Unassociated Document
UNITED STATES SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C.
20549
FORM 10-Q
(Mark One)
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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
March 31, 2010
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
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45-0478605
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(State or Other Jurisdiction
of
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(IRS Employer Identification
No.)
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Incorporation or
Organization)
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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
¨
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):
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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 May 4, 2010, the number of shares of the registrant’s common stock, par
value $0.001 per share, outstanding was 72,857,018
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 March 31, 2010 and
December 31, 2009
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3
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Unaudited
Condensed Consolidated Statements of Operations for the Three Months Ended
March 31, 2010 and 2009
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4
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Unaudited
Condensed Consolidated Statements of Cash Flows for the Three Months Ended
March 31, 2010 and 2009
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5
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Notes
to the Unaudited Condensed Consolidated Financial
Statements
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6
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Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of
Operations
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17
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Item 3.
Quantitative and Qualitative Disclosures About Market Risk
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23
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Item 4.
Controls and Procedures
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24
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Part
II—Other Information
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Item 1.
Legal Proceedings
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24
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Item 1A.
Risk Factors
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24
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Item 2.
Unregistered Sales of Equity Securities and Use of
Proceeds
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44
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Item 3.
Defaults Upon Senior Securities
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44
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Item 4.
[Reserved]
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44
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Item 5.
Other Information
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44
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Item 6.
Exhibits
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44
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Signatures
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45
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Exhibit Index
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46
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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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March 31,
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December 31,
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2010
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2009
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ASSETS
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Current
assets:
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Cash
and cash equivalents
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$ |
32,344 |
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$ |
46,519 |
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Restricted
cash
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411 |
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411 |
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Receivables
from related party
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981 |
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1,049 |
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Other
receivables
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1,413 |
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1,505 |
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Prepaid
expenses and other current assets
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1,909 |
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2,096 |
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Total
current assets
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37,058 |
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51,580 |
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Intangible
asset, net
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10,756 |
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11,069 |
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Property
and equipment, net
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9,000 |
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10,091 |
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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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1,418 |
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1,584 |
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Other
assets
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2,041 |
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1,576 |
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Total
assets
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$ |
61,023 |
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$ |
76,650 |
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LIABILITIES
AND STOCKHOLDERS' DEFICIT
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Current
liabilities:
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Accounts
payable
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$ |
3,141 |
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$ |
1,941 |
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Accrued
expenses
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9,378 |
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8,779 |
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Deferred
revenue
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1,025 |
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1,025 |
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Deferred
revenue, related party
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6,165 |
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6,155 |
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Other
current liabilities
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598 |
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444 |
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Total
current liabilities
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20,307 |
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18,344 |
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Long-term
obligations
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13,080 |
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13,590 |
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Deferred
revenue, net of current portion
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19,137 |
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19,393 |
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Deferred
revenue, related party, net of current portion
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29,172 |
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30,776 |
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Total
liabilities
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81,696 |
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82,103 |
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Commitments
and contingencies (Note 11)
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Stockholders'
deficit:
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Common
stock, $0.001 par value; 125,000,000 shares authorized at March 31, 2010
and December 31, 2009; 66,373,742 and 66,365,976 shares issued and
outstanding at March 31, 2010 and
December 31, 2009, respectively
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66 |
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66 |
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Additional
paid-in capital
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556,843 |
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555,692 |
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Accumulated
other comprehensive income
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811 |
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970 |
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Accumulated
deficit
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(578,393 |
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(562,181 |
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Total
stockholders' deficit
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(20,673 |
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(5,453 |
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Total
liabilities and stockholders' deficit
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$ |
61,023 |
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$ |
76,650 |
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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 March 31,
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2010
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2009
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Revenues:
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Collaboration
revenue - related party
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$ |
2,416 |
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$ |
3,916 |
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Other
revenue
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267 |
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95 |
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Total
revenues
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2,683 |
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4,011 |
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Operating
expenses:
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Cost
of revenues
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558 |
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461 |
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Research
and development
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11,762 |
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10,849 |
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General
and administrative
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4,777 |
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6,016 |
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Restructuring
charges
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2,238 |
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- |
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Total
operating expenses
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19,335 |
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17,326 |
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Loss
from operations
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(16,652 |
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(13,315 |
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Other
income, net
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441 |
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388 |
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Loss
before income taxes
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(16,211 |
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(12,927 |
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Income
tax benefit (expense)
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(1 |
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1 |
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Net
loss
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$ |
(16,212 |
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$ |
(12,926 |
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Basic
and diluted net loss per common share
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$ |
(0.24 |
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$ |
(0.23 |
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Shares
used in computing basic and diluted net loss per common
share
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66,370 |
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56,940 |
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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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Three Months Ended March 31,
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2010
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2009
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Cash
flows from operating activities:
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Net
loss
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$ |
(16,212 |
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$ |
(12,926 |
) |
Adjustments
to reconcile net loss to net cash provided by (used in) operating
activities:
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Depreciation
and amortization
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1,283 |
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1,231 |
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Share-based
compensation expense
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981 |
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1,256 |
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Revenue
adjustment for contingently issuable shares
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104 |
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(1,563 |
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Other
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(22 |
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49 |
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Changes
in operating assets and liabilities:
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Receivables
from related party
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68 |
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80 |
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Other
receivables
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(15 |
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2,787 |
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Prepaid
expenses and other current assets
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146 |
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(566 |
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Other
assets
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(531 |
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(1,115 |
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Accounts
payable
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1,202 |
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(1,657 |
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Accrued
expenses and other current liabilities
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970 |
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(1,222 |
) |
Deferred
revenue
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(256 |
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16,915 |
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Deferred
revenue, related party
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(1,539 |
) |
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(1,539 |
) |
Other
liabilities
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(487 |
) |
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(364 |
) |
Net
cash provided by (used in) operating activities
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(14,308 |
) |
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1,366 |
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Cash
flows from investing activities:
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Purchases
of property and equipment
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(87 |
) |
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(69 |
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Sales
and maturities of marketable securities
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200 |
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2,595 |
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Net
cash provided by investing activities
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113 |
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2,526 |
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Cash
flows from financing activities:
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Proceeds
from exercise of common stock options
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6 |
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88 |
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Proceeds
from issuance of common stock to related party
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5 |
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13 |
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Proceeds
from issuance of common stock
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- |
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17,000 |
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Net
cash provided by financing activities
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11 |
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17,101 |
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Effect
of changes in exchange rates on cash and cash equivalents
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9 |
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65 |
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Net
increase (decrease) in cash and cash equivalents
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(14,175 |
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21,058 |
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Cash
and cash equivalents at beginning of period
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46,519 |
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41,509 |
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Cash
and cash equivalents at end of period
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$ |
32,344 |
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$ |
62,567 |
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Supplemental
disclosure of cash flow information:
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Change
in value of shares of common stock contingently issuable or issued to
related party
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$ |
160 |
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$ |
(2,721 |
) |
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 generally accepted accounting principles in the United States of
America, or
GAAP, for interim
reporting. Accordingly, these interim financial statements do not include all
the information and footnotes required by GAAP for complete financial statements
and should be read in conjunction with the audited consolidated financial statements for the year ended
December 31, 2009, which are included in our Annual
Report on Form 10-K filed with the Securities and Exchange Commission, or SEC,
on March 9, 2010. 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 GAAP.
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,
2010.
On April
29, 2010, we issued approximately 6.5 million shares of our common stock
pursuant to an underwritten offering and received $26.2 million in net proceeds
upon closing of the transaction on May 4, 2010.
On April
23, 2010, ViiV Healthcare Company, an affiliate of GlaxoSmithKline, which we
refer to collectively as GSK, notified us that an operational preclinical
milestone triggering a $6.5 million payment from GSK related to the development
of IDX899 was achieved. We expect to receive the milestone payment in May
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, manufacturing and sales and marketing
efforts. We have incurred losses in each year since our inception and at March
31, 2010 had an accumulated deficit of $578.4 million. In
September 2008, we filed a shelf registration statement with the SEC, for an
indeterminate number of shares of common stock, up to an 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 Pharma AG, or
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 capital shares
pursuant to financing transactions under our existing shelf registration
statement so long as the issuance of shares did not reduce Novartis' interest in
Idenix below 43%. Pursuant to this shelf registration, in August 2009 and on
April 29, 2010, we issued approximately 7.3 million and approximately 6.5
million shares of our common stock pursuant to underwritten offerings and
received $21.2 million and $26.2 million in net proceeds, respectively. Novartis
opted not to participate in either of these offerings and its ownership was
diluted from 53% prior to the August 2009 offering to approximately 43% at May
4, 2010. 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®, the
expected payment from GSK for the achievement of a milestone in April 2010 and
the net proceeds from our common stock offering on April 29, 2010 will be
sufficient to satisfy our cash needs into the second half of 2011.
We may seek additional funding
through a combination of public or private financing, collaborative
relationships and other arrangements in the future. If we do not receive
licensing or additional milestone payments, or additional funding through a
public or private financing, we have the ability and intent to manage
expenditures to preserve our cash resources and fund operations into the second
half of 2011. These actions would include reductions in the number of our
employees and delaying or canceling planned expenditures in our research and
development programs.
Certain financial statement items have been
reclassified to conform to the current period presentation, in particular, the benefits recognized
related to the refundable research and development credits of our French
subsidiary of $0.4 million for the three months ended March 31, 2009 have been
reclassified from income tax benefit to other income, net to correct the
classification in our condensed consolidated statement of operations. There was
no material impact to any of the periods presented.
Recent Accounting
Pronouncements
In October 2009, the Financial
Accounting Standards Board, or FASB, issued Accounting Standard Update, or
ASU, No. 2009-13,
Multiple-Deliverable Revenue Arrangements. This ASU eliminates the requirement to
establish the fair value of undelivered products and services and instead
provides for separate revenue recognition based upon management’s estimate of
the selling price for an undelivered item when there is no other means to
determine the fair value of that undelivered item. This ASU also eliminates the use of the
residual method and instead requires an entity to allocate revenue using the
relative selling price method. Additionally, the guidance expands disclosure
requirements with respect to multiple-deliverable revenue arrangements. This ASU
is effective prospectively for revenue arrangements entered into or materially
modified in fiscal years beginning on or after June 15, 2010. Although we are still evaluating the
impact of this standard, we do not expect its adoption to have a material impact
on our financial position or the results of our operations. This standard may
impact us in the event we complete future transactions or modify existing
collaborative relationships.
In
April 2010, the FASB issued ASU No. 2010-17, Revenue Recognition – Milestone
Method. This ASU provides guidance on the criteria that should be met for
determining whether the milestone method of revenue
recognition is appropriate. Under the milestone method of revenue recognition,
consideration that is contingent upon achievement of a milestone in its entirety
can be recognized as revenue in the period in which the milestone is achieved
only if the milestone meets all criteria to be considered substantive. This
standard provides the criteria to be met for a milestone to be considered
substantive which includes that: a) performance consideration earned by
achieving the milestone be commensurate with either performance to achieve the
milestone or the enhancement of the value of the item delivered as a result of a
specific outcome resulting from performance to achieve the milestone; and b)
relate to past performance and be reasonable relative to all deliverables and
payment terms in the arrangement. This standard is effective on a prospective
basis for milestones in fiscal years beginning on or after June 15, 2010. We are
evaluating the impact of this standard on our financial position and results of
operations.
IDENIX PHARMACEUTICALS,
INC.
NOTES TO THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS - CONTINUED
(UNAUDITED)
Revenue Recognition
Revenue is recognized in accordance with
SEC 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, in accordance with the revenue
recognition guidance of the FASB. 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.
Our revenues are generated primarily
through collaborative research, development and/or commercialization agreements.
The terms of these agreements typically include payments to us for non-refundable license fees, milestones,
collaborative research and development funding and royalties received from our
collaboration partners.
Collaboration Revenue - Related
Party
We entered into a collaboration with
Novartis relating to the worldwide development
and commercialization of our drug candidates 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. 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 of a drug
candidate through
commercialization of
any drug candidate 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 entered into, 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 the considerable commercialization expertise and infrastructure
necessary for the commercialization of such drug candidates. Accordingly, we
believe our obligation post commercialization is
inconsequential.
We recognize non-refundable payments over the performance period of
our continuing obligations. This period is estimated based on current judgments
related to the product development timeline of our licensed 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. This policy is
described more fully in Note 4.
Royalty revenue consists of revenue
earned under our license agreement with Novartis for sales of Tyzeka®/Sebivo®, which is recognized when reported from
Novartis. Royalty revenue is equal to a percentage of Tyzeka®/Sebivo® net sales, with such percentage
increasing according to specified tiers of net sales. The royalty percentage
varies based on the specified territory and the aggregate dollar
amount of net sales.
Other Revenue
In February 2009, we entered into a
license agreement with GSK,
which we refer to as the “GSK license agreement”. Under the GSK license agreement, we
granted GSK an exclusive
worldwide license to
develop, manufacture and commercialize our non-nucleoside reverse transcriptase
inhibitors, or NNRTI,
compounds, including IDX899
(GSK2248761), for the
treatment of human diseases, including human immunodeficiency virus type 1, or
HIV, and Acquired Immune Deficiency Syndrome, or AIDS. Under this agreement, in March 2009,
we received a $17.0 million non-refundable license fee payment. This agreement
has performance obligations, including joint committee participation
and GSK’s right to license other NNRTI compounds that we may develop in the
future, that we have assessed under the FASB guidance related to multiple
element arrangements. We
concluded that this arrangement should be accounted for as a single unit of
accounting. 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 17 years. We recognized $0.3 million and $0.1 million of license fee revenue for the
three months ended March 31, 2010 and 2009, respectively.
Marketable
Securities
We invest our excess cash balances in short-term and
long-term marketable debt securities. We classify our marketable securities with remaining
final maturities of twelve months or less based on the
purchase date as current marketable securities, exclusive of those categorized
as cash equivalents. We classify our marketable securities with remaining
final maturities greater than twelve months as non-current marketable
securities to the extent we
do not expect to be required to liquidate them before maturity. 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’
deficit. Realized gains and losses are
determined using the specific identification method and are included in other
income, net in our
condensed consolidated financial statements.
IDENIX PHARMACEUTICALS,
INC.
NOTES TO THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS - CONTINUED
(UNAUDITED)
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 statement of operations and
a new cost basis in the security is established.
Fair Value
Measurements
Our assets and liabilities that are
measured at fair value on a recurring basis as of March 31, 2010 and December 31, 2009 are measured in accordance with
FASB guidance. 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.
Our marketable securities are generally
valued using information provided by a pricing service based on market
observable information, or for money market investments at calculated net asset
values, and are therefore classified as
Level 2. The pricing service used many observable market inputs to
determine value, including benchmark yields, benchmarking of like
securities, sector groupings and matrix pricing to prepare evaluations. In
addition, model processes were used to assess interest rate impact and develop
prepayment scenarios. These models take into consideration relevant credit
information, perceived market movements, sector news and economic events. The
inputs into these models may include benchmark yields, reported trades,
broker-dealer quotes, issuer spreads and other relevant data. We
validated the prices provided by our
third-party pricing services by understanding
the models used, obtaining market values from other sources and analyzing
pricing data in certain instances.
We had one security classified as Level
3, which was an auction rate security that does not actively trade.
We determined the fair
value of the security based on a discounted cash flow model which incorporated a
discount period, coupon rate, liquidity discount and coupon history. We also
considered in determining the fair value the rating of the security by
investment rating agencies and whether or not the security was backed by the
United States government.
Share-Based
Compensation
We recognize share-based compensation
for employees and directors using a fair value based method that results in
expense being recognized in our condensed consolidated 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.
For uncertain tax positions that meet “a
more likely than not” threshold, we recognize the benefit of uncertain tax
positions in our condensed
consolidated financial
statements.
2. NET LOSS PER COMMON
SHARE
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 (Note 4) and restricted stock
awards.
IDENIX PHARMACEUTICALS,
INC.
NOTES TO THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS - CONTINUED
(UNAUDITED)
|
|
Three Months Ended March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In Thousands, Except
|
|
|
|
per Share Data)
|
|
Basic
and diluted net loss per common share:
|
|
|
|
|
|
|
Net
loss
|
|
$ |
(16,212 |
) |
|
$ |
(12,926 |
) |
Basic
and diluted weighted average number of common shares
outstanding
|
|
|
66,370 |
|
|
|
56,940 |
|
Basic
and diluted net loss per common share
|
|
$ |
(0.24 |
) |
|
$ |
(0.23 |
) |
The following potential common shares
were excluded from the calculation of diluted net loss per common share because
their effect was anti-dilutive:
|
|
Three Months Ended March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In Thousands)
|
|
|
|
|
|
|
|
|
Options
|
|
|
6,802 |
|
|
|
6,588 |
|
Contingently
issuable shares to related party
|
|
|
420 |
|
|
|
621 |
|
|
|
|
7,222 |
|
|
|
7,209 |
|
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.
3. COMPREHENSIVE
LOSS
For the three months ended March 31, 2010 and 2009, respectively, comprehensive loss was
as follows:
|
|
Three Months Ended March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In Thousands)
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$ |
(16,212 |
) |
|
$ |
(12,926 |
) |
Changes
in other comprehensive loss:
|
|
|
|
|
|
|
|
|
Foreign
currency translation adjustment
|
|
|
(159 |
) |
|
|
(418 |
) |
Unrealized
gain on marketable securities
|
|
|
- |
|
|
|
1 |
|
Total
comprehensive loss
|
|
$ |
(16,371 |
) |
|
$ |
(13,343 |
) |
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. As of May 4, 2010, Novartis owned
approximately 43% of our outstanding common stock.
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. If Novartis exercises this option, financial
terms will be based upon certain contractual obligations and future
negotiations. Novartis may exercise this option generally after early
demonstration of activity and safety in a proof-of-concept clinical trial. 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 have granted Novartis an
exclusive worldwide license to market and sell drug candidates that Novartis
chooses to license from us. The commercialization rights under the development
and commercialization agreement also include our right to co-promote or
co-market all licensed products in the United States, United Kingdom, France,
Germany, Italy and Spain.
Under the development and commercialization agreement, we granted Novartis an
exclusive worldwide license to market and sell Tyzeka®/Sebivo® (telbivudine), valtorcitabine and
valopicitabine.
Novartis licensed valopicitabine and
valtorcitabine from us under the development and commercialization agreement,
however, in 2007, we ceased development of these drug candidates due to overall
risk/benefit profiles observed in clinical testing.
IDENIX PHARMACEUTICALS,
INC.
NOTES TO THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS - CONTINUED
(UNAUDITED)
In 2003, Novartis licensed telbivudine
from us under the development and commercialization agreement. 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 worldwide development, commercialization and
manufacturing rights and obligations, including ongoing related expenses
pertaining to telbivudine (Tyzeka®/Sebivo®).
During 2007 and 2008,
Novartis was also responsible for certain costs associated with the transition
of third-party contracts and arrangements relating to telbivudine and certain
intellectual property prosecution and enforcement activities. We do not expect
to receive any additional regulatory milestones for telbivudine or
valtorcitabine. In October 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. The royalty percentage varies based on
specified territories and the aggregate dollar amounts of net sales.
We recognized $1.0 million and $0.8 million as royalty revenue from Novartis’ sales of
Tyzeka®/Sebivo® during the three months ended March 31, 2010 and 2009, respectively. The majority of the
$1.0 million of receivables from related party balance
at each of
March 31, 2010 and December 31, 2009 consisted of royalty payments
associated with product sales of Tyzeka®/Sebivo® from
Novartis.
In October 2009, Novartis waived its right to license IDX184, a nucleotide prodrug
for the treatment of hepatitis C virus, or HCV. As a result, we retain the
worldwide rights to develop, commercialize and license IDX184. We plan to seek a
partner that will assist in the further development and commercialization of
this drug candidate.
To date, we have received $117.2 million
of non-refundable payments from Novartis that have been recorded as
deferred revenue. The
$117.2 million received from Novartis consisted of a $25.0 million license fee
for valopicitabine, a $75.0 million license fee for telbivudine
(Tyzeka®/Sebivo®) and valtorcitabine, offset by $0.1
million in interest costs, a $5.0 million reimbursement for reacquiring product
rights from Sumitomo Pharmaceutical Corporation to develop and commercialize
Sebivo® in certain markets in Asia, $2.3
million in reimbursement costs associated with the development of valopicitabine
prior to Novartis licensing valopcitabine and a $10.0 million milestone payment
for the regulatory approval for the regulatory approval of Sebivo® in the European Union. These payments 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 non-refundable 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 HCV drug
candidates. As of
May 4, 2010, Novartis owned approximately
43% of our outstanding common
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 that we will use our reasonable best
efforts to nominate for election as a director at least one designee of Novartis for so
long as Novartis and its affiliates own at least 19.4% of our voting
stock. In June 2009,
we elected a third representative from Novartis to our Board of
Directors. The election was
not required by or subject to the stockholders' agreement and the re-election
of the third representative is subject to annual review by our Board
of Directors. 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
Under our stock purchase agreement with
Novartis, which we refer to as the “stock purchase agreement”, 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.
IDENIX PHARMACEUTICALS,
INC.
NOTES TO THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS - CONTINUED
(UNAUDITED)
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
September 2008, we filed a shelf registration statement with the SEC, for an
indeterminate number of shares of common stock, up to an 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 capital shares pursuant to a financing
under our existing shelf registration statement so long as the issuance of
shares did not reduce Novartis' interest in Idenix below 43%. Pursuant to this
shelf registration, in August 2009 and on April 29, 2010, we issued
approximately 7.3 million and approximately 6.5 million shares of our common
stock pursuant to underwritten offerings and received $21.2 million and $26.2
million in net proceeds, respectively. Novartis opted not to participate in
either of these offerings and its ownership was diluted from approximately 53%
prior to the August 2009 offering to approximately 43% at May 4,
2010.
In connection with the closing of our
initial public offering in July 2004, Novartis terminated a common stock
subscription right with respect to approximately 1.4 million 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 1.1 million 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 were terminated and no additional
adjustments to revenue and deferred revenue will be 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 non-refundable 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 non-refundable payments 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.
As of March 31, 2010, the aggregate impact of Novartis’ stock subscription
rights has reduced the non-refundable payments by $15.6 million, which has been recorded
as additional paid-in capital. Of this amount, $4.4 million has been recorded as
a reduction of deferred revenue with the remaining
amount of $11.2 million as a reduction of license fee revenue. For the quarter ended March 31, 2010, the impact of Novartis’ stock
subscription rights has increased additional paid-in capital by
$0.2 million, reduced deferred revenue by $0.1 million and reduced license fee
revenue by $0.1 million.
Master Manufacturing and Supply
Agreements
In May 2003, we entered into a master
manufacturing and supply agreement with Novartis, which we refer to as the
“manufacturing and supply agreement”, under which Novartis may 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. The cost of
the clinical supply will be treated as a development expense, allocated between
us and Novartis in accordance with the manufacturing and supply
agreement. 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
in which Novartis has the right to match the best third-party bid. Pursuant to
such competitive bid process, a joint manufacturing committee of Novartis and
Idenix selected Novartis as the primary manufacturer of telbivudine.
Novartis will perform the finishing and packaging of the API for telbivudine
into the final form for sale.
Product Sales
Arrangements
In connection with the drug candidates
that Novartis licenses from
us, with the exception of Tyzeka®/Sebivo®, we have retained the right to
co-promote or co-market all
licensed products in the
United States, United Kingdom, France, Germany, Italy and Spain. In the United
States, we would act as the lead commercial 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 commercial 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.
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
COLLABORATION
In February 2009, we entered into the
GSK license agreement and granted GSK an exclusive worldwide license to develop, manufacture and
commercialize our NNRTI compounds, including IDX899, for the treatment of human
diseases, including HIV/AIDS. 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 approximately 2.5 million shares of our common stock at an
aggregate purchase price of $17.0 million. These agreements became
effective in March 2009.
IDENIX PHARMACEUTICALS,
INC.
NOTES TO THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS - CONTINUED
(UNAUDITED)
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
6. MARKETABLE SECURITIES AND FAIR VALUE
MEASUREMENTS
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. The fair values of available-for-sale
investments by type of security, contractual maturity and classification in our
condensed consolidated balance sheets were as follows:
|
|
March 31, 2010
|
|
|
|
Amortized
|
|
|
Gross Unrealized
|
|
|
Gross Unrealized
|
|
|
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Market Value
|
|
|
|
(In Thousands)
|
|
Type
of security:
|
|
|
|
|
|
|
|
|
|
|
|
|
Money
market funds
|
|
$ |
26,011 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
26,011 |
|
Auction
rate security
|
|
|
1,418 |
|
|
|
- |
|
|
|
- |
|
|
|
1,418 |
|
|
|
$ |
27,429 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
27,429 |
|
|
|
December 31, 2009
|
|
|
|
Amortized
|
|
|
Gross Unrealized
|
|
|
Gross Unrealized
|
|
|
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Market Value
|
|
|
|
(In Thousands)
|
|
Type
of security:
|
|
|
|
|
|
|
|
|
|
|
|
|
Money
market funds
|
|
$ |
40,806 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
40,806 |
|
Auction
rate security
|
|
|
1,584 |
|
|
|
- |
|
|
|
- |
|
|
|
1,584 |
|
|
|
$ |
42,390 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
42,390 |
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In Thousands)
|
|
Contractual
maturity:
|
|
|
|
|
|
|
Maturing
in one year or less
|
|
$ |
26,011 |
|
|
$ |
40,806 |
|
Maturing
after ten years
|
|
|
1,418 |
|
|
|
1,584 |
|
|
|
$ |
27,429 |
|
|
$ |
42,390 |
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In Thousands)
|
|
Classification
in balance sheets:
|
|
|
|
|
|
|
Cash
equivalents
|
|
$ |
26,011 |
|
|
$ |
40,806 |
|
Marketable
securities, non-current
|
|
|
1,418 |
|
|
|
1,584 |
|
|
|
$ |
27,429 |
|
|
$ |
42,390 |
|
The cash equivalent amounts of
$26.0 million and $40.8 million at March 31, 2010 and December 31, 2009, respectively, were included as part of cash and cash
equivalents in our condensed consolidated balance sheets.
IDENIX PHARMACEUTICALS,
INC.
NOTES TO THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS - CONTINUED
(UNAUDITED)
The following table represents our assets measured at fair value on a
recurring basis:
|
|
March 31, 2010
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
|
|
|
Inputs
|
|
|
Inputs
|
|
|
|
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Total
|
|
|
|
(In Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Money
market funds
|
|
$ |
26,011 |
|
|
$ |
- |
|
|
$ |
26,011 |
|
Auction
rate security
|
|
|
- |
|
|
|
1,418 |
|
|
|
1,418 |
|
|
|
$ |
26,011 |
|
|
$ |
1,418 |
|
|
$ |
27,429 |
|
The following table represents our assets measured at fair value on a
recurring basis:
|
|
December 31, 2009
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
|
|
|
Inputs
|
|
|
Inputs
|
|
|
|
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Total
|
|
|
|
(In Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Money
market funds
|
|
$ |
40,806 |
|
|
$ |
- |
|
|
$ |
40,806 |
|
Auction
rate security
|
|
|
- |
|
|
|
1,584 |
|
|
|
1,584 |
|
|
|
$ |
40,806 |
|
|
$ |
1,584 |
|
|
$ |
42,390 |
|
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
Months Ended
|
|
|
|
|
|
|
|
(In Thousands)
|
|
Beginning
balance
|
|
$ |
1,584 |
|
Purchases,
sales and settlements
|
|
|
(166 |
) |
Total
unrealized losses recognized in earnings
|
|
|
- |
|
Ending
balance
|
|
$ |
1,418 |
|
At March 31, 2010 and December 31, 2009, we held one investment in an auction rate
security, which does not
actively trade. This security was classified as Level 3 and represented 5.2% of
total assets that were measured on a recurring basis as of March 31,
2010. We determined the fair value of this
security based on a cash flow model which incorporated a three-year discount
period, a 1.87% per annum coupon rate, a 0.532% 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 March 31, 2010. We also considered in determining the
fair value that our holding in the auction rate security was backed by the
United States government and that the security was
rated A3 at March 31, 2010. Due to our intent to sell the investment and
the calculated fair value
being less than the cost basis, we deemed the decline of the security’s estimated
valuation to be
other-than-temporary and recorded an impairment charge of $0.1 million in
the year ended December 31, 2009. During the quarter ended March 31, 2010,
we sold a portion of this security at par value for proceeds of $0.2 million.
The fair value of
the remaining portion of
this security that we held at March 31, 2010 was
estimated to be
$1.4 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 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 potential exposure to market volatility and
liquidity pressures. As of March 31, 2010, the majority of our investments were
in government agency and treasury money market instruments.
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
the 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.
IDENIX PHARMACEUTICALS,
INC.
NOTES TO THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS - CONTINUED
(UNAUDITED)
Pursuant to 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 based on worldwide sales of telbivudine,
subject to minimum payment obligations aggregating $11.0 million. We are
amortizing $15.0 million related to this settlement payment to UAB and related entities over the greater of straight-line or
expected economic consumption. Amortization expense pertaining to the asset was
$0.3 million for each of the three months ended March 31, 2010 and 2009 which was recorded as cost of revenues.
As of March 31, 2010, accumulated amortization was
$4.2 million. Amortization expense for
this asset is anticipated to be $1.2 million per year through March 31,
2015 and $4.8 million through the remaining term
of the expected economic benefit of the asset.
8. ACCRUED EXPENSES
Accrued
expenses consisted of the following:
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In Thousands)
|
|
|
|
|
|
|
|
|
Research
and development contract costs
|
|
$ |
2,347 |
|
|
$ |
1,342 |
|
Payroll
and benefits
|
|
|
2,026 |
|
|
|
3,930 |
|
Professional
fees
|
|
|
889 |
|
|
|
647 |
|
Short-term
portion of accrued settlement payment
|
|
|
781 |
|
|
|
710 |
|
Restructuring
costs
|
|
|
2,056 |
|
|
|
178 |
|
Other
|
|
|
1,279 |
|
|
|
1,972 |
|
|
|
$ |
9,378 |
|
|
$ |
8,779 |
|
9. SHARE-BASED
COMPENSATION
The following table shows share-based
compensation expense as reflected in our condensed consolidated statements of
operations:
|
|
Three Months Ended March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In Thousands)
|
|
|
|
|
|
|
|
|
Research
and development
|
|
$ |
320 |
|
|
$ |
439 |
|
General
and administrative
|
|
|
661 |
|
|
|
817 |
|
Total
share-based compensation expense
|
|
$ |
981 |
|
|
$ |
1,256 |
|
The table below illustrates the fair
value per share and Black-Scholes option pricing model with the following
assumptions used for grants issued:
|
|
Three Months Ended March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
Weighted
average fair value of options
|
|
$ |
1.68 |
|
|
$ |
3.23 |
|
Risk-free
interest rate
|
|
|
2.39 |
% |
|
|
1.88 |
% |
Expected
dividend yield
|
|
|
- |
|
|
|
- |
|
Expected
option term (in years)
|
|
|
5.14 |
|
|
|
5.14 |
|
Expected
volatility
|
|
|
69.2 |
% |
|
|
70.1 |
% |
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.
IDENIX PHARMACEUTICALS,
INC.
NOTES TO THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS - CONTINUED
(UNAUDITED)
The following table summarizes option
activity under the equity incentive plans:
|
|
|
|
|
Weighted
|
|
|
|
Number of
|
|
|
Average Exercise
|
|
|
|
Shares
|
|
|
Price per Share
|
|
Options
outstanding at December 31, 2009
|
|
|
5,559,727 |
|
|
$ |
7.72 |
|
Granted
|
|
|
1,353,858 |
|
|
$ |
3.33 |
|
Cancelled
|
|
|
(105,890 |
) |
|
$ |
5.82 |
|
Exercised
|
|
|
(5,894 |
) |
|
$ |
1.03 |
|
Options
outstanding at March 31, 2010
|
|
|
6,801,801 |
|
|
$ |
6.88 |
|
Options
exercisable at March 31, 2010
|
|
|
3,795,166 |
|
|
$ |
8.83 |
|
We had an aggregate of $7.3 million of
share-based compensation expense as of March 31, 2010 remaining to be amortized
over a weighted average expected term of 2.82 years.
10. RESTRUCTURING CHARGE
During the first quarter of 2010, we
initiated a plan to restructure our operations at our research facility in
Montpellier, France to reduce its workforce by approximately 17 positions in
connection with our ongoing cost saving initiatives. The majority of the
workforce reduction will occur in the quarter ending June 30, 2010 and is
expected to continue through August 31, 2010. In the first quarter of 2010, we
recorded charges of $2.2 million for employee severance costs related to the
restructuring of our Montpellier facility together with charges related to an
earlier reduction of our United States workforce by 13 positions in January
2010. Approximately $0.3 million of these charges were paid in the first quarter
of 2010. At March 31, 2010, approximately $2.1 million remains accrued which
includes $1.9 million related to the Montpellier restructuring and $0.2 million
related to the closing of our facilities in Cagliari, Italy in
2009.
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 in May
2004 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 with a
minimum sales-based payment equal to $12.0 million.
We have potential payment obligations
under the license agreement with the Universita degli Studi di Cagliari, or
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.
Hepatitis B Product
Pursuant to the license agreement
between us and UAB, we were granted an exclusive license to the rights that
UABRF, an affiliate of UAB, Emory University and CNRS 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 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 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 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 based on
worldwide sales of telbivudine, subject to minimum payment obligations
aggregating $11.0 million. Our payment obligations under the settlement
agreement will 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 - CONTINUED
(UNAUDITED)
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
multi-project 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
Idenix and Novartis
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 activities 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 and the stock
purchase 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 and stock purchase
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 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.
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.
Because these forward-looking statements involve known and unknown risks and
uncertainties, actual results, performance or achievements could differ
materially from those expressed or implied by these forward-looking statements
for a number of important reasons, including those discussed under “Critical
Accounting Policies and Estimates”, “Risk Factors”, “Management’s Discussion and
Analysis of Financial Condition and Results of Operations” and elsewhere in this
Quarterly Report on Form 10-Q. We cannot guarantee any future results, levels of
activity, performance or achievements. Should one or more of these risks or
uncertainties materialize, or should underlying assumptions prove incorrect,
actual results may vary materially from those described in this Form 10-Q as
anticipated, believed, estimated or expected. The forward-looking
statements contained in this Quarterly Report on Form 10-Q represent our
estimates as of the date of this Quarterly Report on Form 10-Q (unless another
date is indicated) and should not be relied upon as representing our
expectations as of any other date. While we may elect to update these
forward-looking statements, we specifically disclaim any obligation to do
so.
Overview
Idenix Pharmaceuticals, Inc., which we
reference as “Idenix”, “we”, “us” or “our”, 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. Currently, our
primary research and development focus is on the treatment of hepatitis C
virus, or HCV. Our HCV discovery program is focused on multiple classes of
drugs, which include nucleoside/nucleotide polymerase inhibitors, non-nucleoside
polymerase inhibitors, protease inhibitors and NS5A inhibitors. Our strategic
goal is to develop all oral combinations of direct-acting antiviral drug
candidates that should eliminate the need for interferon and/or ribavirin as the
current treatment for HCV. Our objective is to develop low dose, once- or
twice-daily agents with broad genotypic activity that have low potential for
drug-drug interaction and are designed for use in multiple combination regimens.
We will seek to build a combination development strategy, both internally and
with partners, to advance the future of HCV treatments.
In addition to our strategy of
developing drugs for the treatment of HCV, we have also developed products and drug
candidates for the treatment of hepatitis B virus, or HBV, human
immunodeficiency virus type
1, or HIV, and Acquired Immune Deficiency Syndrome, or AIDS. We successfully developed and
received worldwide
marketing approval for telbivudine (Tyzeka®/Sebivo®), a drug for the treatment of HBV that we
licensed to Novartis Pharma AG, or Novartis. In 2007, we began receiving royalties
from Novartis based on a percentage of net sales of Tyzeka®/Sebivo®. We also discovered and
developed, through proof-of-concept clinical
testing IDX899, a drug candidate from the class of compounds known as
non-nucleoside reverse transcriptase inhibitors, or NNRTIs, for the treatment of
HIV/AIDS. We licensed our NNRTI compounds, including IDX899, to GlaxoSmithKline,
or GSK, in February 2009.
The following table summarizes key
information regarding our pipeline of HCV drug candidates as well as Tyzeka®/Sebivo® and IDX899:
|
|
Product/Drug
Candidates/Programs
|
|
|
|
|
|
|
|
HCV
|
|
Nucleotide Polymerase
Inhibitors
(IDX184 and
IDX102)
|
|
After a phase I clinical study was
completed in October 2008, which demonstrated favorable pharmacokinetics
and safety properties in healthy volunteers, we initiated a proof-of-concept
clinical trial. In July 2009, we successfully completed the proof-of-concept clinical trial of IDX184 in treatment-naïve HCV
genotype 1 infected patients. In October 2009, we initiated
a 14-day
dose-ranging phase IIa clinical trial evaluating IDX184 in combination
with pegylated
interferon and ribavirin in treatment-naïve HCV
genotype 1 infected patients. We have also initiated
three-month toxicology studies for IDX184 and plan to complete these
studies to support longer duration clinical
trials.
|
|
|
|
|
|
|
|
|
|
We have completed late-stage preclinical
development of
IDX102.
|
|
|
|
|
|
|
|
Non-Nucleoside Polymerase Inhibitor
(IDX375)
|
|
In September 2009, we submitted a
Clinical Trial Application, or CTA, for a choline salt form of IDX375. In
November 2009, we initiated a single ascending dose phase I clinical study
in healthy volunteers, in which IDX375 exhibited favorable safety and
pharmacokinetics properties. In the first quarter of 2010, we continued
the phase I clinical trial evaluating higher single and multiple doses of
the free acid form of IDX375 in healthy volunteers. We expect that these studies in
healthy volunteers will be followed by a three-day proof-of-concept study
in treatment-naïve genotype 1 infected patients in the second half of
2010.The active pharmaceutical ingredient as a free acid allows improved
manufacturing processes and long-term stability of the drug product,
providing diverse formulation options.
|
|
|
|
|
|
|
|
Protease
Inhibitor
(IDX320)
|
|
We selected IDX320 as our lead
clinical candidate
from our protease inhibitor discovery program. We submitted a CTA in December
2009 and initiated a phase I healthy volunteer clinical study in January
2010. In the first
quarter of 2010, we completed this double-blind, placebo-controlled
phase I clinical trial evaluating single and multiple ascending doses
of IDX320 in healthy volunteers.
We expect to begin
a three-day
proof-of-concept study in treatment-naïve HCV genotype 1 infected patients
in the second quarter.
|
|
|
|
|
|
|
|
NS5A
Inhibitor
|
|
In 2009, we initiated an NS5A
discovery program. We plan to submit an investigational new drug
application, or IND, or CTA in 2011, assuming positive results from
IND-enabling preclinical studies.
|
|
|
|
|
|
HBV
|
|
Tyzeka®/Sebivo®
(telbivudine)
(L-
nucleoside)
|
|
Novartis has worldwide
development,
commercialization and manufacturing rights and obligations related to
telbivudine (Tyzeka®/Sebivo®). We receive royalty payments equal to a
percentage of net sales of Tyzeka®/Sebivo®.
|
HIV
|
|
Non-Nucleoside Reverse Transcriptase
Inhibitor
(IDX899 or GSK2248761)
|
|
In 2008, we successfully completed
a proof-of-concept clinical trial of IDX899 in treatment-naïve HIV
infected patients. In February 2009, we granted GSK an exclusive worldwide
license to develop, manufacture and commercialize IDX899. IDX899 has progressed through
long-term chronic toxicology studies and drug-drug interaction studies in
healthy volunteers. GSK anticipates a broad phase IIb
clinical development program to begin in 2010.
|
All of our drug candidates are currently
in preclinical 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. We anticipate that we will incur significant additional
third-party research and development expenses that range from $200.0 million to
$500.0 million for each drug candidate prior to commercial launch. Our current
estimates of additional third-party research and development expenses do not
include the cost of phase IIIb/IV clinical trials and other clinical trials that
are not required for regulatory approval. We use our employees and our
infrastructure resources across several projects, including our product
discovery efforts. We do not allocate our infrastructure costs on a project-by-project basis. As
a result, we are unable to estimate the internal costs incurred to date for our
drug candidates on a project-by-project basis.
Novartis has the option to license our
development-stage drug candidates after demonstration of activity and safety in
a proof-of-concept clinical trial pursuant to our development, license and
commercialization agreement with Novartis, which we refer to as the “development
and commercialization agreement”. If Novartis licenses any of our drug
candidates, Novartis is obligated to fund a portion of development
expenses that we incur in accordance with development plans agreed upon by us
and Novartis. In October 2009, Novartis waived its option to license IDX184. As
a result, we retain the worldwide rights to develop, manufacture, commercialize
and license IDX184. We plan to seek a partner who will assist in the further
development and commercialization of this drug candidate. Novartis continues to
have the right to license other drug candidates from our pipeline, including
IDX375 and IDX320, after a proof-of-concept clinical trial has been
completed.
Novartis licensed valopicitabine and
valtorcitabine from us under the development and commercialization agreement,
however, in 2007, we ceased development of these drug candidates due to overall
risk/benefit profiles observed in clinical testing. Also in 2007, we transferred
to Novartis our worldwide development, commercialization and manufacturing
rights and obligations pertaining to telbivudine (Tyzeka®/Sebivo®). We do not
expect to incur any additional development expenses related to these products or
drug candidates.
Pursuant to the license agreement we
entered into with GSK in February 2009, which we refer to as the “GSK license
agreement”, described more fully below, GSK is solely responsible for the
worldwide development, manufacture and commercialization of our NNRTI compounds,
including IDX899, for the treatment of human diseases, including HIV/AIDS.
Subject to certain conditions, 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 related to our NNRTI program, including
IDX899.
We have incurred significant losses
since our inception in May 1998 and at March 31, 2010, we had an accumulated
deficit of $578.4 million. We 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 expected royalty
payments associated with product sales of Tyzeka®/Sebivo®, the
expected payment from GSK for the achievement of a milestone in April 2010 and
the net proceeds from our common stock offering on April 29, 2010 will be
sufficient to satisfy our cash needs into the second half of 2011.
Results of
Operations
Comparison of Three Months Ended
March 31, 2010 and 2009
Revenues
Revenues for the three months ended
March 31, 2010 and 2009 were as follows:
|
|
Three Months Ended March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In Thousands)
|
|
Collaboration
revenue - related party:
|
|
|
|
|
|
|
License
fee revenue
|
|
$ |
1,435 |
|
|
$ |
3,102 |
|
Royalty
revenue
|
|
|
981 |
|
|
|
780 |
|
Reimbursement
of research and development costs
|
|
|
- |
|
|
|
34 |
|
|
|
|
2,416 |
|
|
|
3,916 |
|
Other
revenue:
|
|
|
|
|
|
|
|
|
License
fee revenue
|
|
|
256 |
|
|
|
85 |
|
Government
grants
|
|
|
11 |
|
|
|
10 |
|
Total
revenues
|
|
$ |
2,683 |
|
|
$ |
4,011 |
|
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
changes for Novartis stock subscription
rights, which is being recognized over the development period of
our 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 $2.4 million in the three months ended
March 31, 2010 as compared to $3.9 million in the same period in
2009. The $1.5 million decrease was primarily due to a $1.7 million decrease in license fee revenue recognized
related to the impact of Novartis’ stock subscription rights, as well as
an increase in royalty revenue of $0.2 million in the first quarter of 2010 as compared to the same period in
2009.
In the three months ended March 31, 2010 and 2009, we also recognized $0.3 million and $0.1 million, respectively,
of license fee revenue
under the GSK license agreement, which was classified as other revenue in the
condensed consolidated statements of operations. The increase of $0.2 million was a
result of three months of revenue recognized in the three months ended March 31,
2010 as compared to one month of revenue recognized in the same period in
2009.
Cost of Revenues
Cost of revenues was
$ 0.6 million in the three months
ended March 3 1 , 20 10 which was substantially
unchanged as compared to the same period in
2009.
Research and Development
Expenses
Research and development expenses were
$11.8 million in the three months ended March 31, 2010 as compared to
$10.8 million in the same period in 2009. The increase of $1.0 million was
primarily due to $2.2
million in higher expenses associated with our HCV programs offset by
$0.9 million in lower salaries and personnel related
costs, mainly related to reduced headcount.
We expect our research and development
expenses for 2010 to be consistent with the amount incurred in 2009. We expect
to incur additional expenses related to the ongoing clinical trials for our HCV
drug candidates offset by ongoing cost reduction
initiatives.
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 $ 4.8 million in the three months
ended March 3 1, 20 10 as compared to
$ 6.0 million in the same period in
200 9. The decrease of $ 1.2 million was primarily due to
lower salaries and personnel related costs and
consulting fees.
We expect general and administrative
expenses for 2010 to be lower as compared to the
amount incurred in 2009 due to reduced personnel related costs
and ongoing cost reduction initiatives.
Restructuring
Charges
During
the first quarter of 2010, we initiated a plan to restructure our operations at
our research facility in Montpellier, France to reduce its workforce by
approximately 17 positions in connection with our ongoing cost saving
initiatives. The majority of the workforce reduction will occur in the
quarter ending June 30, 2010 and is expected to continue through August 31,
2010. We expect to incur between $2.0 million and $3.0 million in charges, primarily
associated with one-time employee severance benefits and the write-off of
certain assets as a result of the Montpellier restructuring, together with an
earlier reduction of our United States workforce by 13 positions in January
2010. We expect the restructurings to result in annualized savings of
approximately $3.0 million to $4.0 million. Restructuring charges of
approximately $2.2 million for employee severance costs were recorded in the
first quarter of 2010 of which approximately $0.3 million was paid in the first
quarter of 2010. At March 31, 2010, approximately $2.1 million remains accrued
which includes $1.9 million related to the Montpellier restructuring and $0.2
million related to the closing of our facilities in Cagliari, Italy in
2009.
Other
Income, Net
Other income, net was $0.4 million
in the three months ended March 31, 2010 which was substantially unchanged
as compared to the same period in 2009.
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, or Sumitomo, for
reimbursement of development costs;
|
|
·
|
net
proceeds from private placements of our convertible preferred
stock;
|
|
·
|
net
proceeds from public or underwritten offerings in July 2004, October
2005,August 2009 and April 2010;
|
|
·
|
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.
|
In
September 2008, we filed a shelf registration statement with the SEC, for an
indeterminate number of shares of common stock, up to an 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 capital shares pursuant to financing
transactions under our existing shelf registration statement so long as the
issuance of shares did not reduce Novartis' interest in Idenix below 43%.
Pursuant to this shelf registration, in August 2009 and on April 29, 2010, we
issued approximately 7.3 million and approximately 6.5 million shares of our
common stock pursuant to underwritten offerings and received $21.2 million and
$26.2 million in net proceeds, respectively. Novartis opted not to participate
in either of these offerings and its ownership was diluted from 53% prior to the
August 2009 offering to approximately 43% at May 4, 2010.
On
April 23, 2010, GSK notified us that an operational preclinical
milestone triggering a $6.5 million payment from GSK related to the
development of IDX899 was achieved. We expect to receive the milestone
payment in May 2010.
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®, the expected payment from GSK and the net proceeds from the
issuance of approximately 6.5 million shares of our common stock on April 29,
2010 will be sufficient to satisfy our cash needs into the second half of
2011.
We may
seek additional funding through a combination of public or private financing,
collaborative relationships and other arrangements in the future. If we do not
receive licensing or additional milestone payments, or additional funding
through a public or private financing, we have the ability and intent to manage
expenditures to preserve our cash resources and fund operations into the second
half of 2011. These actions would include reductions in the number of our
employees and delaying or canceling planned expenditures in our research and
development programs.
We had total cash, cash equivalents and
marketable securities of $33.8 million and $48.1 million as of March
31, 2010 and December 31, 2009, respectively. As of March 31, 2010, we had
$32.3 million, or 96% of our total cash balance, in cash and cash
equivalents and $1.4 million in non-current marketable securities. As of
December 31, 2009, we had $46.5 million in cash and cash equivalents
and $1.6 million in non-current marketable securities.
As of March 31, 2010, 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 two years 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 auction rate security may decline further and
may prevent us from liquidating our holding. 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 March 31, 2010, the majority
of our investments were in government agency and treasury money market
instruments.
Net cash used in operating
activities was $14.3 million in the three months ended March 31, 2010 and
net cash provided by operating activities was $1.4 million in the same
period in 2009. The $15.7 million net change in operating cash
activities was primarily due to the $17.0 million received from GSK in the first
quarter of 2009 pursuant to the GSK license agreement offset by $1.3 million of
higher operating cash needs incurred in the three months ended March 31, 2010 as
compared to the same period in 2009.
Net cash provided by investing
activities was $0.1 million and $2.5 million in the three months ended
March 31, 2010 and 2009, respectively. The $2.4 million decrease was
primarily due to $2.4 million of lower net proceeds from sales and maturities of
our marketable securities.
Net cash provided by financing
activities was less than $0.1 million and $17.1 million in the three months
ended March 31, 2010 and 2009, respectively. The decrease is due primarily
to our receipt during the quarter ended March 31, 2009 of $17.0 million in
proceeds related to 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 March 31, 2010:
|
|
Payments Due by Period
|
|
|
|
|
|
|
Less Than
|
|
|
|
|
|
|
|
|
After 5
|
|
Contractual Obligations
|
|
Total
|
|
|
1 Year
|
|
|
1-3 Years
|
|
|
4-5 Years
|
|
|
Years
|
|
|
|
(In Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
leases
|
|
$ |
11,367 |
|
|
$ |
3,362 |
|
|
$ |
4,200 |
|
|
$ |
2,341 |
|
|
$ |
1,464 |
|
Settlement
payments and other agreements
|
|
|
1,924 |
|
|
|
1,633 |
|
|
|
291 |
|
|
|
- |
|
|
|
- |
|
Long-term
obligations
|
|
|
9,204 |
|
|
|
- |
|
|
|
- |
|
|
|
2,000 |
|
|
|
7,204 |
|
Total
contractual obligations
|
|
$ |
22,495 |
|
|
$ |
4,995 |
|
|
$ |
4,491 |
|
|
$ |
4,341 |
|
|
$ |
8,668 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 March 31, 2010, we had $2.9
million of long-term liabilities recorded and certain potential payment
obligations relating to our HBV and HCV product and drug candidates. 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, 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, 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.
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 Universite
Montpellier II, or 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 based on worldwide sales of telbivudine, subject to minimum payment
obligations aggregating $11.0 million. Our payment obligations under the
settlement agreement will 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, in May
2004, 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 with a minimum sales-based payment equal to $12.0
million.
We have potential payment obligations
under the GSK license transaction with the Universita degli Studi di Cagliari,
or 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 March 2003, we entered into a final
settlement agreement with 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 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 generally accepted
accounting principles 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, valuation of marketable securities, 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,
2009.
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 March 31, 2010, we held one investment in an auction rate
security that was estimated to be valued at $1.4 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
Our foreign currency transactions
include agreements denominated, wholly or partly, in foreign currencies,
European subsidiaries that are denominated in foreign currencies and royalties
earned based on worldwide product sales of Sebivo® by Novartis. As a result of
these foreign currency transactions, 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 March 31, 2010, 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 March 31, 2010
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, 2009 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.
The following risks should be considered, together with all of the other
information in our Annual Report on Form 10-K for the year ended
December 31, 2009, 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. Due to our limited Tyzeka®/Sebivo®
sales history, there is risk in determining the 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 we successfully complete clinical development and
receive regulatory approval for one of our other drug candidates, and we or a
collaboration 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 $33.8 million at March 31, 2010.
We believe that in addition to this balance, the anticipated royalty payments
associated with product sales of Tyzeka®/Sebivo®, the
expected payment from GSK for the achievement of a milestone in April 2010 and
the net proceeds from our common stock offering on April 29, 2010 will be
sufficient to satisfy our cash needs into the second half of 2011. 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 clinical development of this
drug candidate such that we receive certain clinical development milestone
payments within the next 24 months;
|
|
·
|
with
respect to our other drug candidates, Novartis exercises its option to
license any such drug candidates, and we receive related license fees,
milestone payments and development expense reimbursement payments from
Novartis; with respect to any of our drug candidates not licensed by
Novartis, we receive related license fees, milestone payments and
development expense reimbursement payments from
third-parties;
|
|
·
|
with
respect to Tyzeka®/Sebivo®, whether the level of royalty payments received
from Novartis is significant; and
|
|
·
|
the
terms of a development and commercialization agreement, if any, that we
enter into with respect to our compound IDX184 for the treatment of HCV.
We currently plan to seek a partner who will assist in the further
development and commercialization of this
compound.
|
In addition, although Novartis has
agreed to pay for certain development expenses incurred under development plans
it approves for products and drug candidates that 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 U.S. Food and Drug
Administration, or 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 our existing shelf registration so long as the issuance of
additional shares did not reduce Novartis’ interest in Idenix below 43%. As
of May 4, 2010, Novartis owned approximately 43% of our outstanding common
stock.
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 alliances or licensing arrangements that
may not be favorable to us. More generally, if we are unable to obtain adequate
funding, we may be required to scale back, suspend or terminate our business
operations.
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.
Some of our research and development
programs 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
which are 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.
Our
investments are subject to general credit, liquidity, market and interest rate
risks, which may be exacerbated by the volatility in the United States credit
markets.
As of March 31, 2010, 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. The distress in the
financial markets over the past two years has caused certain investments to
diminish liquidity and decline in value. Due to failed auctions related to our
auction rate security and the continued uncertainty in the credit markets, the
market value of the auction rate security may further decline and may
prevent us from liquidating our holding. As of March 31, 2010, the fair value of
our auction rate security was estimated to be $1.4 million. 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 six other drug products, specifically, lamivudine,
entecavir, adefovir dipivoxil, tenofovir, pegylated interferon and interferon
alpha, which are approved by the FDA and commercially available in the United
States or in foreign jurisdictions. Five 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 collaboration partners successfully develop.
Many of our competitors have:
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significantly
greater financial, technical and human resources than we have and may be
better equipped to discover, develop, manufacture and commercialize
products;
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more
extensive experience in conducting preclinical studies and clinical
trials, obtaining regulatory approvals and manufacturing and marketing
pharmaceutical products;
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products
that have been approved or drug candidates that are in late-stage
development; and
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collaborative
arrangements in our target markets with leading companies and research
institutions.
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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,
academic institutions, 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, at which time we transferred to Novartis our worldwide development,
commercialization and manufacturing rights and obligations related
to Tyzeka®/Sebivo® in exchange for royalty payments equal to a percentage
of net sales. 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 generally accepted accounting principles 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 non-refundable payments from
Novartis, which we review on a quarterly basis. As of March 31, 2010, we
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
non-refundable 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.
Our
business is subject to international economic, political and other risks that
could negatively affect our results of operations or financial
position.
Our
business is subject to risks associated with doing business internationally,
including:
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changes
in a specific country’s or region’s political or economic conditions,
including Western Europe, in
particular;
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potential
negative consequences from changes in tax laws affecting our ability to
repatriate profits;
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difficulty
in staffing and managing widespread
operations;
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unfavorable
labor regulations applicable to our European or other international
operations;
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changes
in foreign currency exchange rates;
and
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the
need to ensure compliance with the numerous regulatory and legal
requirements applicable to our business in each of these jurisdictions and
to maintain an effective compliance program to ensure
compliance.
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Our
operating results are impacted by the health of the North American, European and
Asian economies. Our business and financial performance may be adversely
affected by current and future economic conditions that cause a decline in
business and consumer spending, including a reduction in the availability of
credit, rising interest rates, financial market volatility and
recession.
We
may be required to relocate one of our principal research facilities, which
could interrupt our business activities and result in significant
expense.
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 activities 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.
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 we may 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 worldwide development,
commercialization and manufacturing rights and obligations related to
telbivudine (Tyzeka®/Sebivo®) in exchange for royalty payments equal to a
percentage of net sales. The royalty percentage varies based on the specified
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
worldwide development, manufacture and commercialization of our NNRTI compounds,
including IDX899, for the treatment of human diseases, including HIV/AIDS. If
GSK is unable to successfully develop IDX899 or any other compound licensed to
it, we will not receive additional milestone or royalty payments from
GSK.
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 efficacy and assessments of the
toxicity and carcinogenicity of the drug candidates we are developing. To
satisfy these standards, we must engage in expensive and lengthy testing.
Notwithstanding the 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 and other regulatory authorities may request 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. 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. Even if we successfully complete our clinical trials with respect to
our drug candidates, we may not receive regulatory approval for such
candidate.
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 other clinical
trials evaluating other investigational agents for the same or similar uses,
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 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 United States 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 any
drug candidates. Before any drug candidate can be approved for sale, we, or GSK,
in the case of an NNRTI, including IDX899, or other collaboration partner, must
demonstrate that it can be manufactured in accordance with the FDA’s current
good manufacturing practices, or cGMP, 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 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 United States 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
drug, 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 United States
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 these 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 these laws or regulations. Additionally, we may incur substantial
fines or penalties if we violate any of these laws or regulations.
Growing
availability of specialty pharmaceuticals may lead to increased focus of cost
containment.
Specialty pharmaceuticals refer to
medicines that treat rare or life-threatening conditions that have smaller
patient populations, such as certain types of cancer, multiple sclerosis, HBV,
HCV and HIV. The growing availability and use of innovative specialty
pharmaceuticals, combined with their relative higher cost as compared to other
types of pharmaceutical products, is beginning to generate significant payer
interest in developing cost containments strategies targeted to this sector.
While the impact on our payers’ efforts to control access and pricing of
specialty pharmaceuticals has been limited to date, our portfolio of specialty
products, combined with the increasing use of health technology assessment in
markets around the world and the deteriorating finances of governments, may lead
to a more significant adverse business impact in the future.
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 May 4, 2010, Novartis owned
approximately 43% of our outstanding common stock. For so long as Novartis owns
19.4% of our voting 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 including:
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the
election of our 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, which we refer to as the “stockholders’ agreement”,
dated July 27, 2004, among us, Novartis and certain of our stockholders, we are
obligated to use our reasonable best efforts to nominate for election as
directors 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 June 2009, we elected a third representative from Novartis to
our board of directors. This election was not required by or subject to the
stockholders’ agreement.
In January 2009, we amended the
development and commercialization agreement to provide that Novartis retains the
exclusive option to obtain rights to 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
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 our 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, which we refer to as the “stock purchase agreement”,
dated as of March 21, 2003, among us, Novartis and substantially all of our then
existing stockholders, 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 approximately 1.4 million 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
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
continuing commercialization of Tyzeka®/Sebivo® and for support in the
development of drug candidates Novartis will license 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 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 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 successfully develop and commercialize our drug candidates licensed
by Novartis, 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 the lead commercial party in the United States.
Effective on October 1, 2007, we transferred to Novartis our worldwide
development, commercialization and manufacturing rights and obligations related
to telbivudine (Tyzeka®/Sebivo®). 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
on the specified 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 provided by us pertaining to the drug candidate, 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’ consideration to license a drug candidate from us.
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. In October 2009,
Novartis waived its option to license IDX184. As a result, we retain the
worldwide rights to develop, manufacture, commercialize and license IDX184. We
plan to seek a partner who will assist in the further development and
commercialization of this drug candidate. 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 subsequently determined
not to be 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 could 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
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 telbivudine (Tyzeka®/Sebivo®) 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 based on 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 payments 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 was 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 may 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, that 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.
Additionally, Novartis opted not to purchase shares of our common stock pursuant
to our underwritten offerings in August 2009 and on April 29,
2010. Novartis’ ownership was subsequently diluted from approximately 53%
to approximately 43% on May 4, 2010.
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 worldwide
development, commercialization and manufacturing rights to telbivudine. 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 and license to
Novartis. 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 currently plan to seek a partner
who will assist in the further development and commercialization of our compound
IDX184 for the treatment of HCV. We may not be able to enter into collaboration
agreements and the terms of any such collaboration agreements 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 could receive under our license agreement 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 license agreement under which we granted GSK an exclusive worldwide license
to develop, manufacture and commercialize our NNRTI compounds, including IDX899,
for the treatment of human diseases, including HIV/AIDS. Our potential revenues
under this license agreement will 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 will 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
license agreement 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 could 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. We also expect to rely on
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 practices, or cGMP, regulations. Any failure by us or
our third-party manufacturers to comply with cGMPs 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 may affect our business,
either by blocking our ability to commercialize our drug candidates, by
preventing the patentability of our drug candidates by us, our licensors or
co-owners, or by covering the same or similar technologies that may invalidate
our patents, limiting 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, potentially 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 telbivudine (Tyzeka®/Sebivo®) 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 based on 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 HCV 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, Inc. 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 challenge
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, and in some jurisdictions have obtained, patent
protection for our HIV drug candidate IDX899, which we licensed to GSK in 2009.
We have filed and are prosecuting 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 costs and divert management’s 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 subsequently determined not to be 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
could 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 our 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, and in
2009 GSK, have also entered into two agreements with the University of Cagliari,
the co-owner of the patents and patent applications covering some of 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 jointly created 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 they relate 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
United States 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 United States 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
other drug candidates;
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the
results of ongoing and planned clinical trials of our drug
candidates;
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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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adverse
publicity related to our company, our products or product
candidates;
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changes
in estimates or recommendations by securities analysts who cover our
common stock;
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future
financings through the issuance of equity or debt securities or
otherwise;
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changes
in the structure of health care payment
systems;
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our
cash position and period-to-period fluctuations in our financial
results;
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general
and industry-specific economic conditions;
and
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the
decision by Novartis to license a drug candidate that has completed a
proof-of-concept clinical trial.
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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 May 4,
2010, we had 72,857,018 shares of common stock issued and outstanding,
together with outstanding options to purchase approximately 6,765,216 shares of
common stock with a weighted average exercise price of $6.88 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:
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our
collaboration with Novartis;
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our
collaboration with GSK;
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the
results of our clinical trials pertaining to any of our drug
candidates;
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the
results of discovery, preclinical studies and clinical trials by us or our
competitors;
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the
acquisition of technologies, drug candidates or products by us or our
competitors;
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the
development of new technologies, drug candidates or products by us or our
competitors;
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regulatory
actions with respect to our drug candidates or products or those of our
competitors, including those relating to clinical trials, marketing
authorizations, pricing and
reimbursement;
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the
timing and success of launches of any product we successfully
develop;
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future
royalty payments received by us associated with sales of
Tyzeka®/Sebivo®;
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the
market acceptance of any products we successfully
develop;
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significant
changes to our existing business
model;
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the
initiation of, material developments in or conclusion of litigation to
enforce or defend any of our intellectual property rights;
and
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significant
acquisitions, strategic partnerships, joint ventures or capital
commitments by us or our
competitors.
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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 March 31,
2010.
On February 26, 2010, we issued
and sold 1,872 shares of our common stock to Novartis Pharma AG pursuant to the
terms of our stockholders’ agreement at a per share price of $2.41, resulting in
aggregate proceeds to us of $4,512.
The issuance and sale of common stock
described above were issued in reliance upon exemptions from the registration
provisions of the Securities Act of 1933, 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 have not been
registered and the applicable restrictions on transfer.
Item 3.
Defaults Upon Senior Securities
None.
Item 4.
[Reserved]
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:
May 6, 2010
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By:
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/s/ JEAN-PIERRE SOMMADOSSI
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Jean-Pierre
Sommadossi
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Chairman
and Chief Executive Officer
(Principal Executive
Officer)
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Date:
May 6, 2010
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By:
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/s/ RONALD C. RENAUD, JR.
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Ronald
C. Renaud, Jr.
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Chief
Financial Officer
(Principal Financial
Officer)
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EXHIBIT
INDEX
Exhibit
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No.
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Description
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31.1
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Certification
of Chief Executive Officer pursuant to Rule 13a-14(a)/Rule 15d-14(a)
of the Securities Exchange Act of 1934, as amended.
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31.2
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Certification
of Chief Financial Officer pursuant to Rule 13a-14(a)/Rule 15d-14(a)
of the Securities Exchange Act of 1934, as amended.
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32.1
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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.
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32.2
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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.
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