agreement and the GSK stock purchase agreement, we have agreed to
indemnify GSK and its affiliates against losses suffered as a result of our
breach of representations and warranties in these agreements. We made numerous
representations and warranties to GSK regarding our NNRTI program, including
IDX899, as well as representations regarding our ownership of the inventions and
discoveries. If one or more of these representations or warranties were not true
at the time we made them to GSK, we would be in breach of these agreements. In
the event of a breach by us, GSK has the right to seek indemnification from us
for damages suffered as a result of such breach. While it is possible that we
may be required to make payments pursuant to the indemnification obligations we
have under these agreements, we cannot reasonably estimate the amount of such
payments or the likelihood that such payments would be
required.
IDENIX
PHARMACEUTICALS, INC.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
- CONTINUED
12.
RECENT ACCOUNTING PRONOUNCEMENTS
In June
2009, SFAS No. 168, The FASB Accounting
Standards Codification and the Hierarchy of Generally Accepted Accounting
Principles, a replacement of FASB Statement No. 162, or
SFAS No. 168, was issued. This standard establishes the FASB Accounting
Standards Codification as the source of authoritative accounting principles
recognized by the FASB to be applied by nongovernmental entities in preparation
of financial statements in conformity with generally accepted accounting
principles in the United States. All accounting guidance that is not included in
the Codification will be considered to be non-authoritative. SFAS No. 168 is effective
for interim and annual periods ending after September 15, 2009. We do not
expect the adoption of this standard to have an impact on our financial position
or results of operations.
ITEM
2. Management’s Discussion and Analysis of Financial Condition and Results of
Operations
This
report contains “forward-looking statements” within the meaning of
Section 21E of the Securities Exchange Act of 1934, as amended. For this
purpose, any statements contained herein regarding our strategy, future
operations, financial position, future revenues, projected costs and expenses,
prospects, plans and objectives of management, other than statements of
historical facts, are forward-looking statements. The words “anticipate”,
“believe”, “estimate”, “intend”, “may”, “plan”, “will”, “would” and similar
expressions are intended to identify forward-looking statements, although not
all forward-looking statements contain these identifying words. Such statements
reflect our current views with respect to future events. We cannot guarantee
that we actually will achieve the plans, intentions or expectations disclosed in
our forward-looking statements. There are a number of important factors that
could cause actual results or events to differ materially from those disclosed
in the expressed or implied forward-looking statements we make. These important
factors include our “critical accounting policies and estimates” and the risk
factors set forth below in Part II, Item 1A — Risk Factors. Although
we may elect to update forward-looking statements in the future, we specifically
disclaim any obligation to do so, even if our estimates change, readers should
not rely on those forward-looking statements as representing our views as of any
date subsequent to the date of this quarterly report.
Overview
Idenix is
a biopharmaceutical company engaged in the discovery and development of drugs
for the treatment of human viral diseases with operations in the United States
and Europe. To date, we have successfully developed and commercialized a drug
(Tyzeka®/Sebivo®) for the treatment of chronic hepatitis B virus, or HBV, that
we licensed to Novartis Pharma AG, or Novartis. We also have discovered and
developed through proof-of-concept clinical testing IDX899, a drug candidate for
the treatment of human immunodeficiency virus, or HIV and acquired immune
deficiency syndrome, or AIDS. We licensed IDX899 to GlaxoSmithKline,
or GSK, in February 2009. Our current research and development focus is on the
treatment of hepatitis C virus, or HCV. In July 2009, we successfully
completed a three-day proof-of-concept clinical study of a nucleoside/nucleotide
prodrug candidate, IDX184, for the treatment of HCV. We also have HCV discovery
programs focusing on protease inhibitors, non-nucleoside polymerase inhibitors
and NS5A inhibitors. Clinical candidates have been selected from
the protease inhibitor and non-nucleoside polymerase inhibitor programs and
are currently undergoing investigational new drug application, or
IND, enabling preclinical testing.
The
following table summarizes key information regarding Tyzeka®/Sebivo® and our
pipeline of drug candidates:
Indication
|
|
Product/Drug
Candidates/Programs
|
|
Description
|
|
|
|
|
|
HBV
|
|
Tyzeka®/Sebivo®
(telbivudine)
(L-
nucleoside)
|
|
Novartis
has all development, commercialization and manufacturing rights and
obligations related to telbivudine (Tyzeka®/Sebivo®) on a worldwide basis.
We receive royalty payments equal to a percentage of net sales of
Tyzeka®/Sebivo®.
|
|
|
|
|
|
HIV
|
|
Non-Nucleoside
Reverse Transcriptase
Inhibitor,
or NNRTI
|
|
In
2008, we successfully completed a proof-of-concept clinical study of
IDX899 in treatment-naïve HIV infected patients. In February 2009, we
granted GSK an exclusive license to develop, manufacture and commercialize
IDX899.
|
|
|
|
|
|
HCV
|
|
Discovery
and Development Program
|
|
This
program is focused on four classes of direct-acting antivirals for the
treatment of HCV, which include nucleoside/nucleotide polymerase
inhibitors, protease inhibitors, non-nucleoside polymerase inhibitors and
NS5A inhibitors. The most advanced of these efforts is our research on the
next-generation nucleoside/nucleotide polymerase
inhibitors.
|
Indication
|
|
Product/Drug
Candidates/Programs
|
|
Description
|
|
|
Nucleotide
Polymerase Inhibitors
|
|
We
successfully completed a phase I study of IDX184 in healthy volunteers in
October 2008. In July 2009, we successfully completed a proof-of-concept
study of IDX184 in 41 treatment-naïve HCV genotype-1-infected patients who
were randomized to receive either IDX184 or placebo once-daily for three
days. Four dosing cohorts (25 mg, 50 mg, 75 mg and 100 mg) of IDX184 were
evaluated. IDX184 was well tolerated in this study with no serious adverse
events reported and no discontinuations from the study. Patterns of
adverse events were similar between IDX184- and placebo-treated patients.
Mean viral load declines observed in this study ranged from .46 log 10 in
the 25 mg/day cohort to .74 log 10 in
the 100 mg/day cohort. Viral load declines were observed in 30 of the 31
IDX184-treated patients, with no response observed in one patient in the
25 mg cohort.
|
|
|
|
|
|
|
|
|
|
IDX102
has completed late-stage preclinical development.
|
|
|
|
|
|
|
|
Protease
Inhibitors
|
|
We
have initiated a 28-day chronic toxicology study in two species for our
lead protease inhibitor candidate. We plan to submit an IND or
a clinical trial authorization, or CTA, for a protease inhibitor
drug candidate in 2009, assuming positive results from the IND-enabling
preclinical studies.
|
|
|
|
|
|
|
|
Non-Nucleoside
Polymerase Inhibitor
|
|
We
are conducting IND-enabling pharmacology and toxicology studies of IDX375
and plan to submit an IND or a CTA for this drug candidate in 2009,
assuming positive results from these studies.
|
|
|
|
|
|
|
|
NS5A
Inhibitor
|
|
In
the second quarter of 2009, we initiated an NS5A discovery
program.
|
All of
our drug candidates are currently in discovery, preclinical development or
clinical development. To commercialize any of our drug candidates, we will be
required to obtain marketing authorization approvals after successfully
completing preclinical studies and clinical trials of such drug
candidates. Our current estimates for additional research and development
expenses are subject to risks and uncertainties associated with research,
development, clinical trials and the U.S. Food and Drug Administration, or FDA,
and foreign regulatory review and approval processes. The time and cost to
complete development of our drug candidates may vary significantly and depends
upon a number of factors, including the requirements mandated by the FDA and
other regulatory agencies, the success of our clinical trials, the availability
of financial resources, our collaboration with Novartis and its participation in
the manufacturing and clinical development of our drug candidates.
Pursuant
to the development, license and commercialization agreement we entered into with
Novartis in 2003, which we refer to as the development and commercialization
agreement, after Novartis licenses a drug candidate, it is obligated to fund a
portion of the development expenses that we incur in accordance with development
plans agreed upon by us and Novartis. The option we have granted to Novartis
with respect to its exclusive right to license our drug candidates generally
requires that Novartis exercise the option for each such drug candidate after
early demonstration of activity and safety in a proof-of-concept clinical
study.
Pursuant
to the license agreement we entered into with GSK in February 2009, which we
refer to as the GSK license agreement, GSK is solely responsible for the
development, manufacture and commercialization of our NNRTI compounds, including
IDX899, for the treatment of human diseases, including HIV/AIDS, on a worldwide
basis. GSK is also responsible for the prosecution of our patents licensed to
GSK under the GSK license agreement. We do not expect to incur any additional
development costs relating to our NNRTI program, including
IDX899.
To date,
our revenues have been derived from: license fees, milestone payments, and
research and development expense reimbursements received from Novartis; license
fee payments received from GSK; Tyzeka® product sales in the United States prior
to October 1, 2007; amounts associated with Sebivo® product sales outside
of the United States prior to October 1, 2007; royalty payments associated
with sales of Tyzeka®/Sebivo®; and government grants. Effective October 1,
2007, with the transfer to Novartis of our development and commercial rights to
telbivudine, we no longer recognize revenue from product sales of Tyzeka®
and instead we recognize royalty income associated with product sales of
Tyzeka®/Sebivo®. We derived substantially all of our revenues from Novartis in
2009 and 2008. We anticipate recognizing additional revenues from our
collaboration with Novartis. These revenues may include additional license fees,
development expense funding for our drug candidates that Novartis may elect to
license from us, as well as regulatory milestones and, if products are approved
for sale, commercialization milestones and revenues derived from sales by us or
Novartis of our licensed drug candidates. We also anticipate recognizing
additional revenues from our collaboration with GSK, which may include milestone
and royalty payments related to the development and commercialization of NNRTI
compounds.
We have
incurred significant losses since our inception in May 1998 and expect such
losses to continue in the foreseeable future. Historically, we have generated
losses principally from costs associated with research and development
activities, including clinical trial costs, and general and administrative
activities. As a result of planned expenditures for future discovery and
development activities, we expect to incur additional operating losses for the
foreseeable future. We believe that our current cash and cash equivalents and
marketable securities together with the expected royalty payments associated
with product sales of Tyzeka®/Sebivo® will be sufficient to satisfy our cash
needs through at least the first quarter of 2010. We may seek additional funding
through a combination of public or private financing, collaborative
relationships and other arrangements in the future. In September 2008, we filed
a shelf registration statement with the Securities and Exchange Commission, or
SEC, for an indeterminate amount of shares of common stock, up to the aggregate
of $100.0 million, for future issuance. Any financing requiring the
issuance of additional shares of capital stock must first be approved by
Novartis so long as Novartis continues to own at least 19.4% of our voting
stock. In May 2009, we received approval from Novartis to issue additional
capital shares pursuant to a financing under the shelf registration statement so
long as the issuance of additional shares does not reduce Novartis’ interest in
Idenix below 43%. Our failure to obtain additional funding may require us to
delay, reduce the scope of or eliminate one or more of our development
programs.
Results
of Operations
Comparison
of Three Months Ended June 30, 2009 and 2008
Revenues
Total
revenues for the three months ended June 30, 2009 and 2008 were as
follows:
|
|
Three Months Ended June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In
thousands)
|
|
Collaboration
revenue - related party:
|
|
|
|
|
|
|
License
fee revenue
|
|
$ |
1,338 |
|
|
$ |
(157 |
) |
Royalty
revenue
|
|
|
833 |
|
|
|
616 |
|
Reimbursement
of research and development costs
|
|
|
11 |
|
|
|
974 |
|
|
|
|
2,182 |
|
|
|
1,433 |
|
|
|
|
|
|
|
|
|
|
License
fee revenue
|
|
|
256 |
|
|
|
- |
|
Government
grants
|
|
|
11 |
|
|
|
159 |
|
Total
revenues
|
|
$ |
2,449 |
|
|
$ |
1,592 |
|
Collaboration
revenue - related party consists of revenues associated with our collaboration
with Novartis for the worldwide development and commercialization of our drug
candidates. Collaboration revenue - related party is comprised of the
following:
|
•
|
license
and other fees received from Novartis for the license of HBV and HCV drug
candidates, net of reductions for Novartis stock subscription rights,
which is being recognized over the development period of the licensed drug
candidates;
|
|
•
|
royalty
payments associated with product sales of Tyzeka®/Sebivo® made by
Novartis; and
|
|
•
|
reimbursement
by Novartis for expenses we incur in connection with the development and
registration of our licensed products and drug candidates, net of certain
qualifying costs incurred by
Novartis.
|
Collaboration
revenue - related party was $2.2 million in the three months ended
June 30, 2009 as compared to $1.4 million in the same period in 2008.
The majority of the $0.8 million increase was due to additional license fee
revenue recognized related to the impact of Novartis’ stock subscription rights
in the second quarter of 2009. This amount was partially offset by a decrease in
the reimbursement of research and development costs from Novartis in the second
quarter of 2009 as compared to the same period in 2008.
In the
three months ended June 30, 2009, we also recognized $0.3 million of license fee
revenue under the GSK license agreement, which was classified as other revenue
in the condensed consolidated statement of operations.
Cost
of Revenues
Cost of
revenues was $0.5 million in the three months ended June 30, 2009 which was
substantially unchanged as compared to the same period in 2008.
Research
and Development Expenses
Research
and development expenses were $11.4 million in the three months ended
June 30, 2009 as compared to $14.1 million in the same period in 2008.
The decrease of $2.7 million was primarily due to $0.8 million in lower
expenses related to IDX899 as a result of the GSK license agreement in February
2009 which transferred the responsibility to develop IDX899 to GSK. We also had
$0.7 million in lower expenses related to clinical trials for Tyzeka®/Sebivo®
which were transferred to Novartis. In addition, preclinical expenses decreased
$0.7 million and lab operating costs decreased $0.5 million.
We do not
expect a significant increase in our research and development expenses for 2009
as compared to the amount incurred in 2008. Although we expect to incur
additional expenses to initiate clinical studies for two of our HCV drug
candidates, we will not incur any additional development expenses related to our
NNRTI program, including IDX899, due to the GSK license agreement.
We will
continue to devote substantial resources to our research and development
activities, expand our research pipeline and engage in future development
activities as we continue to advance our drug candidates and explore
collaborations with other entities that we believe will create shareholder
value.
General
and Administrative Expenses
General
and administrative expenses were $5.4 million in the three months ended June 30,
2009 as compared to $6.7 million in the same period in 2008. The decrease
of $1.3 million was primarily due to lower salaries, personnel related costs and
consulting fees.
We expect
general and administrative expenses in 2009 to be consistent with expenses
incurred in 2008.
Restructuring
Charges
Restructuring
charges were $1.5 million in the three months ended June 30, 2009 as compared to
less than $0.1 million in the same period in 2008. In June 2009, we closed our
lab facility in Cagliari, Italy and eliminated eighteen employee positions as a
result of continuing cost saving initiatives. The $1.5 million restructuring
charge recognized in 2009 consisted of an accrual for contract termination costs
associated with closing the lab facility and employee severance costs. We
estimate that this restructuring will result in annual savings of at least $3.0
million.
Other
Income (Expense), Net
Other
expense was $0.2 million in the three months ended June 30, 2009 as
compared to $0.5 million of income in the same period in 2008. The decrease
was primarily the result of lower average cash and marketable securities
balances held during the three months ended June 30, 2009 due to the use of cash
for operations. We also recognized an impairment charge of $0.1 million related
to an auction rate security and $0.1 million related to realized losses
recognized on the sale of certain investments in the three months ended June 30,
2009.
Income
Taxes
Income
tax benefit was $0.2 million in the three months ended June 30, 2009
which was substantially unchanged compared to the same period in
2008.
Comparison
of Six Months Ended June 30, 2009 and 2008
Revenues
Total
revenues for the six months ended June 30, 2009 and 2008 were as
follows:
|
|
Six Months Ended June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In
thousands)
|
|
Collaboration
revenue - related party:
|
|
|
|
|
|
|
License
fee revenue
|
|
$ |
4,440 |
|
|
$ |
1,054 |
|
Royalty
revenue
|
|
|
1,613 |
|
|
|
1,174 |
|
Reimbursement
of research and development costs
|
|
|
45 |
|
|
|
1,250 |
|
|
|
|
6,098 |
|
|
|
3,478 |
|
|
|
|
|
|
|
|
|
|
License
fee revenue
|
|
|
342 |
|
|
|
- |
|
Government
grants
|
|
|
20 |
|
|
|
157 |
|
Total
revenues
|
|
$ |
6,460 |
|
|
$ |
3,635 |
|
Collaboration
revenue - related party was $6.1 million in the six months ended
June 30, 2009 as compared to $3.5 million in the same period in 2008.
The majority of the $2.6 million increase was due to additional license fee
revenue recognized related to the impact of Novartis’ stock subscription rights
in the six months ended June 30, 2009. This increase was partially
offset by a decrease in the reimbursement of research and development costs from
Novartis in the six months ended June 30, 2009 compared to the same period in
2008.
In the
six months ended June 30, 2009, we also recognized $0.3 million of license fee
revenue under the GSK license agreement, which was classified as other revenue
in the condensed consolidated statement of operations.
Cost
of Revenues
Cost of
revenues was $1.0 million in the six months ended June 30, 2009 which was
substantially unchanged as compared to the same period in 2008.
Research
and Development Expenses
Research
and development expenses were $22.3 million in the six months ended
June 30, 2009 as compared to $29.0 million in the same period in 2008.
The decrease of $6.7 million was primarily due to $3.1 million in lower
expenses related to IDX899 as a result of the GSK license agreement in February
2009 which transferred the responsibility to develop IDX899 to GSK. Also
lab operating costs decreased $1.1 million and preclinical expenses decreased
$0.7 million. Additionally, salaries, personnel related costs and
consulting fees were $1.7 million lower in 2009.
We do not
expect a significant increase in our research and development expenses for 2009
as compared to the amount incurred in 2008. Although we expect to incur
additional expenses to initiate clinical studies for two of our HCV drug
candidates, we will not incur additional development expenses related to our
NNRTI program, including IDX899, due to the GSK license agreement.
We will
continue to devote substantial resources to our research and development
activities, expand our research pipeline and engage in future development
activities as we continue to advance our drug candidates and explore
collaborations with other entities that we believe will create shareholder
value.
General
and Administrative Expenses
General
and administrative expenses were $11.4 million in the six months ended June 30,
2009 as compared to $15.0 million in the same period in 2008. The decrease
of $3.6 million was primarily due to $2.4 million in lower salaries,
personnel related costs and consulting fees. Also, depreciation expense
decreased $0.4 million due to the recognition of accelerated depreciation in
March 2008 for assets that were no longer in use.
We expect
general and administrative expenses in 2009 to be consistent with expenses
incurred in 2008.
Restructuring
Charges
Restructuring
charges were $1.5 million in the six months ended June 30, 2009 as compared to
$0.3 million in the same period in 2008. In June 2009, we closed our lab
facility in Cagliari, Italy and eliminated eighteen employee positions as a
result of continuing cost saving initiatives. The $1.5 million restructuring
charge recognized in 2009 consisted of an accrual for contract termination costs
associated with closing the lab facility and employee severance costs. We
estimate that this restructuring will result in annual savings of at least $3.0
million.
Other
Income (Expense), Net
Other
expense was $0.3 million in the six months ended June 30, 2009 as
compared to $1.4 million of income in the same period in 2008. The decrease
was primarily the result of lower average cash and marketable securities
balances held during the six months ended June 30, 2009 due to the use of cash
for operations. We also recognized an impairment charge of $0.1 million
related to an auction rate security and $0.2 million related to realized losses
recognized on the sale of certain investments in the six months ended June 30,
2009.
Income
Taxes
Income
tax benefit was $0.7 million in the six months ended June 30, 2009
which was substantially unchanged compared to the same period in
2008.
Liquidity
and Capital Resources
Since our
inception in 1998, we have financed our operations with proceeds obtained in
connection with license and development arrangements and equity financings. The
proceeds include:
|
•
|
license,
milestone, royalty and other payments from
Novartis;
|
|
•
|
license
and stock purchase payments from
GSK;
|
|
•
|
reimbursements
from Novartis for costs we have incurred subsequent to May 8, 2003 in
connection with the development of Tyzeka®/Sebivo®, valtorcitabine and
valopicitabine;
|
|
•
|
sales
of Tyzeka® in the United States through September 30,
2007;
|
|
•
|
net
proceeds from Sumitomo Pharmaceuticals Corporation for reimbursement of
development costs;
|
|
•
|
net
proceeds from private placements of our convertible preferred
stock;
|
|
•
|
net
proceeds from public offerings in July 2004 and in October
2005;
|
|
•
|
net
proceeds from private placements of our common stock concurrent with our
2004 and 2005 public offerings; and
|
|
•
|
proceeds
from the exercise of stock options granted pursuant to our equity
compensation plans.
|
We
believe that our current cash and cash equivalents and marketable securities
together with the expected royalty payments associated with product sales of
Tyzeka®/Sebivo® will be sufficient to satisfy our cash needs through at least
the first quarter of 2010. We may seek additional funding through a combination
of public or private financing, collaborative relationships and other
arrangements in the future. In September 2008, we filed a shelf registration
statement with the SEC for an indeterminate amount of shares of common stock, up
to the aggregate of $100.0 million, for future issuance. Any financing
requiring the issuance of additional shares of capital stock must first be
approved by Novartis so long as Novartis continues to own at least 19.4% of our
voting stock. In May 2009, we received approval from Novartis to issue
additional shares pursuant to a financing under the shelf registration so long
as the issuance of additional shares does not reduce Novartis’ interest in
Idenix below 43%. Our failure to obtain additional funding may require us to
delay, reduce the scope of or eliminate one or more of our development
programs. As a result of continuing cost saving initiatives, in June 2009,
we closed our lab facility in Cagliari, Italy and eliminated eighteen employee
positions. We estimate that this restructuring will result in annual savings of
at least $3.0 million.
As of
June 30, 2009, our cash, cash equivalents and marketable securities were
invested in government agency and treasury money market instruments and an
auction rate security. Our investment policy seeks to manage these assets
to achieve our goals of preserving principal and maintaining adequate liquidity.
However, due to the distress in the financial markets over the past year certain
investments have diminished liquidity and declined in value. Due to the
failed auctions related to our auction rate security and the continued
uncertainty in the credit markets, the market value of our securities may
decline further and may prevent us from liquidating our holdings. To mitigate
this risk, beginning in 2008, we began to shift our investments to instruments
that carry less exposure to market volatility and liquidity pressures. As of
June 30, 2009, the majority of our investments were in government agency and
treasury money market instruments.
We had
total cash, cash equivalents and marketable securities of $51.7 million and
$46.1 million as of June 30, 2009 and December 31, 2008, respectively.
As of June 30, 2009, we had $50.1 million, or 97% of our total cash
balance, in cash and cash equivalents and $1.6 million in non-current
marketable securities. As of December 31, 2008, we had $41.5 million
in cash and cash equivalents, $1.4 million in current marketable securities and
$3.2 million in non-current marketable securities.
Net cash
used in operating activities was $11.4 million and $30.0 million in the six
months ended June 30, 2009 and 2008, respectively. The $18.6 million
net change in cash was primarily due to the $17.0 million received from GSK in
the first quarter of 2009 pursuant to the GSK license agreement and lower
operating expenses incurred in the six months ended June 30, 2009 as compared to
2008.
Net cash
provided by investing activities was $2.5 million and $35.3 million in
the six months ended June 30, 2009 and 2008, respectively. The
$32.8 million decrease was primarily due to lower net proceeds from sales
and maturities of our marketable securities.
Net cash
provided by financing activities was $17.1 million and $0.4 million in the six
months ended June 30, 2009 and 2008, respectively. The change in net cash
provided by financing activities was primarily due to $17.0 million in proceeds
received from the issuance of stock to GSK pursuant to the stock purchase
agreement entered into with GSK in February 2009.
Contractual
Obligations and Commitments
Set forth
below is a description of our contractual obligations as of June 30,
2009:
|
|
Payments Due by Period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less
Than
|
|
|
|
|
|
|
|
|
After
5
|
|
Contractual Obligations
|
|
Total
|
|
|
1 Year
|
|
|
1-3 Years
|
|
|
4-5 Years
|
|
|
Years
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
leases
|
|
$ |
12,490 |
|
|
$ |
3,059 |
|
|
$ |
4,229 |
|
|
$ |
3,270 |
|
|
$ |
1,932 |
|
Consulting
and other agreements
|
|
|
1,481 |
|
|
|
1,202 |
|
|
|
279 |
|
|
|
- |
|
|
|
- |
|
Long-term
obligations
|
|
|
10,080 |
|
|
|
- |
|
|
|
809 |
|
|
|
2,000 |
|
|
|
7,271 |
|
Total
contractual obligations
|
|
$ |
24,051 |
|
|
$ |
4,261 |
|
|
$ |
5,317 |
|
|
$ |
5,270 |
|
|
$ |
9,203 |
|
In
connection with certain of our operating leases, we have two letters of credit
with a commercial bank totaling $1.2 million which expire at varying dates
through December 31, 2013.
As of
June 30, 2009, we have $2.7 million of uncertain tax positions. We also have
certain potential payment obligations relating to our HBV and HCV product and
drug candidates that are described below. These obligations are excluded from
the contractual obligations table above as we cannot make a reliable estimate of
the period in which the cash payments may be made.
Pursuant
to the license agreement between us and the University of Alabama at Birmingham,
or UAB, which we refer to as the UAB license agreement, we were granted an
exclusive license to the rights that the University of Alabama at Birmingham
Research Foundation, or UABRF, an affiliate of UAB, Emory University and Le
Centre National de la Recherche Scientifique, or CNRS, collectively the 1998
licensors, have to a 1995 U.S. patent application and progeny thereof and
counterpart patent applications in Europe, Canada, Japan and Australia that
cover the use of certain synthetic nucleosides for the treatment of HBV
virus.
In
July 2008, we entered into a settlement agreement with UAB, UABRF and
Emory University relating to our telbivudine technology. Pursuant to this
settlement agreement, all contractual disputes relating to patents covering the
use of certain synthetic nucleosides for the treatment of the HBV virus and all
litigation matters relating to patents and patent applications related to the
use of ß-L-2’-deoxy-nucleosides for the treatment of HBV assigned to one or more
of Idenix, CNRS and the University of Montpellier and which cover the use of
Tyzeka®/Sebivo® (telbivudine) for the treatment of HBV have been resolved.
Under the terms of the settlement agreement, we paid UABRF (on behalf of UAB and
Emory University) a $4.0 million upfront payment and will make additional
payments to UABRF equal to 20% of all royalty payments received by us from
Novartis from worldwide sales of telbivudine, subject to minimum payment
obligations aggregating $11.0 million. Our payment obligations under the
settlement agreement expire on August 10, 2019. The settlement agreement
was effective on June 1, 2008 and included mutual releases of all claims
and covenants not to sue among the parties. It also included a release from a
third-party scientist who had claimed to have inventorship rights in certain
Idenix/CNRS/University of Montpellier patents.
Additionally,
in connection with the resolution of matters relating to certain of our HCV drug
candidates we entered into a settlement agreement with UAB which provides for a
milestone payment of $1.0 million to UAB upon receipt of regulatory
approval in the United States to market and sell certain HCV products invented
or discovered by our chief executive officer during the period from
November 1, 1999 to November 1, 2000. This
settlement agreement also provides that we will pay UAB an amount equal to 0.5%
of worldwide net sales of such HCV products, which we refer to as the sales
based payments. We are obligated to make sales based payments of
at least $12.0 million over a specific period of time as set forth in the
settlement agreement.
We have
potential payment obligations under the GSK license transaction with the
Universita degli Studi di Cagliari, or University of Cagliari, pursuant to which
we have the exclusive worldwide right to make, use and sell certain HCV and HIV
technologies. We made certain payments to the University of Cagliari under these
arrangements based on the $34.0 million payment we received from GSK in
2009 under the GSK license transaction. We are also liable for certain
payments to the University of Cagliari if we receive license fees or milestone
payments with respect to such technology from Novartis, GSK or another
collaborator.
In March
2003, we entered into a final settlement agreement with Sumitomo Pharmaceuticals
Corporation, or Sumitomo, under which the rights to develop and commercialize
telbivudine in Japan, China, South Korea and Taiwan previously granted to
Sumitomo were returned to us. This settlement agreement provides for a
$5.0 million milestone payment to Sumitomo if and when the first commercial
sale of telbivudine occurs in Japan. As part of the development and
commercialization agreement, Novartis will reimburse us for any such payment
made to Sumitomo.
In
October 2006, we entered into a two-year research collaboration agreement
with Metabasis Therapeutics, Inc., or Metabasis. Under the terms of the
agreement, Metabasis’ proprietary liver-targeted technology would have been
applied to one of our compounds to develop second-generation nucleoside analog
drug candidates for the treatment of HCV. In July 2007, we notified
Metabasis that we would exercise our option to terminate the research
collaboration on the first anniversary of the agreement in October 2007.
Prior to the termination of the agreement, Metabasis asserted that a certain
scientific milestone was met and thus a $1.0 million payment under the
collaboration agreement came due. We do not agree with Metabasis’ assessment
that the scientific milestone has been met and therefore do not believe that we
have any liability for this payment and initially so notified Metabasis. In
May 2008, we entered into a letter agreement with Metabasis whereby
Metabasis will apply its proprietary liver-targeted technology to a compound
developed by us. If the results are considered positive, as measured by efficacy
and safety in a predictive animal study, then we anticipate re-instating the
original 2006 agreement with Metabasis, which was terminated in
October 2007. If the original agreement with Metabasis were to be
re-instated, then we would remain obligated to all the terms and conditions
thereunder, including the $1.0 million milestone payment.
In
December 2001, we retained the services of Clariant (subsequently acquired
by Archimica Group), a provider of manufacturing services in the specialty
chemicals industry, in the form of a multiproject development and supply
agreement. Under the terms of the agreement with Clariant, we would, on an “as
needed” basis, utilize the Clariant process development and manufacture services
in the development of certain of our drug candidates, including telbivudine.
After reviewing respective bids from both Novartis and Clariant, the joint
manufacturing committee decided to proceed with Novartis as the primary
manufacturer of telbivudine. In late 2007, we transferred full responsibility to
Novartis for the development, commercialization and manufacturing of
telbivudine. As a result, in January 2008, we exercised our right under the
agreement with Clariant to terminate effective July 2008. In
February 2008, Clariant asserted that they should have been able to
participate in the manufacturing process for telbivudine as a non-primary
supplier and as a result are due an unspecified amount. We do not agree with
Clariant’s assertion and therefore have not recorded a liability associated with
this potential contingent matter. Clariant has not initiated legal proceedings.
If legal proceedings are initiated, we intend to vigorously defend against such
lawsuit.
Off-Balance
Sheet Arrangements
We
currently have no off-balance sheet arrangements.
Critical
Accounting Policies and Estimates
Our
discussion and analysis of our financial condition and results of operations are
based on our financial statements, which have been prepared in accordance with
accounting principles generally accepted in the United States of America. The
preparation of the financial statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues and
expenses. On an ongoing basis, we evaluate our estimates and judgments,
including those related to revenue recognition, accrued expenses and share-based
compensation. We base our estimates on historical experience and on various
other assumptions that we believe to be reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying value of
assets and liabilities that are not readily apparent from other sources. Actual
results may differ from these estimates under different assumptions or
conditions.
Our
significant accounting policies are more fully described in Note 2 to our
consolidated financial statements included in our Annual Report on Form 10-K for
the year ended December 31, 2008.
Recent
Accounting Pronouncements
In June
2009, Statement of Financial Accounting Standards No. 168, The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting Principles, a
replacement of FASB Statement No. 162, or SFAS No. 168, was
issued. This standard establishes the FASB Accounting Standards Codification as
the source of authoritative accounting principles recognized by the FASB to be
applied by nongovernmental entities in preparation of financial statements in
conformity with generally accepted accounting principles in the United States.
All accounting guidance that is not included in the Codification will be
considered to be non-authoritative. SFAS No. 168 is effective for interim
and annual periods ending after September 15, 2009. We do not expect the
adoption of this standard to have an impact on our financial position or results
of operations.
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
Interest
Rate Risk
Changes
in interest rates may impact our financial position, operating results or cash
flows. The primary objective of our investment activities is to preserve capital
while maintaining liquidity until it is required to fund operations. To minimize
risk, we maintain our operating cash in commercial bank accounts. We invest our
cash in high quality financial instruments, primarily government agency and
treasury money market instruments. As of June 30, 2009, we held one investment
in an auction rate security valued at $1.6 million. Due to the failed auctions
related to our auction rate security and the continued uncertainty in the credit
markets, the market value of our security may decline and we may not be able to
liquidate our holding.
Foreign
Currency Exchange Rate Risk
We have
subsidiaries in Europe with cash denominated in foreign currencies. We also
receive royalty revenues based on worldwide product sales by Novartis on sales
of Sebivo® outside of the United States. As a result, our financial position,
results of operations and cash flows can be affected by market fluctuations in
foreign currency exchange rates. We have not entered into any derivative
financial instruments to reduce the risk of fluctuations in currency exchange
rates.
Item 4.
Controls and Procedures
Disclosure
Controls and Procedures
We have
conducted an evaluation under the supervision and with the participation of our
management, including our chief executive officer and chief financial officer
(our principal executive officer and principal financial officer, respectively),
regarding the effectiveness of our disclosure controls and procedures (as
defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act
of 1934, as amended, or the Exchange Act) as of the end of the period covered by
this report. Based on such evaluation, our chief executive officer and chief
financial officer concluded that, as of June 30, 2009, our disclosure controls
and procedures are effective.
Changes
in Internal Control over Financial Reporting
There was
no change in our internal control over financial reporting (as defined in Rules
13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter
ended June 30, 2009 that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
PART
II. OTHER INFORMATION
Item 1.
Legal Proceedings
See
Part I, Item 3 of our Annual Report on Form 10-K for the year ended
December 31, 2008 and Note 11 of this quarterly report for discussions of
our legal proceedings.
Item 1A. Risk Factors
Our
business faces many risks. The risks described below may not be the only risks
we face. Additional risks we do not yet know of or we currently believe are
immaterial may also impair our business operations. If any of the events or
circumstances described in the following risks actually occurs, our business,
financial condition or results of operations could suffer and the trading price
of our common stock could decline. You should consider the following risks,
together with all of the other information in our Annual Report on
Form 10-K for the year ended December 31, 2008, and in this quarterly
report, before deciding to invest in our securities.
Factors
Related to Our Business
We
have a limited operating history and have incurred a cumulative loss since
inception. If we do not generate significant revenues, we will not be
profitable.
We have
incurred significant losses since our inception in May 1998. Telbivudine
(Tyzeka®/Sebivo®), our only product to reach commercialization, is marketed by
Novartis, and we receive royalty revenue associated with sales of this product.
We have generated limited revenue from the sales of Tyzeka®/Sebivo® to date and
are unable to make a meaningful assessment of potential future revenue
associated with potential sales of this product or any other product that
reaches commercialization. We will not be able to generate additional revenues
from other product sales until one of our other drug candidates receives
regulatory approval and we or a collaborative partner successfully introduce
such product commercially. We expect to incur annual operating losses over the
next several years as we continue to expand our drug discovery and development
efforts. We also expect that the net loss we will incur will fluctuate from
quarter to quarter and such fluctuations may be substantial. To generate product
revenue, regulatory approval for products we successfully develop must be
obtained and we and/or one of our existing or future collaboration partners must
effectively manufacture, market and sell such products. Even if we successfully
commercialize drug candidates that receive regulatory approval, we may not be
able to realize revenues at a level that would allow us to achieve or sustain
profitability. Accordingly, we may never generate significant revenue and, even
if we do generate significant revenue, we may never achieve
profitability.
We
will need additional capital to fund our operations, including the development,
manufacture and potential commercialization of our drug candidates. If we do not
have or cannot raise additional capital when needed, we will be unable to
develop and ultimately commercialize our drug candidates
successfully.
Our cash,
cash equivalents and marketable securities balance was approximately $51.7
million at June 30, 2009. We believe that in addition to this balance, the
anticipated royalty payments associated with product sales of Tyzeka®/Sebivo®
will be sufficient to satisfy our anticipated cash needs through at least the
first quarter of 2010. Our drug development programs and the potential
commercialization of our drug candidates will require substantial cash to fund
expenses that we will incur in connection with preclinical studies and clinical
trials, regulatory review and future manufacturing and sales and marketing
efforts.
Our need
for additional funding will depend in part on whether:
|
·
|
with
respect to IDX899, GSK is able to continue preclinical and clinical
development of this drug candidate such that we receive certain
preclinical and clinical development milestone payments within the next 24
months;
|
|
·
|
with
respect to our other drug candidates, Novartis exercises its option to
license other drug candidates, including IDX184, and we receive
related license fees, milestone payments and development expense
reimbursement payments from Novartis; with respect to our drug candidates
not licensed by Novartis, we receive related license fees, milestone
payments and development expense reimbursement payments from third
parties; and
|
|
·
|
with
respect to Tyzeka®/Sebivo®, whether the level of royalty payments received
from Novartis is significant.
|
In
addition, although Novartis has agreed to pay for certain development expenses
incurred under development plans it approves for products and drug candidates it
has licensed from us, Novartis has the right to terminate its license and the
related funding obligations with respect to any such product or drug candidate
by providing us with six months written notice. Furthermore, GSK has the right
to terminate the GSK license agreement by providing us with 90 days written
notice.
Our
future capital needs will also depend generally on many other factors,
including:
|
·
|
the
amount of revenue that we may be able to realize from commercialization
and sale of drug candidates, if any, which are approved by regulatory
authorities;
|
|
·
|
the
scope and results of our preclinical studies and clinical
trials;
|
|
·
|
the
progress of our current preclinical and clinical development programs for
HCV;
|
|
·
|
the
cost of obtaining, maintaining and defending patents on our drug
candidates and our processes;
|
|
·
|
the
cost, timing and outcome of regulatory
reviews;
|
|
·
|
the
commercial potential of our drug
candidates;
|
|
·
|
the
rate of technological advances in our
markets;
|
|
·
|
the
cost of acquiring or in-licensing new discovery compounds, technologies,
drug candidates or other business
assets;
|
|
·
|
the
magnitude of our general and administrative expenses;
|
|
|
|
|
·
|
any
costs related to litigation in which we may be involved or related to any
claims made against us; |
|
·
|
any
costs we may incur under current and future licensing arrangements;
and
|
|
·
|
the
costs of commercializing and launching other products, if any, which are
successfully developed and approved for commercial sale by regulatory
authorities.
|
We expect
that we will incur significant costs to complete the clinical trials and other
studies required to enable us to submit regulatory applications with the FDA
and/or the European Medicines Agency, or EMEA, for our drug candidates as we
continue development of each of these drug candidates. The time and cost to
complete clinical development of these drug candidates may vary as a result of a
number of factors.
We may
seek additional capital through a combination of public and private equity
offerings, debt financings and collaborative, strategic alliance and licensing
arrangements. Such additional financing may not be available when we need it or
may not be available on terms that are favorable to us. Moreover, any financing
requiring the issuance of additional shares of capital stock must first be
approved by Novartis so long as Novartis continues to own at least 19.4% of our
voting stock. In May 2009, we received approval from Novartis to issue
additional shares pursuant to a financing under the shelf registration so long
as the issuance of additional shares does not reduce Novartis’ interest in
Idenix below 43%.
If we
raise additional capital through the sale of our common stock, existing
stockholders, other than Novartis, which has the right to maintain a certain
level of ownership, will experience dilution of their current level of ownership
of our common stock and the terms of the financing may adversely affect the
holdings or rights of our stockholders. If we are unable to obtain adequate
financing on a timely basis, we could be required to delay, reduce or eliminate
one or more of our drug development programs or to enter into new collaborative,
strategic alliance or licensing arrangements that may not be favorable to us.
These arrangements could result in the transfer to third parties of rights that
we consider valuable.
Our
research and development efforts may not result in additional drug candidates
being discovered on anticipated timelines, which could limit our ability to
generate revenues.
Our
research and development programs, other than our IDX184 program for the
treatment of HCV, are at preclinical stages. Additional drug candidates that we
may develop or acquire will require significant research, development,
preclinical studies and clinical trials, regulatory approval and commitment of
resources before any commercialization may occur. We cannot predict whether our
research will lead to the discovery of any additional drug candidates that could
generate revenues for us.
Our
failure to successfully acquire or develop and market additional drug candidates
or approved drugs would impair our ability to grow.
As part
of our strategy, we intend to establish a franchise in the HCV market by
developing multiple drug candidates for this therapeutic indication. The success
of this strategy depends upon the development and commercialization of
additional drug candidates that we successfully discover, license or otherwise
acquire.
Drug
candidates we discover, license or acquire will require additional and likely
substantial development, including extensive clinical testing and approval by
the FDA and applicable foreign regulatory authorities. All drug candidates are
prone to the risks of failure inherent in pharmaceutical drug development,
including the possibility that the drug candidate will not be shown to be
sufficiently safe and effective for approval by regulatory
authorities.
Proposing,
negotiating and implementing acquisition or in-license of drug candidates may be
a lengthy and complex process. Other companies, including those with
substantially greater financial, marketing and sales resources, may compete with
us for the acquisition of drug candidates. We may not be able to acquire the
rights to additional drug candidates on terms that we find acceptable, if at
all.
Our
investments are subject to general credit, liquidity, market and interest rate
risks, which may be exacerbated by the volatility in the U.S. credit
markets.
As of
June 30, 2009, our cash, cash equivalents and marketable securities were
invested in government agency and treasury money market instruments and an
auction rate security. Our investment policy seeks to manage these assets to
achieve our goals of preserving principal and maintaining adequate liquidity.
However, due to the distress in the financial markets over the past year,
certain investments have diminished liquidity and declined in value. Due to
failed auctions related to our auction rate security and the continued
uncertainty in the credit markets, the market value of these securities may
further decline and may prevent us from liquidating our holdings. In addition,
should our investments cease paying or reduce the amount of interest paid to us,
our interest income would suffer. These market risks associated with our
investment portfolio may have an adverse effect on our financial
condition.
The
commercial markets which we intend to enter are subject to intense competition.
If we are unable to compete effectively, our drug candidates may be rendered
noncompetitive or obsolete.
We are
engaged in segments of the pharmaceutical industry that are highly competitive
and rapidly changing. Many large pharmaceutical and biotechnology companies,
academic institutions, governmental agencies and other public and private
research organizations are commercializing or pursuing the development of
products that target viral diseases, including the same diseases we are
targeting.
We face
intense competition from existing products and we expect to face increasing
competition as new products enter the market and advanced technologies become
available. For the treatment of HBV, we are aware of five other drug products,
specifically, lamivudine, entecavir, adefovir dipivoxil and tenofovir, each
nucleoside/nucleotide analogs, and pegylated interferon, which are approved by
the FDA and commercially available in the United States or in foreign
jurisdictions. Four of these products have preceded Tyzeka®/Sebivo® into the
marketplace and have gained acceptance with physicians and patients. For the
treatment of HCV, the current standard of care is pegylated interferon in
combination with ribavirin, a nucleoside analog. Currently, there are
approximately 25 antiviral therapies approved for commercial sale in the United
States for the treatment of HIV.
We
believe that a significant number of drug candidates that are currently under
development may become available in the future for the treatment of HBV, HCV and
HIV. Our competitors’ products may be more effective, have fewer side effects,
have lower costs or be better marketed and sold than any of our products.
Additionally, products that our competitors successfully develop for the
treatment of HCV and HIV may be marketed prior to any HCV or HIV product we or
our collaborative partners successfully develop. Many of our competitors
have:
|
·
|
significantly
greater financial, technical and human resources than we have and may be
better equipped to discover, develop, manufacture and commercialize
products;
|
|
·
|
more
extensive experience in conducting preclinical studies and clinical
trials, obtaining regulatory approvals and manufacturing and marketing
pharmaceutical products;
|
|
·
|
products
that have been approved or drug candidates that are in late-stage
development; and
|
|
·
|
collaborative
arrangements in our target markets with leading companies and research
institutions.
|
Novartis
and GSK have the right to compete with products and drug candidates developed or
licensed by us. Novartis and GSK have the right to market and sell products that
compete with the drug candidates and products that we license to them and any
competition by Novartis or GSK could have a material adverse effect on our
business.
Competitive
products may render our products obsolete or noncompetitive before we can
recover the expenses of developing and commercializing our drug candidates.
Furthermore, the development of new treatment methods and/or the widespread
adoption or increased utilization of vaccines for the diseases we are targeting
could render our drug candidates noncompetitive, obsolete or
uneconomical.
With
respect to Tyzeka®/Sebivo® and other products, if any, we may successfully
develop and obtain approval to commercialize, we will face competition based on
the safety and effectiveness of our products, the timing and scope of regulatory
approvals, the availability and cost of supply, marketing and sales
capabilities, reimbursement coverage, price, patent position and other factors.
Our competitors may develop or commercialize more effective or more affordable
products or obtain more effective patent protection than we do. Accordingly, our
competitors may commercialize products more rapidly or effectively than we do,
which could adversely affect our competitive position and business.
Biotechnology
and related pharmaceutical technologies have undergone and continue to be
subject to rapid and significant change. Our future will depend in large part on
our ability to maintain a competitive position with respect to these
technologies.
If
we are not able to attract and retain key management and scientific personnel
and advisors, we may not successfully develop our drug candidates or achieve our
other business objectives.
The
growth of our business and our success depends in large part on our ability to
attract and retain key management and research and development personnel. Our
key personnel include our senior officers, many of whom have very specialized
scientific, medical or operational knowledge. The loss of the service of any of
the key members of our senior management team may significantly delay or prevent
our discovery of additional drug candidates, the development of our drug
candidates and achievement of our other business objectives. Our ability to
attract and retain qualified personnel, consultants and advisors is critical to
our success.
We face
intense competition for qualified individuals from numerous pharmaceutical and
biotechnology companies, universities, governmental entities and other research
institutions. We may be unable to attract and retain these individuals and our
failure to do so would have an adverse effect on our business.
Our
business has a substantial risk of product liability claims. If we are unable to
obtain or maintain appropriate levels of insurance, a product liability claim
against us could adversely affect our business.
Our
business exposes us to significant potential product liability risks that are
inherent in the development, manufacturing and marketing of human therapeutic
products. Product liability claims could result in a recall of products or a
change in the therapeutic indications for which such products may be used. In
addition, product liability claims may distract our management and key personnel
from our core business, require us to spend significant time and money in
litigation or to pay significant damages, which could prevent or interfere with
commercialization efforts and could adversely affect our business. Claims of
this nature would also adversely affect our reputation, which could damage our
position in the marketplace.
For
Tyzeka®/Sebivo®, product liability claims could be made against us based on the
use of our product prior to October 1, 2007. For Tyzeka®/Sebivo® and our drug
candidates, product liability claims could be made against us based on the use
of our drug candidates in clinical trials. We have obtained product liability
insurance for Tyzeka®/Sebivo® and maintain clinical trial insurance for our drug
candidates in development. Such insurance may not provide adequate coverage
against potential liabilities. In addition, clinical trial and product liability
insurance is becoming increasingly expensive. As a result, we may be unable to
maintain or increase current amounts of product liability and clinical trial
insurance coverage, obtain product liability insurance for other products, if
any, that we seek to commercialize, obtain additional clinical trial insurance
or obtain sufficient insurance at a reasonable cost. If we are unable to obtain
or maintain sufficient insurance coverage on reasonable terms or to otherwise
protect against potential product liability claims, we may be unable to
commercialize our products or conduct the clinical trials necessary to develop
our drug candidates. A successful product liability claim brought against us in
excess of our insurance coverage may require us to pay substantial amounts in
damages. This could adversely affect our cash position and results of
operations.
Our
insurance policies are expensive and protect us only from some business risks,
which will leave us exposed to significant, uninsured liabilities.
We do not
carry insurance for all categories of risk that our business may encounter. We
currently maintain general liability, property, workers’ compensation, products
liability, directors’ and officers’ and employment practices insurance policies.
We do not know, however, if we will be able to maintain existing insurance with
adequate levels of coverage. Any significant uninsured liability may require us
to pay substantial amounts, which would adversely affect our cash position and
results of operations.
If
the estimates we make, and the assumptions on which we rely, in preparing our
financial statements prove inaccurate, our actual results may vary from those
reflected in our projections and accruals.
Our
financial statements have been prepared in accordance with accounting principles
generally accepted in the United States of America. The preparation of these
financial statements requires us to make estimates and judgments that affect the
reported amounts of our assets, liabilities, revenues and expenses, the amounts
of charges accrued by us and related disclosure of contingent assets and
liabilities. We base our estimates on historical experience and on various other
assumptions that we believe to be reasonable under the circumstances. There can
be no assurance, however, that our estimates, or the assumptions underlying
them, will not change.
One of
these estimates is our estimate of the development period over which we amortize
license fee revenue from Novartis, which we review on a quarterly basis. As of
June 30, 2009, we have estimated that the performance period during which the
development of our licensed product and drug candidates will be completed is
approximately twelve and a half years following the effective date of the
development and commercialization agreement that we entered into with Novartis,
or December 2015. If the estimated development period changes, we will adjust
periodic revenue that is being recognized and will record the remaining
unrecognized license fees and other upfront payments over the remaining
development period during which our performance obligations will be completed.
Significant judgments and estimates are involved in determining the estimated
development period and different assumptions could yield materially different
financial results. This, in turn, could adversely affect our stock
price.
If
we fail to design and maintain an effective system of internal controls, we may
not be able to accurately report our financial results or prevent fraud. As a
result, current and potential stockholders could lose confidence in our
financial reporting, which could harm our business and the trading price of our
common stock.
As
directed by Section 404 of the Sarbanes-Oxley Act of 2002, the SEC adopted rules
requiring public companies to include a report in Annual Reports on Form 10-K
that contains an assessment by management of the effectiveness of the company’s
internal controls over financial reporting. In addition, the company’s
registered independent public accounting firm must attest to the effectiveness
of our internal controls over financial reporting.
We have
completed an assessment and will continue to review in the future our internal
controls over financial reporting in an effort to ensure compliance with the
Section 404 requirements. The manner by which companies implement, maintain and
enhance these requirements including internal control reforms, if any, to comply
with Section 404, and how registered independent public accounting firms apply
these requirements and test companies’ internal controls, is subject to change
and will evolve over time. As a result, notwithstanding our efforts, it is
possible that either our management or our registered independent public
accounting firm may in the future determine that our internal controls over
financial reporting are not effective.
A
determination that our internal controls over financial reporting are
ineffective could result in an adverse reaction in the financial marketplace due
to a loss of investor confidence in the reliability of our financial statements,
which ultimately could negatively impact the market price of our stock, increase
the volatility of our stock price and adversely affect our ability to raise
additional funding.
Factors
Related to Development, Clinical Testing and Regulatory Approval of Our Drug
Candidates
All
of our drug candidates are in development. Our drug candidates remain subject to
clinical testing and regulatory approval. If we are unable to develop our drug
candidates, we will not be successful.
To date,
we have limited experience marketing, distributing and selling any products. The
success of our business depends primarily upon Novartis’ ability to
commercialize Tyzeka®/Sebivo®, GSK’s ability to successfully develop and
commercialize our NNRTI compounds, including IDX899, and our ability, or that of
any future collaboration partner, to successfully commercialize other products,
if any, we successfully develop. We received approval from the FDA in the fourth
quarter of 2006 to market and sell Tyzeka® for the treatment of HBV in the
United States. In April 2007, Sebivo® was approved in the European Union for the
treatment of patients with HBV. Effective October 1, 2007, we transferred to
Novartis our development, commercialization and manufacturing rights and
obligations related to telbivudine (Tyzeka®/Sebivo®) on a worldwide basis in
exchange for royalty payments equal to a percentage of net sales. The royalty
percentage varies based upon the territory and the aggregate dollar amount of
net sales. In February 2009, we entered into the GSK license agreement whereby
GSK is solely responsible for the development, manufacture and commercialization
of our NNRTI compounds, including IDX899, for the treatment of human diseases,
including HIV/AIDS, on a worldwide basis. If GSK is unable to successfully
develop IDX899 or any other compound licensed to it, we will not receive
milestone or royalty payments from GSK other than the initial amount of $34.0
million already received.
Our other
drug candidates are in various earlier stages of development. All of our drug
candidates require regulatory review and approval prior to commercialization.
Approval by regulatory authorities requires, among other things, that our drug
candidates satisfy rigorous standards of safety, including assessments of the
toxicity and carcinogenicity of the drug candidates we are developing, and
efficacy. To satisfy these standards, we must engage in expensive and lengthy
testing. As a result of efforts to satisfy these regulatory standards, our drug
candidates may not:
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offer
therapeutic or other improvements over existing
drugs;
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be
proven safe and effective in clinical
trials;
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meet
applicable regulatory standards;
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be
capable of being produced in commercial quantities at acceptable costs;
or
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be
successfully commercialized.
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Commercial
availability of our drug candidates is dependent upon successful clinical
development and receipt of requisite regulatory approvals. Clinical data often
are susceptible to varying interpretations. Many companies that have believed
that their drug candidates performed satisfactorily in clinical trials in terms
of both safety and efficacy have nonetheless failed to obtain approval for such
drug candidates. Furthermore, the FDA may request from us, and the EMEA and
regulatory agencies in other jurisdictions may request from Novartis, additional
information including data from additional clinical trials, which may delay
significantly any approval and these regulatory agencies ultimately may not
grant marketing approval for any of our drug candidates. For example, in July
2007, we announced that the FDA had placed on clinical hold in the United States
our development program of valopicitabine for the treatment of HCV based on the
overall risk/benefit profile observed in clinical testing. We subsequently
discontinued the development of valopicitabine.
If
our clinical trials are not successful, we will not obtain regulatory approval
for the commercial sale of our drug candidates.
To obtain
regulatory approval for the commercial sale of our drug candidates, we will be
required to demonstrate through preclinical studies and clinical trials that our
drug candidates are safe and effective. Preclinical studies and clinical trials
are lengthy and expensive and the historical rate of failure for drug candidates
is high. The results from preclinical studies of a drug candidate may not
predict the results that will be obtained in human clinical trials.
We, the
FDA or other applicable regulatory authorities may prohibit the initiation or
suspend clinical trials of a drug candidate at any time if we or they believe
the persons participating in such clinical trials are being exposed to
unacceptable health risks or for other reasons. As an example, in July 2007, we
announced that the FDA had placed on clinical hold in the United States our
development program of valopicitabine for the treatment of HCV based on the
overall risk/benefit profile observed in clinical testing. We subsequently
discontinued the development of valopicitabine. The observation of adverse side
effects in a clinical trial may result in the FDA or foreign regulatory
authorities refusing to approve a particular drug candidate for any or all
indications of use. Additionally, adverse or inconclusive clinical trial results
concerning any of our drug candidates could require us to conduct additional
clinical trials, result in increased costs, significantly delay the submission
of applications seeking marketing approval for such drug candidates, result in a
narrower indication than was originally sought or result in a decision to
discontinue development of such drug candidates.
Clinical
trials require sufficient 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, the availability of
effective treatments for the relevant disease, the eligibility criteria for the
clinical trial and clinical trials evaluating other investigational agents,
which may compete with us for patient enrollment. Delays in patient enrollment
can result in increased costs and longer development times.
We cannot
predict whether we will encounter problems with any of our completed, ongoing or
planned clinical trials that will cause us or regulatory authorities to delay or
suspend our clinical trials, delay or suspend patient enrollment into our
clinical trials or delay the analysis of data from our completed or ongoing
clinical trials. Delays in the development of our drug candidates would delay
our ability to seek and potentially obtain regulatory approvals, increase
expenses associated with clinical development and likely increase the volatility
of the price of our common stock. Any of the following could suspend, terminate
or delay the completion of our ongoing, or the initiation of our planned,
clinical trials:
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discussions
with the FDA or comparable foreign authorities regarding the scope or
design of our clinical trials;
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delays
in obtaining, or the inability to obtain, required approvals from, or
suspensions or termination by, institutional review boards or other
governing entities at clinical sites selected for participation in our
clinical trials;
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delays
enrolling participants into clinical
trials;
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lower
than anticipated retention of participants in clinical
trials;
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insufficient
supply or deficient quality of drug candidate materials or other materials
necessary to conduct our clinical
trials;
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serious
or unexpected drug-related side effects experienced by participants in our
clinical trials; or
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negative
results of clinical trials.
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If the
results of our ongoing or planned clinical trials for our drug candidates are
not available when we expect or if we encounter any delay in the analysis of
data from our preclinical studies and clinical trials:
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we
may be unable to commence human clinical trials of any HCV drug candidates
or other drug candidates;
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GSK
may be unable to continue human clinical trials of IDX899 or commence
human clinical trials of any other licensed
compound;
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Novartis
may choose not to license our drug candidates and we may not be able to
enter into other collaborative arrangements for any of our other drug
candidates; or
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we
may not have the financial resources to continue the research and
development of our drug candidates.
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If
our drug candidates fail to obtain U.S. and/or foreign regulatory approval, we
and our partners will be unable to commercialize our drug
candidates.
Each of
our drug candidates is subject to extensive governmental regulations relating to
development, clinical trials, manufacturing and commercialization. Rigorous
preclinical studies and clinical trials and an extensive regulatory approval
process are required in the United States and in many foreign jurisdictions
prior to the commercial sale of our drug candidates. Before any drug candidate
can be approved for sale, we, or GSK, in the case of an NNRTI, including IDX899,
must demonstrate that it can be manufactured in accordance with the FDA’s
current good manufacturing practices, which are a rigorous set of requirements.
In addition, facilities where the principal commercial supply of a product is to
be manufactured must pass FDA inspection prior to approval. Satisfaction of
these and other regulatory requirements is costly, time consuming, uncertain and
subject to unanticipated delays. It is possible that none of the drug candidates
we are currently developing, or have licensed to GSK to develop, will obtain the
appropriate regulatory approvals necessary to permit commercial
distribution.
The time
required for FDA review and other approvals is uncertain and typically takes a
number of years, depending upon the complexity of the drug candidate. Analysis
of data obtained from preclinical studies and clinical trials is subject to
confirmation and interpretation by regulatory authorities, which could delay,
limit or prevent regulatory approval. We or one of our partners may also
encounter unanticipated delays or increased costs due to government regulation
from future legislation or administrative action, changes in FDA policy during
the period of product development, clinical trials and FDA regulatory
review.
Any delay
in obtaining or failure to obtain required approvals could materially adversely
affect our ability or that of a partner to generate revenues from a particular
drug candidate. Furthermore, any regulatory approval to market a product may be
subject to limitations on the indicated uses for which we or a partner may
market the product. These restrictions may limit the size of the market for the
product. Additionally, drug candidates we or our partners successfully develop
could be subject to post market surveillance and testing.
We are
also subject to numerous foreign regulatory requirements governing the conduct
of clinical trials, and we, with our partners, are subject to numerous foreign
regulatory requirements relating to manufacturing and marketing authorization,
pricing and third-party reimbursement. The foreign regulatory approval processes
include all of the risks associated with FDA approval described above as well as
risks attributable to the satisfaction of local regulations in foreign
jurisdictions. Approval by any one regulatory authority does not assure approval
by regulatory authorities in other jurisdictions. Many foreign regulatory
authorities, including those in the European Union and in China, have different
approval procedures than those required by the FDA and may impose additional
testing requirements for our drug candidates. Any failure or delay in obtaining
such marketing authorizations by us or GSK for our drug candidates would have a
material adverse effect on our business.
Our
products will be subject to ongoing regulatory review even after approval to
market such products is obtained. If we or our partners fail to comply with
applicable U.S. and foreign regulations, we or our partners could lose approvals
that we or our partners have been granted and our business would be seriously
harmed.
Even
after approval, any drug product we or our collaboration partners successfully
develop will remain subject to continuing regulatory review, including the
review of clinical results, which are reported after our product becomes
commercially available. The marketing claims we or our collaboration partners
are permitted to make in labeling or advertising regarding our marketed drugs in
the United States will be limited to those specified in any FDA approval, and in
other markets such as the European Union, to the corresponding regulatory
approvals. Any manufacturer we or our collaboration partners use to make
approved products will be subject to periodic review and inspection by the FDA
or other similar regulatory authorities in the European Union and other
jurisdictions. We and our collaboration partners are required to report any
serious and unexpected adverse experiences and certain quality problems with our
products and make other periodic reports to the FDA or other similar regulatory
authorities in the European Union and other jurisdictions. The subsequent
discovery of previously unknown problems with the product, manufacturer or
facility may result in restrictions on the drug manufacturer or facility,
including withdrawal of the drug from the market. We do not have, and currently
do not intend to develop, the ability to manufacture material at commercial
scale or for our clinical trials. Our reliance on third-party manufacturers
entails risks to which we would not be subject if we manufactured products
ourselves, including reliance on such manufacturers for regulatory compliance.
Certain changes to an approved product, including the way it is manufactured or
promoted, often require prior approval from regulatory authorities before the
modified product may be marketed.
If we or
our collaboration partners fail to comply with applicable continuing regulatory
requirements, we or our collaboration partners may be subject to civil
penalties, suspension or withdrawal of any regulatory approval obtained, product
recalls and seizures, injunctions, operating restrictions and criminal
prosecutions and penalties.
If
we or our partners fail to comply with ongoing regulatory requirements after
receipt of approval to commercialize a product, we or our partners may be
subject to significant sanctions imposed by the FDA, EMEA or other U.S. and
foreign regulatory authorities.
The
research, testing, manufacturing and marketing of drug candidates and products
are subject to extensive regulation by numerous regulatory authorities in the
United States and other countries. Failure to comply with FDA or other
applicable U.S. and foreign regulatory requirements may subject a company to
administrative or judicially imposed sanctions. These enforcement actions may
include, without limitation:
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warning
letters and other regulatory authority communications objecting to matters
such as promotional materials and requiring corrective action such as
revised communications to healthcare
practitioners;
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product
seizure or detention;
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total
or partial suspension of manufacturing;
and
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FDA
refusal to review or approve pending new drug applications or supplements
to new drug applications for previously approved products, and/or similar
rejections of marketing applications or supplements by foreign regulatory
authorities.
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The
imposition of one or more of these sanctions on us or one of our partners could
have a material adverse effect on our business.
If
we do not comply with laws regulating the protection of the environment and
health and human safety, our business could be adversely affected.
Our
research and development activities involve the controlled use of hazardous
materials, chemicals and various radioactive compounds. Although we believe that
our safety procedures for handling and disposing of these materials comply with
the standards prescribed by state and federal laws and regulations, the risk of
accidental contamination or injury from these materials cannot be eliminated. If
an accident occurs, we could be held liable for resulting damages, which could
be substantial. We are also subject to numerous environmental, health and
workplace safety laws and regulations, including those governing laboratory
procedures, exposure to blood-borne pathogens and the handling of biohazardous
materials. Although we maintain workers’ compensation insurance to cover us for
costs we may incur due to injuries to our employees resulting from the use of
these materials and environmental liability insurance to cover us for costs
associated with environmental or toxic tort claims that may be asserted against
us, this insurance may not provide adequate coverage against all potential
liabilities. Additional federal, state, foreign and local laws and regulations
affecting our operations may be adopted in the future. We may incur substantial
costs to comply with, and substantial fines or penalties if we violate any of
these laws or regulations.
Factors
Related to Our Relationship with Novartis
Novartis
has substantial control over us and could delay or prevent a change in corporate
control.
As of
July 20, 2009, Novartis owned approximately 53% of our outstanding common stock.
For so long as Novartis owns at least a majority of our outstanding common
stock, Novartis has the ability to delay or prevent a change in control of
Idenix that may be favored by other stockholders and otherwise exercise
substantial control over all corporate actions requiring stockholder approval
irrespective of how our other stockholders may vote, including:
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the
election of directors;
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any
amendment of our restated certificate of incorporation or amended and
restated by-laws;
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the
approval of mergers and other significant corporate transactions,
including a sale of substantially all of our assets;
or
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the
defeat of any non-negotiated takeover attempt that might otherwise benefit
our other stockholders.
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Novartis
has the right to exercise control over certain corporate actions that may not
otherwise require stockholder approval as long as it holds at least 19.4% of our
voting stock.
As long
as Novartis and its affiliates own at least 19.4% of our voting stock, which we
define below, we cannot take certain actions without the consent of Novartis.
These actions include:
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the
authorization or issuance of additional shares of our capital stock or the
capital stock of our subsidiaries, except for a limited number of
specified issuances;
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any
change or modification to the structure of our board of directors or a
similar governing body of any of our
subsidiaries;
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any
amendment or modification to any of our organizational documents or those
of our subsidiaries;
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the
adoption of a three-year strategic
plan;
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the
adoption of an annual operating plan and budget, if there is no approved
strategic plan;
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any
decision that would result in a variance of total annual expenditures,
capital or expense, in excess of 20% from the approved three-year
strategic plan;
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any
decision that would result in a variance in excess of the greater of $10.0
million or 20% of our profit or loss target in the strategic plan or
annual operating plan;
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the
acquisition of stock or assets of another entity that exceeds 10% of our
consolidated net revenue, net income or net
assets;
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the
sale, lease, license or other disposition of any assets or business which
exceeds 10% of our net revenue, net income or net
assets;
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the
incurrence of any indebtedness by us or our subsidiaries for borrowed
money in excess of $2.0 million;
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any
material change in the nature of our business or that of any of our
subsidiaries;
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any
change in control of Idenix or any subsidiary;
and
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any
dissolution or liquidation of Idenix or any subsidiary, or the
commencement by us or any subsidiary of any action under applicable
bankruptcy, insolvency, reorganization or liquidation
laws.
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Pursuant
to the amended and restated stockholders’ agreement, dated July 27, 2004, among
us, Novartis and certain of our stockholders, which we refer to as the
stockholders’ agreement, we are obligated to use our reasonable best efforts to
nominate for election as a director at least two designees of Novartis for so
long as Novartis and its affiliates own at least 35% of our voting stock and at
least one designee of Novartis for so long as Novartis and its affiliates own at
least 19.4% of our voting stock.
In
January 2009, we also amended the development and commercialization agreement to
provide that Novartis retains the exclusive option to obtain rights to other
drug candidates developed by us, or in some cases licensed to us, so long as
Novartis maintains ownership of 40% of our common stock, rather than ownership
of 51% of our common stock, as was the requirement prior to the execution of
this amendment.
Additionally,
in January 2009, we also amended an agreement with Novartis providing that so
long as Novartis and its affiliates own at least 40% of our common stock,
Novartis’ consent is required for the selection and appointment of our chief
financial officer. Prior to the modification of this letter amendment, the
ownership requirement was 51%. If in Novartis’ reasonable judgment the chief
financial officer is not satisfactorily performing his or her duties, we are
required to terminate his or her employment.
Furthermore,
under the terms of the stock purchase agreement, dated as of March 21, 2003,
among us, Novartis and substantially all of our then existing stockholders,
which we refer to as the stock purchase agreement, Novartis is required to make
future contingent payments of up to $357.0 million to these stockholders if we
achieve predetermined development milestones with respect to specific HCV drug
candidates. As a result, in making determinations as to our annual operating
plan and budget for the development of our drug candidates, the interests of
Novartis may be different than the interests of our other stockholders, and
Novartis could exercise its approval rights in a manner that may not be in the
best interests of all of our stockholders.
Under the
stockholders’ agreement, voting stock means our outstanding securities entitled
to vote in the election of directors, but does not include:
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securities
issued in connection with our acquisition of all of the capital stock or
all or substantially all of the assets of another entity;
and
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shares
of common stock issued upon exercise of stock options or stock awards
pursuant to compensation and equity incentive plans. Notwithstanding the
foregoing, voting stock includes up to 1,399,106 shares that were reserved
as of May 8, 2003 for issuance under our 1998 equity incentive
plan.
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Novartis
has the ability to exercise substantial control over our strategic direction,
our research and development focus and other material business
decisions.
We
currently depend on Novartis for a significant portion of our revenues, for the
commercialization of Tyzeka®/Sebivo® and for support in the development of drug
candidates Novartis has licensed from us. If our development and
commercialization agreement with Novartis terminates, our business, in
particular, the development of our drug candidates and the commercialization of
any products that we successfully develop could be harmed.
In May
2003, we received a $75.0 million license fee from Novartis in connection with
the license to Novartis of our then HBV drug candidates, telbivudine and
valtorcitabine. In April 2007, we received a $10.0 million milestone payment for
regulatory approval of Sebivo® in China and in June 2007, we received an
additional $10.0 million milestone payment for regulatory approval of Sebivo® in
the European Union. Pursuant to the development and commercialization agreement,
as amended, Novartis also acquired options to license valopicitabine and
additional drug candidates from us. In March 2006, Novartis exercised its option
and acquired a license to valopicitabine. As a result, we received a $25.0
million license fee from Novartis and the right to receive up to an additional
$45.0 million in license fee payments upon advancement of a specified HCV drug
candidate into phase III clinical trials. Assuming we continue to successfully
develop and commercialize our drug candidates licensed by Novartis (other than
valopicitabine), under the terms of the development and commercialization
agreement, we are entitled to receive reimbursement of expenses we incur in
connection with the development of these drug candidates and additional
milestone payments from Novartis. Additionally, if any of the drug candidates we
have licensed to Novartis are approved for commercialization, we anticipate
receiving proceeds in connection with the sales of such products. If Novartis
exercises the option to license other drug candidates that we discover, or in
some cases, acquire, we are entitled to receive license fees and milestone
payments as well as reimbursement of expenses we incur in the development of
such drug candidates in accordance with development plans mutually agreed with
Novartis.
Under the
existing terms of the development and commercialization agreement, we have the
right to co-promote and co-market with Novartis in the United States, United
Kingdom, Germany, Italy, France and Spain any products licensed by Novartis,
excluding Tyzeka®/Sebivo®. For Tyzeka®/Sebivo®, we acted as lead commercial
party in the United States. Effective on October 1, 2007, we transferred to
Novartis our development, commercialization and manufacturing rights and
obligations related to telbivudine (Tyzeka®/Sebivo®) on a worldwide basis. We
receive royalty payments equal to a percentage of net sales of Tyzeka®/Sebivo®,
with such percentage increasing according to specified tiers of net sales. The
royalty percentage varies based upon the territory and the aggregate dollar
amount of net sales.
Novartis
may terminate the development and commercialization agreement in any country or
with respect to any product or drug candidate licensed under the development and
commercialization agreement for any reason with six months written notice. If
the development and commercialization agreement is terminated in whole or in
part and we are unable to enter similar arrangements with other collaborators or
partners, our business would be materially adversely affected.
Novartis
has the option to license from us drug candidates we discover or, in some cases,
acquire. If Novartis does not exercise its option or disputes the adequacy of
the notice, or after we provide notice, delays its decision to exercise
such option with respect to a drug candidate, our development, manufacture
and/or commercialization of such drug candidate may be substantially delayed or
limited.
Our drug
development programs and potential commercialization of our drug candidates will
require substantial additional funding. In addition to its license of
Tyzeka®/Sebivo®, valtorcitabine and valopicitabine, Novartis has the option
under the development and commercialization agreement to license our other drug
candidates.
Furthermore,
under the development and commercialization agreement, we must provide Novartis
with notice and a data package as part of Novartis’ determination to license a
drug candidate from us, including IDX184. This notice includes information
regarding the efficacy, safety and such other related material information from
the final data set for the relevant clinical trial for the drug candidate, as
well as a proposed development plan and proposed licensing terms. The
development and commercialization agreement is not specific as to the exact
content of the information required in such notice. If Novartis disputes the
adequacy of the notice or data package, Novartis may argue that it is entitled
to additional information or data, which would likely lead to a delay in its
review of our drug candidate. Potential disputes over the adequacy of the notice
and data package we provide Novartis may cause delays in our development
programs in order to resolve any disputes with Novartis over the adequacy of
such material. This could require substantial financial resources and could
take a significant amount of time to complete.
If
Novartis elects not to exercise such option, we may be required to seek other
collaboration arrangements to provide funds necessary to enable us to develop
such drug candidates. If we are not successful in efforts to enter into a
collaboration arrangement with respect to a drug candidate not licensed by
Novartis, we may not have sufficient funds to develop such drug candidate
internally. As a result, our business would be adversely affected. In addition,
the negotiation of a collaborative agreement is time consuming, and could, even
if successful, delay the development, manufacture and/or commercialization of a
drug candidate and the terms of the collaboration agreements may not be
favorable to us.
If
we breach any of the numerous representations and warranties we made to Novartis
under the development and commercialization agreement or the stock purchase
agreement, Novartis has the right to seek indemnification from us for damages it
suffers as a result of such breach. These amounts could be
substantial.
We have
agreed to indemnify Novartis and its affiliates against losses suffered as a
result of our breach of representations and warranties in the development and
commercialization agreement and the stock purchase agreement. Under the
development and commercialization agreement and stock purchase agreement, we
made numerous representations and warranties to Novartis regarding our HCV and
HBV drug candidates, including representations regarding our ownership of and
licensed rights to the inventions and discoveries relating to such drug
candidates. If one or more of our representations or warranties were not true at
the time we made them to Novartis, we would be in breach of these agreements. In
the event of a breach by us, Novartis has the right to seek indemnification from
us and, under certain circumstances, us and our stockholders who sold shares to
Novartis, which include many of our directors and officers, for damages suffered
by Novartis as a result of such breach. The amounts for which we could become
liable to Novartis may be substantial.
In May
2004, we entered into a settlement agreement with UAB, relating to our ownership
of our chief executive officer’s inventorship interest in certain of our patents
and patent applications, including patent applications covering our HCV drug
candidates. Under the terms of the settlement agreement, we agreed to make
payments to UAB, including an initial payment made in 2004 in the amount of $2.0
million, as well as regulatory milestone payments and payments relating to net
sales of certain products. Novartis may seek to recover from us and, under
certain circumstances, us and our stockholders who sold shares to Novartis,
which include many of our officers and directors, the losses it suffers as a
result of any breach of the representations and warranties we made relating to
our HCV drug candidates and may assert that such losses include the settlement
payments.
In July
2008, we, our chief executive officer, in his individual capacity, the
University of Montpellier and CNRS entered into a settlement agreement with UAB,
UABRF, and Emory University. Pursuant to this settlement agreement, all
contractual disputes relating to patents covering the use of certain synthetic
nucleosides for the treatment of the HBV virus and all litigation matters
relating to patents and patent applications related to the use of
ß-L-2’-deoxy-nucleosides for the treatment of HBV assigned to one or more of
Idenix, CNRS, and the University of Montpellier and which cover the use of
Tyzeka®/Sebivo® (telbivudine) for the treatment of HBV have been resolved. Under
the terms of the settlement, we paid UABRF (on behalf of UAB and Emory
University) a $4.0 million upfront payment and will make additional payments to
UABRF equal to 20% of all royalty payments received by us from Novartis from
worldwide sales of telbivudine, subject to minimum payment obligations
aggregating $11.0 million. Novartis may seek to recover from us and, under
certain circumstances, us and those of our officers, directors and other
stockholders who sold shares to Novartis, such losses and other losses it
suffers as a result of any breach of the representations and warranties we made
relating to our HBV drug candidates and may assert that such losses include the
settlement payments.
If
we materially breach our obligations or covenants arising under the development
and commercialization agreement with Novartis, we may lose our rights to develop
or commercialize our drug candidates.
We have
significant obligations to Novartis under the development and commercialization
agreement. The obligations to which we are subject include the responsibility
for developing and, in some countries, co-promoting or co-marketing the products
licensed to Novartis in accordance with plans and budgets subject to Novartis’
approval. The covenants and agreements we made when entering into the
development and commercialization agreement include covenants relating to
payment of our required portion of development expenses under the development
and commercialization agreement, compliance with certain third-party license
agreements, the conduct of our clinical studies and activities relating to the
commercialization of any products that we successfully develop. If we materially
breach this agreement and are unable within an agreed time period to cure such
breach, the agreement may be terminated and we may be required to grant Novartis
an exclusive license to develop, manufacture and/or sell such products. Although
such a license would be subject to payment of a royalty by Novartis to be
negotiated in good faith, we and Novartis have stipulated that no such payments
would permit the breaching party to receive more than 90% of the net benefit it
was entitled to receive before the agreement were terminated. Accordingly, if we
materially breach our obligations under the development and commercialization
agreement, we may lose our rights to develop our drug candidates or
commercialize our successfully developed products and receive lower payments
from Novartis than we had anticipated.
If
we issue capital stock, in certain situations, Novartis will be able to purchase
shares at par value to maintain its percentage ownership in Idenix and, if that
occurs, this could cause dilution. In addition, Novartis has the right, under
specified circumstances, to purchase a pro rata portion of other shares that we
may issue.
Under the
terms of the stockholders’ agreement, Novartis has the right to purchase at par
value of $0.001 per share, such number of shares required to maintain its
percentage ownership of our voting stock if we issue shares of capital stock in
connection with the acquisition or in-licensing of technology through the
issuance of up to 5% of our stock in any 24-month period. If Novartis elects to
maintain its percentage ownership of our voting stock under the rights described
above, Novartis will be buying such shares at a price, which is substantially
below market value, which would cause dilution. This right of Novartis will
remain in effect until the earlier of:
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the
date that Novartis and its affiliates own less than 19.4% of our voting
stock; or
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the
date that Novartis becomes obligated under the stock purchase agreement to
make the additional future contingent payments of $357.0 million to our
stockholders who sold shares to Novartis in May
2003.
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In
addition to the right to purchase shares of our common stock at par value as
described above, Novartis has the right, subject to limited exceptions noted
below, to purchase a pro rata portion of shares of capital stock that we issue.
The price that Novartis pays for these securities would be the price that we
offer such securities to third parties, including the price paid by persons who
acquire shares of our capital stock pursuant to awards granted under stock
compensation or equity incentive plans. Novartis’ right to purchase a pro rata
portion does not include:
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securities
issuable in connection with any stock split, reverse stock split, stock
dividend or recapitalization that we undertake that affects all holders of
our common stock proportionately;
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shares
that Novartis has the right to purchase at par value, as described
above;
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shares
of common stock issuable upon exercise of stock options and other awards
pursuant to our 1998 equity incentive plan;
and
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securities
issuable in connection with our acquisition of all the capital stock or
all or substantially all of the assets of another
entity.
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Novartis’
right to purchase shares includes a right to purchase securities that are
convertible into, or exchangeable for, our common stock, provided that Novartis’
right to purchase stock in connection with options or other convertible
securities issued to any of our directors, officers, employees or consultants
pursuant to any stock compensation or equity incentive plan will not be
triggered until the underlying equity security has been issued to the director,
officer, employee or consultant. Novartis has waived its right to purchase
additional shares of our common stock as a result of the shares of common stock
we issued to GSK.
If
Novartis terminates or fails to perform its obligations under the development
and commercialization agreement, we may not be able to successfully
commercialize our drug candidates licensed to Novartis and the development and
commercialization of our other drug candidates could be delayed, curtailed or
terminated.
Under the
amended development and commercialization agreement, Novartis is solely
responsible for the development, commercialization and manufacturing rights to
telbivudine on a worldwide basis. We expect to co-promote or co-market with
Novartis other products, if any, that Novartis has licensed or will license from
us which are successfully developed and approved for commercialization. As a
result, we will depend upon the success of the efforts of Novartis to
manufacture, market and sell Tyzeka®/Sebivo® and our other products, if any,
that we successfully develop. However, we have limited control over the
resources that Novartis may devote to such manufacturing and commercialization
efforts and, if Novartis does not devote sufficient time and resources to such
efforts, we may not realize the commercial or financial benefits we anticipate,
and our results of operations may be adversely affected.
In
addition, Novartis has the right to terminate the development and
commercialization agreement with respect to any product, drug candidate or
country with six months written notice to us. If Novartis were to breach or
terminate this agreement with us, the development or commercialization of the
affected drug candidate or product could be delayed, curtailed or terminated
because we may not have sufficient resources or capabilities, financial or
otherwise, to continue development and commercialization of the drug candidate,
and we may not be successful in entering into a collaboration with another third
party.
Novartis
has the right to market and sell products that compete with the drug candidates
and products that we license to it and any competition by Novartis could have a
material adverse effect on our business.
Novartis
may market, sell, promote or license competitive products. Novartis has
significantly greater financial, technical and human resources than we have and
is better equipped to discover, develop, manufacture and commercialize products.
In addition, Novartis has more extensive experience in preclinical studies and
clinical trials, obtaining regulatory approvals and manufacturing and marketing
pharmaceutical products. In the event that Novartis competes with us, our
business could be materially and adversely affected.
Factors
Related to Our Dependence on Third Parties
If
we seek to enter into collaboration agreements for any drug candidates other
than those licensed to Novartis and GSK and we are not successful in
establishing such collaborations, we may not be able to continue development of
those drug candidates.
Our drug
development programs and product commercialization efforts will require
substantial additional cash to fund expenses to be incurred in connection with
these activities. While we have entered into the development and
commercialization agreement with Novartis in May 2003 and the GSK license
agreement in February 2009, we may seek to enter into additional collaboration
agreements with other pharmaceutical companies to fund all or part of the costs
of drug development and commercialization of drug candidates that Novartis does
not license. We may not be able to enter into collaboration agreements and the
terms of the collaboration agreements, if any, may not be favorable to us. If we
are not successful in our efforts to enter into a collaboration arrangement with
respect to a drug candidate, we may not have sufficient funds to develop such
drug candidate or any other drug candidate internally.
If we do
not have sufficient funds to develop our drug candidates, we will not be able to
bring these drug candidates to market and generate revenue. As a result, our
business will be adversely affected. In addition, the inability to enter into
collaboration agreements could delay or preclude the development, manufacture
and/or commercialization of a drug candidate and could have a material adverse
effect on our financial condition and results of operations
because:
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we
may be required to expend our own funds to advance the drug candidate to
commercialization;
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revenue
from product sales could be delayed;
or
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we
may elect not to develop or commercialize the drug
candidate.
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Our
license agreement with GSK is important to our business. The royalties and other
payments we receive under our licensing arrangement with GSK could be delayed,
reduced or terminated if GSK terminates or fails to perform its obligations
under its agreement with us or if GSK is unsuccessful in its sales
efforts.
In
February 2009, we entered into the GSK licensing agreement under which we
granted GSK an exclusive license to develop, manufacture and commercialize our
NNRTI compounds, including IDX899, for the treatment of human diseases,
including HIV/AIDS, on a worldwide basis. Our revenues under this licensing
agreement consist primarily of development and sales milestones and royalty
payments based on worldwide annual net sales, if any, of an NNRTI compound,
including IDX899, by GSK, its affiliates and sublicensees. Payments and
royalties under this agreement depend solely on GSK’s efforts, including
development and sales efforts and enforcement of patents, which we cannot
control. If GSK does not devote sufficient time and resources to its licensing
arrangement with us or focuses its efforts in countries where we do not hold
patents, we may not receive any such milestone or royalty payment and our
results of operations may be adversely affected.
If GSK
were to breach or terminate its agreement with us or fail to perform its
obligations to us in a timely manner, the royalties and other payments we
receive under the GSK license agreement could decrease or cease. Any delay or
termination of this type could have a material adverse effect on our financial
condition and results of operations because we may lose technology rights and
milestone or royalty payments from GSK and/or revenues from product sales, if
any, could be delayed, reduced or terminated.
Our
collaborations with outside scientists may be subject to restriction and
change.
We work
with chemists and biologists at academic and other institutions that assist us
in our research and development efforts. Many of our drug candidates were
discovered with the research and development assistance of these chemists and
biologists. Many of the scientists who have contributed to the discovery and
development of our drug candidates are not our employees and may have other
commitments that would limit their future availability to us. Although our
scientific advisors and collaborators generally agree not to do competing work,
if a conflict of interest between their work for us and their work for another
entity arises, we may lose their services.
We
have depended on third-party manufacturers to manufacture products for us. If in
the future we manufacture any of our products, we will be required to incur
significant costs and devote significant efforts to establish these
capabilities.
We have
relied upon third parties to produce material for preclinical and clinical
studies and may continue to do so in the future. Although we believe that we
will not have any material supply issues, we cannot be certain that we will be
able to obtain long-term supply arrangements of those materials on acceptable
terms, if at all. We also expect to rely upon other third parties to produce
materials required for clinical trials and for the commercial production of
certain of our products if we succeed in obtaining necessary regulatory
approvals. If we are unable to arrange for third-party manufacturing, or to do
so on commercially reasonable terms, we may not be able to complete development
of our products or market them.
Reliance
on third-party manufacturers entails risks to which we would not be subject if
we manufactured products ourselves, including reliance on the third party for
regulatory compliance and quality assurance, the possibility of breach by the
third party of agreements related to supply because of factors beyond our
control and the possibility of termination or nonrenewal of the agreement by the
third party, based on its own business priorities, at a time that is costly or
damaging to us.
In
addition, the FDA and other regulatory authorities require that our products be
manufactured according to current good manufacturing practice regulations. Any
failure by us or our third-party manufacturers to comply with current good
manufacturing practices and/or our failure to scale up our manufacturing
processes could lead to a delay in, or failure to obtain, regulatory approval.
In addition, such failure could be the basis for action by the FDA to withdraw
approvals for drug candidates previously granted to us and for other regulatory
action.
Factors
Related to Patents and Licenses
If
we are unable to adequately protect our patents and licenses related to our drug
candidates, or if we infringe the rights of others, it may not be possible to
successfully commercialize products that we develop.
Our
success will depend in part on our ability to obtain and maintain patent
protection both in the United States and in other countries for any products we
successfully develop. The patents and patent applications in our patent
portfolio are either owned by us, exclusively licensed to us, or co-owned by us
and others and exclusively licensed to us. Our ability to protect any products
we successfully develop from unauthorized or infringing use by third parties
depends substantially on our ability to obtain and maintain valid and
enforceable patents. Due to evolving legal standards relating to the
patentability, validity and enforceability of patents covering pharmaceutical
inventions and the scope of claims made under these patents, our ability to
obtain and enforce patents is uncertain and involves complex legal and factual
questions. Accordingly, rights under any issued patents may not provide us with
sufficient protection for any products we successfully develop or provide
sufficient protection to afford us a commercial advantage against our
competitors or their competitive products or processes. In addition, we cannot
guarantee that any patents will be issued from any pending or future patent
applications owned by or licensed to us. Even if patents have been issued or
will be issued, we cannot guarantee that the claims of these patents are, or
will be, valid or enforceable, or provide us with any significant protection
against competitive products or otherwise be commercially valuable to
us.
We may
not have identified all patents, published applications or published literature
that affect our business either by blocking our ability to commercialize our
drug candidates, by preventing the patentability of our drug candidates to us or
our licensors or co-owners, or by covering the same or similar technologies that
may invalidate our patents, limit the scope of our future patent claims or
adversely affect our ability to market our drug candidates. For example, patent
applications in the United States are maintained in confidence for up to 18
months after their filing. In some cases, however, patent applications remain
confidential in the U.S. Patent and Trademark Office, which we refer to as the
U.S. Patent Office, for the entire time prior to issuance of a U.S. patent.
Patent applications filed in countries outside the United States are not
typically published until at least 18 months from their first filing date.
Similarly, publication of discoveries in the scientific or patent literature
often lags behind actual discoveries. Therefore, we cannot be certain that we or
our licensors or co-owners were the first to invent, or the first to file,
patent applications on our product or drug candidates or for their uses. In the
event that a third party has also filed a U.S. patent application covering our
product or drug candidates or a similar invention, we may have to participate in
an adversarial proceeding, known as an interference, declared by the U.S. Patent
Office to determine priority of invention in the United States. The costs of
these proceedings could be substantial and it is possible that our efforts could
be unsuccessful, resulting in a loss of our U.S. patent position. The laws of
some foreign jurisdictions do not protect intellectual property rights to the
same extent as in the United States and many companies have encountered
significant difficulties in protecting and defending such rights in foreign
jurisdictions. If we encounter such difficulties in protecting or are otherwise
precluded from effectively protecting our intellectual property rights in
foreign jurisdictions, our business prospects could be substantially
harmed.
Since our
HBV product, telbivudine, was a known compound before the filing of our patent
applications covering the use of this drug candidate to treat HBV, we cannot
obtain patent protection on telbivudine itself. As a result, we have obtained
and maintain patents granted on the method of using telbivudine as a medical
therapy for the treatment of HBV.
In July
2008, we entered into a settlement agreement with UAB, UABRF and Emory
University relating to our telbivudine technology. Pursuant to this settlement
agreement, all contractual disputes relating to patents covering the use of
certain synthetic nucleosides for the treatment of HBV and all litigation
matters relating to patents and patent applications related to the use of
ß-L-2’-deoxy-nucleosides for the treatment of HBV assigned to one or more of
Idenix, CNRS and the University of Montpellier and which cover the use of
Tyzeka®/Sebivo® (telbivudine) for the treatment of HBV have been resolved. UAB
also agreed to abandon certain continuation patent applications it filed in July
2005. Under the terms of the settlement, we paid UABRF (on behalf of UAB and
Emory University) a $4.0 million upfront payment and will make additional
payments to UABRF equal to 20% of all royalty payments received by us from
Novartis from worldwide sales of telbivudine, subject to minimum payment
obligations in the aggregate of $11.0 million.
In
accordance with our patent strategy, we are attempting to obtain patent
protection for our HCV nucleoside/nucleotide polymerase inhibitor drug
candidates IDX184 and IDX102. We have filed U.S. and foreign patent applications
related to IDX184 and IDX102 themselves, as well as to methods of treating HCV
with IDX184 and IDX102. Further, we are prosecuting U.S. and foreign patent
applications, and have been granted U.S. and foreign patents, claiming methods
of treating HCV with nucleoside polymerase inhibitors including compounds that
relate to IDX184 and IDX102.
We are
aware that a number of other companies have filed patent applications attempting
to cover broad classes of compounds and their use to treat HCV, or infection by
any member of the Flaviviridae virus family to which the HCV virus belongs.
These classes of compounds might relate to nucleoside polymerase inhibitors
associated with IDX184 and IDX102. The companies include Merck & Co., Inc.
together with Isis Pharmaceuticals, Inc., Ribapharm, Inc., a wholly-owned
subsidiary of Valeant Pharmaceuticals International, Genelabs Technologies,
Inc., Pharmasset, Ltd. and Biota, Inc. (a subsidiary of Biota Holdings Ltd). A
foreign country may grant patent rights covering our drug candidates to one or
more other companies. If that occurs, we may need to challenge the third-party
patent rights, and if we do not or are not successful, we will need to obtain a
license that might not be available on commercially reasonable terms or at all.
The U.S. Patent Office may grant patent rights covering our drug candidates to
one or more other companies. If that occurs, we may need to challenge the
third-party patent rights, and if we do not or are not successful, we will need
to obtain a license that might not be available at all or on commercially
reasonable terms.
In
accordance with our patent strategy, we are attempting to obtain patent
protection for our HIV drug candidate IDX899. We have filed U.S. and foreign
patent applications directed to IDX899 itself, as well as methods of treating
HIV with IDX899. A number of companies have filed patent applications and have
obtained patents covering general methods for the treatment of HBV, HCV and HIV
that could materially affect the ability to develop and commercialize
Tyzeka®/Sebivo®, and other drug candidates we may develop in the future. For
example, we are aware that Apath, LLC has obtained broad patents covering HCV
proteins, nucleic acids, diagnostics and drug screens. If we need to use these
patented materials or methods to develop any of our HCV drug candidates and the
materials or methods fall outside certain safe harbors in the laws governing
patent infringement, we will need to buy these products from a licensee of the
company authorized to sell such products or we will require a license from one
or more companies, which may not be available to us on commercially reasonable
terms or at all. This could materially affect or preclude our ability to develop
and sell our HCV drug candidates.
If we
find that any drug candidates we are developing should be used in combination
with a product covered by a patent held by another company or institution, and
that a labeling instruction is required in product packaging recommending that
combination, we could be accused of, or held liable for, infringement or
inducement of infringement of the third-party patents covering the product
recommended for co-administration with our product. In that case, we may be
required to obtain a license from the other company or institution to provide
the required or desired package labeling, which may not be available on
commercially reasonable terms or at all.
Litigation
and disputes related to intellectual property matters occur frequently in the
biopharmaceutical industry. Litigation regarding patents, patent applications
and other proprietary rights may be expensive and time consuming. If we are
unsuccessful in litigation concerning patents or patent applications owned or
co-owned by us or licensed to us, we may not be able to protect our products
from competition or we may be precluded from selling our products. If we are
involved in such litigation, it could cause delays in bringing drug candidates
to market and harm our ability to operate. Such litigation could take place in
the United States in a federal court or in the U.S. Patent Office. The
litigation could also take place in a foreign country, in either the courts or
the patent office of that country.
Our
success will depend in part on our ability to uphold and enforce patents or
patent applications owned or co-owned by us or licensed to us, which cover
products we successfully develop. Proceedings involving our patents or patent
applications could result in adverse decisions regarding:
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ownership
of patents and patent applications;
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the
patentability of our inventions relating to our products and drug
candidates; and/or
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the
enforceability, validity or scope of protection offered by our patents
relating to our products and drug
candidates.
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Even if
we are successful in these proceedings, we may incur substantial cost and divert
management time and attention in pursuing these proceedings, which could have a
material adverse effect on us.
In May
2004, we and our chief executive officer entered into a settlement agreement
with UAB resolving a dispute regarding ownership of inventions and discoveries
made by our chief executive officer during the period from November 1999 to
November 2002, at which time our chief executive officer was on sabbatical and
then unpaid leave from his position at UAB. The patent applications we filed
with respect to such inventions and discoveries include the patent applications
covering valopicitabine, IDX102 and IDX184.
Under the
terms of the settlement agreement, we agreed to make a $2.0 million initial
payment to UAB, as well as other contingent payments based upon the commercial
launch of other HCV products discovered or invented by our chief executive
officer during his sabbatical and unpaid leave. In addition, UAB and UABRF have
each agreed that neither of them has any right, title or ownership interest in
these inventions and discoveries. Under the development and commercialization
agreement and stock purchase agreement, we made numerous representations and
warranties to Novartis regarding our HCV program, including representations
regarding our ownership of the inventions and discoveries. If one or more of our
representations or warranties were not true at the time we made them to
Novartis, we would be in breach of these agreements. In the event of a breach by
us, Novartis has the right to seek indemnification from us and, under certain
circumstances, us and our stockholders who sold shares to Novartis, which
include many of our directors and officers, for damages suffered by Novartis as
a result of such breach. The amounts for which we could be liable to Novartis
may be substantial.
Our
success will also depend in part on our ability to avoid infringement of the
patent rights of others. If it is determined that we do infringe a patent right
of another, we may be required to seek a license (which may not be available on
commercially reasonable terms or at all), defend an infringement action or
challenge the validity of the patents in court. Patent litigation is costly and
time consuming. We may not have sufficient resources to bring these actions to a
successful conclusion. In addition, if we are not successful in infringement
litigation and we do not license or develop non-infringing technology, we
may:
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incur
substantial monetary damages;
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encounter
significant delays in bringing our drug candidates to market;
and/or
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be
precluded from participating in the manufacture, use or sale of our drug
candidates or methods of treatment requiring
licenses.
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Confidentiality
agreements with employees and others may not adequately prevent disclosure of
trade secrets and other proprietary information.
To
protect our proprietary technology and processes, we also rely in part on
confidentiality agreements with our corporate collaborators, employees,
consultants, outside scientific collaborators and sponsored researchers and
other advisors. These agreements may not effectively prevent disclosure of
confidential information and may not provide an adequate remedy in the event of
unauthorized disclosure of confidential information. In addition, others may
independently discover our trade secrets and confidential information, and in
such cases we could not assert any trade secret rights against such parties.
Costly and time-consuming litigation could be necessary to enforce and determine
the scope of our proprietary rights, and failure to obtain or maintain trade
secret protection could adversely affect our competitive business
position.
If
any of our agreements that grant us the exclusive right to make, use and sell
our drug candidates are terminated, we and/or collaboration partners may be
unable to develop or commercialize our drug candidates.
We,
together with Novartis, entered into an amended and restated agreement with CNRS
and the University of Montpellier, co-owners of the patents and patent
applications covering Tyzeka®/Sebivo® and valtorcitabine. This agreement covers
both the cooperative research program and the terms of our exclusive right to
exploit the results of the cooperative research, including Tyzeka®/Sebivo® and
valtorcitabine. The cooperative research program with CNRS and the University of
Montpellier ended in December 2006 although many of the terms remain in effect
for the duration of the patent life of the affected products. We, together with
Novartis, have also entered into two agreements with the University of Cagliari,
the co-owner of the patents and patent applications covering our HCV drug
candidates and certain HIV drug candidates. One agreement with the University of
Cagliari covers our cooperative research program and the other agreement is an
exclusive license to develop and sell the jointly created HCV and HIV drug
candidates. Under the amended and restated agreement with CNRS and the
University of Montpellier and the license agreement, as amended, with the
University of Cagliari, we obtained from our co-owners the exclusive right to
exploit these drug candidates. Subject to certain rights afforded to Novartis
and to GSK as relates to the license agreement with the University of Cagliari,
these agreements can be terminated by either party in circumstances such as the
occurrence of an uncured breach by the non-terminating party. The termination of
our rights, including patent rights, under the agreement with CNRS and the
University of Montpellier or the license agreement, as amended, with the
University of Cagliari would have a material adverse effect on our business and
could prevent us from developing a drug candidate or selling a product. In
addition, these agreements provide that we pay the costs of patent prosecution,
maintenance and enforcement. These costs could be substantial. Our inability or
failure to pay these costs could result in the termination of the agreements or
certain rights under them.
Under our
amended and restated agreement with CNRS and the University of Montpellier and
our license agreement, as amended, with the University of Cagliari, we and
Novartis have the right to exploit and license our co-owned drug candidates.
Under our license agreement, as amended, with the University of Cagliari, we and
GSK have the right to exploit and license our co-owned drug candidates. However,
our agreements with CNRS and the University of Montpellier and with the
University of Cagliari are currently governed by, and will be interpreted and
enforced under, French and Italian law, respectively, which are different in
substantial respects from U.S. law, and which may be unfavorable to us in
material respects. Under French law, co-owners of intellectual property cannot
exploit, assign or license their individual rights without the permission of the
co-owners. Similarly, under Italian law, co-owners of intellectual property
cannot exploit or license their individual rights without the permission of the
co-owners. Accordingly, if our agreements with the University of Cagliari
terminate based on a breach, we may not be able to exploit, license or otherwise
convey to Novartis, GSK or other third parties our rights in our products or
drug candidates for a desired commercial purpose without the consent of the
co-owner, which could materially affect our business and prevent us from
developing our drug candidates and selling our products.
Under
U.S. law, a co-owner has the right to prevent the other co-owner from suing
infringers by refusing to join voluntarily in a suit to enforce a patent. Our
amended and restated agreement with CNRS and the University of Montpellier and
our license agreement, as amended, with the University of Cagliari provide that
such parties will cooperate to enforce our jointly owned patents on our products
or drug candidates. If these agreements terminate or the parties’ cooperation is
not given or is withdrawn, or they refuse to join in litigation that requires
their participation, we may not be able to enforce these patent rights or
protect our markets.
Factors
Related to Our Common Stock
Our
common stock may have a volatile trading price and low trading
volume.
The
market price of our common stock could be subject to significant fluctuations.
Some of the factors that may cause the market price of our common stock to
fluctuate include:
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realization
of license fees and achievement of milestones under our development and
commercialization agreement with
Novartis;
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realization
of license fees and achievement of preclinical and clinical milestones and
sales thresholds under the GSK license
agreement;
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reductions
in proceeds associated with Novartis’ right to maintain its percentage
ownership of our voting stock when we issue shares at a price below fair
market value;
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adverse
developments regarding the safety and efficacy of Tyzeka®/Sebivo® or our
drug candidates;
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the
results of ongoing and planned clinical trials of our drug candidates,
including the ongoing phase I/II, double-blind, placebo-controlled,
dose-escalation study to evaluate the safety and antiviral activity of
IDX184 in treatment-naïve adult patients infected with
HCV;
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developments
in the market with respect to competing products or more generally the
treatment of HBV, HCV or HIV;
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the
results of preclinical studies and planned clinical trials of our other
discovery-stage programs;
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future
sales of, and the trading volume in, our common
stock;
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the
timing and success of the launch of products, if any, we successfully
develop;
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future
royalty payments received by us associated with sales of
Tyzeka®/Sebivo®;
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the
entry into key agreements, including those related to the acquisition or
in-licensing of new programs, or the termination of key
agreements;
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the
results and timing of regulatory reviews relating to the approval of our
drug candidates;
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the
initiation of, material developments in or conclusion of litigation to
enforce or defend any of our intellectual property
rights;
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the
initiation of, material developments in or conclusion of litigation to
defend products liability claims;
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the
failure of any of our drug candidates, if approved, to achieve commercial
success;
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the
results of clinical trials conducted by others on drugs that would compete
with our drug candidates;
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issues
in manufacturing our drug candidates or any approved
products;
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the
loss of key employees;
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changes
in estimates or recommendations by securities analysts who cover our
common stock;
|
|
·
|
future
financings through the issuance of equity or debt securities or
otherwise;
|
|
·
|
changes
in the structure of health care payment
systems;
|
|
·
|
our
cash position and period-to-period fluctuations in our financial results;
and
|
|
·
|
general
and industry-specific economic
conditions.
|
Moreover,
the stock markets in general have experienced substantial volatility that has
often been unrelated to the operating performance of individual companies. These
broad market fluctuations may also adversely affect the trading price of our
common stock.
We
do not anticipate paying cash dividends, so you must rely on stock price
appreciation for any return on your investment.
We
anticipate retaining any future earnings for reinvestment in our research and
development programs. Therefore, we do not anticipate paying cash dividends in
the future. As a result, only appreciation of the price of our common stock will
provide a return to stockholders. Investors seeking cash dividends should not
invest in our common stock.
Sales
of additional shares of our common stock could result in dilution to existing
stockholders and cause the price of our common stock to decline.
Sales of
substantial amounts of our common stock in the public market, or the
availability of such shares for sale, could adversely affect the price of our
common stock. In addition, the issuance of common stock upon exercise of
outstanding options could be dilutive, and may cause the market price for a
share of our common stock to decline. As of July 20, 2009 we had 59,078,996
shares of common stock issued and outstanding, together with outstanding options
to purchase approximately 6,511,421 shares of common stock with a weighted
average exercise price of $7.92 per share.
Novartis
and other holders of shares of common stock have rights, subject to certain
conditions, to require us to file registration statements covering their shares
or to include their shares in registration statements that we may file for
ourselves or other stockholders.
An
investment in our common stock may decline in value as a result of announcements
of business developments by us or our competitors.
The
market price of our common stock is subject to substantial volatility as a
result of announcements by us or other companies in our industry. As a result,
purchasers of our common stock may not be able to sell their shares of common
stock at or above the price at which they purchased such stock. Announcements
which may subject the price of our common stock to substantial volatility
include:
|
·
|
our
collaboration with Novartis;
|
|
·
|
our
collaboration with GSK;
|
|
·
|
the
results of our ongoing phase I/II, double-blind, placebo-controlled,
dose-escalation study to evaluate the safety and antiviral activity of
IDX184 in treatment-naïve adult patients infected with
HCV;
|
|
·
|
the
results of discovery, preclinical studies and clinical trials by us or our
competitors;
|
|
·
|
the
acquisition of technologies, drug candidates or products by us or our
competitors;
|
|
·
|
the
development of new technologies, drug candidates or products by us or our
competitors;
|
|
·
|
regulatory
actions with respect to our drug candidates or products or those of our
competitors, including those relating to our clinical trials, marketing
authorizations, pricing and
reimbursement;
|
|
·
|
the
timing and success of launches of any product we successfully
develop;
|
|
·
|
future
royalty payments received by us associated with sales of
Tyzeka®/Sebivo®;
|
|
·
|
the
market acceptance of any products we successfully
develop;
|
|
·
|
significant
changes to our existing business
model;
|
|
·
|
the
initiation of, material developments in or conclusion of litigation to
enforce or defend any of our intellectual property rights;
and
|
|
·
|
significant
acquisitions, strategic partnerships, joint ventures or capital
commitments by us or our
competitors.
|
In
addition, if we fail to reach an important research, development or
commercialization milestone or result by a publicly expected deadline, even if
by only a small margin, there could be a significant impact on the market price
of our common stock. Additionally, as we approach the announcement of important
clinical data or other significant information and as we announce such results
and information, we expect the price of our common stock to be particularly
volatile, and negative results would have a substantial negative impact on the
price of our common stock.
We
could be subject to class action litigation due to stock price volatility,
which, if it occurs, will distract our management and could result in
substantial costs or large judgments against us.
The stock
market frequently experiences extreme price and volume fluctuations. In
addition, the market prices of securities of companies in the biotechnology and
pharmaceutical industry have been extremely volatile and have experienced
fluctuations that have often been unrelated or disproportionate to the operating
performance of these companies. These fluctuations could adversely affect the
market price of our common stock. In the past, securities class action
litigation has often been brought against companies following periods of
volatility in the market prices of their securities. Due to the volatility in
our stock price, we may be the target of similar litigation in the
future.
Securities
litigation could result in substantial costs and divert our management’s
attention and resources, which could cause serious harm to our business,
operating results and financial condition.
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
(a)
Unregistered Sales of Equity Securities
We issued
and sold the following shares of our common stock during the quarterly period
ending June 30, 2009 on the respective date below:
|
|
On
May 29, 2009, we issued and sold 2,451 shares of our common stock to
Novartis Pharma AG pursuant to the terms of our stockholders’ agreement at
a per share price of $2.62, for an aggregate purchase price of
approximately $6,421.
|
The
issuance and sale of common stock described above were issued in reliance upon
exemptions from the registration provisions of the Securities Act set forth in
Section 4(2) thereof (and Regulation D) relative to sales by an issuer
not involving any public offering, to the extent an exemption from such
registration was required.
No
underwriters were involved in the issuance and/or sale of the foregoing
securities. All of the foregoing securities are deemed restricted securities for
purposes of the Securities Act. All certificates representing the issued shares
of common stock described above included appropriate legends setting forth that
the securities had not been registered and the applicable restrictions on
transfer.
Item 3.
Defaults Upon Senior Securities
None.
Item 4.
Submission of Matters to a Vote of Security Holders
The
following matters were submitted to a vote of the stockholders at our 2009
Annual Meeting of Stockholders held on June 2, 2009, or annual
meeting:
|
1.
|
To
elect eight directors to serve until the next annual meeting of
stockholders; and
|
|
2.
|
To
ratify the selection of PricewaterhouseCoopers LLP as our independent
registered public accounting firm for the current fiscal year ending
December 31, 2009.
|
The
number of shares of common stock outstanding and eligible to vote as of the
record date of April 9, 2009 was 59,073,114. Each of these matters was
approved by the requisite vote of our stockholders. Set forth below is the
number of votes cast for, against, or withheld, as well as the number of
abstentions and broker non-votes as to the respective matter, including a
separate tabulation with respect to each nominee for director.
Proposal
1: Electing eight directors to serve until the next annual meeting of
stockholders
|
|
For
|
|
|
Withheld
|
|
Jean-Pierre
Sommadossi
|
|
|
48,546,735 |
|
|
|
1,198,352 |
|
Charles
W. Cramb
|
|
|
48,744,479 |
|
|
|
1,000,608 |
|
Wayne
T. Hockmeyer
|
|
|
48,746,435 |
|
|
|
998,652 |
|
Thomas
R. Hodgson
|
|
|
48,836,525 |
|
|
|
908,562 |
|
Robert
E. Pelzer
|
|
|
44,530,165 |
|
|
|
5,214,922 |
|
Denise
Pollard-Knight
|
|
|
48,426,949 |
|
|
|
1,318,138 |
|
Steven
Projan
|
|
|
48,824,203 |
|
|
|
920,884 |
|
Pamela
Thomas-Graham
|
|
|
48,429,403 |
|
|
|
1,315,684 |
|
Proposal
2: Ratifying and approving the selection of PricewaterhouseCoopers LLP as
Idenix’s independent registered public accounting firm for the current
year
For
|
|
Against
|
|
Abstain
|
|
No-Vote
|
49,659,294
|
|
77,602
|
|
8,191
|
|
0
|
Item 5.
Other Information
None.
Item 6.
Exhibits
See
Exhibit Index on the page immediately preceding the exhibits for a list of
the exhibits filed as a part of this Quarterly Report, which Exhibit Index
is incorporated by reference.
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
Date:
July 31, 2009
|
By:
|
/s/
JEAN-PIERRE SOMMADOSSI
|
|
|
Jean-Pierre
Sommadossi
|
|
|
Chairman
and Chief Executive Officer
(Principal Executive
Officer)
|
|
|
Date:
July 31, 2009
|
By:
|
/s/
RONALD C. RENAUD, JR.
|
|
|
Ronald
C. Renaud, Jr.
|
|
|
Chief
Financial Officer
(Principal Financial
Officer)
|
EXHIBIT
INDEX
Exhibit
|
|
|
No.
|
|
Description
|
|
|
|
21.1
|
|
Subsidiaries
of the Registrant
|
|
|
|
31.1
|
|
Certification
of Chief Executive Officer pursuant to Rule 13a-14(a)/Rule 15d-14(a)
of the Securities Exchange Act of 1934, as amended.
|
|
|
|
31.2
|
|
Certification
of Chief Financial Officer pursuant to Rule 13a-14(a)/Rule 15d-14(a)
of the Securities Exchange Act of 1934, as amended.
|
|
|
|
32.1
|
|
Certification
of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
|
|
|
32.2
|
|
Certification
of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|