e10vq
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 |
For the Quarterly Period Ended September 30, 2005
Or
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 000-49839
Idenix Pharmaceuticals, Inc.
(Exact name of registrant as specified in its charter)
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Delaware
(State or Other Jurisdiction of
Incorporation or Organization) |
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45-0478605 (IRS Employer Identification No.) |
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60 Hampshire Street
Cambridge, MA (Address of Principal Executive Offices) |
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02139 (Zip Code) |
Registrants telephone number, including area code: (617) 995-9800
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports) and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule
12b-2 of the Exchange Act). Yes o No þ
Indicate
by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of The Exchange Act).
Yes o No
þ
As of October 31, 2005, the number of shares of the registrants common stock, par value $.001
per share, outstanding was 55,632,622
shares.
IDENIX PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
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September 30, |
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December 31, |
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2005 |
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2004 |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
41,807 |
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$ |
42,083 |
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Restricted cash |
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411 |
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Marketable securities |
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61,042 |
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38,429 |
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Accounts receivable, related party |
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16,660 |
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16,243 |
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Prepaid expenses and other current assets |
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4,166 |
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3,231 |
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Total current assets |
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124,086 |
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99,986 |
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Property and equipment, net |
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9,793 |
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6,805 |
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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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12,001 |
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76,754 |
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Income taxes receivable |
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832 |
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370 |
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Investment |
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500 |
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500 |
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Other assets |
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2,642 |
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1,953 |
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Total assets |
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$ |
150,604 |
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$ |
187,118 |
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LIABILITIES AND STOCKHOLDERS EQUITY |
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Current liabilities: |
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Accounts payable |
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$ |
2,143 |
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$ |
4,619 |
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Accrued expenses |
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20,431 |
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15,300 |
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Deferred rent |
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192 |
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50 |
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Deferred revenue, related party |
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8,683 |
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9,695 |
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Income taxes payable |
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214 |
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199 |
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Total current liabilities |
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31,663 |
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29,863 |
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Long-term obligations |
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2,757 |
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3,691 |
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Deferred rent, net of current portion |
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1,908 |
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1,455 |
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Deferred revenue |
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4,272 |
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4,272 |
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Deferred revenue, related party, net of current portion |
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28,219 |
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38,779 |
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Total liabilities |
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68,819 |
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78,060 |
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Commitments and contingencies |
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Stockholders equity: |
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Common stock, $0.001 par value; 60,000,000 shares
authorized at September 30, 2005 and December 31, 2004;
48,300,792 and 47,857,887 shares issued and outstanding at
September 30, 2005 and December 31, 2004,
respectively |
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48 |
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48 |
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Additional paid-in capital |
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349,276 |
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340,938 |
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Deferred compensation |
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(763 |
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(1,987 |
) |
Accumulated other comprehensive (loss) income |
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(302 |
) |
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136 |
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Accumulated deficit |
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(266,474 |
) |
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(230,077 |
) |
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Total stockholders equity |
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81,785 |
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109,058 |
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Total liabilities and stockholders equity |
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$ |
150,604 |
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$ |
187,118 |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
3
IDENIX PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
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Three Months Ended September 30, |
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2005 |
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2004 |
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Revenues: |
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License fees and collaborative research and
development related party |
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$ |
15,506 |
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$ |
17,052 |
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Government research grants |
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124 |
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127 |
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Total revenues |
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15,630 |
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17,179 |
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Operating expenses (1): |
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Research and development |
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21,488 |
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19,048 |
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General and administrative |
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4,800 |
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4,205 |
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Sales and marketing |
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4,222 |
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1,840 |
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Total operating expenses |
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30,510 |
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25,093 |
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Loss from operations |
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(14,880 |
) |
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(7,914 |
) |
Investment income, net |
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717 |
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521 |
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Other (expense) income |
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(2 |
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1 |
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Loss before income taxes |
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(14,165 |
) |
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(7,392 |
) |
Income tax benefit |
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|
467 |
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39 |
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Net loss |
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$ |
(13,698 |
) |
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$ |
(7,353 |
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Net loss per common share: |
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Basic |
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$ |
(0.28 |
) |
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$ |
(0.17 |
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Diluted |
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$ |
(0.28 |
) |
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$ |
(0.17 |
) |
Shares used in calculation of net loss per share common share: |
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Basic |
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48,220 |
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44,520 |
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Diluted |
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48,220 |
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|
44,520 |
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(1) |
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During the three months ended September 30, 2005 and 2004, stock-based compensation expenses
included in operating expenses amounted to approximately: |
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Three Months Ended September 30, |
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2005 |
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2004 |
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Research and development |
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$ |
227 |
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$ |
297 |
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General and administrative |
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|
88 |
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|
201 |
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Sales and marketing |
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24 |
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31 |
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$ |
339 |
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$ |
529 |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
4
IDENIX PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
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Nine Months Ended September 30, |
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2005 |
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2004 |
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Revenues: |
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License fees and collaborative research and
development related party |
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$ |
46,315 |
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$ |
76,371 |
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Government research grants |
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300 |
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259 |
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Total revenues |
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46,615 |
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76,630 |
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Operating expenses (1): |
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Research and development |
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63,141 |
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|
55,142 |
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General and administrative |
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|
14,744 |
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|
10,942 |
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Sales and marketing |
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8,055 |
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|
3,653 |
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Total operating expenses |
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85,940 |
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69,737 |
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(Loss) income from operations |
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(39,325 |
) |
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|
6,893 |
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Investment income, net |
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2,339 |
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|
665 |
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Other expense |
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(4 |
) |
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(1 |
) |
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(Loss) income before income taxes |
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(36,990 |
) |
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|
7,557 |
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Income tax benefit |
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|
593 |
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|
153 |
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Net (loss) income |
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$ |
(36,397 |
) |
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$ |
7,710 |
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Net (loss) income per common share: |
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Basic |
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$ |
(0.76 |
) |
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$ |
0.20 |
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Diluted |
|
$ |
(0.76 |
) |
|
$ |
0.19 |
|
Shares used in calculation of net (loss) income per
common share: |
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|
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|
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Basic |
|
|
48,100 |
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|
39,190 |
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Diluted |
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|
48,100 |
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|
41,361 |
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(1) |
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During the nine months ended September 30, 2005 and 2004, stock-based compensation expenses
included in operating expenses amounted to approximately: |
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|
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Nine Months Ended September 30, |
|
|
|
2005 |
|
|
2004 |
|
Research and development |
|
$ |
744 |
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|
$ |
915 |
|
General and administrative |
|
|
475 |
|
|
|
580 |
|
Sales and marketing |
|
|
87 |
|
|
|
97 |
|
|
|
|
|
|
|
|
|
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$ |
1,306 |
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$ |
1,592 |
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|
|
|
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The accompanying notes are an integral part of these condensed consolidated financial statements.
5
IDENIX PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
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Nine Months Ended September 30, |
|
|
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2005 |
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|
2004 |
|
Cash flows from operating activities: |
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|
|
|
|
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Net (loss) income |
|
$ |
(36,397 |
) |
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$ |
7,710 |
|
Adjustments to reconcile net (loss) income to net cash (used in) provided by
operating activities: |
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Depreciation and amortization |
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|
1,500 |
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|
889 |
|
Stock-based compensation expense |
|
|
1,306 |
|
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|
1,592 |
|
Gain on sale of marketable securities |
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|
(384 |
) |
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Revenue adjustment for contingently issuable shares |
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|
2,451 |
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|
1,850 |
|
Changes in operating assets and liabilities: |
|
|
|
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|
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Accounts receivable, related party |
|
|
(417 |
) |
|
|
(3,050 |
) |
Prepaid expenses and other current assets |
|
|
(1,004 |
) |
|
|
12 |
|
Income taxes receivable |
|
|
(462 |
) |
|
|
|
|
Other assets |
|
|
(694 |
) |
|
|
155 |
|
Accounts payable |
|
|
(2,387 |
) |
|
|
(1,056 |
) |
Accrued expenses |
|
|
5,450 |
|
|
|
1,073 |
|
Deferred rent |
|
|
594 |
|
|
|
(38 |
) |
Deferred revenue |
|
|
|
|
|
|
(35 |
) |
Deferred revenue, related party |
|
|
(7,276 |
) |
|
|
(8,561 |
) |
Income taxes payable |
|
|
(77 |
) |
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|
(180 |
) |
Long-term obligations |
|
|
(899 |
) |
|
|
(944 |
) |
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|
|
|
|
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|
Net cash used in operating
activities |
|
|
(38,696 |
) |
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|
(583 |
) |
Cash flows from investing activities: |
|
|
|
|
|
|
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|
Purchase of property and equipment |
|
|
(4,716 |
) |
|
|
(2,859 |
) |
Restricted deposits |
|
|
(411 |
) |
|
|
20 |
|
Purchases of marketable securities |
|
|
(18,010 |
) |
|
|
(42,742 |
) |
Proceeds from sales or maturities of marketable securities |
|
|
60,560 |
|
|
|
|
|
|
|
|
|
|
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|
Net cash provided by (used in) investing activities |
|
|
37,423 |
|
|
|
(45,581 |
) |
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Net proceeds from sale of common stock in initial public
offering and private placement |
|
|
|
|
|
|
133,409 |
|
Proceeds from exercise of common stock options |
|
|
1,257 |
|
|
|
870 |
|
Repayment of capital lease obligations |
|
|
|
|
|
|
(2 |
) |
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
1,257 |
|
|
|
134,277 |
|
Effect of changes in exchange rates on cash and cash
equivalents |
|
|
(260 |
) |
|
|
(63 |
) |
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents |
|
|
(276 |
) |
|
|
88,050 |
|
Cash and cash equivalents at beginning of period |
|
|
42,083 |
|
|
|
43,485 |
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
41,807 |
|
|
$ |
131,535 |
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
|
Taxes paid |
|
$ |
28 |
|
|
$ |
178 |
|
Supplemental disclosure of noncash investing and
financing activities: |
|
|
|
|
|
|
|
|
Value of shares of common stock contingently issuable or issued to related
party |
|
$ |
6,747 |
|
|
$ |
7,359 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
IDENIX PHARMACEUTICALS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. DESCRIPTION OF BUSINESS
Idenix Pharmaceuticals, Inc. (together with its consolidated subsidiaries, the Company) is a
biopharmaceutical company engaged in the discovery, development and commercialization of drugs for
the treatment of human viral and other infectious diseases. The Companys current focus is on
diseases caused by hepatitis B virus (HBV), hepatitis C virus (HCV) and human immunodeficiency
virus (HIV).
The Company is subject to risks common to companies in the biopharmaceutical industry
including, but not limited to, the successful development and commercialization of products,
clinical trial uncertainty, regulatory approval, fluctuations in operating results and financial
risks, potential need for additional funding, protection of proprietary technology and patent
risks, compliance with government regulations, dependence on key personnel and collaborative
partners, competition, technological and medical risks and management of growth.
Effective May 8, 2003, Novartis Pharma AG (Novartis), a subsidiary of Novartis AG, acquired
a majority interest in the Companys outstanding capital stock and the operations of the Company
have been consolidated in the financial statements of Novartis AG since that date. Novartis has the
ability to exercise control over the Companys strategic direction, research and development
activities and other material business decisions (Note 4).
2. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
The accompanying condensed consolidated financial statements are unaudited and have been
prepared by the Company in accordance with accounting principles generally accepted in the United
States of America for interim reporting.
The consolidated financial statements reflect the operations of the Company and its wholly
owned subsidiaries. All significant intercompany accounts and transactions have been eliminated.
Certain information and footnote disclosures normally included in the Companys annual
consolidated financial statements have been condensed or omitted. Certain prior year amounts have
been reclassified to conform to current year presentation. The interim financial statements, 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 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,
2005. These interim financial statements should be read in conjunction with the audited financial
statements for the year ended December 31, 2004, which are included in the Companys Annual Report
on Form 10-K, which was filed with the Securities and Exchange Commission (SEC) on March 17,
2005.
Revenue Recognition
The Company records revenue provided that there is persuasive evidence that an arrangement
exists and service has been performed, the price is fixed or determinable and collectibility is
reasonably assured. The Company earns revenue under collaborative research and development
arrangements and government research grants.
7
IDENIX PHARMACEUTICALS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) CONTINUED
Collaborative Research and Development Revenue Revenue related to collaborative research and
development arrangements includes nonrefundable license fees, milestones and research and
development payments from the Companys collaborative partners. Where the Company has continuing
performance obligations under the terms of a collaborative arrangement, nonrefundable license fees
are recognized as revenue over the specified development period as the Company completes its
performance obligations. When the Companys level of effort is relatively constant over the
performance period, the revenue is recognized on a straight-line basis. The determination of the
performance period involves judgment on the part of management. If the Company cannot reasonably
estimate its costs, then it recognizes the license fee revenue on a straight-line basis over the
performance period. Payments received from collaborative partners for research and development
efforts by the Company are recognized as revenue over the contract term as the related costs are
incurred, net of any amounts due to the collaborative partner for costs incurred during the period.
Revenues from milestones related to an arrangement under which the Company has continuing
performance obligations, if deemed substantive, are recognized as revenue upon achievement of the
milestone. Milestones are considered substantive if all of the following conditions are met: the
milestone is nonrefundable; achievement of the milestone was not reasonably assured at the
inception of the arrangement; substantive effort is involved to achieve the milestone; and the
amount of the milestone appears reasonable in relation to the effort expended, the other milestones
in the arrangement and the related risk associated with the achievement of the milestone. If any
of these conditions is not met, the milestone payment is deferred and recognized as revenue as the
Company completes its performance obligations.
Where the Company has no continuing involvement under a collaborative arrangement, the Company
records nonrefundable license fee revenue when the Company has the contractual right to receive the
payment, in accordance with the terms of the license agreement, and records milestones upon
appropriate notification to the Company of achievement of the milestones by the collaborative
partner.
In March 2003, the Company entered into a final settlement agreement with Sumitomo
Pharmaceuticals Co., Ltd. (Sumitomo) under which the rights to develop and commercialize
telbivudine, the Companys lead product candidate for the treatment of hepatitis B, in Japan,
China, South Korea and Taiwan previously granted to Sumitomo were returned to the Company. This
agreement with Sumitomo became effective upon consummation of the Companys collaboration with
Novartis in May 2003. The Company repurchased these product rights for $5,000,000 and, as a result
of this payment, the Company reversed approximately $4,571,000 of revenue previously recognized in
original arrangements with Sumitomo with the remaining amount recorded as a reduction of deferred
revenue. The Company also has $4,272,000 included in deferred revenue on its consolidated balance
sheet at each of December 31, 2004 and September 30, 2005, representing amounts received from
Sumitomo that have not been included in revenue to date. The Company must pay an additional
$5,000,000 to Sumitomo upon the first commercial sale of telbivudine in Japan. This payment will
be recorded first as a reduction of the remaining $4,272,000 of deferred revenue, with the excess
recorded as an expense. If and when the Company determines that it will not seek regulatory
approval for telbivudine in Japan, the Company would have no further obligations under the
settlement agreement with Sumitomo and, therefore, the $4,272,000 of remaining deferred revenue
would be recognized as revenue at that time.
In November 2002, the Emerging Issues Task Force (EITF), reached a consensus on EITF No.
00-21, Accounting for Revenue Arrangements with Multiple Deliverables (EITF No. 00-21). EITF
No. 00-21 provides guidance on how to account for arrangements that involve the delivery or
performance of multiple products, services and/or rights to use assets. The provisions of EITF No.
00-21 apply to revenue arrangements with multiple deliverables entered into or modified on or after
July 1, 2003. The Company presently has no revenue arrangements required to be accounted for under
EITF No. 00-21.
8
IDENIX PHARMACEUTICALS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) CONTINUED
Government Research Grant Revenue Government research grants that provide for payments to
the Company for work performed are recognized as revenue when the related expense is incurred and
the Company has obtained governmental approval to use the grant funds for these expenses.
Marketable Securities
The Company invests its excess cash balances in short-term and long-term marketable debt
securities. The Company classifies all of its marketable securities as available-for-sale. The
Company reports available-for-sale investments at fair value as of each balance sheet date and
includes any unrealized gains and to the extent deemed temporary, unrealized losses in stockholders equity.
If any adjustment to fair value reflects a decline in the value of the investment, the Company
considers available evidence to evaluate whether the decline is other than temporary and, if so,
marks the investment to market through a charge to the consolidated statement of operations.
Realized gains and losses are determined on the specific identification method and are included in
investment income. The Company classifies its marketable securities with remaining maturities of
12 months or less as current marketable securities exclusive of those categorized as cash
equivalents. The Company classifies its marketable securities with remaining maturities greater
than 12 months as non-current marketable securities, unless it is not expected to hold the
investment to maturity.
Stock-Based Compensation
As permitted by Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for
Stock-Based Compensation (SFAS No. 123), the Company accounts for its stock-based awards to
employees and directors using the intrinsic method prescribed in Accounting Principles Board
Opinion No. 25 (APB No. 25), Accounting for Stock Issued to Employees, and related
interpretations. Changes to option terms subsequent to award can also give rise to compensation
expense. The Company recognizes compensation expense for restricted stock sold and stock options
granted to nonemployees in accordance with the requirements of SFAS No. 123 and EITF Issue No.
96-18, Accounting for Equity Instruments that Are Issued to Other than Employees for Acquiring, or
in Conjunction with Selling Goods and Services (EITF 96-18). EITF 96-18 requires that such
equity instruments be recorded at their fair value at the measurement date, which is generally the
vesting date of the instruments. Therefore, the measurement of stock-based compensation is subject
to periodic adjustment as the underlying equity instruments vest.
In December 2002, the Financial Accounting Standards Board (FASB) issued SFAS No. 148,
Accounting for Stock-Based Compensation Transition and Disclosure An amendment of FAS 123
(SFAS No. 148). This statement provides alternative methods of transition for a voluntary change
to the fair value method of accounting for stock-based employee compensation. SFAS No. 148 also
requires that disclosures of the pro forma effect of using the fair value method of accounting for
stock-based compensation be displayed more prominently and in tabular format. Additionally, SFAS
No. 148 requires disclosure of the pro forma effect in the interim financial statements. The
Company has elected to continue to account for employee stock options under APB No. 25.
In December 2004, the FASB issued SFAS No. 123 (revised 2004), Share-Based Payment. This
Statement replaces SFAS No. 123 and supercedes APB No. 25. SFAS No. 123 (revised 2004) eliminates
the ability to account for share-based compensation transactions using the intrinsic method
currently used by the Company. SFAS No. 123 (revised 2004) requires such transactions to be
accounted for using a fair value based method that would result in expense being recognized in the
Companys
financial statements. The Company will be required to adopt SFAS No. 123 (revised 2004) in
the first quarter of fiscal 2006 and has not yet determined the impact of adoption on the
consolidated financial position or results of operations.
9
IDENIX PHARMACEUTICALS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) CONTINUED
If compensation expense for the Companys stock-based compensation plan had been determined
based on the fair value using the Black-Scholes method at the grant dates as calculated in
accordance with SFAS No. 123, the Companys net (loss) income and net (loss) income per common
share would have approximated the pro forma amounts below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
|
|
2005 |
|
|
2004 |
|
|
2005 |
|
|
2004 |
|
|
|
(in thousands, except |
|
|
(in thousands, except |
|
|
|
per share data) |
|
|
per share data) |
|
Net (loss) income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income as reported |
|
$ |
(13,698 |
) |
|
$ |
(7,353 |
) |
|
$ |
(36,397 |
) |
|
$ |
7,710 |
|
Add stock-based employee compensation expense included in reported net (loss) income |
|
|
339 |
|
|
|
529 |
|
|
|
1,306 |
|
|
|
1,592 |
|
Deduct stock-based employee compensation expense determined under fair
value method |
|
|
(1,707 |
) |
|
|
(844 |
) |
|
|
(4,853 |
) |
|
|
(2,248 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income pro forma |
|
$ |
(15,066 |
) |
|
$ |
(7,668 |
) |
|
$ |
(39,944 |
) |
|
$ |
7,054 |
|
Net (loss) income per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic as reported |
|
$ |
(0.28 |
) |
|
$ |
(0.17 |
) |
|
$ |
(0.76 |
) |
|
$ |
0.20 |
|
Basic pro forma |
|
$ |
(0.31 |
) |
|
$ |
(0.17 |
) |
|
$ |
(0.83 |
) |
|
$ |
0.18 |
|
Diluted as reported |
|
$ |
(0.28 |
) |
|
$ |
(0.17 |
) |
|
$ |
(0.76 |
) |
|
$ |
0.19 |
|
Diluted pro forma |
|
$ |
(0.31 |
) |
|
$ |
(0.17 |
) |
|
$ |
(0.83 |
) |
|
$ |
0.17 |
|
The assumptions used were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
|
|
2005 |
|
|
2004 |
|
|
2005 |
|
|
2004 |
|
Expected dividend yield |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk-free interest rate |
|
|
4.05 |
% |
|
|
3.55 |
% |
|
|
3.91 |
% |
|
|
3.24 |
% |
Expected option term (in years) |
|
|
5 |
|
|
|
5 |
|
|
|
5 |
|
|
|
5 |
|
Expected volatility |
|
|
75 |
% |
|
|
85 |
% |
|
|
83 |
% |
|
|
21 |
% |
Basic and Diluted Net (Loss) Income per Common Share
The Company accounts for and discloses net (loss) income per common share in accordance with
SFAS No. 128, Earnings Per Share (SFAS No. 128). Under the provisions of SFAS No. 128, basic
net (loss) income per common share is computed by dividing the net (loss) income available to
common stockholders by the weighted average number of common shares outstanding during the period.
Diluted net (loss) income per common share is computed by dividing the net (loss) income available
to common stockholders by the weighted average number of common shares and dilutive potential
common shares outstanding. These potential common shares consist of common shares
issuable upon the assumed exercise of outstanding stock options (using the treasury stock method),
issuance of contingently issuable shares subject to Novartis subscription rights (see Note 4) and
restricted stock awards.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
|
|
2005 |
|
|
2004 |
|
|
2005 |
|
|
2004 |
|
|
|
(in thousands, except |
|
|
(in thousands, except |
|
|
|
per share data) |
|
|
per share data) |
|
Basic and diluted net (loss) income per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
|
$ |
(13,698 |
) |
|
$ |
(7,353 |
) |
|
$ |
(36,397 |
) |
|
$ |
7,710 |
|
Common Shares: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding for basic net (loss) income per share: |
|
|
48,220 |
|
|
|
44,520 |
|
|
|
48,100 |
|
|
|
39,190 |
|
Net effect of dilutive stock options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,226 |
|
Effect of contingently issuable shares subject to Novartis stock purchase rights |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
945 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding for diluted net (loss) income per share: |
|
|
48,220 |
|
|
|
44,520 |
|
|
|
48,100 |
|
|
|
41,361 |
|
Basic net (loss) income per common share |
|
$ |
(0.28 |
) |
|
$ |
(0.17 |
) |
|
$ |
(0.76 |
) |
|
$ |
0.20 |
|
Diluted net (loss) income per common share |
|
$ |
(0.28 |
) |
|
$ |
(0.17 |
) |
|
$ |
(0.76 |
) |
|
$ |
0.19 |
|
10
IDENIX PHARMACEUTICALS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) CONTINUED
The following potentially dilutive, common share equivalents were excluded from the
calculation of diluted net loss per common share because their effect was anti-dilutive:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
|
|
2005 |
|
|
2004 |
|
|
2005 |
|
|
2004 |
|
|
|
(in thousands) |
|
|
(in thousands) |
|
Options |
|
|
3,826 |
|
|
|
3,003 |
|
|
|
3,826 |
|
|
|
205 |
|
Shares contingently issuable to related party |
|
|
1,254 |
|
|
|
945 |
|
|
|
1,254 |
|
|
|
|
|
Restricted stock |
|
|
13 |
|
|
|
100 |
|
|
|
13 |
|
|
|
|
|
3. COMPREHENSIVE (LOSS) INCOME
For the three and nine months ended September 30, 2005 and 2004, respectively, comprehensive
(loss) income was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
|
|
2005 |
|
|
2004 |
|
|
2005 |
|
|
2004 |
|
|
|
(in thousands) |
|
|
(in thousands) |
|
Net (loss) income |
|
$ |
(13,698 |
) |
|
$ |
(7,353 |
) |
|
$ |
(36,397 |
) |
|
$ |
7,710 |
|
Changes in other comprehensive (loss) income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation
adjustment |
|
|
(31 |
) |
|
|
|
|
|
|
(462 |
) |
|
|
(72 |
) |
Unrealized gain (loss) on
investments |
|
|
72 |
|
|
|
(28 |
) |
|
|
24 |
|
|
|
(28 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive (loss) income
|
|
$ |
(13,657 |
) |
|
$ |
(7,381 |
) |
|
$ |
(36,835 |
) |
|
$ |
7,610 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4. NOVARTIS RELATIONSHIP
Overview
In May 2003, the Company entered into a collaboration with Novartis relating to the worldwide
development and commercialization of the Companys product candidates. Novartis paid the Company a
license fee of $75,000,000 for its lead HBV product candidates, telbivudine and valtorcitabine, has
agreed to provide development funding for these HBV product candidates and will make milestone
payments, which could total up to $35,000,000, upon the achievement of certain regulatory
approvals, as well as additional milestone payments based upon achievement of predetermined sales
levels.
Novartis also acquired an option to license the Companys HCV and other product candidates. If
Novartis exercises its option to collaborate on valopicitabine, the Companys initial HCV product
candidate, it would be required to provide development funding and pay the Company up to
$525,000,000 in license fees and regulatory milestone payments, as well as additional milestone
payments based upon achievement of predetermined sales levels. In June 2004, the Company received a
$25,000,000 milestone payment from Novartis that it recognized as revenue based upon results from a
phase I clinical trial of valopicitabine, also known as, NM283.
The Company is reimbursed by Novartis on a quarterly basis for expenses incurred by the
Company in connection with the development of its HBV product candidates. Pursuant to a cost
sharing arrangement with Novartis, the Company is also reimbursed for certain registration expenses
and phase IIIb/IV clinical trial costs associated with telbivudine, net of certain qualifying costs
incurred by Novartis.
11
IDENIX PHARMACEUTICALS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) CONTINUED
Simultaneously with the collaboration described above, Novartis purchased approximately 54% of
the Companys outstanding capital stock from the Companys then existing stockholders for
$255,000,000 in cash, with an additional aggregate amount of up to additional $357,000,000
contingently payable to these stockholders if the Company achieves predetermined development
milestones relating to an HCV product candidate. As of the completion of the public offering in
October 2005, Novartis owns approximately 56% of the Companys outstanding stock.
To date, the Company has received from Novartis a $75,000,000 license fee for its HBV product
candidates and a $5,000,000 reimbursement for reacquiring product rights from Sumitomo to develop
and commercialize telbivudine in certain markets in Asia. The Company has included this
reimbursement as part of the license fee for accounting purposes because Novartis required the
repurchase of these rights as a condition of entering into the development agreement. The Company
has estimated that the performance period during which the development of the HBV product
candidates and valopicitabine would occur is a period of approximately six and one-half years
following the effective date of the development agreement that the Company entered into with
Novartis, or December 2009. The Company is recognizing revenue on the license fee payments over
this period. If the estimated performance period changes, the Company will adjust the periodic
revenue that is being recognized and will record the remaining unrecognized license fee
payments over the remaining development period during which the Companys 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.
Novartis Stock Purchase Rights
Novartis has the right to purchase, at par value of $0.001 per share, such number of shares as
is required to maintain its percentage ownership of the Companys voting stock if the Company
issues shares of capital stock in connection with the acquisition or in-licensing of technology
through the issuance of up to 5% of the Companys 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 the
Companys voting stock; or b) the date that Novartis becomes obligated to make the additional
contingent payments of $357,000,000 to holders of the Companys stock who sold shares to Novartis
on May 8, 2003.
Additionally, if the Company issues any shares of its capital stock, other than in certain
situations, Novartis has the right to purchase such number of shares required to maintain its
percentage ownership of the Companys voting stock for the same consideration per share paid by
others acquiring the Companys stock. 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 the
Companys common stock that would be issuable to Novartis, less the exercise price, if any, payable
by the option or award holder, will be recorded as a reduction of the license fee associated with
the Novartis collaboration. The amount will be 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 the Companys common stock and in Novartis
percentage ownership. These adjustments will also be attributed proportionately between cumulative
revenue recognized through the measurement date and the remaining deferred revenue.
In connection with the closing of the Companys initial public offering in July 2004, Novartis
terminated a common stock subscription right with respect to 1,399,106 shares of common stock
issuable by the Company 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,
the Company issued 1,100,000 shares of common stock to Novartis for a purchase price of $0.001 per
share. The fair value of these shares was determined to be $15,400,000 at the time of issuance. As
a result of the issuance of these shares,
12
IDENIX PHARMACEUTICALS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) CONTINUED
Novartis rights to purchase additional shares as a result of future option grants and stock
issuances under the 1998 Equity Incentive Plan are 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 the Company granted options that were subject to
this stock subscription right, the fair value of the Companys common stock that would be issuable
to Novartis, less par value, was recorded as a adjustment of the license fee and payments received
from Novartis. The Company is still subject to potential revenue adjustments relating to future
grants of options and stock awards under other stock incentive plans.
As of September 30, 2005, this Novartis stock subscription right has reduced the license fee
by a cumulative total of $22,182,000 and has been reclassified to additional paid-in capital. Of
this amount, $17,069,000 has been recorded as a reduction of deferred revenue as of September 30,
2005 with the remaining amount of $5,113,000 recorded as a reduction of revenue. The Company
recorded a $1,554,000 reduction of revenue for the three months ended September 30, 2005 and a
$611,000 increase to revenue for the three months ended September 30, 2004 associated with this
stock subscription right. The Company
recorded $2,451,000 and $1,850,000 of this reduction of revenue for the nine months ended September
30, 2005 and 2004, respectively.
5. SUBSEQUENT PUBLIC OFFERING OF COMMON STOCK
On October 31, 2005, the Company completed a public offering of 7,278,020 shares of its common
stock at a purchase price to the public of $20.61 per share, resulting in proceeds to the Company
of approximately $145,500,000, after deducting underwriting discounts and commissions and estimated
offering expenses. Of the shares offered and sold by the Company, 3,939,131 shares were sold to
Novartis.
6. MARKETABLE SECURITIES
The Company invests its excess cash with large U.S. based financial institutions and considers
its investment portfolio as marketable securities available-for-sale as defined in SFAS No. 115,
Accounting for Certain Investments in Debt and Equity Securities. Accordingly, these investments
are recorded at fair value, which is based on quoted market prices. The fair values of
available-for-sale investments by type of security, contractual maturity and classification in the
balance sheets as of September 30, 2005 and December 31, 2004 are as follows:
13
IDENIX PHARMACEUTICALS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) CONTINUED
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2005 |
|
|
|
|
|
|
|
Gross |
|
|
Gross |
|
|
|
|
|
|
Amortized |
|
|
unrealized |
|
|
unrealized |
|
|
Market |
|
|
|
cost |
|
|
gains |
|
|
losses |
|
|
value |
|
|
|
(In thousands) |
|
Type of security: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds |
|
$ |
6,335 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
6,335 |
|
Corporate debt securities |
|
|
41,857 |
|
|
|
|
|
|
|
(221 |
) |
|
|
41,636 |
|
U.S. Treasury securities and obligations of
U.S. government agencies |
|
|
17,504 |
|
|
|
|
|
|
|
(85 |
) |
|
|
17,419 |
|
Taxable auction rate securities |
|
|
17,492 |
|
|
|
1 |
|
|
|
(13 |
) |
|
|
17,480 |
|
Accrued interest |
|
|
616 |
|
|
|
|
|
|
|
|
|
|
|
616 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
83,804 |
|
|
$ |
1 |
|
|
$ |
(319 |
) |
|
$ |
83,486 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2005 |
|
|
2004 |
|
|
|
(In thousands) |
|
Contractual maturity: |
|
|
|
|
|
|
|
|
Maturing in one year or
less |
|
$ |
71,485 |
|
|
$ |
59,505 |
|
Maturing after one year through
two
years |
|
|
2,000 |
|
|
|
40,679 |
|
Maturing after two years through
ten
years |
|
|
3,000 |
|
|
|
15,500 |
|
Maturing after ten
years |
|
|
7,001 |
|
|
|
20,575 |
|
|
|
|
|
|
|
|
|
|
$ |
83,486 |
|
|
$ |
136,259 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2004 |
|
|
|
|
|
|
|
Gross |
|
|
Gross |
|
|
|
|
|
|
Amortized |
|
|
unrealized |
|
|
unrealized |
|
|
Market |
|
|
|
cost |
|
|
gains |
|
|
losses |
|
|
value |
|
|
|
(In thousands) |
|
Type of security: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds |
|
$ |
13,040 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
13,040 |
|
Corporate debt securities |
|
|
40,102 |
|
|
|
26 |
|
|
|
(232 |
) |
|
|
39,896 |
|
U.S. Treasury securities and obligations of
U.S. government agencies |
|
|
34,252 |
|
|
|
|
|
|
|
(137 |
) |
|
|
34,115 |
|
Taxable auction rate securities |
|
|
48,570 |
|
|
|
|
|
|
|
|
|
|
|
48,570 |
|
Accrued interest |
|
|
638 |
|
|
|
|
|
|
|
|
|
|
|
638 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
136,602 |
|
|
$ |
26 |
|
|
$ |
(369 |
) |
|
$ |
136,259 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in the table above are taxable auction rate securities, which typically reset to
current interest rates every 28 to 45 days, but are included in the table above based on their
stated maturities. All securities with contractual maturities greater than two years are taxable
auction rate securities.
14
IDENIX PHARMACEUTICALS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) CONTINUED
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2005 |
|
|
2004 |
|
|
|
(In thousands) |
|
Classification in balance sheets: |
|
|
|
|
|
|
|
|
Cash
equivalents |
|
$ |
10,443 |
|
|
$ |
21,076 |
|
Marketable
securities |
|
|
61,042 |
|
|
|
38,429 |
|
Marketable securities,
non-current |
|
|
12,001 |
|
|
|
76,754 |
|
|
|
|
|
|
|
|
|
|
$ |
83,486 |
|
|
$ |
136,259 |
|
|
|
|
|
|
|
|
The cash equivalent amounts of $10,443,000 and $21,076,000 are included as part of cash and
cash equivalents on the Companys consolidated balance sheet at September 30, 2005 and December 31,
2004, respectively.
7. ACCOUNTS RECEIVABLE
Accounts receivable consist of the following:
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2005 |
|
|
2004 |
|
|
|
(in thousands) |
|
Accounts receivable, related
party |
|
$ |
2,026 |
|
|
$ |
|
|
Unbilled accounts receivable,
related party |
|
|
14,634 |
|
|
|
16,243 |
|
|
|
|
|
|
|
|
|
|
$ |
16,660 |
|
|
$ |
16,243 |
|
|
|
|
|
|
|
|
Unbilled accounts receivable are revenues earned under collaborative agreements that have not
been billed at September 30, 2005 and December 31, 2004. All related party billed and unbilled
accounts receivable are due from Novartis.
8. ACCRUED EXPENSES
Accrued expenses consist of the following:
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2005 |
|
|
2004 |
|
|
|
(in thousands) |
|
Research and development contract costs |
|
$ |
12,562 |
|
|
$ |
8,064 |
|
Payroll and employee
benefits |
|
|
3,278 |
|
|
|
2,649 |
|
Professional fees |
|
|
1,059 |
|
|
|
2,412 |
|
License fees |
|
|
1,000 |
|
|
|
1,000 |
|
Other |
|
|
2,532 |
|
|
|
1,175 |
|
|
|
|
|
|
|
|
|
|
$ |
20,431 |
|
|
$ |
15,300 |
|
|
|
|
|
|
|
|
15
IDENIX PHARMACEUTICALS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) CONTINUED
9. LEGAL CONTINGENCIES
Hepatitis C Product Candidates
In May 2004, the Company and, in an individual capacity, its Chief Executive Officer (CEO),
entered into a settlement agreement with the University of Alabama at Birmingham (UAB) and its
affiliate, the UAB Research Foundation (UABRF), to resolve a dispute among these parties. In
March 2004, the Company and, in an individual capacity, its CEO, filed a lawsuit against UABRF in
the United States District Court, District of Massachusetts, seeking declaratory judgment regarding
the Companys ownership of inventions and discoveries made during the period from November 1999 to
November 2002
(Leave Period) by the CEO and the Companys ownership of patents and patent applications related
to such inventions and discoveries. During the Leave Period, while acting in the capacity of the
Companys
Chief Scientific Officer, the CEO was on sabbatical from November 1999 to November 2000
(Sabbatical Period) and then unpaid leave prior to resigning in November 2002 from his position
as a professor at UAB.
As a part of the settlement agreement, UAB and UABRF agreed that neither UAB or UABRF has any
right, title or ownership interest in the inventions and discoveries made or reduced to practice
during the Leave Period or the related patents and patent applications. In exchange, the Company
made a $2,000,000 payment to UABRF in May 2004, dismissed the pending litigation and agreed to make
certain future payments to UABRF. These future payments consist of (i) a $1,000,000 payment upon
the receipt of regulatory approval to market and sell in the U.S. a product which relates to
inventions and discoveries
made by the CEO during the Sabbatical Period, and (ii) payments in an amount equal to 0.5% of
worldwide net sales of such products with a minimum sales based payment to equal $12,000,000. The
sales based payments (including the minimum amount) are contingent upon the commercial launch of
products that relate to inventions and discoveries made by the CEO during the Sabbatical Period.
The minimum amount is due within seven years after the later of the commercial launch in the United
States or any of the United Kingdom, France, Germany, Italy or Spain, of a product that (i) has
within its approved product label a use for the treatment of hepatitis C infection, and (ii)
relates to inventions and discoveries made by the CEO during the Sabbatical Period, if sales based
payments for such product have not then exceeded $12,000,000. At that time, the Company will be
obligated to pay to UABRF the difference between the sales based payments then paid to date for
such product and $12,000,000.
Hepatitis B Product Candidates
In addition to the Leave Period matter noted above, the Company was notified in January 2004,
February 2005 and June 2005, that UABRF believes that patent applications which the Company has
licensed from UABRF can be amended to obtain broad patent claims that would generally cover the
method of using telbivudine to treat HBV. In July 2005, UABRF filed this continuation patent
application. The Company disagrees with UABRFs assertion. If UABRF pursues such patent claims,
they could assert that the obligations of the Company arising under the license agreement with
respect to licensed technology (including the amount and manner of payments due) are applicable to
the Companys intended use of telbivudine to treat hepatitis B. The agreement requires the Company
to make, for each significant disease indication for which licensed technology is used, payments
aggregating $1,300,000 if certain regulatory milestones are met. Additionally, if commercialization
is achieved for a licensed product, the Company will be required to pay a royalty with respect to
annual net sales of licensed products by the Company or an affiliate of the Company at the rate of
6% for net sales up to $50,000,000 and at the rate of 3% for net sales
in excess of $50,000,000. If the Company enters into a sublicense arrangement with an entity other
than one which controls at least 50% of the Companys capital stock, the Company would be required
to remit to UABRF 30% of all royalties received by the Company on sales of the licensed product by
the sublicensee. The Company is also required to pay to UABRF 20% of all license fees, milestone
payments and other cash consideration the Company receives from the sublicensee with respect to the
licensed products. If UABRFs position were to be upheld, and telbivudine was found to be covered
by the
agreement, the Company could be required to pay UABRF $15,000,000 related to the upfront payment
received from Novartis. In addition, the Company could have to pay future royalties to UABRF. The
Company does not believe that it is probable that UABRFs position will be upheld.
Indemnification
The Company has agreed to indemnify Novartis and its affiliates against losses suffered as a
result of any breach of representations and warranties in the development agreement. Under the
development agreement and the stock purchase agreement, the Company made numerous representations
and warranties to Novartis regarding its hepatitis B and C product candidates, including
representations regarding the
16
IDENIX PHARMACEUTICALS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) CONTINUED
Companys 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, the Company
would
be in breach of one or both of these agreements. In the event of a breach by the Company, Novartis
has the right to seek indemnification from the Company and, under certain circumstances, the
Company and its stockholders who sold shares to Novartis, which include many of its directors and
officers, for damages suffered by Novartis as a result of such breach. While it is possible that
the Company may be required to make payments pursuant to the indemnification obligations it has
under the development agreement, the Company cannot reasonably estimate the amount of such payments
or the likelihood that such payments will be required.
10. EQUITY INCENTIVE PLANS
In June 2005, the Companys stockholders approved the 2005 Stock Incentive Plan (2005 Plan).
The 2005 Plan allows for the granting of incentive stock options, non-qualified stock options,
stock appreciation rights, performance share awards and restricted stock awards (Awards). The
2005 Plan, as approved by the Companys stockholders, provided for the authorization of Awards
covering an aggregate of 2,200,000 shares of common stock plus 800,000 shares previously authorized
for issuance under the 2004 Stock Incentive Plan. In October 2005, the Companys Board of Directors
reduced the number of shares of common stock reserved for issuance under the 2005 Plan to 1,400,000
shares.
11. COLLABORATIVE AGREEMENTS AND CONTRACTS
On October 24, 2005, the Company entered into an agreement with the Universita degli Studi di
Cagliari (the University of Cagliari). This agreement further amends the Co-Operative Antiviral
Research Activity Agreement, dated January 4, 1999, between the University of Cagliari and the
Companys French subsidiary, as amended, and the License Agreement, dated December 14, 2000,
between the University of Cagliari and the Company, as amended (the License Agreement). The
agreement provides that the Company will pay to the University of Cagliari certain fees if the
Company receives payments in the future from an affiliate of the Company with respect to the
technology licensed to the Company pursuant to the License Agreement.
12. RELATED PARTY TRANSACTIONS
Prior to June 7, 2005, the Company had on its board of
directors a partner in the law firm of Wilmer Cutler Pickering Hale and Dorr LLP. The Company retains Wilmer Cutler Pickering Hale and Dorr LLP
as its corporate counsel. The Company incurred legal expenses of $120,000 and $578,000 during the nine months ended September 30, 2005 and 2004, respectively,
for services rendered by Wilmer Cutler Pickering Hale and Dorr LLP during the period in which such law firm partner was on the Company's board of directors.
17
ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Information and Factors That May Affect Future Results
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, believes, estimates, expects,
intends, may, plans, projections, will, would and similar expressions are intended to
identify forward-looking statements, although not all forward-looking statements contain these
identifying words. Such statements reflect our current views with respect to future events. We
cannot guarantee that we actually will achieve the plans, intentions, or expectations disclosed in
our forward-looking statements. There are a number of important factors that could cause actual
results or events to differ materially from those disclosed in the expressed or implied
forward-looking statements we make. These important factors include our critical accounting
estimates and the risk factors set forth below under the caption Factors That May Affect Future
Results. Although we may elect to update forward-looking statements in the future, we
specifically disclaim any obligation to do so, even if our estimates change, and readers should not
rely on those forward-looking statements as representing our views as of any date subsequent to the
date of this quarterly report.
Overview
Idenix is a biopharmaceutical company engaged in the discovery, development and
commercialization of products for the treatment of human viral and other infectious diseases. Our
current focus is on the treatment of infections caused by hepatitis B virus, or HBV, hepatitis C
virus, or HCV and human immunodeficiency virus, or HIV. Each of telbivudine and valtorcitabine,
our product candidates for the treatment of HBV, and valopicitabine, our product candidate for the
treatment of HCV, is a nucleoside or
nucleoside analog that we believe may have one or more therapeutic features that will afford
competitive advantages to our product candidates over currently approved therapies. Such
therapeutic features may include efficacy, safety, resistance profile or convenience of dosing.
Each of the product candidates that we are developing is selective and specific, may be
administered orally once a day, and we believe may be used in combination with other therapeutic
agents to improve clinical benefits.
The following table summarizes key information regarding our pipeline of product candidates:
|
|
|
|
|
|
|
|
|
Drug |
|
|
|
Next |
|
|
Candidates/ |
|
|
|
Development |
Indication |
|
Programs |
|
Description |
|
Stage |
HBV
|
|
telbivudine
(L-nucleoside)
|
|
Telbivudine achieved the
primary endpoint in our
phase III registration
trial, referred to as the
GLOBE study, in July 2005.
Submission to the United
States Food and Drug
Administration, or FDA, of a
new drug application, or
NDA, based on one-year data
from this phase III
registration trial is
anticipated in December
2005. In addition to the
GLOBE study, a phase III
trial in patients with liver
failure, or decompensated
liver disease, is ongoing.
Also ongoing are marketing
trials that are intended to
provide additional product
data at the time of
commercial launch of
telbivudine.
|
|
NDA |
|
|
|
|
|
|
|
HBV
|
|
valtorcitabine
(L-nucleoside)
|
|
This product candidate is
being developed for use in
fixed dose combination with
telbivudine for treatment of
hepatitis B patients who
require more intensive
antiviral therapy than
achieved by single agent
therapy. A phase IIb
clinical trial of the
combination of
valtorcitabine and
telbivudine is ongoing.
|
|
phase III |
18
|
|
|
|
|
|
|
|
|
Drug |
|
|
|
Next |
|
|
Candidates/ |
|
|
|
Development |
Indication |
|
Programs |
|
Description |
|
Stage |
HCV
|
|
valopicitabine (NM283)
(Nucleoside analog)
|
|
This product candidate is
being developed as a
potentially more effective
alternative to ribavirin in
interferon-based therapy for
patients that have failed
prior therapy, referred to
as treatment-refractory
patients, and for patients
that have not been treated
for chronic HCV infection,
referred to as
treatment-naive patients. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treatment-Refractory Patients |
|
phase III |
|
|
|
|
|
|
|
|
|
|
|
A phase IIb clinical trial
of the combination of
valopicitabine and pegylated
interferon in
treatment-refractory
patients is ongoing. The
data to date indicate that
after 12 weeks of treatment
with the combination of one
daily dose of 800 milligrams
of valopicitabine and once a
week pegylated interferon
there was a statistically
significant improvement in
patients viral load
reduction and early viral
response rates compared to
retreatment with the current
standard of treatment.
Early viral response is
defined as a reduction of at
least 2 log10, or
99% or more, of HCV levels
in a patients blood. |
|
|
|
|
|
|
|
|
|
|
|
|
|
Treatment-Naive Patients |
|
phase III |
|
|
|
|
|
|
|
|
|
|
|
A phase IIa clinical trial
of the combination of
valopicitabine and pegylated
interferon in
treatment-naive patients is
ongoing. The preliminary
data indicate a mean
reduction from baseline
levels of hepatitis C virus
in patients blood serum of
4.2
log10, or
more than a 99.99% reduction
in viral load, at week 24 in
nine patients receiving the
combination therapy.
A phase IIb clinical trial
of the combination of
valopicitabine and pegylated
interferon in treatment
naive patients is also
ongoing. We anticipate
completing enrollment of
this trial by the end of
2005.
|
|
|
|
|
|
|
|
|
|
HCV
|
|
NV-08
(Nucleoside analogs)
|
|
Preclinical evaluation of
product candidates from this
program is in progress.
This program consists of
structurally different
chemical classes than
valopicitabine. We are
seeking a candidate that may
be developed for use in
combination with
valopicitabine.
|
|
phase I* |
|
|
|
|
|
|
|
HIV
|
|
NV-05 (Non-nucleoside
reverse transcriptase
inhibitors or NNRTIs)
|
|
Lead compounds from two
novel series are being
evaluated in preclinical
studies. We expect to file
an investigational new drug
application, or IND, in 2006
for one of the most
promising product candidates
among these lead compounds.
|
|
phase I* |
|
|
|
* |
|
Phase I clinical trial is expected to incorporate certain of the objectives of a phase II clinical trial. |
In October 2005, we completed a public offering of our common stock. In this transaction we
issued and sold 7,278,020 shares of common stock, including 3,939,131 shares of common stock sold
to Novartis. From this sale of stock we received approximately $145.5 million in proceeds, after
deducting underwriting discounts and commissions and offering expenses.
In May 2003, we entered into a collaboration with Novartis relating to the worldwide
development and commercialization of our product candidates. Novartis paid us a license fee of $75
million for our lead HBV product candidates, telbivudine and valtorcitabine, has agreed to provide
development funding for these HBV product candidates and will make milestone payments, which could
total up to $35 million upon the achievement of specific regulatory approvals, as well as
additional milestone payments based upon achievement of predetermined sales levels.
Novartis also acquired an option to license our HCV and other product candidates. If Novartis
exercises its option to collaborate with us on valopicitabine, also known as NM283, our initial HCV
19
product candidate, it would be required to provide development funding and pay us up to $525
million in license fees and regulatory milestone payments, as well as additional milestone payments
based upon achievement of predetermined sales levels. We will co-promote or co-market with Novartis
in the United States, the United Kingdom, France, Germany, Italy and Spain all products Novartis
licenses from us that are successfully developed. Novartis has the exclusive right to promote and
market such products in the rest of the world. In June 2004, we received a $25 million milestone
payment from Novartis based upon the results from our phase I clinical trial of valopicitabine.
In addition to the collaboration described above, Novartis purchased approximately 54% of our
outstanding capital stock in May 2003 from our then existing stockholders for $255 million in cash,
with an additional aggregate amount of up to $357 million contingently payable to these
stockholders if we achieve predetermined development milestones relating to an HCV product
candidate.
Novartis has the right to purchase from us that number of shares of our common stock as is
required to enable Novartis to maintain its percentage ownership in our company that it acquired in
May 2003. Novartis also has a contractual right to exercise control over corporate actions that may
not require stockholder approval as long as it holds at least 19.4% of our voting stock. After
giving effect to the completed public offering on October 31, 2005, Novartis
owned approximately 56% of our outstanding common stock.
All of our product candidates are currently in preclinical or clinical development. To
commercialize our product candidates, we will be required to successfully complete preclinical
studies and clinical trials to obtain required regulatory approvals. We do not expect to submit an
NDA to the FDA for a product candidate we are developing prior to December 2005. Any delay in
obtaining or failure to obtain required approvals will materially adversely affect our ability to
generate revenues from commercial sales relating to our product candidates. Accordingly, we expect
our sources of funding for the next several years to include the reimbursement of expenses we may
incur in connection with the development of licensed product candidates, license fees relating to
valopicitabine and other product candidates we may successfully develop and license and milestone
payments under existing and future collaborative arrangements. We may also need to seek additional
financing to fund our future operations.
We have incurred significant losses since our inception in May 1998 and expect such losses to
continue in the foreseeable future. Historically, we have generated losses principally from costs
associated with research and development activities, including clinical trial costs, and general
and administrative activities. As a result of planned expenditures for future discovery,
development and commercialization activities and the expansion of our sales, operational and
administrative infrastructure, we expect to incur additional operating losses for the foreseeable
future.
Our research and development expenses consist primarily of salaries and payroll-related
expenses for research and development personnel, including stock-based compensation, fees paid to
clinical research organizations and other professional service providers in conjunction with our
clinical trials, fees paid to research organizations in conjunction with animal studies, costs of
material used in research and development, costs of contract manufacturing consultants, occupancy
costs associated with the use of our research facilities and equipment, consulting and license fees
paid to third parties, and depreciation of property and equipment related to research and
development. The majority of our research and development spending is incurred on clinical,
preclinical and manufacturing activity with third-party contractors relating to the development of
our HBV and HCV product candidates. We expense internal and external research and development costs
as incurred. We expect our research and development expenses to increase as we continue to engage
in research activities, further develop our potential product candidates and advance our clinical
trials.
Pursuant to our development agreement with Novartis, after it licenses a product candidate,
Novartis is obligated to fund development expenses that we incur in accordance with development
plans agreed upon by us and Novartis. The option we have granted to Novartis with respect to its
right to license our product candidates generally requires that Novartis exercise the option for
each such product candidate
prior to the commencement of phase III clinical trials. The expenses associated with phase III
clinical trials generally are the most costly component in the development of a successful new
product.
20
Results of Operations
Comparison of Three Months Ended September 30, 2005 and 2004
Revenues
Total revenues were $15.6 million for the three months ended September 30, 2005 as compared
with $17.2 million for the three months ended September 30, 2004.
Total revenues for the three months ended September 30, 2005 were primarily comprised of $15.5
million in related party revenue from Novartis consisting of $0.9 million in license fee revenue,
net of a $1.6 million reduction due to Novartis stock subscription rights, and $14.6 million for
reimbursement of research and development expenses, net of a $0.2 million cost sharing arrangement
for expenses incurred by Novartis for certain registration expenses and phase IIIb clinical trials
associated with telbivudine.
Total revenues for the three months ended September 30, 2004 were primarily comprised of $17.1
million in related party revenue from Novartis, consisting of $3.0 million in license fee revenue,
including $0.6 million associated with the termination of certain Novartis stock subscription
rights, and $14.1 million for reimbursement of research and development expenses.
The decrease in revenues of $1.6 million for the three months ended September 30, 2005 in
comparison with the prior reporting period was primarily due to the impact of revenue reductions
related to the Novartis stock subscription rights.
Research and Development Expenses
Research and development expenses were $21.5 million for the three months ended September 30,
2005 as compared with $19.0 million for the three months ended September 30, 2004. The increase of
$2.5 million was primarily due to an increase of $1.2 million in expenses for third-party
contractors, principally associated with phase III clinical trials of telbivudine and phase IIb
clinical trials of valtorcitabine and valopicitabine. The increase was also due to an increase of
$0.9 million in salary and other payroll-related expenses reflecting increased hiring of personnel
as we expand our research and development activities.
We expect our research and development expenses to increase in future periods as we continue
to devote substantial resources to these activities and we engage in a greater number of later
stage clinical trials.
General and Administrative Expenses
General and administrative expenses were $4.8 million for the three months ended September 30,
2005 as compared with $4.2 million for the three months ended September 30, 2004. The increase of
$0.6 million was primarily due to an increase in salary and payroll-related expenses associated
with the hiring of additional personnel as we expand our operations.
We
expect that our general and administrative expenses will increase in the future as we
continue to expand our finance and accounting staff, maintain and enforce our patents and implement new computer systems.
Sales and Marketing Expenses
Sales and marketing expenses were $4.2 million for the three months ended September 30, 2005
as compared with $1.8 million for the three months ended September 30, 2004. The increase of $2.4
million was primarily due to an increase of $1.6 million in consulting expenses and an increase of
$0.7 million in salary and payroll-related expenses as we engage in additional marketing activities
in anticipation of the expected commercial launch of telbivudine.
21
We expect that sales and marketing expenses will increase significantly in the future as we
increase our marketing activities, build a commercial infrastructure, hire additional marketing
staff and recruit a specialized sales force in the U.S. and Europe in anticipation of the marketing
and sale of product candidates which we may successfully develop and commercialize in the future.
Investment Income, Net
Net investment income was $0.7 million for the three months ended September 30, 2005 as
compared with $0.5 million for the three months ended September 30, 2004. The increase of $0.2
million was primarily the result of higher average cash and marketable securities balances held
during the quarter ended September 30, 2005 as compared to the quarter ended September 30, 2004 due
to the receipt of net proceeds of $132.6 million from the initial public offering and concurrent
private placement of our common stock to Novartis in July 2004.
Income Taxes
Income tax benefit was approximately $0.5 million for the three months ended September 30,
2005 as compared with $39,000 for the three months ended September 30, 2004. The income tax benefit
for the three months ended September 30, 2005 was due to amounts our French subsidiary has received
or is expected to receive for certain research and development credits relating to increased
research spending in our facilities in France and Italy. Our income tax expense generally consists
of tax expenses incurred by our U.S., French and Dutch subsidiaries. Our U.S. and French
subsidiaries performed services for us and were reimbursed for these costs, plus a profit margin.
Comparison of Nine Months Ended September 30, 2005 and 2004
Revenues
Total revenues were $46.6 million for the nine months ended September 30, 2005 as compared
with $76.6 million for the nine months ended September 30, 2004.
Total revenues for the nine months ended September 30, 2005 were primarily comprised of $46.3
million in related party revenue from Novartis consisting of $4.8 million in license fee revenue,
net of a $2.5 million reduction due to Novartis stock subscription rights, and $41.5 million for
reimbursement of research and development expenses, net of a $0.8 million cost sharing arrangement
for expenses incurred by Novartis for certain registration expenses and phase IIIb clinical trials
associated with telbivudine.
Total revenues for the nine months ended September 30, 2004 were primarily comprised of $76.4
million in related party revenue from Novartis, consisting of $6.7 million in license fee revenue,
net of a $1.8 million reduction due to Novartis stock subscription rights, $25.0 million in
milestone revenue associated with achievement of certain milestones for valopicitabine, and $44.7
million for reimbursement of research and development expenses.
The decrease in revenues of $30.0 million for the nine months ended September 30, 2005 in
comparison with the prior reporting period was primarily due to the $25.0 million milestone payment
received in June 2004 from Novartis on valopicitabine, lower reimbursements from Novartis as the
cost of materials associated with clinical trials on telbivudine decreased in 2005 and the impact
related to Novartis stock subscription rights.
Research and Development Expenses
Research and development expenses were $63.1 million for the nine months ended September 30,
2005 as compared with $55.1 million for the nine months ended September 30, 2004. The increase of
$8.0 million was principally due to an increase of $4.5 million in expenses for third-party
contractors, primarily
for clinical trials of telbivudine and valopicitabine, and an increase of $2.5 million in
salary and other payroll-related expenses as we expand our research and development activities.
22
General and Administrative Expenses
General and administrative expenses were $14.7 million for the nine months ended September 30,
2005 as compared with $10.9 million for the nine months ended September 30, 2004. The increase of
$3.8 million was primarily due to an increase in salary and payroll-related expenses, an increase
in costs for directors and officers liability insurance coverage associated with being a public
company and an increase in professional fees in support of our growing operations.
Sales and Marketing Expenses
Sales and marketing expenses were $8.1 million for the nine months ended September 30, 2005 as
compared with $3.7 million for the nine months ended September 30, 2004. The increase of $4.4
million was primarily due to an increase of $2.8 million in consulting expenses and an increase of
$1.4 million in salary and payroll-related expenses attributable to marketing activities in
anticipation of the expected commercial launch of telbivudine.
Investment Income, Net
Net investment income was $2.3 million for the nine months ended September 30, 2005 as
compared with $0.7 million for the nine months ended September 30, 2004. The increase of $1.6
million was the result of higher cash and marketable securities balances held during the nine
months ended September 30, 2005 due to the receipt of proceeds from our initial public offering and
concurrent private placement of our common stock to Novartis in July 2004.
Income Taxes
Income tax benefit was approximately $0.6 million for the nine months ended September 30, 2005
as compared with $0.2 million for the nine months ended September 30, 2004. The increase in the
income tax benefit for the nine months ended September 30, 2005 was primarily due to higher amounts
our French subsidiary has received or is expected to receive for certain research and development
credits relating to increased research spending in our facilities in France and Italy.
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 and other payments from Novartis, reimbursements from Novartis for costs we have
incurred subsequent to May 8, 2003 in connection with the development of our HBV product
candidates, net proceeds from Sumitomo for reimbursement of development costs, net proceeds from
private placements of our convertible preferred stock, net proceeds from an initial public
offering and concurrent private placement of our common stock in July 2004, net proceeds from the
public offering of our common stock in October 2005 and proceeds from the exercise of stock
options.
In July 2004, we completed an initial public offering and concurrent private placement in
which we issued and sold 4,600,000 shares of common stock in the public offering and 5,400,000
shares of common stock to Novartis in the private placement. We received approximately $132.6
million in net proceeds from these offerings, after deducting underwriting discounts and
commissions and offering expenses.
On October 31, 2005, we completed a public offering in which we issued and sold 7,278,020
shares of common stock, including 3,939,131 shares of common stock sold to Novartis. We received
approximately $145.5 million in proceeds from this offering, after deducting underwriting discounts
and commissions and offering expenses.
We had $41.8 million and $42.1 million in cash and cash equivalents as of September 30, 2005
and December 31, 2004, respectively. We also invest our excess cash balances in short-term and
long-term marketable debt securities. All of our marketable securities are classified as available
for sale. Our investments have an effective maturity not greater than 18 months and investments
with maturities greater
23
than 12 months are classified as non-current marketable securities. We had
$61.0 million and $38.4 million in current marketable securities as of September 30, 2005 and
December 31, 2004, respectively. We had $12.0 million and $76.8 million in non-current marketable
securities as of September 30, 2005 and December 31, 2004, respectively.
Net cash used in operating activities was $38.7 million for the nine months ended September
30, 2005 compared to net cash used in operating activities of $0.6 million for the nine months
ended September 30, 2004. The net cash used in operating activities for the nine months ended
September 30, 2005 was primarily attributable to the net loss for the period adjusted for a
decrease in deferred revenue due to the amortization of our license fee received from Novartis in
2003. This decrease was offset by an increase in accrued expenses associated with higher research
and development spending. The net cash used in operating activities for the nine months ended
September 30, 2004 was primarily due to decreases in accounts payable and deferred revenue and an
increase in accounts receivable due to greater amounts of research and development expenses being
reimbursed by Novartis. These amounts were offset by net income for the period, resulting in part
from recognition of a $25.0 million milestone payment from Novartis in the second quarter of 2004
and adjusted for non-cash charges for stock-based compensation and depreciation.
Net cash provided by investing activities was $37.4 million for the nine months ended
September 30, 2005 compared to net cash used in investing activities of $45.6 million for the nine
months ended September 30, 2004. The net cash provided by investing activities for the nine months
ended September 30, 2005 was primarily due to net proceeds from sales of our marketable securities,
net of purchases of marketable securities, to fund operations. This increase was offset by capital
expenditures primarily for leasehold improvements and computer software. The net cash used in
investing activities for the nine months ended September 30, 2004 was primarily due to the
investment of a portion of the net proceeds from our initial public offering and concurrent private
placement in marketable securities and capital expenditures primarily on leasehold improvements for
our facilities in Cambridge, Massachusetts and Cagliari, Italy.
Net cash provided by financing activities was $1.3 million for the nine months ended September
30, 2005 compared to net cash provided by financing activities of $134.3 million for the nine
months ended September 30, 2004. The net cash provided by financing activities for the nine months
ended September 30, 2005 was due to proceeds from the exercise of stock options. The net cash
provided by financing activities for the nine months ended September 30, 2004 was primarily due to
net proceeds from the initial public offering and concurrent private placement completed in July
2004.
Set forth below is a description of our contractual obligations as of September 30, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period |
|
|
|
|
|
|
|
|
|
|
|
One to |
|
|
|
|
|
|
|
Contractual |
|
|
|
|
|
Less Than |
|
|
Three |
|
|
Four to |
|
|
After Five |
|
Obligations |
|
Total |
|
|
One Year |
|
|
Years |
|
|
Five Years |
|
|
Years |
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
|
|
|
|
|
|
|
|
Operating
leases |
|
$ |
21,048 |
|
|
$ |
2,421 |
|
|
$ |
5,393 |
|
|
$ |
5,164 |
|
|
$ |
8,070 |
|
Consulting, employment and other
agreements |
|
|
17,508 |
|
|
|
8,717 |
|
|
|
4,916 |
|
|
|
3,760 |
|
|
|
115 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual
obligations |
|
$ |
38,556 |
|
|
$ |
11,138 |
|
|
$ |
10,309 |
|
|
$ |
8,924 |
|
|
$ |
8,185 |
|
|
|
|
|
|
|
|
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|
|
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|
In April 2005, we entered into a lease agreement for office and laboratory space in
Montpellier, France. The lease term is 12 years expiring in April 2017 but is cancellable by either
party after six years. The lease agreement also includes an option entitling us to purchase the
building in which the leased space is located at any time after April 16, 2011. The purchase option
extends until the expiration of the lease term.
In June 2005, we entered into a lease agreement for additional office space in Cambridge,
Massachusetts. The initial lease term is for a period of 54 months expiring in March 2010. The
lease agreement also provides us with an option, exercisable not later than nine months prior to
the expiration of the initial term, to extend the term of the lease for one additional 48-month
period and with rights of first
24
offer with respect to certain expansion space on two of the floors
that we will occupy. In connection with this operating lease commitment, a commercial bank issued
a letter of credit in May 2005 for $0.4 million collateralized by cash we have on deposit with that
bank. The letter of credit expires in May 2006.
We have certain potential milestone payment obligations under the exclusive license agreement
that we entered into with the University of Alabama Research Foundation, or UABRF, in June 1998 and
July 1999, that we refer to as the UAB license agreement, our settlement agreement with Sumitomo,
and our settlement agreement with UABRF entered into in connection with the resolution of matters
relating to certain of our hepatitis C product candidates. The license agreement with UABRF
provides for aggregate milestone payments of $1.3 million for each disease indication for which the
licensed technology is used. Of this aggregate amount, $0.3 million is payable upon submission of
an investigational new drug application or IND, for a product candidate that is covered by claims
in patents or patent applications licensed from UABRF and $1.0 million is payable upon approval of
an NDA for a product candidate that is covered by claims in patents or patent applications licensed
from UABRF. We do not believe that any of the product candidates we are currently developing or
those which we currently expect to develop will trigger payments or otherwise result in future
obligations under the UAB license agreement. However, if the licensors disagree, they may assert
claims to these milestone payments and to additional amounts. The settlement agreement with UABRF,
which we entered into in connection with the resolution of matters relating to our hepatitis C
product candidate, provides for a milestone payment of $1 million to UABRF upon receipt of
regulatory approval in the U.S. to market and sell certain hepatitis C products invented or
discovered by our Chief Executive Officer during the period from November 1, 1999 to November 1,
2000. Such hepatitis C products would include valtorcitabine if successfully developed and
commercialized.
We believe that the net proceeds from the public offering we completed in October 2005,
together with our current cash and cash equivalents and marketable securities and funding we expect
to receive from Novartis relating to the development of our HBV product candidates will be
sufficient to satisfy our anticipated cash needs for at least the next 24 months. At any time, it
is possible that we may seek additional financing. We may seek such financing through a
combination of public or private financing, collaborative relationships and other arrangements.
Additional funding may not be available to us or, if available, may not be on terms favorable to
us. Further, any additional equity financing may be dilutive to stockholders and debt financing,
if available, may involve restrictive covenants. Our failure to obtain financing when needed may
harm our business and operating results.
Off-Balance Sheet Arrangements
We currently have no off-balance sheet arrangements.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial position and results of operations are based upon
our financial statements, which have been prepared in accordance with accounting principles
generally accepted in the United States of America. The preparation of the financial statements
requires us to make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses. On an ongoing basis, we evaluate our estimates and judgments,
including those related to revenue recognition, accrued expenses and the fair value of stock
related to stock-based compensation. We base our estimates on historical experience and 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. No changes to those critical
accounting policies have been effected during the three months ended September 30, 2005.
In December 2004, the FASB issued SFAS No. 123 (revised 2004), Share-Based Payment. This
Statement replaces SFAS No. 123 and supercedes APB No. 25. SFAS No. 123 (revised 2004) eliminates
accounting for share-based compensation transactions using the intrinsic method currently used
25
by
us. SFAS No. 123 (revised 2004) requires such transactions to be accounted for using a fair value
based method that would result in expense being recognized in our financial statements. We will be
required to adopt SFAS No. 123 (revised 2004) beginning in the first quarter after December 15,
2005 and have not yet determined the impact of adoption on the consolidated financial position or
results of operations.
Factors that May Affect Future Results
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. We have not generated any
revenue from the sale of products to date. We expect our annual operating losses to increase over
the next several years as we expand our drug discovery, development and commercialization efforts.
To become profitable, we must successfully develop and obtain regulatory approval for our product
candidates and effectively manufacture, market and sell any products we develop. Accordingly, we
may never generate significant revenues and, even if we do generate significant revenues, we may
never achieve profitability. Our failure to become and remain profitable could depress the market
price of our common stock and could impair our ability to raise capital, expand our business or
continue our operations.
We will need additional capital to fund our operations, including product candidate development,
manufacturing and commercialization. If we do not have or cannot raise additional capital when
needed, we will be unable to develop and commercialize our product candidates successfully.
We estimate that our December 31, 2005 cash, cash equivalents and marketable securities
balance will approximate $229 million to $237 million. We believe that this balance and the
development expense funding by Novartis for our licensed product candidates, will be sufficient to
satisfy our anticipated cash needs for at least the next 24 months. However, we may need or choose
to seek additional funding within this period of time. Our drug development programs and the
potential commercialization of our product candidates will require substantial additional cash to
fund expenses that we will incur in connection with preclinical studies and clinical trials,
regulatory review, manufacturing and sales and marketing efforts.
Our need for additional funding will depend in large part on whether:
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with respect to our lead HBV product candidates, Novartis
continues to reimburse us for development expenses and we
achieve milestones relating to the development and
regulatory approval of these product candidates and receive
related milestone payments from Novartis; and |
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with respect to our HCV and other product candidates,
Novartis exercises its option to license these product
candidates and we receive related license fees, milestone
payments and development expense reimbursement payments
from Novartis. |
In addition, although Novartis has agreed to pay for certain development expenses incurred
under development plans it approves for our lead HBV product candidates and any other product
candidates Novartis licenses from us, Novartis has the right to terminate its license and the
related funding obligations with respect to any product candidate by providing us with six months
written notice.
Our future capital needs will also depend more generally on many other factors, including:
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the costs of launching telbivudine and any of our other product candidates
if such product candidates are approved for commercial sale by regulatory
authorities; |
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the scope and results of our preclinical studies and clinical trials; |
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the progress of our current drug development programs for HBV, HCV and HIV; |
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the cost of obtaining, maintaining and defending patents on our product
candidates and processes; |
26
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the cost of establishing arrangements for manufacturing; |
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the cost, timing and outcome of regulatory reviews; |
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the cost of establishing sales and marketing functions; |
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the commercial potential of our product candidates; |
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the rate of technological advances in our markets; |
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the cost of acquiring or undertaking development and commercialization
efforts for any additional product candidates; |
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the magnitude of our general and administrative expenses; and |
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any costs we may incur under current and future licensing arrangements
relating to our product candidates. |
We estimate that we will incur significant costs to complete and file our NDA for telbivudine
and to complete the clinical trials and other studies required to enable us to file NDAs with the
FDA for valtorcitabine and valopicitabine, or NM283, our HCV product candidate, assuming we
continue our development of each of these product candidates. The time and cost to complete
clinical development of these product 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.
If we raise additional capital through the sale of our common stock, existing stockholders
will be diluted and the terms of the financing may adversely affect the holdings or rights of our
stockholders. If we are unable to obtain adequate financing on a timely basis, we could be required
to delay, reduce or eliminate one or more of our drug development programs or to enter into new
collaborative, strategic alliance or licensing arrangements that may not be favorable to us. These
arrangements could result in the transfer to third parties of rights that we consider valuable.
We will not be able to commercialize our drug products successfully if we are unable to hire and
train qualified sales personnel to develop a direct sales force.
Our product candidates are under development and we are starting to recruit sales personnel to
establish a direct sales force for the markets in which we will co-promote or co-market drugs we
successfully develop and for which we receive regulatory approval. Due to the promotion, marketing
and sale of competitive and potentially competitive products within specialized markets by
companies that have significantly greater resources and existing commercialization infrastructures,
we believe that it may be difficult to recruit qualified personnel with experience in sales and
marketing of viral and other infectious disease therapeutics. As a result, we may not be able to
successfully hire and train qualified sales personnel
to establish a direct sales force. We expect to incur significant expense in establishing and
expanding our sales force and we may incur a substantial amount of these costs before our product
candidates have been approved for marketing.
Our market is subject to intense competition. If we are unable to compete effectively, our product
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 pursuing the
development of novel drugs that target viral diseases, including the same diseases we are
targeting. We face, and expect to continue to face, intense and increasing competition as new
products enter the market and advanced technologies become available. For example, we are aware
that entecavir, a nucleoside analog, has recently been approved by the FDA for the treatment of
hepatitis B infection and has been commercially launched in the
27
United States. In addition, we
believe that a significant number of drugs, currently under development, may become available in
the future for the treatment of hepatitis B, hepatitis C and HIV infections. If any of these
product candidates are successfully developed, they may be marketed before our product candidates.
Our competitors products may be more effective, or better marketed and sold, than any of our
products. 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 preclinical studies and clinical trials,
obtaining regulatory approvals and manufacturing and marketing
pharmaceutical products; |
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products that have been approved or are in late stage development; and |
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collaborative arrangements in our target markets with leading
companies and research institutions. |
Under certain circumstances, Novartis has the right to compete with product candidates and
drugs developed or licensed by us. Novartis has the right under certain circumstances to market and
sell products that compete with the product candidates and products that we license to it, and any
competition by Novartis 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 product 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 product candidates noncompetitive, obsolete or
uneconomical.
If we successfully develop and obtain approval for our product candidates, 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 successfully develop products but those products do not achieve and maintain market
acceptance, our business will not be successful.
Even if our product candidates are successfully developed, our success and growth will depend
upon the acceptance of these candidates by physicians, healthcare professionals and third-party
payers.
Acceptance will be a function of our products being clinically useful and demonstrating superior
therapeutic effect with an acceptable side effect profile as compared to existing or future
treatments. Lamivudine, adefovir dipivoxil and entecavir are small molecule therapeutics currently
approved for the treatment of chronic hepatitis B. The current standard of care for the treatment
of chronic hepatitis C is the combination of pegylated interferon and ribavirin. We are aware that
a significant number of product candidates are currently under development and may become available
in the future for the treatment of hepatitis B, hepatitis C and HIV infections. If our products do
not achieve market acceptance, then we will not be able to generate sufficient revenue from product
sales to maintain or grow our business. In addition, even if product candidates we successfully
develop achieve market acceptance, we may not be able to maintain that market acceptance over time
if:
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new products or technologies are introduced that are more
favorably received than our products or render our products
obsolete; or |
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complications, such as unacceptable levels of viral
resistance or adverse side effects, arise with respect to
use of our products. |
28
Our research and development efforts may not result in additional product candidates being
discovered, which could limit our ability to generate revenues.
Our research and development programs, other than our programs for telbivudine, valtorcitabine
and valopicitabine, are at preclinical stages. Additional product candidates that we may develop
will require significant research, development, preclinical studies and clinical trials, regulatory
approval and commitment of resources before commercialization. We cannot predict whether our
research will lead to the discovery of product candidates that could generate revenues for us.
As we evolve from a company primarily involved in discovery and development to one also involved in
commercialization, we may encounter difficulties in managing our growth and expanding our
operations successfully.
We have experienced a period of rapid and substantial growth that has placed a strain on our
administrative and operational infrastructure, and we anticipate that our continued growth will
have a similar impact. As we advance our product candidates through clinical trials and regulatory
approval processes and initiate our preparations for the commercial launch of telbivudine, we are
expanding our development, regulatory, manufacturing, marketing and sales capabilities and may
contract with third parties to provide these capabilities for us. Such expansion of capabilities is
requiring us to invest substantial cash and management resources. If the development or
commercialization of any of our product candidates is delayed or terminated, we will have incurred
significant unrecoverable costs in connection with the expansion of our administrative and
operational capabilities at a time earlier than necessary, if necessary at all.
As our operations expand, we expect that we will need to manage additional relationships with
various collaborative partners, suppliers and other third parties. Our ability to manage our
operations and growth requires us to continue to improve our operational, financial and management
controls, reporting systems and procedures. We may not be able to implement improvements to our
management information and control systems in an efficient or timely manner and may discover
deficiencies in existing systems and controls that could expose us to an increased risk of
incurring financial or accounting irregularities or fraud.
If we are not able to attract and retain key management and scientific personnel and advisors, we
may not successfully develop our product candidates or achieve our other business objectives.
We highly depend upon our senior management and scientific staff. The loss of the service of
any of the key members of our senior management may significantly delay or prevent the achievement
of product development and other business objectives. Our ability to attract and retain qualified
personnel, consultants and advisors is critical to our success. We face intense competition for
qualified individuals from numerous pharmaceutical and biotechnology companies, universities,
governmental entities and other research institutions. We may be unable to attract and retain these
individuals, and our failure to do so would have an adverse effect on our business.
Our business has a substantial risk of product liability claims. If we are unable to obtain
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 indications for which such products
may be used. Although we do not currently commercialize any products, product liability claims
could be made against us based on the use of our product candidates in clinical trials. We
currently have clinical trial insurance and will seek to obtain product liability insurance prior
to marketing any of our product candidates. Our insurance may not provide adequate coverage against
potential liabilities. Furthermore, clinical trial and product liability insurance is becoming
increasingly expensive. As a result, we may be unable to maintain current amounts of insurance
coverage, obtain additional insurance or obtain sufficient insurance at a reasonable cost to
protect against losses that could have a material adverse effect on us.
29
If the estimates we make, and the assumptions on which we rely, in preparing our financial
statements prove inaccurate, our actual results may vary from those reflected in our projections
and accruals.
Our financial statements have been prepared in accordance with accounting principles generally
accepted in the United States. 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. For example, we are recognizing the
license fee and other upfront payments under our development agreement with Novartis over a
development period that we have set. If the estimated performance period changes, we will adjust
the periodic revenue that is being recognized and will record the remaining unrecognized license
fee and other up-front 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.
This, in turn, could adversely affect our stock price.
We face costs and risks associated with compliance with Section 404 of the Sarbanes-Oxley Act.
Currently, we are evaluating our internal control systems in order to allow our management to
report on, and our independent registered public accounting firm to audit and express an opinion
on, our internal controls over financial reporting, as required by Section 404 of the
Sarbanes-Oxley Act. As a result, we are incurring additional expenses and a diversion of
managements time. While we anticipate completion of testing and evaluation of our internal
controls over financial reporting with respect to the requirements of Section 404 of the
Sarbanes-Oxley Act in a timely fashion, there can be no assurance that we will be able to realize
this result. Our evaluation may also reveal material weaknesses or other shortcomings in our
internal controls that will require us to implement new and potentially costly additional controls.
If we determine that there is a material weakness in our internal controls, we will be obligated to
make public disclosure of the determination. If we are not able to implement the requirements of
Section 404 in a timely manner or with adequate compliance, we might be subject to investigation by
regulatory authorities or be required to defer necessary reporting. Any such action could adversely
affect the market price of our common stock.
Factors Related to Development, Clinical Testing and Regulatory Approval of our Product Candidates
All of our product candidates are still in development and remain subject to clinical testing
and regulatory approval. If we are unable to successfully develop and test our product candidates,
we will not be successful.
To date, we have not marketed, distributed or sold any products. The success of our business
depends primarily upon our ability to develop and commercialize our product candidates
successfully. Our most advanced product candidates are telbivudine, valtorcitabine and
valopicitabine. Currently, we are conducting phase III clinical trials of telbivudine and phase IIb
clinical trials of both valopicitabine and the
combination of valtorcitabine and telbivudine. Our other product candidates are in various earlier
stages of development. Our product candidates must satisfy rigorous standards of safety and
efficacy before they can be approved for sale. Safety standards include an assessment of the
toxicology and carcinogenicity of the product candidates we are developing. To satisfy these
standards, we must engage in expensive and lengthy testing and obtain regulatory approval of our
product candidates. As a result of efforts to satisfy these regulatory standards, our product
candidates may not:
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offer therapeutic or other improvements over existing comparable 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. |
Commercial availability of our product candidates is dependent upon successful clinical
development and receipt of requisite regulatory approvals.
Based on the results from the first year of our ongoing phase III pivotal clinical trial for
the use of telbivudine for the treatment of HBV infection, we and Novartis are planning to file an
NDA with the FDA. The data from our phase III trial of telbivudine appear to be positive; however,
new information may arise from our continuing analysis of the data that may be less favorable than
currently anticipated. Clinical data often are susceptible to varying interpretations. Many
companies that have believed that their products performed satisfactorily in clinical trials in
terms of both safety and efficacy have nonetheless failed to obtain FDA approval for those
products. We do not anticipate submitting the first applications for such regulatory approval for
telbivudine prior to the end of 2005. Furthermore, even after we complete the submission, the FDA
may not accept our submission as complete, may request additional information from us, including
data from additional clinical trials, and ultimately may not grant marketing approval for
telbivudine.
If our clinical trials are not successful, we will not obtain regulatory approval for commercial
sale of our product candidates.
To obtain regulatory approval for the commercial sale of our product candidates, we will be
required to demonstrate through preclinical studies and clinical trials that our product candidates
are safe and effective. Preclinical studies and clinical trials are lengthy and expensive and the
historical rate of failure for product candidates is high. The results from preclinical studies of
a product candidate may not predict the results that will be obtained in human clinical trials.
We, the FDA or other applicable regulatory authorities may suspend clinical trials of a
product 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. Among other things,
adverse side effects of a product candidate on persons in a clinical trial could result in the FDA
or foreign regulatory authorities refusing to approve a particular product candidate for any or all
indications of use.
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 and the
eligibility criteria for the clinical trial. 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, or delay the analysis of data from our completed or ongoing clinical trials.
Any of the following could delay the completion of our ongoing and 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 or the inability to obtain required approvals from, or suspensions or terminations by,
institutional review boards or other governing entities at clinical sites selected for
participation in our clinical trials; |
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delays in enrolling patients and volunteers into clinical trials; |
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lower than anticipated retention rate of patients and volunteers in clinical trials; |
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negative results of clinical trials; |
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insufficient supply or deficient quality of product candidate materials or other materials
necessary to conduct our clinical trials; or |
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serious or unexpected drug-related side effects experienced by participants in our clinical trials. |
If the results of our ongoing or planned clinical trials for our product 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 complete phase III clinical trials of telbivudine or submit an NDA for
telbivudine; |
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we may be unable to advance the clinical development of valtorcitabine and/or valopicitabine; |
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we may be unable to commence human clinical trials of our other HCV product candidates, our
HIV product candidates or other product candidates, if any; |
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Novartis may choose not to license our product candidates other than telbivudine and
valtorcitabine, and we may not be able to enter into other collaborative arrangements for
any of our other product candidates; or |
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we may not have the financial resources to continue research and development of our product
candidates. |
If we are unable to obtain U.S. and/or foreign regulatory approval, we will be unable to
commercialize our product candidates.
Our product candidates are 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 U.S. and in many
foreign jurisdictions prior to the commercial sale of our product candidates. Before any product
candidate can be approved for sale, we must demonstrate that it can be manufactured in accordance
with the FDAs current good manufacturing practices, which is a rigorous set of requirements. In
addition, facilities manufacturing our product candidate 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 product candidates
we are developing will obtain the appropriate regulatory approvals necessary to permit commercial
distribution.
We have limited experience in conducting and managing the clinical trials necessary to obtain
regulatory approvals, including approval by the FDA. The time required for FDA and other approvals
is uncertain and typically takes a number of years, depending upon the complexity of the product
candidate. Our 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 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 to generate revenues from a particular product candidate. Furthermore, any
regulatory approval to market a product may be subject to limitations on the indicated uses for
which we may market the product. These restrictions may limit the size of the market for the
product. Additionally, product candidates we 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, manufacturing and marketing authorization, pricing and third party reimbursement.
The foreign regulatory approval process includes 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 the FDA does not assure approval by regulatory authorities outside the
U.S. Many foreign regulatory authorities, including those in major markets such as China, have
different approval procedures than those required by the FDA and may impose additional testing
requirements for our product candidates.
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Even if we obtain regulatory approvals, our product candidates will be subject to ongoing
regulatory review. If we fail to comply with applicable U.S. and foreign regulations, we could lose
those approvals and our business would be seriously harmed.
Approvals of our product candidates are subject to continuing regulatory review, including the
review of clinical results, which are reported after our product candidates become commercially
available. The manufacturer, and the manufacturing facilities we use to make any of our product
candidates, will be subject to periodic review and inspection by the FDA. The subsequent discovery
of previously unknown problems with the product, manufacturer or facility may result in
restrictions on the drug or 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
for our clinical trials or at commercial scale. 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 manufacturer for regulatory compliance.
If we fail to comply with applicable continuing regulatory requirements, we may be subject to
civil penalties, suspension or withdrawal of regulatory approval, product recalls and seizures,
injunctions, operating restrictions and criminal prosecutions and penalties. Because of these
potential sanctions, we seek to monitor compliance with these regulations.
If we are subject to unfavorable pricing regulations, third-party reimbursement practices or
healthcare reform initiatives, our business may be harmed.
The regulations governing drug product licensing, pricing and reimbursement vary widely from
country to country. Some countries require approval of the sale price of a drug before it can be
marketed. In many countries, the pricing review period begins after product licensing approval is
granted. In some foreign markets, prescription pharmaceutical pricing remains subject to continuing
governmental control even after initial approval is granted. As a result, we may obtain regulatory
approval for a product in a particular country, but then be subject to price regulations, which may
delay the commercial launch of the product and may negatively impact the revenues we are able to
derive from sales by us or Novartis of the product in that country.
Successful commercialization of our products will also depend in part on the extent to which
reimbursement for our products and related treatments will be available from government health
administration authorities, private health insurers and other organizations. If we succeed in
bringing one or more products to the market, these products may not be considered cost effective
and reimbursement to the patient may not be available or sufficient to allow us to sell our
products on a competitive basis. Because our product candidates are in the development stage, we
are unable at this time to determine the cost effectiveness of these product candidates. We may
need to conduct expensive pharmacoeconomic studies to demonstrate to third party payors the cost
effectiveness of our product candidates. Sales of prescription drugs depend on the availability and
level of reimbursement to the consumer from third-party payers, such as government and private
insurance plans. These third-party payers frequently require that drug companies provide them with
predetermined discounts from list prices, and third-party payers are increasingly challenging the
prices charged for medical products. Because our product candidates are in the
development stage, we do not know the level of reimbursement, if any, we will receive for products
successfully developed. If the reimbursement we receive for any of our products is inadequate in
light of our development and other costs, our profitability could be adversely affected.
We believe that the efforts of governments and third-party payers to contain or reduce the
cost of healthcare will continue to affect the business and financial condition of pharmaceutical
and biopharmaceutical companies. A number of legislative and regulatory proposals to change the
healthcare system in the U.S. and other major healthcare markets have been proposed in recent
years. These proposals have resulted in prescription drug benefit legislation being enacted in the
U.S. and healthcare reform legislation being enacted by certain states. Further federal and state
legislative and regulatory developments are possible and we expect ongoing initiatives in the U.S.
to increase pressure on drug pricing. Such reforms could have an adverse effect on anticipated
revenues from product candidates that we may successfully develop.
If we do not comply with laws regulating the protection of the environment and health and human
safety, our business could be adversely affected.
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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, this insurance may not provide adequate coverage against potential liabilities. We do
not maintain insurance for environmental liability or toxic tort claims that may be asserted
against us. Additional federal, state, foreign and local laws and regulations affecting our
operations may be adopted in the future. We may incur substantial costs to comply with, and
substantial fines or penalties if we violate, any of these laws or regulations.
Factors Related to Our Relationship with Novartis
Novartis has substantial control over us and could delay or prevent a change in corporate control.
Novartis presently owns approximately 56% of our outstanding common stock. For so long as
Novartis owns at least a majority of our outstanding common stock, in addition to its contractual
approval rights, Novartis has the ability to delay or prevent a change in control of Idenix that
may be favored by other stockholders and otherwise exercise substantial control over all corporate
actions requiring stockholder approval irrespective of how our other stockholders may vote,
including:
the election of directors;
any amendment of our restated certificate of incorporation or amended and restated by-laws;
the approval of mergers and other significant corporate transactions, including a sale of
substantially all of our assets; or
the defeat of any non-negotiated takeover attempt that might otherwise benefit our other
stockholders.
Novartis has the right to exercise control over corporate actions that may not 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 expenditure, 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 million or 20%
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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 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. |
Pursuant to the amended and restated stockholders agreement, dated July 27, 2004, among us
Novartis and certain of our stockholders, which we refer to as the stockholders agreement, we are
obligated to use our reasonable best efforts to nominate for election as a director at least two
designees of Novartis for so long as Novartis and its affiliates own at least 35% of our voting
stock and at least one designee of Novartis for so long as Novartis and its affiliates own at least
19.4% of our voting stock.
Additionally, until such time as Novartis and its affiliates own less than 50% of our voting
stock, Novartis consent is required for the selection and appointment of our chief financial
officer. If in Novartis reasonable judgment our chief financial officer is not satisfactorily
performing his duties, we are required to terminate the employment of our chief financial officer.
Furthermore, under the terms of the stock purchase agreement, dated as of March 21, 2003,
among us, Novartis and substantially all of our then existing stockholders, which we refer to as
the stock purchase agreement, Novartis is required to make future contingent payments of up to $357
million to these stockholders if we achieve predetermined development milestones with respect to an
HCV product candidate. As a result, in making determinations as to our annual operating plan and
budget for the development of our HCV product candidates, the interests of Novartis may be
different than the interests of our other stockholders, and Novartis could exercise its approval
rights in a manner that may not be in the best interests of all of our stockholders.
Under the stockholders agreement, voting stock means our outstanding securities entitled to
vote in the election of directors, but does not include:
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securities issued in connection with our acquisition of all
of the capital stock or all or substantially all of the
assets of another entity; and |
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shares of common stock issued upon exercise of stock
options or stock awards pursuant to compensation and equity
incentive plans. Notwithstanding the foregoing, voting
stock includes up to 1,399,106 shares that were reserved as
of May 8, 2003 for issuance under our 1998 Equity Incentive
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Novartis has the ability to exercise substantial control over our strategic direction, our
research and development focus and other material business decisions.
We currently depend on one collaboration partner, Novartis, for substantially all our revenues and
for commercialization of our HBV product candidates, and we may depend on Novartis for
commercialization of other product candidates. If our development, license and commercialization
agreement with Novartis terminates, our business and, in particular, our drug development programs,
pill be seriously harmed.
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In May 2003, we received a $75 million license fee from Novartis in connection with the
license of our HBV product candidates, telbivudine and valtorcitabine, under a development, license
and commercialization agreement with Novartis, dated May 8, 2003, which we refer to as the
development agreement. Assuming we continue to successfully develop and commercialize these product
candidates, we are entitled to receive reimbursements of expenses we incur in connection with the
development of these product candidates and additional milestone payments from Novartis. In June
2004, we received a milestone payment from Novartis in the amount of $25 million based upon the
results achieved in the phase I clinical trial of valopicitabine, our lead HCV product candidate.
Novartis has the option to license valopicitabine and additional product candidates from us. If it
does so, we are entitled to receive additional license fees and milestone payments as well as
reimbursement of expenses we incur in the development of such product candidates in accordance with
development plans mutually agreed with Novartis. We expect that we will derive substantially all of
our near term revenues from Novartis. Novartis may terminate the development agreement in any
country or with respect to any product or product candidate licensed under the development
agreement for any reason on six months written notice. If the development agreement is terminated
in whole or in part and we are unable to enter similar arrangements with other collaborators, our
business would be materially adversely affected.
Novartis has the option to license our product candidates, and if it does not exercise its option
with respect to a product candidate, our development, manufacture and/or commercialization of such
product candidate may be substantially delayed or limited.
In addition to its license of telbivudine and valtorcitabine, Novartis has the option under
the development agreement to license our other product candidates, including valopicitabine, our
lead product candidate for the treatment of hepatitis C infection. Our drug development programs
and potential commercialization of our product candidates will require substantial additional
funding. If we are not successful in efforts to enter into a collaboration arrangement with respect
to a product candidate not licensed by Novartis, we may not have sufficient funds to develop such
product 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 product 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 agreement or the stock purchase agreement, Novartis has the right to seek
indemnification from us for damages it suffers as 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 agreement and the stock purchase
agreement. Under the development agreement and stock purchase agreement, we made numerous
representations and warranties to Novartis regarding our hepatitis C and hepatitis B product
candidates, including representations regarding our ownership of and licensed rights to the
inventions and discoveries relating to such product candidates. If one or more of our
representations or warranties were not true at the time we made them to Novartis, we would be in
breach of these agreements. In the event of a breach by us, Novartis has the right to seek
indemnification from us and, under certain circumstances, us and our stockholders who sold shares
to Novartis, which include many of our directors and officers, for damages suffered by Novartis as
a result of such breach. The amounts for which we could become liable to Novartis may be
substantial.
In May 2004, we entered into a settlement agreement with the University of Alabama at
Birmingham, or UAB, and the University of Alabama Research Foundation, or UABRF, relating to our
ownership of our chief executive officers inventorship interest in certain of our patents and
patent applications, including patent applications covering our hepatitis C product candidates.
Under the terms of the settlement agreement, we agreed to make payments to UABRF, including an
initial payment paid in 2004 in the amount of $2 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 those of our officers, directors and other stockholders who
sold shares to Novartis, the losses it suffers as a result of any breach of the representations and
warranties we made relating to our hepatitis C product candidates and may assert that such losses
include the settlement payments.
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Novartis could also suffer losses in connection with any amounts we become obligated to pay
relating to or under the terms of any license agreement, including the UAB license agreement, or
other arrangements we may be required to enter into with UAB, Emory University and the Centre
Nationale de la Recherché Scientifique, or CNRS, each licensors under the UAB license agreement, to
commercialize telbivudine. 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 hepatitis B product candidates.
If we are required to rely upon the UAB license agreement to commercialize telbivudine, we
will be obligated to make certain payments to UABRF and the other licensors. Such amounts would
include payments in the aggregate amount of $1.3 million due upon achievement of regulatory
milestones, a 6% royalty on annual sales up to $50 million and a 3% royalty on annual sales greater
than $50 million made by us or an affiliate of ours. Additionally, if we sublicense our rights to a
non-affiliate sublicensee which is defined as any entity other than one which holds or controls at
least 50% of our capital stock, or if Novartis ownership interest in us declines below 50% of our
outstanding shares of capital stock, we could be obligated to pay to UABRF 30% of all royalties
received by us from sales by the sublicensee of telbivudine and 20% of all fees, milestone payments
and other cash consideration we receive from the sublicensee with respect to telbivudine.
If we materially breach our obligations or covenants arising under the development agreement or our
master manufacturing and supply agreement with Novartis, we may lose our right to develop or
commercialize our product candidates.
We have significant obligations to Novartis under the development agreement and our master
manufacturing and supply agreement, dated as of May 8, 2003, between our subsidiary, Idenix
(Cayman) Limited, or Idenix Cayman, and Novartis. We refer to the master manufacturing and supply
agreement as the supply 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 agreement and supply agreement
include covenants relating to payment of our required portion of development expenses under the
development agreement, compliance with certain third-party license agreements and the conduct of
our clinical studies. If we materially breach one or both of these agreements and are unable within
an agreed time period to cure such breach, the agreements 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
agreements were terminated. Accordingly, if we materially breach our obligations under the
development agreement or the supply agreement, we may lose our rights to develop or commercialize
our drug candidates and receive lower payments from Novartis than we had anticipated.
If we issue capital stock, in certain situations Novartis will be able to purchase shares at par
value to maintain its percentage ownership in Idenix and, if that occurs, this could cause
dilution. In addition, Novartis has the right, under specified circumstances, to purchase a pro
rata portion of other shares that we may issue.
Under the terms of the stockholders agreement, Novartis has the right to purchase at par
value of $0.001 per share, such number of shares required to maintain its percentage ownership of
our voting stock if we issue shares of capital stock in connection with the acquisition or
in-licensing of technology through the issuance of up to 5% of our stock in any 24-month period. If
Novartis elects to maintain its percentage ownership of our voting stock under the rights described
above, Novartis will be buying such shares at a price, which is substantially below market value,
which would cause dilution. This right of Novartis will remain in effect until the earlier of:
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the date that Novartis and its affiliates own less than 19.4% of our voting stock; or |
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future contingent payments of $357 million to all of our stockholders
who sold shares to Novartis in May 2003. |
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
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. |
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.
If Novartis terminates or fails to perform its obligations under the development agreement, we may
not be able to successfully commercialize our drug products licensed to Novartis and the
development and commercialization of our other product candidates could be delayed, curtailed or
terminated.
Under the development agreement, we will co-promote or co-market with Novartis in the U.S.,
the U.K., France, Germany, Italy and Spain, our lead hepatitis B drug products and other products
that Novartis
licenses from us, which may include our hepatitis C drug products. Novartis will market and sell
these drug products throughout the rest of the world. As a result, we will depend upon the success
of the efforts of Novartis to market and sell our drug products. However, we have limited control
over the resources that Novartis may devote to its commercialization efforts under the development
agreement and, if Novartis does not devote sufficient time and resources to such efforts, we may
not realize the potential commercial benefits of the agreement, and our results of operations may
be adversely affected.
In addition, Novartis has the right to terminate the development agreement with respect to any
product, product 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
product 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 product candidate, and we may not be successful in entering into a
collaboration with another third party.
Novartis has the right under certain circumstances to market and sell products that compete with
the product candidates and products that we license to it, and any competition by Novartis could
have a material adverse effect on our business.
Novartis has agreed that, except as set forth in the development agreement, it will not
market, sell or promote certain competitive products except that:
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this agreement not to compete extends only until May 2008; |
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as to any country, the agreement not to compete would
terminate if Novartis terminates the development agreement
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if Novartis wishes to market, sell, promote or license a
competitive product, it is required to inform us of the
competitive product opportunity and, at our election, enter
into good faith negotiations with us concerning such
opportunity. If we either do not elect to enter into
negotiations with respect to such opportunity or are unable
to reach agreement within a specified period, Novartis
would be free to proceed with its plans with respect to
such competing product. |
Accordingly, Novartis may under certain circumstances 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. Moreover,
any direct or indirect competition with Novartis with respect to products that we have licensed to
them could result in confusion in the market. In the event that Novartis competes with us, our
business could be materially and adversely affected.
Factors Related to Our Dependence on Third Parties
Because we have limited sales, marketing and distribution experience and capabilities, we may seek
to enter into additional arrangements with third parties. We may not be successful in establishing
these relationships or, if established, the relationship may not be successful.
We have limited sales, marketing and distribution capabilities. Although we intend to build an
internal sales force and expand our marketing capabilities, we may seek to further augment our
sales, marketing and distribution capabilities through arrangements with third parties. We may not
be successful in entering into any such arrangements and, if entered into, the terms of any such
arrangements may not be favorable. We cannot be assured that any third party would devote the
necessary time or attention to sell, market or distribute our products. If these arrangements are
unsuccessful, we may be unable to successfully commercialize our products.
If we seek to enter into collaboration agreements for any other product candidates but are not
successful, we may not be able to continue development of those product candidates.
Our drug development programs and potential commercialization of our product candidates will
require substantial additional cash to fund expenses to be incurred in connection with these
activities. We have entered into an agreement with Novartis for the development and
commercialization of telbivudine and valtorcitabine, our lead HBV product candidates, and we have
granted options to Novartis with respect to development and commercialization of our other product
candidates. We may seek to enter into additional collaboration agreements with pharmaceutical
companies to fund all or part of the costs of drug development and commercialization of product
candidates that Novartis does not license. We may not be able to enter into collaboration
agreements and the terms of the collaboration agreements, if any, may not be favorable to us. If we
are not successful in our efforts to enter into a collaboration arrangement with respect to a
product candidate, we may not have sufficient funds to develop this or any other product candidate
internally.
If we do not have sufficient funds to develop our product candidates, we will not be able to
bring these product 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 product 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 product
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 product candidate. |
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If any collaborative partner terminates or fails to perform its obligations under agreements with
us, the development and commercialization of our product candidates could be delayed or terminated.
We have entered into the development agreement with Novartis and we may enter into additional
collaborative arrangements in the future. If collaborative partners do not devote sufficient time
and resources to any collaboration arrangement with us, we may not realize the potential commercial
benefits of the arrangement, and our results of operations may be adversely affected. In addition,
if Novartis or future collaboration partners were to breach or terminate their arrangements with
us, the development and commercialization of the affected product candidate could be delayed,
curtailed or terminated because we may not have sufficient financial resources or capabilities to
continue development and commercialization of the product candidate.
Our collaborations with outside scientists may be subject to restriction and change.
We work with chemists and biologists at academic and other institutions who assist us in our
research and development efforts. Telbivudine, valtorcitabine and valopicitabine, were discovered
with the research and development assistance of these third-party chemists and biologists. Many of
the scientists who have contributed to the discovery and development of our product 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 depend 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 limited manufacturing experience and have the capability to manufacture only small
quantities of compounds required in preclinical studies for our product candidates. We do not have,
and do not intend to develop, the ability to manufacture material for our clinical trials or at
commercial scale. To develop our product candidates, apply for regulatory approvals and
commercialize any products, we need to contract for or otherwise arrange for the necessary
manufacturing facilities and capabilities. Under the supply agreement, Novartis has agreed to
manufacture or have manufactured for us the active pharmaceutical ingredients, or API, of product
candidates that we license to Novartis for our clinical supply requirements.
In addition, Novartis may manufacture or have manufactured for us the API for commercial supplies
of these products, subject to the terms of the supply agreement. Under this agreement, if Novartis
manufactures the API for a product, we would generally rely on Novartis for regulatory compliance
and quality assurance for that product. Currently, we are negotiating with Novartis an agreement
with respect to the anticipated manufacture by Novartis of the commercial supply of telbivudine. If
we are unable to successfully conclude an agreement with Novartis for the manufacture of the
telbivudine commercial supply or Novartis were to breach or terminate its manufacturing
arrangements with us, the development or commercialization of telbivudine could be delayed, which
would have an adverse affect on our business. In addition, any change in our manufacturers could be
costly because the commercial terms of any such arrangement could be less favorable than the
commercial terms we negotiate with Novartis.
We have relied upon third parties to produce material for preclinical studies and may continue
to do so in the future. Although we believe that we will not have any material supply issues, we
cannot be certain that we will be able to obtain long term supply arrangements of those materials
on acceptable terms, if at all. We also expect to rely upon other third parties to produce
materials required for clinical trials and for the commercial production of certain of our products
if we succeed in obtaining necessary regulatory approvals. If we are unable to arrange for
third-party manufacturing, or to do so on commercially reasonable terms, we may not be able to
complete development of our products or market them.
Reliance on Novartis and third-party manufacturers entails risks to which we would not be
subject if we manufactured products ourselves, including reliance on Novartis or the third party
for regulatory compliance and quality assurance, the possibility of breach by Novartis or 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 Novartis or the third party, based on its own
business priorities, at a time that is costly or damaging to us.
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In addition, the FDA and other regulatory authorities require that our products be
manufactured according to current good manufacturing practice regulations. Any failure by us,
Novartis or our third-party manufacturers to comply with current good manufacturing practices
and/or our failure to scale up our manufacturing processes could lead to a delay in, or failure to
obtain, regulatory approval. In addition, such failure could be the basis for action by the FDA to
withdraw approvals for product candidates previously granted to us and for other regulatory action.
We may in the future elect to manufacture certain of our products in our own manufacturing
facilities. If we do so, we will require substantial additional funds and need to recruit qualified
personnel in order to build or lease and operate any manufacturing facilities.
Factors Related to Patents and Licenses
If we are unable to adequately protect our patents and licenses related to our product candidates,
or if we infringe the rights of others, we may not be able to successfully commercialize our
product candidates.
Our success will depend in part on our ability to obtain patent protection both in the U.S.
and in other countries for our product candidates. 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 our product candidates 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 our product candidates or provide sufficient protection to afford us a
commercial advantage against our competitors or their competitive products or processes. In
addition, we cannot guarantee that any patents will be issued from any pending or future patent
applications owned by or licensed to us. Even if patents have been issued or will be issued, we
cannot guarantee that the claims of these patents are, or will be, valid or enforceable, or provide
us with any significant protection against competitive products or otherwise be commercially
valuable to us.
We may not have identified all patents, published applications or published literature that
affect our business either by blocking our ability to commercialize our drugs, by preventing the
patentability of our drugs to us or our licensors or co-owners, or by covering the same or similar
technologies that may invalidate our patents, limit the scope of our future patent claims or
adversely affect our ability to market our product candidates. For example, patent applications in
the U.S. 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 as a U.S. patent. Patent
applications filed in countries outside the U.S. 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 candidates or for their use as antiviral drugs. In the event that a third party has
also filed a U.S. patent application covering our product 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 U.S. The costs of these proceedings could
be substantial and it is possible that our efforts could be unsuccessful, resulting in a loss of
our U.S. patent position. The laws of some foreign jurisdictions do not protect intellectual
property rights to the same extent as in the U.S. 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 hepatitis B product candidate, telbivudine, was a known compound before the filing of our
patent applications covering the use of this product candidate to treat hepatitis B infection, we
cannot obtain patent protection on telbivudine itself. As a result, we are limited to relying upon
patents granted on the method of using telbivudine in medical therapy for the treatment of
hepatitis B infection.
Our other hepatitis B product candidate, valtorcitabine, is a prodrug of the L-nucleoside
ß-L-2- deoxycytidine, or LdC, because it is converted into biologically active LdC in the body. We
believe that
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valtorcitabine is a new compound. The U.S. Patent Office has recently issued to us a
patent on valtorcitabine itself, as well as claims on pharmaceutical compositions that include
valtorcitabine. Claims to the method to treat hepatitis B infection using valtorcitabine are
pending. We will not, however, be able to obtain patent protection on the biologically active form
of LdC itself, because it was a known compound at the time the patent applications covering LdC
were filed. Instead, our patent protection will be limited to patents covering the method of using
LdC in medical therapy for the treatment of hepatitis B infection. We are aware of an issued U.S.
patent with claims directed to a broad genus of compounds which may be construed to include
paltorcitabine. We believe those claims to be invalid as a result of prior art in existence at the
time those claims were filed. We would assert an invalidity defense against any such claims were
they to be asserted against us. However, there is no assurance that these claims would be found to
be invalid; in which case, we would need to obtain a license to these patent rights which may not
be available on reasonable terms.
Pursuant to the UAB license agreement, we were granted an exclusive license to the rights held
by UABRF, Emory University and CNRS, which we collectively refer to as the 1998 licensors, to a
1995 U.S. patent application and counterpart patent applications in Europe, Canada, Japan and
Australia that cover the use of certain synthetic nucleosides for the treatment of hepatitis B
infection. In January 2004, February 2005 and June 2005, UABRF notified us that it intended to file
a U.S. continuation patent application claiming priority to the 1995 patent application, which
itself is a continuation-in-part of a 1993 patent application, that would purportedly enable the
1998 licensors to prosecute and obtain generic patent claims that would generally encompass the
method of using telbivudine to treat patients infected with hepatitis B. In July 2005, UABRF filed
such a continuation patent application.
In connection with the 1998 licensors pursuit of such generic patent claims, we believe that
UABRF may assert that the UAB license agreement covers our telbivudine technology and that we are
obligated to make payments to the 1998 licensors in the amounts and manner specified in the UAB
license agreement. Such amounts include payments in the aggregate amount of $1.3 million due upon
achievement of regulatory milestones, a 6% royalty on annual sales up to $50 million and a 3%
royalty on annual sales greater than $50 million made by us or an affiliate of ours. Additionally,
if we sublicense our rights to any entity other than one which holds or controls at least 50% of
our capital stock, or if Novartis ownership interest in us declines below 50% of our outstanding
shares of capital stock, we could be obligated to pay to the 1998 licensors 30% of all royalties
received by us from sales by the sublicensee of telbivudine and 20%
of all fees, milestone payments and other cash consideration we receive from the sublicensee with
respect to telbivudine.
As a result of presentation by the 1998 licensors of new claims in the U.S. continuation
patent application filed in July 2005, and possibly under counterpart foreign patent applications,
UABRF may assert a claim to 20% of the $75 million license fee we received in May 2003 in
connection with the license of our hepatitis B drug candidates to Novartis. If UABRF asserts such a
claim, we intend to dispute that such amount is owed. Under the terms of the UAB license agreement,
the dispute would be resolved by a panel of arbitrators if we are unable to reach agreement with
UABRF after a period of negotiation and mediation.
If we fail to perform our material obligations under the UAB license agreement, the agreement
may be terminated or UABRF could, on its own behalf and on behalf of the other licensors, render
the license to us non-exclusive. In the event UABRF is successful in terminating the license
agreement as a result of a breach by us after a period of arbitration, and the 1998 licensors
obtain a valid enforceable claim that generically covers the use of telbivudine to treat hepatitis
B infection, it would be necessary for us to obtain another license from the 1998 licensors. Such
license may not be available to us on reasonable terms, on an exclusive basis, or at all. This
could materially adversely affect or preclude our ability to commercialize telbivudine.
If the 1998 licensors were instead to render the UAB license agreement to us non-exclusive, we
would not be prohibited from using telbivudine to treat hepatitis B infection, but a non-exclusive
license could be granted to one or more of our competitors by one or more of the 1998 licensors.
If it is determined that the UAB license agreement between us and UABRF does cover our use of
telbivudine to treat hepatitis B infection, or we must otherwise rely upon a license agreement
granted by the 1998 licensors to commercialize telbivudine, we may be in breach of certain of the
representations and warranties we made to Novartis under the development agreement and the stock
purchase agreement. Pursuant to the terms of the development agreement and the stock purchase
agreement, if there is a breach
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Novartis has the right to seek indemnification from us, and, under
certain circumstances, us and our stockholders who sold shares to Novartis, for the losses Novartis
incurs as a result of the breach. The amounts for which we could be liable to Novartis may be
substantial.
Our initial hepatitis C clinical product candidate, valopicitabine, or NM283, is a prodrug of
the active molecule NM 107, because it is converted into biologically active NM 107 in the body. We
believe that NM283 may be a new compound, and therefore we are attempting to obtain patent
protection on NM283 itself, as well as on a method to treat hepatitis C infection with NM283. NM
107 was a known compound at the time that the patent applications covering the use of this active
form of NM283 to treat hepatitis C infection were filed. Thus, although we presently have two
issued U.S. patents claiming methods of treatment using NM 107, one directed to treating hepatitis
C infection specifically and the other directed to treating
flavivirus and pestivirus infection, we
cannot obtain patent protection on the compound NM 107 itself.
Despite the fact that NM 107 is a known compound, we are aware that a number of companies have
recently filed patent applications attempting to cover NM 107 specifically as a compound, as well
as NM283, as members of broad classes of compounds. Companies have also filed patent applications
covering the use of NM 107, specifically, and NM283, generically, to treat hepatitis C infection,
or infection by any member of the Flaviviridae virus family, to which hepatitis C belongs. These
companies include Merck & Co., Inc. together with Isis Pharmaceuticals, Inc., Ribapharm, Inc., a
wholly owned subsidiary of Valeant Pharmaceuticals International, Genelabs Technologies, Inc. and
Biota, Inc., a subsidiary of Biota Holdings Ltd., or Biota. We believe that we were the first to
file patent applications covering the use of these product candidates to treat hepatitis C
infection. Because patents in countries outside the U.S. are awarded to the first to file a patent
application covering an invention, we believe that we are entitled to patent protection in at least
these countries. Notwithstanding this, a foreign country may grant patent rights covering our
product candidates to one or more other companies, either because it is not aware of our patent
filings or because the country does not interpret our patent filing as a bar to issuance of the
other companys patent in that country. If that occurs, we may need to challenge the third-party
patent to establish our proprietary rights, and if we do not or are not successful, we will need to
obtain a license that may not be available at all or on commercially reasonable terms. In the U.S.,
a patent is awarded to the patent applicant who was the first to invent the subject matter. The
U.S. Patent Office could initiate an interference between us and Merck/ Isis, Ribapharm, Genelabs,
Biota or another company to determine the
priority of invention of the use of these compounds to treat hepatitis C infection. If such an
interference is initiated and it is determined that we were not the first to invent the use of
these compounds in methods for treating hepatitis C or other viral infection under U.S. law, we
would need to obtain a license that may not be available at all or on commercially reasonable
terms.
A number of companies have filed patent applications and have obtained patents covering
general methods for the treatment of hepatitis B, hepatitis C and HIV infections. These patents
could materially affect our ability to develop and sell our HBV and HCV product candidates, as well
as other product candidates we may develop in the future. For example, we are aware that Chiron
Corporation and Apath, LLC have obtained broad patents covering hepatitis C proteins, nucleic
acids, diagnostics and drug screens. If we need to use these patented materials or methods to
develop valopicitipine or other hepatitis C product candidates we may develop and the materials or
methods fall outside certain safe harbors in the laws governing patent infringement, as recently
articulated by the United States Supreme Court, 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 reasonable terms or at all. This could materially
affect or preclude our ability to develop and sell our hepatitis C drug product.
If we find that any product 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 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-
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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 product 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 court 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 our product candidates.
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 product candidates; and/or |
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the enforceability, validity or scope of protection offered by our patents
relating to our product candidates. |
Even if we are successful in these proceedings, we may incur substantial cost and divert
management time and attention in pursuing these proceedings, which could have a material adverse
effect on us.
In May 2004, we and our chief executive officer, Dr. Sommadossi, entered into a settlement
agreement with UAB and UABRF resolving a dispute regarding ownership of inventions and discoveries
made by Dr. Sommadossi during the period from November 1999 to November 2002, at which time Dr.
Sommadossi 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 our hepatitis C product candidate. Under the terms of the settlement
agreement, we agreed to make a $2 million initial payment to UABRF, as well as other potential
contingent payments based upon the commercial launch of products discovered or invented by Dr.
Sommadossi 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 agreement and stock purchase agreement, we made numerous representations and
warranties to Novartis regarding our
hepatitis C product candidate and program, including representations regarding our ownership of the
inventions and discoveries. If one or more of our representations or warranties were not true at
the time we made them to Novartis, we would be in breach of these agreements. In the event of a
breach by us, Novartis has the right to seek indemnification from us and, under certain
circumstances, us and our stockholders who sold shares to Novartis, which include many of our
directors and officers, for damages suffered by Novartis as a result of such breach. The amounts
for which we could be liable to Novartis may be substantial.
Our success will also depend in part on our ability to avoid infringement of the patent rights
of others. If it is determined that we do infringe a patent right of another, we may be required to
seek a license, 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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be precluded from participating in the manufacture, use, importation, offer for
sale or sale of our product candidates or methods of treatment requiring
licenses. |
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 partners, employees, consultants, outside scientific collaborators,
sponsored researchers and other advisors. These agreements may not effectively prevent disclosure
of confidential information
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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 proprietary 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 product
candidates are terminated, we may be unable to develop or commercialize our product candidates.
We, together with Novartis, have entered into an amended and restated agreement with CNRS and
LUniversite Montpellier II, which we refer to as University of Montpellier, co-owners of the
patent applications covering our hepatitis B product candidates. This agreement covers both the
cooperative research program and the terms of our exclusive right to exploit the results of the
cooperative research, including our hepatitis B product candidates. We, together with Novartis,
have also entered into two agreements with the Universita degli Studi di Cagliari, which we refer
to as the University of Cagliari, the co-owner of the patent applications covering our hepatitis C
product candidates and certain of our HCV and NNRTI HIV pre-clinical product candidates. One
agreement with the University of Cagliari covers our cooperative research program and the other
agreement is an exclusive license to develop and sell the jointly created HCV and HIV product
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 product candidates. Subject to certain rights
afforded to Novartis, 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
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 product 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 product candidates without the permission of the co-owners.
However, our agreements with CNRS and the University of Montpellier and with the University of
Cagliari are currently governed by, and will be interpreted and enforced under, French and Italian
law, respectively, which are different in substantial respects from U.S. law, and which may be
unfavorable to us in material respects. Under French law, co-owners of intellectual property cannot
exploit, assign or license their individual rights without the permission of the co-owners.
Similarly, under Italian law, co-owners of intellectual property can not exploit or license their
individual rights without the permission of the co-owners. Accordingly, if our agreements with the
University of Cagliari terminate, we may not be able to exploit, license or otherwise convey to
Novartis or other third parties our rights in our 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 product candidates and selling our products.
Under U.S. law, a co-owner has the right to prevent the other co-owner from suing infringers
by refusing to join voluntarily in a suit to enforce a patent. Our amended and restated agreement
with CNRS and the University of Montpellier and our license agreement, as amended, with the
University of Cagliari provide that such parties will cooperate to enforce our jointly owned
patents on our product candidates. If these agreements terminate or their 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.
If our cooperative research agreement with the University of Cagliari is terminated, we may be
unable to develop research results arising out of that work prior to the termination.
Our cooperative research agreement with the University of Cagliari, as amended, grants us the
exclusive right to directly or indirectly use or license to Novartis or other third parties the
results of research obtained from the cooperative effort, in exchange for a fixed royalty. If the
cooperative research agreement is terminated, our exclusive right to use the research results will
also terminate, unless those
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rights are also granted under a separate license agreement, as has
been done with respect to the patent applications covering our HCV lead product candidate and HCV
pre-clinical product candidates and the classes of compounds we are evaluating for selection of
NNRTI HIV product candidate. Our cooperative agreement with the University of Cagliari currently
expires in January 2007, and can only be renewed by the written consent of both parties. If the
agreement is not renewed, there is no guarantee that the University of Cagliari will agree to
transfer rights to any of the research results into a separate license agreement on termination of
the research program, or that it will agree to do so on reasonable commercial terms. If we are not
able to obtain a license to research results in the event of a termination of the cooperative
research agreement, we will be unable to develop the research results.
Factors Related to Our Common Stock
Sales of additional shares of our common stock could 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 October 31, 2005, we had
55,632,622 shares of common stock issued and outstanding, together with outstanding options to
purchase approximately 3,718,764 shares of common stock with a weighted average exercise price of
$11.61 per share.
The holders of approximately 33,282,034 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.
Fluctuation of our quarterly results may cause our stock price to decline, resulting in losses to
you.
Our quarterly operating results have fluctuated in the past and are likely to fluctuate in the
future. A number of factors, many of which are not within our control, could subject our operating
results and stock price to volatility, including:
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realization of license fees and achievement of milestones under our development
agreement with Novartis and, to the extent applicable, other licensing and
collaborative agreements; |
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reductions in revenue 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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the results of ongoing and planned clinical trials of our product candidates; |
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the results of regulatory reviews relating to the approval of our product candidates; |
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the initiation or conclusion of litigation to enforce or defend any of our assets; and |
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general and industry-specific economic conditions that may affect our research and
development expenditures. |
Due to the possibility of significant fluctuations, we do not believe that quarterly
comparisons of our operating results will necessarily be indicative of our future operating
performance. If our quarterly operating results fail to meet the expectations of stock market
analysts and investors, the price of our common stock may decline, resulting in losses to you.
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 announcements regarding:
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our collaboration with Novartis; |
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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, product candidates or products by us or our competitors; |
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the development of new technologies, product candidates or products by us or our competitors; |
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regulatory actions with respect to our product candidates or products or those of our competitors; |
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the initiation or conclusion of litigation to enforce or defend any of our assets; and |
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significant acquisitions, strategic partnerships, joint ventures or capital commitments by us or
our competitors. |
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 in general has recently experienced extreme price and volume fluctuations. In
addition, the market prices of securities of companies in the biotechnology 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. We may be the target of similar litigation in the future. Securities
litigation could result in substantial costs and divert our managements
attention and resources, which could cause serious harm to our business, operating results and
financial condition.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Market risk represents the risk of loss that may impact our financial position, operating
results or cash flows due to changes in interest rates. 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 excess cash in high quality financial instruments with active secondary or resale markets
consisting primarily of money market funds, U.S government guaranteed debt obligations, repurchase
agreements with major financial institutions, and certain corporate debt securities, with the
dollar weighted average effective maturity of the portfolio less than nine months and no security
with an effective maturity in excess of 18 months. Since our investments have effective maturities
that are short term in duration and the investments are denominated in U.S. dollars, we believe
that we are not subject to any material credit, market or foreign exchange risk exposure. We do not
have any derivative financial instruments.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management with participation of our Chief Executive Officer and Chief Financial Officer,
evaluated 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, or Exchange Act) as of September
30, 2005. In designing and evaluating our disclosure controls and procedures, our management
recognized that any controls and procedures, no matter how well designed and operated, can provide
only reasonable assurance of achieving their objectives, and our management necessarily applied its
judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on
this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of
September 30, 2005, our disclosure controls and procedures were (1) designed to ensure that
material information relating to us, including our consolidated subsidiaries, is made known to our
CEO and CFO by others within those entities, particularly during the
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period in which this report
was being prepared and (2) effective, in that they provide reasonable assurance that information
required to be disclosed by us in the reports that we file or submit under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified in the Securities
and Exchange Commissions rules and forms.
Changes in Internal Controls over Financial Reporting
No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and
15d-15(f) under the Exchange Act) occurred during the fiscal quarter ended September 30, 2005 that
has materially affected or is reasonably likely to materially affect, our internal controls over
financial reporting.
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Part II. Other Information
Item 1. Legal Proceedings
None
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
(a) Unregistered Sales of Equity Securities
None.
(b) Initial Public Offering and Use of Proceeds from the Sale of Registered Securities
We registered shares of our common stock in connection with our initial public offering under
the Securities Act. Our Registration Statement on Form S-1 (Reg. No. 333-111157) in connection
with our initial public offering was declared effective by the SEC on July 21, 2004. We completed
our initial public offering on July 27, 2004.
The aggregate purchase price of shares of our common stock sold in the offering by us was
$64,400,000 and the net proceeds to us was approximately $57,000,000, after underwriting discounts
and offering expenses. The net proceeds of the initial public offering are invested in investment
grade securities with the dollar weighted average effective maturity of the portfolio less than
nine months and no security with an effective maturity in excess of 18 months. There has been no
material change in the planned use of proceeds from our initial public offering as described in our
final prospectus filed with the SEC pursuant to Rule 424(b).
(c) Repurchase of Securities
None.
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
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.
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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.
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Date:
November 8, 2005
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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 |
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(Principal Executive Officer) |
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Date:
November 8, 2005
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By:
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/s/ David A. Arkowitz |
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David A. Arkowitz |
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Chief Financial Officer and Treasurer (Principal Accounting Officer) |
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Exhibit Index
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Exhibit |
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No. |
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Description |
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10.1+
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Agreement, by and among Idenix Pharmaceuticals, Inc.,
Idenix SARL and the Universita delgi Studi Cagliari,
dated October 24, 2005. |
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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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+ |
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Confidential treatment requested as to certain portions, which
portions have been filed separately with the Securities and Exchange
Commission. |
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