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, 2007
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 a large accelerated filer, an accelerated
filer or a non-accelerated filer. See definition of accelerated filer and large accelerated
filer in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer o Accelerated Filer þ Non-Accelerated Filer o
Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of
the Exchange Act. Yes o No þ
As of October 31, 2007, the number of shares of the registrants common stock, par value $.001
per share, outstanding was 56,189,467 shares.
IDENIX PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
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September 30, |
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December 31, |
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2007 |
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2006 |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
51,285 |
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$ |
55,892 |
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Restricted cash |
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411 |
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411 |
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Marketable securities |
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52,519 |
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71,251 |
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Accounts receivable, net |
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689 |
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509 |
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Receivables from related party |
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7,758 |
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12,035 |
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Income taxes receivable |
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211 |
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201 |
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Inventory |
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836 |
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400 |
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Prepaid expenses and other current assets |
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5,380 |
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6,906 |
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Total current assets |
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119,089 |
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147,605 |
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Property and equipment, net |
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17,261 |
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17,448 |
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Restricted cash, non-current |
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750 |
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750 |
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Marketable securities, non-current |
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32,678 |
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59,208 |
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Income taxes receivable, non-current |
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3,097 |
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2,060 |
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Investment |
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4,053 |
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500 |
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Other assets |
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872 |
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894 |
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Total assets |
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$ |
177,800 |
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$ |
228,465 |
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LIABILITIES AND STOCKHOLDERS EQUITY |
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Current liabilities: |
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Accounts payable |
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$ |
5,663 |
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$ |
6,811 |
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Accrued expenses |
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20,707 |
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15,679 |
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Payables to related party |
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2,906 |
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939 |
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Deferred rent |
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338 |
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338 |
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Deferred revenue, related party |
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9,123 |
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13,490 |
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Income taxes payable |
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162 |
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189 |
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Total current liabilities |
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38,899 |
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37,446 |
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Long-term obligations |
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1,403 |
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2,251 |
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Deferred rent, net of current portion |
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1,747 |
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2,000 |
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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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43,335 |
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40,471 |
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Total liabilities |
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89,656 |
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86,440 |
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Commitments
and contingencies (Notes 10 and 12) |
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Stockholders equity: |
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Common stock, $0.001 par value; 125,000,000 and 75,000,000 shares authorized at
September 30, 2007 and December 31, 2006, respectively; 56,189,467 and 56,091,632
shares issued and outstanding at September 30, 2007 and December 31, 2006, respectively |
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56 |
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56 |
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Additional paid-in capital |
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505,141 |
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497,778 |
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Deferred compensation |
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(26 |
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(106 |
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Accumulated other comprehensive income |
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4,108 |
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238 |
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Accumulated deficit |
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(421,135 |
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(355,941 |
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Total stockholders equity |
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88,144 |
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142,025 |
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Total liabilities and stockholders equity |
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$ |
177,800 |
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$ |
228,465 |
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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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2007 |
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2006 |
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Revenues: |
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Collaboration revenue related party |
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$ |
9,153 |
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$ |
19,590 |
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Product sales, net |
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1,725 |
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Government research grants |
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10 |
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55 |
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Total revenues |
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10,888 |
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19,645 |
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Operating expenses: |
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Cost of sales |
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277 |
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Research and development |
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18,421 |
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26,083 |
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Selling, general and administrative |
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18,393 |
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15,924 |
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Restructuring and impairment charges |
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6,439 |
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Total operating expenses |
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43,530 |
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42,007 |
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Loss from operations |
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(32,642 |
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(22,362 |
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Investment income, net |
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1,718 |
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2,563 |
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Loss before income taxes |
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(30,924 |
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(19,799 |
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Income tax benefit |
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375 |
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84 |
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Net loss |
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$ |
(30,549 |
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$ |
(19,715 |
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Basic and diluted net loss per common share |
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$ |
(0.54 |
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$ |
(0.35 |
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Shares used in computing basic and diluted net loss per common share |
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56,189 |
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56,058 |
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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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2007 |
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2006 |
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Revenues: |
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Collaboration revenue related party |
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$ |
52,178 |
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$ |
51,898 |
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Product sales, net |
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3,188 |
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Government research grants |
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60 |
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171 |
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Total revenues |
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55,426 |
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52,069 |
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Operating expenses: |
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Cost of sales |
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514 |
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Research and development |
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65,545 |
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73,013 |
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Selling, general and administrative |
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54,070 |
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38,727 |
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Restructuring and impairment charges |
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6,439 |
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Total operating expenses |
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126,568 |
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111,740 |
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Loss from operations |
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(71,142 |
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(59,671 |
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Investment income, net |
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5,498 |
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7,217 |
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Loss before income taxes |
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(65,644 |
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(52,454 |
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Income tax benefit |
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624 |
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948 |
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Net loss |
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$ |
(65,020 |
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$ |
(51,506 |
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Basic and diluted net loss per common share |
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$ |
(1.16 |
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$ |
(0.92 |
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Shares used in computing basic and diluted net loss per common share |
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56,162 |
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55,981 |
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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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2007 |
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2006 |
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Cash flows from operating activities: |
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Net loss |
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$ |
(65,020 |
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$ |
(51,506 |
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Adjustments to reconcile net loss to net cash used in operating activities: |
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Depreciation |
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5,199 |
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2,406 |
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Stock-based
compensation expense, including related to restructuring |
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7,271 |
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6,773 |
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Other |
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(269 |
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(2,640 |
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Impairment charges |
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2,143 |
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Changes in operating assets and liabilities: |
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Accounts receivable |
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(180 |
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Receivables from related party |
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4,277 |
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(2,610 |
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Inventory |
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(436 |
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Prepaid expenses and other current assets |
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1,627 |
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(811 |
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Accrued interest on marketable securities |
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189 |
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Income taxes receivable |
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(996 |
) |
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(1,065 |
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Other assets |
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22 |
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1,062 |
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Accounts payable |
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(1,166 |
) |
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74 |
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Accrued expenses |
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4,910 |
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153 |
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Payables to related party |
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1,967 |
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Deferred revenue, related party |
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(1,516 |
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18,563 |
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Income taxes payable |
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(65 |
) |
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(64 |
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Long-term obligations |
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(858 |
) |
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(684 |
) |
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Net cash used in operating activities |
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(42,901 |
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(30,349 |
) |
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Cash flows from investing activities: |
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Purchases of property and equipment |
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(6,935 |
) |
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(6,139 |
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Purchases of marketable securities |
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(73,268 |
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(219,909 |
) |
Sales and maturities of marketable securities |
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118,250 |
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238,089 |
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Net cash provided by investing activities |
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38,047 |
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12,041 |
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Cash flows from financing activities: |
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Proceeds from issuance of common stock to related party |
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54 |
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Proceeds from exercise of common stock options |
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205 |
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|
856 |
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Net cash provided by financing activities |
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205 |
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|
910 |
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Effect of changes in exchange rates on cash and cash equivalents |
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42 |
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67 |
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Net decrease in cash and cash equivalents |
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(4,607 |
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(17,331 |
) |
Cash and cash equivalents at beginning of period |
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55,892 |
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|
83,733 |
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Cash and cash equivalents at end of period |
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$ |
51,285 |
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$ |
66,402 |
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Supplemental disclosure of cash flow information: |
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Taxes paid |
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$ |
126 |
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$ |
104 |
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Supplemental disclosure of noncash investing and financing activities: |
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Value of shares of common stock contingently issuable or issued to related party |
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$ |
(33 |
) |
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$ |
287 |
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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).
Effective May 8, 2003, Novartis Pharma AG (Novartis), a subsidiary of Novartis AG, acquired
a majority interest in the Companys outstanding stock and the operations of the Company have been
consolidated in the financial statements of Novartis since that date. Since May 2003, Novartis has
had the ability to exercise control over the Companys strategic direction, research and
development activities and other material business decisions (Note 5).
In October 2006, the Company received approval from the U.S. Food and Drug
Administration (FDA) to market its first product, Tyzeka ® (telbivudine), for the
treatment of patients with chronic hepatitis B in the United States. In territories outside the
United States, telbivudine is marketed as Sebivo ®. In April 2007, Sebivo ®
was approved in the European Union for the treatment of patients with chronic hepatitis B. To date,
Sebivo ® has been approved in more than 50 countries outside the United States,
including China, Switzerland and the European Union.
In July 2007, the Company announced that the FDA had placed on clinical hold in the United
States the Companys development program of valopicitabine (NM283) for the treatment of HCV based
on the overall risk/benefit profile observed in clinical testing. The Company does not plan to
continue the development of valopicitabine.
In
September 2007, the Company entered into an amendment to the development, license
and commercialization agreement dated as of May 8, 2003 between the Company and Novartis (the 2007
Amendment, and the 2007 Amendment and all prior amendments, the Development Agreement). The
Company and Novartis also entered into a transition services agreement (the TSA). Pursuant to
the 2007 Amendment, the Company transitioned to Novartis all of its development, commercialization
and manufacturing rights and obligations to telbivudine (Tyzeka®/Sebivo®) on a worldwide
basis. Effective October 1, 2007, the Company will receive royalty payments equal to a percentage of net sales of
Tyzeka®/Sebivo®, with such percentage increasing according to specified tiers
of net sales. The royalty payment will vary based upon the territory and the aggregate dollar
amount of net sales.
In conjunction with the 2007 Amendment, the Company announced a
restructure of its operations in which the Company entered into a
plan to enact a workforce reduction of approximately 100 positions,
the majority of which had supported the development and
commercialization of Tyzeka®/Sebivo® in the United States and Europe
(Note 10). The restructuring was a strategic decision on behalf of
the Company to focus its resources on its HCV and HIV discovery and development programs.
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.
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 condensed consolidated financial statements reflect the operations of the Company and its
wholly owned subsidiaries. All 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. 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,
2007. These interim financial statements should be read in conjunction with the audited financial
statements for the year ended December 31, 2006, which are included in the Companys Annual Report
on Form 10-K, which was filed with the Securities and Exchange Commission (SEC) on March 14,
2007.
Revenue Recognition
The Company records revenue provided that there is persuasive evidence that an arrangement
exists, the price is fixed or determinable and collectibility is reasonably assured. The Company
records revenue earned under collaborative research and development arrangements, product sales 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 collaborative
research and development funding 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. 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 for shared development costs. 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. 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 November 2002, the Emerging Issues Task Force (EITF), reached a consensus on EITF Issue
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 entered into on or after July 1, 2003.
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 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 connection with the original arrangements with Sumitomo and
recorded the remaining amount 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 September 30, 2007 and
December 31, 2006 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 deferred revenue, with the excess recorded as an expense. If and when the Company
determines that regulatory approval for telbivudine in Japan will not be sought, the Company would
have no further obligations under the settlement agreement with Sumitomo and, therefore, the
remaining deferred revenue would be recognized as revenue at that time.
Product Sales Product sales consist of sales of Tyzeka® in the United States.
Revenues from product sales are recognized when the product is shipped and title and risk of
ownership has been transferred to the customer, typically upon delivery. Product sales are recorded
net of any applicable allowances for sales returns, trade term discounts, early pay discounts,
government-related rebates, such as Medicaid, managed care discounts, vouchers, coupons, patient
assistance programs and other allowances. The Company estimates its deductions from product sales
at the time of sale based on a number of factors, including historical experience of Novartis and
industry knowledge updated for changes in facts, where appropriate. Prior to October 1, 2007, the
Company had a commercial collaboration profit-sharing arrangement with Novartis on Tyzeka
® sales in the United States. In this arrangement, the Company co-promoted Tyzeka
® with Novartis in the United States, but the Company had primary responsibility for U.S.
commercialization. As a result, the Company recorded net product sales and related production costs
for the Companys U.S. commercial collaboration in the statement of operations on a gross basis
since the Company had the inventory and credit risk, and met the criteria as a principal in the
transaction. The Company recorded the U.S. commercial collaboration profit-sharing expense with
Novartis as a reduction of collaboration revenue-related party.
In September 2007, the Company amended its development, license and commercialization
agreement with Novartis (Note 5) in which Novartis assumed sole responsibility for product sales of
Tyzeka ®/ /Sebivo ® on a worldwide basis beginning on October 1, 2007. As a
result, beginning in the fourth quarter of 2007, the Company will no longer record product sales of
Tyzeka ® .
8
\
IDENIX PHARMACEUTICALS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) CONTINUED
Royalty Income Effective October 1, 2007, the Company will no longer recognize revenues
from product sales of Tyzeka®/Sebivo®. Thereafter, the Company will receive
royalty payments associated with sales of Tyzeka®/Sebivo®. These royalty
payments will be equal to a percentage of net sales of Tyzeka®/Sebivo®, with
such percentage increasing according to specified tiers of net sales. The royalty payment will vary
based upon the territory and the aggregate dollar amount of net sales.
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, 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.
Investment
As of September 30, 2007, the Company held a long-term investment in equity securities of
Pharmasset Inc. (Pharmasset), a biotechnology company. The Company held an ownership interest of
less than 20% and did not have the ability to exercise significant influence over Pharmasset.
During the quarter ended June 30, 2007, Pharmasset completed an initial public offering allowing
their stock to be publicly traded and the Company began classifying this investment as available
for sale in accordance with Statement of Financial Accounting Standards No. 115, Accounting for
Certain Investments in Debt and Equity Securities (SFAS No.115). In accordance with SFAS No.
115, all available-for-sale securities are recorded at fair market value and, to the extent deemed
temporary, unrealized gains and losses are included in accumulated other comprehensive income
(loss) in stockholders equity, net of related tax effects. Realized gains and losses and declines
in value, if any, judged to be other than temporary on available for sale securities are reported
in other income (expense). Prior to the initial public offering, the Company recorded this
investment under the cost method of accounting. The Company owned 333,333 shares of Pharmasset with
a value of $4,053,000 at September 30, 2007 which included an unrealized gain of $3,553,000 that
has been recorded in accumulated other comprehensive income. In October 2007, the Company sold all
its ownership in Pharmasset and realized a gain of $3,500,000.
Share-Based Compensation
In December 2004, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standard (SFAS) No. 123 (revised 2004)(SFAS No. 123(R)), Share-Based
Payment. SFAS No. 123(R) requires share-based transactions for employees and directors to be
accounted for using a fair value based method that results in expense being recognized in the
Companys financial statements.
The Company recognizes compensation expense for stock options granted to non-employees in
accordance with the requirements of SFAS No. 123(R) 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 or Services (EITF 96-18). EITF 96-18 requires such equity instruments to 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
adjustments as the underlying equity instruments vest.
Income Taxes
Deferred tax assets and liabilities are recognized based on the expected future tax
consequences, using current tax rates, of temporary differences between the financial statement
carrying amounts and the income tax basis of assets and liabilities. A valuation allowance is
applied against any net deferred tax asset if, based on the weighted available evidence, it is more
likely than not that some or all of the deferred tax assets will not be realized. The Company records liabilities for
income tax contingencies if it is probable that the Company has incurred a tax liability and the
liability or the range of loss can be reasonably estimated.
9
IDENIX PHARMACEUTICALS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) CONTINUED
In June 2006, the FASB published FASB Interpretation (FIN) No. 48, Accounting for Uncertain
Tax Positions, (FIN No. 48). FIN No. 48 requires that a tax position meet a more likely than not threshold for the
benefit of the uncertain tax position to be recognized in the financial statements. This threshold
is to be met assuming that the tax authorities will examine the uncertain tax position. FIN No. 48
contains guidance with respect to the measurement of the benefit that is recognized for an
uncertain tax position, when that benefit should be derecognized, and other matters. The Company
adopted the provisions of FIN No. 48 effective January 1, 2007.
The total amount of unrecognized tax benefits was $7,800,000 and $950,000 at January 1, 2007
and September 30, 2007, respectively. Of this amount, $180,000 will impact the effective tax rate
if ultimately realized and $770,000 would be offset by an increase in the valuation allowance on
deferred tax assets. The Company has recorded a net adjustment of $174,000 to decrease its opening
retained earnings upon adoption of FIN No. 48 and $7,400,000 is a reduction of gross deferred tax
assets. Since the Companys gross deferred tax assets have been offset by a valuation allowance,
this amount has not been reflected in the Companys balance
sheet.
During the quarter ended September 30, 2007, an uncertain tax position relating to the tax
year ended December 31, 2003 expired due to the closing of the statute of limitations. The effect
of this adjustment was to increase the federal income tax benefit by $273,000 and increase gross
deferred tax assets by $6,600,000.
As of January 1, 2007, the Company had accrued $343,000 of interest and penalties relating to
uncertain tax positions. During the quarter ended September 30,
2007, the Company reversed $398,000 of interest and penalties due to the closing of the statute of limitations on an uncertain tax position and
had no accrued interest and penalties owing at September 30, 2007. The
Company accounts for interest and penalties related to its uncertain
tax positions as part of investment
income.
The open tax years by major jurisdiction are: 1) for the years ended December 31, 2003 through
2006 for the United States and 2) for the years ended December 31, 2005 and 2006 for France.
3. NET LOSS PER COMMON SHARE
The Company accounts for and discloses net loss 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
per common share is computed by dividing the net loss by the weighted average number of common
shares outstanding during the period. Diluted net loss per common share is computed by dividing the
net loss by the weighted average number of common shares and dilutive potential common shares then
outstanding. Potential common shares consist of common shares issuable upon the assumed exercise of
outstanding stock options (using the treasury stock method), issuance of contingently issuable
shares subject to Novartis subscription rights (see Note 5) and restricted stock awards.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
|
2007 |
|
2006 |
|
2007 |
|
2006 |
|
|
(in thousands, except |
|
(in thousands, except |
|
|
per share data) |
|
per share data) |
Basic and diluted net loss per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(30,549 |
) |
|
$ |
(19,715 |
) |
|
$ |
(65,020 |
) |
|
$ |
(51,506 |
) |
Basic and diluted weighted average number of common shares outstanding |
|
|
56,189 |
|
|
|
56,058 |
|
|
|
56,162 |
|
|
|
55,981 |
|
Basic and diluted net loss per common share |
|
$ |
(0.54 |
) |
|
$ |
(0.35 |
) |
|
$ |
(1.16 |
) |
|
$ |
(0.92 |
) |
The following potential common shares were excluded from the calculation of diluted net loss
per common share because their effect was anti-dilutive:
10
IDENIX PHARMACEUTICALS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) CONTINUED
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
|
2007 |
|
2006 |
|
2007 |
|
2006 |
|
|
(in thousands) |
|
(in thousands) |
Options |
|
|
4,942 |
|
|
|
4,309 |
|
|
|
4,942 |
|
|
|
4,309 |
|
Contingently issuable shares to related party |
|
|
10 |
|
|
|
383 |
|
|
|
10 |
|
|
|
383 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,952 |
|
|
|
4,692 |
|
|
|
4,952 |
|
|
|
4,692 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In
addition to the contingently issuable shares to related party listed
in the table above, Novartis is entitled to additional shares under
its stock purchase rights which would be anti-dilutive.
4. COMPREHENSIVE LOSS
For the three months and nine months ended September 30, 2007 and 2006, respectively,
comprehensive loss was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
|
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
|
|
(in thousands) |
|
|
(in thousands) |
|
Net loss |
|
$ |
(30,549 |
) |
|
$ |
(19,715 |
) |
|
$ |
(65,020 |
) |
|
$ |
(51,506 |
) |
Changes in other comprehensive loss: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment |
|
|
325 |
|
|
|
(10 |
) |
|
|
407 |
|
|
|
311 |
|
Unrealized (loss) gain on marketable securities |
|
|
(38 |
) |
|
|
48 |
|
|
|
(90 |
) |
|
|
164 |
|
Unrealized gain on investment |
|
|
1,140 |
|
|
|
|
|
|
|
3,553 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss |
|
$ |
(29,122 |
) |
|
$ |
(19,677 |
) |
|
$ |
(61,150 |
) |
|
$ |
(51,031 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
5. 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. The collaboration includes the Development
Agreement.
In September 2007, the Company entered into the 2007 Amendment and the TSA. The 2007
Amendment and TSA are effective as of October 1, 2007. Pursuant to the 2007 Amendment, the Company
transitioned to Novartis all of its development, commercialization
and manufacturing rights and obligations related to
telbivudine, the Companys drug product for the treatment of HBV, on a worldwide basis. Telbivudine
is marketed as Tyzeka® in the United States and as Sebivo® in the rest of the world. The Company
will receive royalty payments equal to a percentage of net sales of Tyzeka®/Sebivo®, with such
percentage increasing according to specified tiers of net sales. The royalty payment shall vary
based upon the territory and the aggregate dollar amount of net sales. Novartis is responsible
for development and commercialization expenses relating to telbivudine beginning on October 1,
2007. Novartis shall also be responsible for certain costs associated with the transition of
third party contracts and arrangements relating to telbivudine and any intellectual property
prosecution and enforcement activities. Pursuant to the TSA, the Company will provide Novartis
with certain services relating to telbivudine through June 2008 (or later if agreed to by the
parties). The Company will be reimbursed by Novartis for these services.
As part of the Development Agreement, Novartis paid the Company a license fee of $75,000,000
for its HBV product and product candidate, Tyzeka ® /Sebivo ® and
valtorcitabine, respectively, provided development funding for Tyzeka ® /Sebivo
® and valtorcitabine and was obligated to make milestone payments which could have totaled
up to $35,000,000 upon the achievement of certain regulatory approvals, as well as additional
commercial milestone payments based upon achievement of predetermined HBV product sales levels. Of
these $35,000,000 in milestone payments, the Company received payment on two of these regulatory
milestones in 2007 totaling $20,000,000. The Company is no longer eligible to receive any
remaining milestone payments associated with telbivudine as a result of the Companys transition to
Novartis of all of its development, commercialization and
manufacturing rights and obligations related to telbivudine.
The Company has received payment on two of these regulatory milestones in 2007. One of these
regulatory milestones for $10,000,000 was achieved in the quarter ended March 31, 2007 with the
regulatory approval of Sebivo ® in China. The Company recognized this regulatory
milestone as collaboration revenue from related party during the quarter ended March 31, 2007 as
the milestone was deemed to be substantive. The second regulatory milestone for $10,000,000 was
achieved in April 2007 with the regulatory approval of Sebivo ® in the European Union.
This milestone was deemed not to be substantive and the Company has included this milestone as part
of the license fee and is being recorded as collaboration revenue from related party over the
remaining development period of the Companys licensed product candidates.
11
IDENIX PHARMACEUTICALS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) CONTINUED
As part of the Development Agreement, Novartis also acquired an option to license the
Companys HCV and other product candidates. In March 2006, Novartis exercised its option to license
valopicitabine, the Companys lead HCV product candidate at that
time. As a result, Novartis paid the Company a license fee of $25,000,000 in March 2006 and is
providing development funding for valopicitabine. Under the development agreement, Novartis agreed
to pay the Company up to $500,000,000 in additional license fees
and regulatory milestone payments for an HCV product candidate. In July 2007, the Company announced
that the FDA had placed on clinical hold in the United States the Companys development program of
valopicitabine for the treatment of HCV based on the overall risk/benefit profile observed in
clinical testing. The Company does not plan to continue the development of valopicitabine. As a
result, the Company is not expected to receive any additional license fees or milestone payments
for valopicitabine from Novartis.
Under the Development Agreement, the Company has granted Novartis an exclusive worldwide
license to market and sell Tyzeka ® /Sebivo ® , valtorcitabine and
valopicitabine. The Company will grant Novartis similar licenses at a future amount to be
determined with respect to any other product candidates for which Novartis exercises its option to
license. The Company initially retained the right to co-promote or co-market Tyzeka ®
/Sebivo ® , valtorcitabine and valopicitabine in the United States, United Kingdom,
France, Germany, Italy and Spain. Under the 2007 Amendment, the Company transitioned to Novartis
all of its development, commercialization and manufacturing rights
and obligations related to telbivudine
(Tyzeka®/Sebivo®) on a worldwide basis in exchange for royalty payments equal
to a percentage of net sales of Tyzeka®/Sebivo®, with such percentage
increasing according to specified tiers of net sales. The royalty payment will vary based upon the
territory and the aggregate dollar amount of net sales.
The Company is reimbursed by Novartis on a quarterly basis for expenses it incurs in
connection with the development and registration of its licensed products and product candidates.
Effective October 1, 2007, Novartis is solely responsible for clinical trial costs and related
expenditures associated with telbivudine. The Company will be reimbursed by Novartis for approved
costs associated with telbivudine for certain agreements that will be transitioned to Novartis
under the TSA.
Simultaneously with the initial 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 $357,000,000
contingently payable to these stockholders if the Company achieves predetermined development
milestones relating to an HCV product candidate. As of September 30, 2007, Novartis owned
approximately 56% of the Companys outstanding stock.
To date, the Company has received from Novartis a $25,000,000 license fee for valopicitabine,
a $75,000,000 license fee for Tyzeka ® /Sebivo ® and valtorcitabine,
offset by $75,000 in interest costs, and a $5,000,000 reimbursement for reacquiring product rights
from Sumitomo to develop and commercialize Sebivo ® in certain markets in Asia. The
Company included this reimbursement as part of the license fee for accounting purposes because
Novartis required the repurchase of these rights as a condition to entering into the Development
Agreement. The Company also incurred approximately $2,250,000 in costs associated with the
development of valopicitabine prior to Novartis licensing valopicitabine in March 2006 for which
Novartis reimbursed the Company. The Company has included the $10,000,000 milestone payment for
the regulatory approval of Sebivo ® in the European Union as part of the license fee
for accounting purposes as the milestone was deemed not to be substantive. The sum of these
non-refundable payments received from Novartis, totaling $117,175,000, has been recorded as license
fees and is being recognized over the development period of the licensed product candidates.
The Company reviews its assessment and judgment on a quarterly basis with respect to the
expected duration of the development period of its licensed product candidates. During the quarter
ended September 30, 2007, the Company has estimated that the performance period during which the
development of its licensed product and product candidates will be completed is a period of
approximately ten years following the effective date of the Development Agreement that the Company
entered into with Novartis, or June 2013. 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.
Stockholders Agreement
In connection with Novartis purchase of stock from the Companys stockholders, the Company,
Novartis and substantially all of the Companys stockholders entered into a stockholders agreement
which was amended and restated in 2004 in connection with the Companys initial public offering of
its common stock (the Stockholders Agreement). The Stockholders Agreement provides,
12
IDENIX PHARMACEUTICALS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) CONTINUED
among other things, that the Company will use its 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 the Companys voting stock and at least one designee of Novartis for so long as
Novartis and its affiliates own at least 19.4% of the Companys voting stock. As long as Novartis
and its affiliates continue to own at least 19.4% of the Companys voting stock, Novartis will have
approval rights over a number of corporate actions that the Company may take, including the authorization or issuance of additional shares of
capital stock and significant acquisitions and dispositions.
Subject to certain exceptions, Novartis and its affiliates have contractually agreed not to
acquire prior to May 8, 2008, additional shares of the Companys voting stock unless a majority of
the independent board members waive such contractual provision.
Acquisitions of the Companys voting stock by exercise of Novartis stock purchase rights under the
Stockholders Agreement or acquisitions of voting stock to maintain a 51% ownership interest in the
Companys fully diluted common stock, exclusive of any shares formerly held by Novartis
BioVentures, Ltd., are specifically excepted from this restriction.
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.
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, is recorded as a reduction of
the license fees associated with the Novartis collaboration. The amount is attributed
proportionately between cumulative revenue recognized through that date and the remaining amount of
deferred revenue. These amounts will be adjusted through the date that Novartis elects to purchase
the shares to maintain its percentage ownership based upon changes in the value of 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, 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 an adjustment of the license fee and payments received
from Novartis. The Company remains subject to potential revenue adjustments relating to grants of
options and stock awards under its stock incentive plans other than the 1998 Equity Incentive Plan.
As of September 30, 2007, Novartis stock subscription rights have reduced the license fee by
an aggregate of $15,418,000, which has been recorded to additional paid-in capital. Of this amount,
$6,445,000 has been recorded as a reduction of deferred revenue as of September 30, 2007 with the
remaining amount of $8,973,000 recorded as a reduction of revenue.
Manufacturing and Packaging Agreements
In June 2006, after completing a competitive bid process where Novartis had the right to match
the best third-party offer, the Company entered into a commercial manufacturing agreement (the
Manufacturing Agreement) with Novartis and a packaging agreement (the Packaging Agreement) with
Novartis Pharmaceuticals Corporation, an affiliate of Novartis. Under the Manufacturing Agreement,
Novartis would manufacture the commercial supply of Tyzeka ® that was intended for
sale in the United States. The Packaging Agreement provided that the supply of Tyzeka ®
intended for commercial sale in the United States would be packaged by Novartis Pharmaceuticals Corporation.
13
IDENIX PHARMACEUTICALS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) CONTINUED
As a result of the 2007 Amendment, the Manufacturing Agreement was terminated and the Company
will work with Novartis to terminate the Companys rights and obligations to the Packaging Agreement. Effective October 1,
2007, Novartis is solely responsible for the manufacture and supply of Tyzeka®/Sebivo® on a worldwide basis. No
penalties were incurred by the Company as a result of the termination of these agreements.
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 marketable
securities 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, 2007 and December 31, 2006 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2007 |
|
|
|
|
|
|
|
Gross |
|
|
Gross |
|
|
|
|
|
|
Amortized |
|
|
Unrealized |
|
|
Unrealized |
|
|
Market |
|
|
|
Cost |
|
|
Gains |
|
|
Losses |
|
|
Value |
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
Type of security: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds |
|
$ |
17,429 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
17,429 |
|
Commercial paper |
|
|
5,788 |
|
|
|
|
|
|
|
|
|
|
|
5,788 |
|
Corporate debt securities |
|
|
73,160 |
|
|
|
10 |
|
|
|
(136 |
) |
|
|
73,034 |
|
U.S. Treasury securities and obligations of
U.S. government agencies |
|
|
2,897 |
|
|
|
2 |
|
|
|
|
|
|
|
2,899 |
|
Taxable auction rate securities |
|
|
7,423 |
|
|
|
1 |
|
|
|
|
|
|
|
7,424 |
|
Accrued interest |
|
|
909 |
|
|
|
|
|
|
|
|
|
|
|
909 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
107,606 |
|
|
$ |
13 |
|
|
$ |
(136 |
) |
|
$ |
107,483 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2006 |
|
|
|
|
|
|
|
Gross |
|
|
Gross |
|
|
|
|
|
|
Amortized |
|
|
Unrealized |
|
|
Unrealized |
|
|
Market |
|
|
|
Cost |
|
|
Gains |
|
|
Losses |
|
|
Value |
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
Type of security: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds |
|
$ |
13,940 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
13,940 |
|
Commercial paper |
|
|
5,988 |
|
|
|
|
|
|
|
|
|
|
|
5,988 |
|
Corporate debt securities |
|
|
111,486 |
|
|
|
17 |
|
|
|
(53 |
) |
|
|
111,450 |
|
U.S. Treasury securities and obligations of
U.S. government agencies |
|
|
9,176 |
|
|
|
2 |
|
|
|
(11 |
) |
|
|
9,167 |
|
Taxable auction rate securities |
|
|
8,511 |
|
|
|
14 |
|
|
|
(2 |
) |
|
|
8,523 |
|
Accrued interest |
|
|
1,371 |
|
|
|
|
|
|
|
|
|
|
|
1,371 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
150,472 |
|
|
$ |
33 |
|
|
$ |
(66 |
) |
|
$ |
150,439 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
IDENIX PHARMACEUTICALS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) CONTINUED
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2007 |
|
|
2006 |
|
|
|
(in thousands) |
|
Contractual maturity: |
|
|
|
|
|
|
|
|
Maturing in one year or less |
|
$ |
74,805 |
|
|
$ |
91,231 |
|
Maturing after one year through two years |
|
|
4,836 |
|
|
|
16,310 |
|
Maturing after two years through ten years |
|
|
18,923 |
|
|
|
24,922 |
|
Maturing after ten years |
|
|
8,919 |
|
|
|
17,976 |
|
|
|
|
|
|
|
|
|
|
$ |
107,483 |
|
|
$ |
150,439 |
|
|
|
|
|
|
|
|
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.
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2007 |
|
|
2006 |
|
|
|
(in thousands) |
|
Classification in balance sheets: |
|
|
|
|
|
|
|
|
Cash equivalents |
|
$ |
22,286 |
|
|
$ |
19,980 |
|
Marketable securities |
|
|
52,519 |
|
|
|
71,251 |
|
Marketable securities, non-current |
|
|
32,678 |
|
|
|
59,208 |
|
|
|
|
|
|
|
|
|
|
$ |
107,483 |
|
|
$ |
150,439 |
|
|
|
|
|
|
|
|
As of September 30, 2007, the Company had one investment in equity securities of Pharmasset,
with a value of $4,053,000 at September 30, 2007. This investment is not included in the table
above but was recorded as an investment at September 30, 2007. In October 2007, the Company sold its
investment in Pharmasset and realized a gain of $3,500,000.
7. RECEIVABLES FROM RELATED PARTY
Receivables from related party consist of the following:
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2007 |
|
|
2006 |
|
|
|
(in thousands) |
|
Unbilled receivables from related party |
|
$ |
7,758 |
|
|
$ |
12,035 |
|
|
|
|
|
|
|
|
Unbilled receivables from related party represent amounts under collaborative agreements in
the normal course of business for reimbursement of development, regulatory and marketing
expenditures that have not been billed. The reimbursement of development and regulatory
expenditures is billed quarterly. All related party receivables are due from Novartis.
15
IDENIX PHARMACEUTICALS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) CONTINUED
8. PROPERTY AND EQUIPMENT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated |
|
|
September 30, |
|
|
December 31, |
|
|
|
Useful Life |
|
|
2007 |
|
|
2006 |
|
|
|
(Years) |
|
|
(in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Office equipment |
|
|
5 |
|
|
$ |
67 |
|
|
$ |
71 |
|
Scientific equipment |
|
|
7 |
|
|
|
6,870 |
|
|
|
5,738 |
|
Computer equipment and software |
|
|
2 |
|
|
|
4,091 |
|
|
|
4,005 |
|
Enterprise software |
|
|
5 |
|
|
|
5,639 |
|
|
|
2,307 |
|
Office furniture |
|
|
7 |
|
|
|
1,558 |
|
|
|
1,645 |
|
Trade show booths |
|
|
2 |
|
|
|
638 |
|
|
|
382 |
|
Leasehold improvements |
|
|
* |
|
|
|
10,513 |
|
|
|
7,540 |
|
Construction-in-progress |
|
|
|
|
|
|
375 |
|
|
|
3,944 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29,751 |
|
|
|
25,632 |
|
Less accumulated depreciation |
|
|
|
|
|
|
(12,490 |
) |
|
|
(8,184 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
17,261 |
|
|
$ |
17,448 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Shorter of asset life or lease term. |
During the quarter ended September 30, 2007 as a result of the Companys restructuring
announced in September 2007, the Company accelerated depreciation expense of $1,930,000 on certain
enterprise software assets that would no longer be used following the transition of commercialization
and development activities to Novartis. The Company revised its estimate of the useful life of
these assets to end in October 2007 and expects to incur an additional depreciation charge of
$862,000 during the quarter ended December 31, 2007. The Company also recorded an impairment
charge of $2,143,000 during the quarter ended September 30, 2007
for certain enterprise software
assets that were recorded in construction-in-progress and which now
will not be placed into service as a result of the restructuring.
9. ACCRUED EXPENSES
Accrued expenses consist of the following:
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2007 |
|
|
2006 |
|
|
|
(in thousands) |
|
|
|
|
|
|
|
|
|
|
Research and development contract costs |
|
$ |
6,444 |
|
|
$ |
5,502 |
|
Payroll and benefits |
|
|
4,033 |
|
|
|
5,676 |
|
License fees |
|
|
1,000 |
|
|
|
1,000 |
|
Professional fees |
|
|
1,728 |
|
|
|
753 |
|
Restructuring |
|
|
3,328 |
|
|
|
|
|
Other |
|
|
4,174 |
|
|
|
2,748 |
|
|
|
|
|
|
|
|
|
|
$ |
20,707 |
|
|
$ |
15,679 |
|
|
|
|
|
|
|
|
The accrued restructuring liability represents costs associated with the Companys announcement in
September of 2007 that it would restructure its operations with the transition of development,
commercialization and manufacturing rights of telbivudine and obligations related to Novartis (Note 10).
10. RESTRUCTURING AND IMPAIRMENT CHARGES
On September 28, 2007, the Company announced a restructure of its operations as a result of an
agreement with Novartis in which the Company would transition to Novartis all development,
commercialization and manufacturing rights and obligations related to telbivudine (Tyzeka®/Sebivo®) on a worldwide basis
effective October 1, 2007. As a result, the Company entered into a plan to enact a workforce
reduction of approximately 100 positions, the majority of which had supported the development and
commercialization of Tyzeka®/Sebivo® in the United States and Europe. The restructuring was a
strategic decision on behalf of the Company to focus its resources on
its HCV and HIV discovery and development programs.
16
IDENIX PHARMACEUTICALS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) CONTINUED
The
Company accounted for its restructuring liability related to one-time
benefits offered to terminated employees in accordance with FASB Statement No.
146, Accounting for Costs Associated with Exit or Disposal Activities (SFAS No. 146).
The Company accounted for its impairment charges in accordance with FASB Statement No. 144,
Accounting for the Impairment or Disposal of Long-Lived
Assets (SFAS No. 144).
As a
result of the restructuring, the Company recorded a restructuring charge of $3,328,000 for the
quarter ended September 30, 2007 primarily related to severance costs. The Company expects to incur and pay approximately $3.0 to $5.0
million in additional charges related to this restructuring for
severance and contract termination costs over the next two quarters.
A summary of the restructuring activity at September 30, 2007 is
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge for the
Three
and
Nine |
|
|
|
|
|
|
|
|
|
|
Current
Liability |
|
|
|
Months Ended |
|
|
|
|
|
|
Non-cash |
|
|
as of |
|
|
|
September 30, 2007 |
|
|
Cash Payments |
|
|
expense |
|
|
September 30, 2007 |
|
|
|
(in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee severance, benefits and related costs |
|
$ |
3,328 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
3,328 |
|
Contract termination and other costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
3,328 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
3,328 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additionally,
in connection with the restructuring, the Company incurred an impairment charge of $2,143,000 on
certain fixed assets and stock compensation expense of $968,000 associated with the accelerated
vesting of stock options during the quarter ended September 30, 2007. The Company also had an
additional charge of $1,930,000 during the quarter ended September 30, 2007 relating to
accelerating depreciation on certain fixed assets. The Company expects to record an
additional $862,000 of depreciation expense relating to these assets during the quarter
ending December 31, 2007 (Note 8).
11. EQUITY INCENTIVE PLANS AND SHARE-BASED COMPENSATION
The equity incentive plans are administered by the Compensation Committee of the Board of
Directors. The Compensation Committee determines the type and term of each award, the award
exercise or purchase price, if applicable, the number of shares underlying each award granted and
the rate at which each award becomes vested or exercisable. Incentive stock options may be granted
only to employees of the Company at an exercise price per share of not less than the fair market
value per share of common stock as determined by the Board of Directors on the date of grant (not
less than 110% of the fair market value in the case of holders of more than 10% of the Companys
voting common stock) and with a term not to exceed ten years from date of grant (five years for
incentive stock options granted to holders of more than 10% of the Companys voting common stock).
Nonqualified stock options may be granted to any officer, employee, director, consultant or advisor at a per share exercise
price in such amount as the Compensation Committee may determine. The Compensation Committee may
also grant restricted stock and other stock-based awards on such terms and conditions as it may
determine. In May 2007, the Companys stockholders approved an amendment to the 2005 Plan
increasing the number of shares of common stock thereunder from 3,000,000 to 6,000,000 shares.
The Company granted 115,530 and 277,316 stock options for the three months ended September 30,
2007 and 2006, respectively. The weighted average fair value of options granted during the three
months ended September 30, 2007 and 2006 was $2.31 and $5.55, respectively. The Company granted
1,483,506 and 1,187,692 stock options for the nine months ended September 30, 2007 and 2006,
respectively. The weighted average fair value of options granted during the nine months ended
September 30, 2007 and 2006 was $3.88 and $8.89, respectively. The total intrinsic value of options
exercised during the nine months ended September 30, 2007 was $710,000. The intrinsic value was
calculated as the difference between the market value and the exercise price of the shares at the
date of exercise. The aggregate intrinsic value of stock options outstanding at September 30, 2007
was $456,000. The aggregate intrinsic value of stock options exercisable at September 30, 2007 was
$455,000.
The following table shows stock-based compensation expense as reflected in the Companys
consolidated statements of operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
|
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
|
|
(in thousands) |
|
|
(in thousands) |
|
Research and development |
|
$ |
553 |
|
|
$ |
713 |
|
|
$ |
2,444 |
|
|
$ |
2,246 |
|
Selling, general and administrative |
|
|
1,326 |
|
|
|
1,830 |
|
|
|
3,859 |
|
|
|
4,527 |
|
Restructuring and impairment |
|
|
968 |
|
|
|
|
|
|
|
968 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation expense |
|
$ |
2,847 |
|
|
$ |
2,543 |
|
|
$ |
7,271 |
|
|
$ |
6,773 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company has an aggregate of $11,708,000 of stock compensation as of September 30, 2007
remaining to be amortized over a weighted average life of 2.9 years.
17
IDENIX PHARMACEUTICALS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) CONTINUED
The
assumptions used are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
|
2007 |
|
2006 |
|
2007 |
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected dividend yield |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk-free interest rate |
|
|
4.96 |
% |
|
|
4.96 |
% |
|
|
4.77 |
% |
|
|
4.81 |
% |
Expected option term (in years) |
|
|
5.05 |
|
|
|
5.00 |
|
|
|
5.05 |
|
|
|
5.00 |
|
Expected volatility |
|
|
56.9 |
% |
|
|
61.0 |
% |
|
|
56.9 |
% |
|
|
63.0 |
% |
No dividend yield was assumed as the Company does not pay dividends on its common stock. The
risk-free interest rate is based on the yield of U.S. Treasury securities consistent with the
expected life of the option. The expected option term and expected volatility were determined by
examining the expected terms and expected volatilities of similarly sized biotechnology companies
as well as the expected option term and expected volatility of the Companys stock.
Share-based compensation expense recognized in the consolidated statements of operations is
based on awards ultimately expected to vest and is reduced for
estimated forfeitures. SFAS No. 123(R) requires forfeitures to
be estimated at the time of grant and revised, if necessary, in subsequent periods as options vest,
if actual forfeitures differ from those estimates. During the three and nine months ended September
30, 2007 and 2006, because substantially all of the Companys stock option grants vest monthly,
stock-based employee compensation expense includes the actual impact of forfeitures.
12. 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 nor 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. The Company also 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 United States
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 HCV; 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. The Company
has no amounts accrued or payable under this settlement agreement at September 30, 2007 as the
Company has had no sales of products relating to these inventions and discoveries by the CEO.
Hepatitis B Product
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.
18
IDENIX PHARMACEUTICALS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) CONTINUED
In February 2006, UABRF notified the Company that it and Emory University were asserting a
claim, that as a result of filing a continuation patent application in July 2005 by UABRF, the UAB
license agreement covers the Companys telbivudine technology and that the Company is obligated to
pay to UABRF, Emory University and Le Centre Nationale de la Recherché Scientifique (CNRS)
(collectively, the 1998 licensors) an aggregate of $15,300,000, comprised of 20% of the
$75,000,000 license fee that the Company received from Novartis in May 2003 in connection with the
license of its HBV product candidates and a $300,000 payment in connection with the submission to
the United States Food and Drug Administration (FDA) of the investigational new drug application
(IND) pursuant to which the Company conducted its clinical trials of telbivudine. The Company
disagrees with the assertion made by UABRF and Emory University and is actively defending against
these assertions. Under the terms of the license agreement, the dispute will be resolved by
arbitration under the rule of the American Arbitration Association before a panel of three
arbitrators if the parties are unable to reach agreement after a period of negotiation and
mediation. Pursuant to the terms of the dispute resolutions procedure in the UAB license agreement,
in September 2007 the CEOs of UABRF and the Company met and agreed to begin a mediation process.
The Company does not believe that the matters disputed by UABRF and Emory University regarding the
UAB license agreement will have any effect on either the cooperative agreement with CNRS and the
University of Montpellier or the technology licenses, including a license to telbivudine, which
have been granted to the Company pursuant to the cooperative agreement.
However, if it is determined that the license agreement does cover the Companys telbivudine
technology, the Company will
become obligated to make payments to the 1998 licensors in the amounts and manner specified in the
license agreement. While the Company disputes the demands made by UABRF, even if liability were
found to exist, UABRFs claims, in addition to those described above would likely include payments
in the aggregate amount of $1,000,000 due upon achievement of certain regulatory milestones, a 6%
royalty on annual sales up to $50,000,000 and a 3% royalty on annual sales greater than $50,000,000
made by the Company or any affiliate of the Company. Additionally, if the Company sublicenses its
rights to any entity other than one which holds or controls at least 50% of its capital stock, or
if Novartis ownership interest in the Company declines below 50% of the Companys outstanding
shares of capital stock, UABRF would likely contend that the Company is obligated to pay to the
1998 licensors 30% of all royalties received on sales by the sublicensee of telbivudine and 20% of
all fees, milestone payments and other cash consideration received from the sublicensee with
respect to telbivudine. The Company does not believe that it is
probable that UABRFs position will be upheld and as such, the Company has not recorded a liability at September 30, 2007.
In January 2007, the Board of Trustees of the University of Alabama and related entities filed
a complaint in the United States District Court for the Northern District of Alabama, Southern
Division against the Company, CNRS and the University of Montpellier. The complaint alleges that a
former employee of UAB is a co-inventor of certain patents in the United States and corresponding
foreign patent applications related to the use of ß-L-2-deoxy-nucleosides for the treatment of HBV
assigned to one or more of the Company, CNRS and the University of Montpellier and which cover the
use of Tyzeka ® /Sebivo ®, the Companys product for the treatment of HBV.
The University of Alabama has included a demand for damages under various theories in its
complaint, but did not specify the amount of damages that it alleges to have incurred. In response
to the complaint in March 2007, the Company filed a motion to dismiss based upon lack of personal
jurisdiction. In September 2007, the parties agreed to stay the action for one hundred twenty (120)
days and pursue mediation relating to the disputes associated with the license agreement and this
litigation. The Company continues to actively prepare for the defense of this claim, if necessary.
While the Company is vigorously defending this lawsuit, the Company is not able to ascertain the
likelihood of success at this time.
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 Stock Purchase Agreement), the Company made numerous representations and
warranties to Novartis regarding its HBV and HCV product candidates, including representations
regarding the 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 would be required.
13. NEW ACCOUNTING PRONOUNCEMENTS
In September 2006, FASB Statement No. 157, Fair Value Measurements, (SFAS No. 157) was
issued. This statement defines fair value, establishes a framework for measuring fair value in
generally accepted accounting principles, or GAAP, and expands
19
IDENIX PHARMACEUTICALS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) CONTINUED
disclosures about fair value measurements. This statement applies under other accounting
pronouncements that require or permit fair value measurements, the FASB having previously concluded
in those accounting pronouncements that fair value is the relevant measurement attribute.
Accordingly, this statement does not require any new fair value measurements. However, for some
entities, the application of this Statement will change current practice. The statement is
effective for financial statements issued for fiscal years beginning after November 15, 2007, and
interim periods within those fiscal years. The Company is currently evaluating the impact, if any,
that this standard will have on its financial statements.
In February 2007, FASB Statement No. 159, The Fair Value Option for Financial Assets and
Financial Liabilities (SFAS No. 159) was issued. SFAS No. 159 includes an amendment of FASB
Statement No. 115, Accounting for Certain Investments in Debt and Equity Securities and permits
entities to choose, at specified election dates, to measure eligible items at fair value and
requires unrealized gains and losses on items for which the fair value option has been elected to
be reported in earnings. This Statement is effective for fiscal years beginning after November 15,
2007. The Company is currently evaluating the impact, if any, that this standard will have on its
financial statements.
In June 2007, EITF Issue No. 07-03, Accounting for Nonrefundable Advance Payment for Goods
and Services Received for Use in Future Research and Development Activities (EITF 07-03) was
issued. EITF 07-03 provides guidance on whether nonrefundable advance payments for goods and
services that will be used in research and development activities should be expensed when the
advance payment is made or when the research and development activity has been performed. EITF
07-03 is effective for
fiscal years beginning after December 15, 2007. The Company is currently evaluating the impact, if
any, that this standard will have on its financial statements.
20
ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
This report contains forward-looking statements within the meaning of Section 21E of the
Securities Exchange Act of 1934, as amended, or the Exchange Act. 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, intends, may, plans, will, would and similar expressions are intended to
identify forward-looking statements, although not all forward-looking statements contain these
identifying words. Such statements reflect our current views with respect to future events. We
cannot guarantee that we actually will achieve the plans, intentions, or expectations disclosed in
our forward-looking statements. There are a number of important factors that could cause actual
results or events to differ materially from those disclosed in the expressed or implied
forward-looking statements we make. These important factors include our critical accounting
policies and estimates and the risk factors set forth below in Part II, Item 1A Risk Factors.
Although we may elect to update forward-looking statements in the future, we specifically disclaim
any obligation to do so, even if our estimates change, 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 drugs for the treatment of human viral and other infectious diseases. Our
current focus is on diseases caused by hepatitis B virus, or HBV; hepatitis C virus, or HCV; and
human immunodeficiency virus, or HIV.
In October 2006, we received approval from the U.S. Food and Drug Administration, or FDA, to
market our first product, Tyzeka ® (telbivudine), for the treatment of patients with
chronic hepatitis B in the United States. In territories outside the United States, telbivudine is
marketed as Sebivo ® . In April 2007, Sebivo ® was approved in the
European Union for the treatment of patients with chronic hepatitis B. To date, Sebivo
® has been approved in more than 50 countries outside the United States, including China,
Switzerland and the European Union. Each of Tyzeka ® /Sebivo ® and the
product candidates that we are developing are selective and specific, are being developed for once
a day oral administration, and we believe may be used in combination with other therapeutic agents
to improve clinical benefits.
In July 2007, we announced that the FDA had placed on clinical hold in the United States our
development program of valopicitabine for the treatment of HCV based on the overall risk/benefit
profile observed in clinical testing. We do not plan to continue the development of valopicitabine.
Effective October 1, 2007, we transitioned to
Novartis all of our development, commercialization
and manufacturing rights and obligations related to telbivudine (Tyzeka®/Sebivo®) on a worldwide
basis in exchange for royalty payments equal to a percentage of net sales of
Tyzeka®/Sebivo®, with such percentage increasing according to specified tiers
of net sales. The royalty payment will vary based upon the territory and the aggregate dollar
amount of net sales. As a direct result of this transition, on September 28, 2007 we announced a
restructuring of our operations by a workforce reduction of approximately 100 positions, the
majority of which had supported the development and commercialization of
Tyzeka®/Sebivo® in the U.S. and Europe. As a result of the restructuring, we
recorded a charge of $6.4 million in the quarter ended September 30, 2007 primarily related to
severance costs and impairment of certain assets. We expect to incur approximately $3.0 to $5.0
million in additional charges related to this restructuring over the next two quarters.
Additionally, in connection with the restructuring, we incurred an additional charge of $1.9
million during the quarter ended September 30, 2007 relating to accelerating depreciation on
certain assets. We expect to record an additional $0.9 million of depreciation expense relating to
these assets during the quarter ending December 31, 2007. We estimate that this restructuring will result in savings of $40 million to $45 million, including associated third party and marketing costs, on an annualized basis.
21
The following table summarizes key information regarding Tyzeka®
/Sebivo® and our pipeline of product candidates:
|
|
|
|
|
|
|
Product/ Product |
|
|
|
|
Candidates/ |
|
|
Indication |
|
Programs |
|
Description |
HBV
|
|
Tyzeka®Sebivo®*
(telbivudine)
(L- nucleoside)
|
|
In October 2006, the
FDA, approved
Tyzeka®
for the treatment of
patients with
chronic hepatitis B
in the United
States. Outside of
the United States,
Sebivo ®
has been approved in
more than 50
countries to date.
Effective October 1,
2007, we
transitioned to
Novartis all of our
development,
commercialization
and manufacturing
rights and obligations related to
telbivudine
(Tyzeka®
/Sebivo®)
on a worldwide basis
in exchange for
royalty payments
equal to a
percentage of net
sales of
Tyzeka®
/Sebivo®,
with such percentage
increasing according
to specified tiers
of net sales.
Beginning in the
fourth quarter of
2007, Novartis is
solely responsible
for clinical trial
costs and related
expenditures
associated with
telbivudine. We are
in the process of
transitioning to
Novartis all ongoing
clinical trials and
commercial
activities for
telbivudine. |
|
HBV
|
|
valtorcitabine
(L-nucleoside)
|
|
During the third
quarter of 2007, we
decided not to
continue with the
development of
valtorcitabine. |
|
|
|
|
|
HCV
|
|
valopicitabine (NM283)
(Nucleoside analog)
|
|
In July 2007, this
program was placed
on clinical hold by the FDA and development of the program was discontinued. |
|
|
|
|
|
|
|
discovery program
Nucleoside polymerase inhibitors
(IDX102 and IDX184)
Protease inhibitors
Non-nucleoside polymerase inhibitors
|
|
Preclinical
evaluation of
compounds from the
HCV discovery
program is in
progress. This
program is focused
on the three
primary classes of
drugs for the
treatment of HCV,
which include
nucleoside
polymerase
inhibitors,
protease inhibitors
and non-nucleoside
polymerase
inhibitors. The
most advanced of
these efforts is
our research in
next-generation
nucleoside
polymerase
inhibitors. We have
identified two lead
candidates which
are in late stage
preclinical testing
studies. |
|
HIV
|
|
IDX899 (Non-nucleoside
reverse transcriptase
inhibitor or NNRTI)
|
|
A phase I
dose-escalation
study for the
non-nucleoside
reverse
transcriptase
inhibitor, or
NNRTI, candidate
IDX899 for the
treatment of HIV
was completed. This
phase 1 study was
designed to assess
the safety and
pharmacokinetics of
IDX899 in healthy
volunteers. |
|
|
|
* |
|
In this Form 10-Q, all references to Tyzeka® (trade name of
telbivudine in the United States), Sebivo® (trade name of
telbivudine for countries other than the United States) and Tyzeka
® /Sebivo ® refer to telbivudine. |
In May 2003, we entered into a collaboration with Novartis relating to the worldwide
development and commercialization of our product candidates. The collaboration includes the
development, license and commercialization agreement dated as of May 8, 2003, by and among us and
Novartis as amended, and the master manufacturing and supply agreement dated as of May 8, 2003
between us
22
and Novartis. Novartis paid us a license fee of $75 million for our HBV product and
product candidate, Tyzeka ® /Sebivo ® and valtorcitabine, respectively, is
providing development funding for Tyzeka ® /Sebivo ® and valtorcitabine and
will make milestone payments, which could total up to $35 million upon the achievement of specific
regulatory approvals. Additional commercialization milestone payments will be paid to us by
Novartis upon achievement of predetermined HBV product sales levels.
Of these $35 million in milestone payments, we received payment on two of these regulatory
milestones in 2007. We achieved one of these regulatory milestones for $10.0 million during the
three months ended March 31, 2007 with the regulatory approval of Sebivo ® in China. We
recognized this regulatory milestone in collaboration revenue from Novartis in association with
this milestone during the three months ended March 31, 2007 as the milestone was deemed
substantive. A second of these regulatory milestones for $10.0 million was achieved in April 2007
with the regulatory approval of Sebivo ® in the European Union. This milestone was
deemed not to be substantive and we recognized $237,000 and $4,547,000 as revenue during the three
months and nine months ended September
30, 2007, respectively, representing the portion of the development period that has passed, with
the remaining $5,453,000 being recorded as deferred revenue and will be amortized over the
remaining development period of our licensed product candidates. We are no longer eligible to
receive any remaining milestone payments associated with telbivudine as a result of our transition
to Novartis of all of our development, commercialization and
manufacturing rights and obligations related to telbivudine.
Novartis also acquired an option to license our HCV and other product candidates. In March
2006, Novartis exercised its option to license valopicitabine, our former HCV product candidate. As
a result, we received a $25 million license payment from Novartis in March 2006 and Novartis began
providing development funding for valopicitabine. Under the collaboration, Novartis would have paid
us up to $500 million in additional license fees and regulatory milestone payments for an HCV
product candidate. In July 2007, we announced that the FDA had placed on clinical hold in the
United States our development program of valopicitabine for the treatment of HCV based on the
overall risk/benefit profile observed to date in clinical testing. We do not plan to continue the
development of valopicitabine. As a result, we are not expected to receive any additional license
fees or regulatory milestone payments for valopicitabine from Novartis.
We initially planned to co-promote or co-market with Novartis in the United States, United
Kingdom, France, Germany, Italy and Spain all products Novartis licenses from us that are
successfully developed and approved for commercial sales, including Tyzeka ® /Sebivo
® . Effective October 1, 2007, we transitioned to Novartis all of our development,
commercialization and manufacturing rights and obligations related to telbivudine (Tyzeka®/Sebivo®)
on a world-wide basis in exchange for royalty payments equal to a percentage of net sales of
Tyzeka®/Sebivo®, with such percentage increasing according to specified tiers
of net sales. The royalty payment will vary based upon the territory and the aggregate dollar
amount of net sales. As a direct result of this transition, on September 28, 2007 we announced a
restructuring of our operations by a workforce reduction of approximately 100 positions, including
the termination of our sales force in the United States and Europe. We continue to have
co-promotion and co-marketing rights with Novartis in the United States, United Kingdom, France,
Germany, Italy and Spain on all other products, with the exception of Tyzeka®/Sebivo®, that
Novartis licenses from us that are successfully developed and approved for commercial sales.
Novartis has the exclusive right to promote and market these other licensed products in the rest of
the world.
Pursuant to the supply agreement, Novartis was appointed to finish and package licensed
products for commercial sale. Novartis was also afforded the opportunity to manufacture active
pharmaceutical ingredients for the commercial supply of licensed products if certain conditions and
criteria were satisfied. In June 2006, we entered into a commercial manufacturing agreement with
Novartis and a packaging agreement with Novartis Pharmaceuticals Corporation, an affiliate of
Novartis. Under the manufacturing agreement, Novartis manufactured the commercial supply of Tyzeka
® that was intended for sale in the United States. The packaging agreement provides
that the supply of Tyzeka ® intended for commercial sale in the United States will be
packaged by Novartis Pharmaceuticals Corporation. As a result of the recent amendment to our
collaboration agreement with Novartis, we terminated the manufacturing agreement and will work with
Novartis to terminate our rights and obligations under the packaging agreement. Effective October
1, 2007, Novartis is solely responsible for the manufacture and supply of
Tyzeka®/Sebivo® on a worldwide basis.
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 presently owns approximately 56% of our outstanding common stock.
All of our product candidates are currently in preclinical development or clinical
development. To commercialize any of our product candidates, we will be required to obtain
marketing authorization approvals after successfully completing preclinical studies and clinical
trials of such product candidates. Currently, Tyzeka ® /Sebivo ® has
received regulatory approval for the treatment of
patients with chronic hepatitis B in more than 50 countries around the world, including the United
States, China, Switzerland and the European Union. We started recognizing revenue from product
sales associated with Tyzeka ® in the United States during the fourth quarter of 2006.
Effective October 1, 2007 with the recent transition to Novartis of our development and commercial
rights to telbivudine, we will no longer recognize revenue from product sales of
Tyzeka® and instead we will begin recognizing royalty income associated with product
sales of Tyzeka®/Sebivo®. We expect our near-term sources of funding to
consist principally of the reimbursement of expenses we may incur in connection with the
development of our licensed product and product candidates;
23
potential license and other fees we may
receive in connection with license agreements with third parties; and anticipated royalty payments
associated with product sales of Tyzeka ® /Sebivo ® .
To date, our revenues have been derived from: license fees and milestone payments, development
expense reimbursements received from our partners, Tyzeka ® product sales in the
United States, amounts associated with Sebivo ® product sales outside of the United
States, and government grants. We derived substantially all of our total revenues from Novartis for
the three and nine months ended September 30, 2007 and 2006, respectively. We anticipate
recognizing additional revenues from our collaboration with Novartis. These revenues include
additional development expense funding for our HCV product candidate and other product candidates
that Novartis may elect to subsequently license from us, as well as, regulatory milestones and, if
products are approved for sale, commercialization milestones and revenues derived from sales by us
or Novartis of our licensed product candidates.
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, 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. We incur the majority of our research and development spending on clinical,
preclinical and manufacturing activity with third-party contractors relating to the development of
our HBV, HCV and HIV 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.
Our current estimates for additional research and development expenses are subject to risks
and uncertainties associated with research, development, clinical trials and the FDA and foreign
regulatory review and approval processes. The time and cost to complete development of our product
candidates may vary significantly and depends upon a number of factors, including the requirements
mandated by the FDA and other regulatory agencies, the success of our clinical trials, the
availability of financial resources, our collaboration with Novartis and its participation in the
manufacturing and clinical development of our product candidates.
On
September 28, 2007, we announced a restructure of its operations as a result of an agreement
with Novartis in which we would transition to Novartis all development, commercialization
and manufacturing rights to telbivudine (Tyzeka ®/Sebivo ®) on a worldwide basis effective
October 1, 2007. As a result, we entered into a plan to enact a workforce reduction of
approximately 100 positions, the majority of which had supported the development and
commercialization of Tyzeka ®/Sebivo ® in the United States and Europe. The restructuring
was a strategic decision in which we would focus our
resources on our HCV and HIV discovery and development programs.
As a
result of the restructuring, we recorded a restructuring charge of $3.3 million for the
quarter ended September 30, 2007 primarily related to severance costs. We expect to incur and pay approximately $3.0 to $5.0 million in
additional charges related to this restructuring for severance and
contract terminations costs over the next two quarters. A summary of
restructuring activity at September 30, 2007 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge for the
Three
and
Nine |
|
|
|
|
|
|
|
|
|
|
Current
Liability |
|
|
|
Months Ended |
|
|
|
|
|
|
Non-cash |
|
|
as of |
|
|
|
September 30, 2007 |
|
|
Cash Payments |
|
|
expense |
|
|
September 30, 2007 |
|
|
|
(in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee severance, benefits and related costs |
|
$ |
3,328 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
3,328 |
|
Contract termination and other costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
3,328 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
3,328 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additionally,
in connection with the restructuring, we incurred an impairment charge of $2.1 million
on certain fixed assets and stock compensation expense of $1.0 million associated with
the accelerated vesting of stock options during the quarter ended September 30, 2007.
We also had an additional charge of $1.9 million during the quarter ended September 30, 2007
relating to accelerating depreciation on certain fixed assets. The Company expects to record
an additional $0.9 million of depreciation expense relating to these assets during the
quarter ending December 31, 2007 (Note 8).
24
Results of Operations
Comparison of Three Months Ended September 30, 2007 and 2006
Revenues
Total revenues for the three months ended September 30, 2007 and 2006 were as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
2007 |
|
2006 |
|
|
(in thousands) |
Collaboration revenue related party: |
|
|
|
|
|
|
|
|
Reimbursement of research and development costs |
|
$ |
7,518 |
|
|
$ |
16,273 |
|
License fee revenue |
|
|
2,281 |
|
|
|
3,317 |
|
Product revenue rest of world |
|
|
103 |
|
|
|
|
|
Profit sharing to related party |
|
|
(749 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,153 |
|
|
|
19,590 |
|
Product sales, net |
|
|
1,725 |
|
|
|
|
|
Government grants |
|
|
10 |
|
|
|
55 |
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
$ |
10,888 |
|
|
$ |
19,645 |
|
|
|
|
|
|
|
|
|
|
Collaboration Revenue Related Party
Collaboration revenue related party consists of revenue associated with our collaboration with
Novartis for the worldwide development and commercialization of our product candidates. Prior to
the amendment of our agreement with Novartis in September 2007, collaboration revenue that
we have recognized from Novartis was comprised of the following:
|
|
|
reimbursement by Novartis for expenses we incur in connection with the
development and registration of our licensed products and product
candidates, net of certain qualifying costs incurred by Novartis; |
|
|
|
|
license and other fees received from Novartis for the license of HBV
and HCV product candidates, net of reductions for Novartis stock
subscription rights, which is being recognized over the development
period of the licensed product candidates; |
|
|
|
|
milestone amounts from Novartis upon achievement of regulatory
filings, certain marketing authorization approvals and achievement of
pre-determined sales levels defined in the development agreement
relating to Tyzeka ® /Sebivo ® and
valtorcitabine; |
|
|
|
|
product revenue rest of world is comprised of amounts that Novartis
would pay us for the supply of licensed products in countries outside
of the United States, United Kingdom, Germany, France, Spain and
Italy. These amounts were recorded as revenue at a percentage of net
sales; and |
|
|
|
|
profit sharing to related party represents the net benefit amount paid
to Novartis on licensed product sales in the United States in which we
acted as the lead commercialization party. The net benefit, defined as
net sales less cost of goods sold, was shared equally with Novartis on
product sales in the United States. These amounts due to Novartis were
recorded as a reduction of collaboration revenue. |
The decrease in collaboration revenue from related party of $10.4 million for the three months
ended September 30, 2007 in comparison with the three months ended September 30, 2006 was primarily
due to lower reimbursements from Novartis as a result of decreases in development costs for
Tyzeka ® /Sebivo ® following the commercialization of the product, the
discontinuation of development of valtorcitabine and the discontinuation of development of
valopicitabine in July 2007.
Product
sales consisted of sales of Tyzeka® in the United States. Revenues from
product sales were recognized when the product was shipped and title and risk of ownership has been
transferred to the customer, typically upon delivery. Product sales were recorded net of any
applicable allowances for sales returns, trade term discounts, early pay discounts, Medicaid
rebates, managed care discounts, vouchers, coupons, patient assistance programs and other
allowances. We estimated deductions from product sales at the time of sale based on historical
experience and industry knowledge updated for changes in facts, where appropriate. We had a
commercial collaboration profit-sharing arrangement with Novartis on Tyzeka ® sales in
the United States. Under this arrangement, we co-promoted Tyzeka ® with Novartis in
the United States, but had primary responsibility for U.S. commercialization. As a result, we
recorded product sales and related production costs for our U.S. commercial product sales in the
statement of operations on a gross basis less applicable allowances since we had the inventory and
credit risk, and therefore we met the criteria as a principal in the sale of product to third
parties.
As a result of the recent transition to Novartis of our development and commercial rights to
telbivudine, we will no longer recognize revenue from product sales of
Tyzeka®/Sebivo®. Beginning October 1, 2007, we will receive royalty payments
associated with product sales of Tyzeka®/Sebivo®, with such percentage
increasing according to specified tiers of net sales. The royalty payment will vary based upon the
territory and the aggregate dollar amount of net sales.
The increase in product sales of $1.7 million for the three months ended September 30, 2007 in
comparison with the three months ended September 30, 2006 was due to the launch of Tyzeka
® in the United States in the fourth quarter of 2006.
Research and Development Expenses
Research and development expenses were $18.4 million for the three months ended September 30,
2007 as compared with $26.1 million for the three months ended September 30, 2006. The decrease of
$7.7 million was primarily due to a decrease in expenses for third party contractors, primarily
related to clinical trials and pre-clinical studies of Tyzeka ® /Sebivo ®
and valtorcitabine. This decrease was partially offset by an increase in salary and other
payroll-related costs due to the hiring of additional personnel for research activities and an
increase in laboratory operating expenses as we expand our research efforts.
We
expect our research and development expenses to decrease in the future
as we transition our focus from development to research activities.
We continue to devote substantial resources to our
research and development activities, expand our research pipeline,
engage in future development activities as we continue to advance our
product candidates and explore collaborations with other
entities that we believe will create shareholder value.
25
Selling, General and Administrative Expenses
Selling, general and administrative expenses were $18.4 million for the three months ended
September 30, 2007 as compared with $15.9 million for the three months ended September 30, 2006. The increase of $2.5 million was primarily due to an increase in accelerated depreciation of $1.9
million on enterprise software that was no longer needed with the transition of commercialization
and development activities to Novartis and marketing expenses associated with the launch of
Tyzeka ® /Sebivo ® and higher professional fees.
We
expect our selling, general and administrative expenses to decrease
in the future as we evaluate our general and administrative functions with the goal of generating
increased efficiencies.
Restructuring and Impairment Charges
On September 28, 2007, we amended our development agreement with Novartis in which we
transitioned to Novartis all of our development, commercialization
and manufacturing rights and obligations related
to telbivudine (Tyzeka®/Sebivo®) on a worldwide basis. As a result, we
announced a restructuring of our operations by a workforce reduction of approximately 100
positions, the majority of which had supported the development and commercialization of
Tyzeka®/Sebivo® in the U.S. and Europe. As a result of the restructuring, we
recorded a charge of $6.4 million in the quarter ended September 30, 2007 primarily associated with
employee severance benefits, stock-based compensation with accelerated vesting of stock options and
write-off of certain assets.
Investment and Other Income, Net
Net investment income was $1.7 million for the three months ended September 30, 2007 as
compared with $2.6 million for the three months ended September 30, 2006. The decrease of $0.9
million was primarily the result of lower average cash and marketable securities balances held
during the three months ended September 30, 2007 due to the use of cash for operations.
Income Taxes
Income tax benefit was approximately $0.4 million for the three months ended September 30,
2007 as compared with approximately $0.1 million for the three months ended September 30, 2006. The
increase in the income tax benefit for the three months ended September 30, 2007 was due to the
expiry of an uncertain tax position relating to our tax year ended December 31, 2003. Our U.S. and
French subsidiaries perform services for us and are reimbursed for these costs, plus a profit
margin.
Comparison of Nine Months Ended September 30, 2007 and 2006
Revenues
Total revenues for the nine months ended September 30, 2007 and 2006 were as follows:
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
|
|
2007 |
|
2006 |
|
|
(in thousands) |
Collaboration revenue related party: |
|
|
|
|
|
|
|
|
Reimbursement of research and development costs |
|
$ |
31,780 |
|
|
$ |
43,339 |
|
License fee revenue |
|
|
11,536 |
|
|
|
8,559 |
|
Milestone revenue |
|
|
10,000 |
|
|
|
|
|
Product revenue rest of world |
|
|
242 |
|
|
|
|
|
Profit sharing to related party |
|
|
(1,380 |
) |
|
|
|
|
|
|
|
|
|
|
52,178 |
|
|
|
51,898 |
|
Product sales, net |
|
|
3,188 |
|
|
|
|
|
Government grants |
|
|
60 |
|
|
|
171 |
|
|
|
|
Total revenues |
|
$ |
55,426 |
|
|
$ |
52,069 |
|
|
|
|
The increase in collaboration revenue from related party of $0.3 million for the nine months
ended September 30, 2007 in comparison with the nine months ended September 30, 2006 was primarily
due to the achievement of a $10.0 million regulatory milestone from Novartis during the three
months ended March 31, 2007 in which we obtained marketing authorization of Sebivo ®
in China and the recognition of revenue relating to the milestone achieved with the regulatory
approval of Sebivo ® in the European Union in April 2007. This was offset by a
reduction in reimbursement of research and development costs due to decreased activity on
Tyzeka®/Sebivo® and valtorcitabine.
The increase in product sales of $3.2 million for the nine months ended September 30, 2007 in
comparison with the nine months ended September 30, 2006 was due to the launch of Tyzeka
® in the United States in the fourth quarter of 2006.
Research and Development Expenses
Research and development expenses were $65.5 million for the nine months ended September 30,
2007 as compared with $73.0 million for the nine months ended September 30, 2006. The decrease of
$7.5 million was primarily due to a decrease in clinical development expenses associated with
Tyzeka ® /Sebivo ® and valtorcitabine. This decrease was offset by
increases in salary and
26
payroll-related expenses associated with the hiring of additional employees
for expanded research and development activities and an increase in laboratory operating expenses
as we expand our research efforts.
Selling, General and Administrative Expenses
Selling, general and administrative expenses were $54.1 million for the nine months ended
September 30, 2007 as compared with $38.7 million for the nine months ended September 30, 2006. The
increase of $15.4 million was primarily due to the accelerated depreciation of enterprise software,
an increase in salary and other payroll-related expenses primarily due to the hiring of additional
sales and marketing personnel in the United States and Europe for the commercialization of Tyzeka
® /Sebivo ® ; increased marketing expenses associated with the launch of
Tyzeka ® /Sebivo ® and higher professional fees.
Restructuring and Impairment Charges
On September 28, 2007, we amended our development agreement with Novartis in which we
transitioned to Novartis all of our development, commercialization
and manufacturing rights and obligations related to
telbivudine (Tyzeka®/Sebivo®) on a world-wide basis. As a result, we
announced a restructuring of our operations by a workforce reduction of approximately 100
positions, the majority of which had supported the development and commercialization of
Tyzeka®/Sebivo® in the U.S. and Europe. As a result of the restructuring, we
recorded a charge of $6.4 million in the quarter ended September 30, 2007 primarily associated with
employee severance benefits, stock-based compensation with the accelerated vesting of stock options
and the write-off of certain assets.
Investment and Other Income, Net
Net investment income was $5.5 million for the nine months ended September 30, 2007 as
compared with $7.2 million for the nine months ended September 30, 2006. The decrease of $1.7
million was primarily the result of lower average cash and marketable securities balances held
during the nine months ended September 30, 2007 due to the use of cash for operations.
Income Taxes
Income tax benefit was approximately $0.6 million for the nine months ended September 30, 2007
as compared with approximately $0.9 million for the nine months ended September 30, 2006. The
decrease in the income tax benefit for the nine months ended September 30, 2007 was due to a
reduction in amounts our French subsidiary has received or is expected to receive for certain
research and development credits. We also incurred a $0.2 million increase in our accumulated
deficit due to the adoption of FASB Interpretation No. 48.
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 Tyzeka ®
/Sebivo ® , valtorcitabine and valopicitabine, net proceeds from Sumitomo for
reimbursement of development costs, collections on sales of Tyzeka ® in the United
States, net proceeds from private placements of our convertible preferred stock, net proceeds from
public offerings and concurrent private placements of our common stock in July 2004 and in October
2005 and proceeds from the exercise of stock options granted pursuant to our equity compensation
plans. As a result of the clinical hold the FDA placed on our
development program of valopicitabine,
we do not plan to continue the development of valopicitabine.
Therefore, we will not receive any
additional license fees or other milestone payments for valopicitabine from Novartis. As a result
of the recent transition to Novartis of our development and commercial rights to telbivudine, we
will no longer recognize revenue from product sales of Tyzeka®/Sebivo®.
Beginning October 1, 2007, we will receive royalty payments from Novartis associated with product
sales of Tyzeka®/Sebivo®.
We had $51.3 million and $55.9 million in cash and cash equivalents as of September 30, 2007
and December 31, 2006, respectively. We 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 24 months and investments with
maturities greater than 12 months are classified as non-current marketable securities. As of
September 30, 2007, we had $52.5 million in current marketable securities and $32.7 million in
non-current marketable securities. As of December 31, 2006, we had $71.3 million in current
marketable securities and $59.2 million in non-current marketable securities. In total, we had
$136.5 million and $186.4 million in cash, cash equivalents and marketable securities at September
30, 2007 and December 31, 2006, respectively. We also had an
equity investment valued at $4.1 million and
$0.5 million at September 30, 2007 and December 31, 2006, respectively. We sold this investment in
October 2007 for $4.0 million in cash proceeds.
Net cash used in operating activities was $42.9 million for the nine months ended September
30, 2007. Net cash used in operating activities was $30.3 million for the nine months ended
September 30, 2006. The net cash used in operating activities for the nine months ended September
30, 2007 was primarily related to the net loss for the period offset by a decrease in the
receivable from related party and depreciation, stock-based compensation and restructuring charges.
The net cash used in operating activities for the
27
nine months ended September 30, 2006 was primarily related to the net loss for the period and an increase in the receivable from related
party. This was offset by the receipt of a $25 million payment from Novartis relating to the
license of valopicitabine in March 2006.
Net cash provided by investing activities was $38.0 million and $12.0 million for the nine
months ended September 30, 2007 and 2006, respectively. The net cash provided by investing
activities for the nine months ended September 30, 2007 was primarily due to net proceeds from
sales of our marketable securities to fund operations, offset by capital expenditures for computer
software development projects and leasehold improvements. The net cash provided by investing
activities for the nine months ended September 30, 2006 was primarily due to net proceeds from
sales of our marketable securities to fund operations, offset by capital expenditures for computer
software development projects.
Net cash provided by financing activities was $0.2 million and $0.9 million for the nine
months ended September 30, 2007 and 2006, respectively. The net cash provided by financing
activities for the nine months ended September 30, 2007 and 2006 was due to proceeds received from
the issuance of stock primarily from the exercise of employee stock options.
Set forth below is a description of our contractual obligations as of September 30, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period |
|
|
|
|
|
|
|
|
|
|
|
One to |
|
|
|
|
|
|
|
|
|
|
|
|
|
Less Than |
|
|
Three |
|
|
Three to |
|
|
After Five |
|
Contractual Obligations |
|
Total |
|
|
One Year |
|
|
Years |
|
|
Five Years |
|
|
Years |
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
|
|
|
|
|
|
|
|
Operating leases |
|
$ |
17,951 |
|
|
$ |
3,210 |
|
|
$ |
5,946 |
|
|
$ |
4,091 |
|
|
$ |
4,704 |
|
Consulting and other agreements |
|
|
6,084 |
|
|
|
2,325 |
|
|
|
3,540 |
|
|
|
219 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations |
|
$ |
24,035 |
|
|
$ |
5,535 |
|
|
$ |
9,486 |
|
|
$ |
4,310 |
|
|
$ |
4,704 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We have certain potential milestone payment obligations relating to our HBV and HCV product
and product candidates. These obligations are excluded from the contractual obligations table above
and are more fully described below.
Pursuant to the license agreement between us and UABRF, or the UAB license agreement, we were
granted an exclusive license to the rights that UABRF, Emory University and Le Centre Nationale de
la Recherche, or CNRS, collectively the 1998 licensors, have to a 1995 U.S. patent application and
progeny thereof and counterpart patent applications in Europe, Canada, Japan and Australia that
cover the use of certain synthetic nucleosides for the treatment of HBV infection.
In February 2006, UABRF notified us that it and Emory University were asserting a claim that,
as a result of the filing of a continuation patent application in July 2005 by UABRF, the UAB
license agreement covers our telbivudine technology. UABRF contends that we are obligated to pay to
the 1998 licensors an aggregate of $15.3 million comprised of 20% of the $75 million license fee we
received from Novartis in May 2003 in connection with the license of our HBV product candidates and
a $0.3 million payment in connection with the submission to the FDA of the IND pursuant to which we
have conducted clinical trials of telbivudine. We disagree with UABRFs contentions and have
advised UABRF and Emory University that we will utilize the dispute resolution procedures set forth
in the UAB license agreement for resolution of this dispute. Under the terms of that agreement, if
resolution cannot be achieved through negotiations between the parties or mediation, it must be
decided by binding arbitration under the rules of the American Arbitration Association before a
panel of three arbitrators. Pursuant to the terms of the dispute resolutions procedure in the UAB
license agreement, in September 2007 the CEOs of UABRF and the Company met and agreed to begin a
process of mediation.
We do not regard it to be probable that UABRFs position will be upheld and as such, we have
not recorded a liability as of September 30, 2007. However, if it were determined that the UAB
license agreement does cover our technology, we will become obligated to make payments to the 1998
licensors in the amounts and manner specified in the UAB license agreement. While we dispute the
demands made by UABRF, even if liability were found to exist, UABRFs claims in addition to those
described above would likely include payments in the aggregate amount of $1.0 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, UABRF would likely contend that we would 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.
If it were determined that the UAB license agreement between us and UABRF does cover our use
of telbivudine to treat HBV, or we must otherwise rely upon a license 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.
28
Separately, we had a research collaboration with CNRS, one of the 1998 licensors. In May 2003,
we and Novartis entered into an amended and restated cooperative agreement with CNRS and
LUniversite Montpellier, or the University of Montpellier, pursuant to which we worked in
collaboration with scientists from CNRS and the University of Montpellier to discover and develop
technologies relating to antiviral substances. The agreement includes provisions relating to
ownership and commercialization of the technology which is discovered or obtained as part of the
collaboration as well as rights regarding ownership or use of such technology upon termination of
the agreement. This cooperative agreement expired in December 2006. We do not believe that the
matters disputed by UABRF and Emory University regarding the UAB license agreement will have any
effect on either our cooperative agreement with CNRS and the University of Montpellier or the
technology licenses, including a license to telbivudine, which have been granted to us pursuant to
the cooperative agreement.
In January 2007, the Board of Trustees of the University of Alabama and related entities filed
a complaint in the United States District Court for the Northern District of Alabama, Southern
Division against us, CNRS and the University of Montpellier. The complaint alleges that a former
employee of UAB is a co-inventor of certain patents in the United States and corresponding foreign
patent applications related to the use of ß-L-2-deoxy-nucleosides for the treatment of HBV
assigned to one or more of us, CNRS and the University of Montpellier and which cover the use of
Tyzeka ® /Sebivo ® , our product for the treatment of HBV. The University
of Alabama has included a demand for damages under various theories in its complaint, but did not
specify the amount of damages that it alleges to have incurred. In response to the complaint in
March 2007, we filed a motion to dismiss based upon lack of personal
jurisdiction. In September 2007, the parties agreed to stay the action for one hundred twenty (120)
days and pursue mediation relating to the disputes associated with the license agreement and this
litigation. We continue to actively prepare for the defense of the claim, if necessary. While we
are vigorously defending this lawsuit, we are not able to ascertain the likelihood of success at
this time.
Additionally, in connection with the resolution of matters relating to certain of our
hepatitis C product candidates, we entered into a settlement agreement with UABRF which provides
for a milestone payment of $1.0 million to UABRF upon receipt of regulatory approval in the United
States 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. The settlement
agreement also allows for payments in an amount equal to 0.5% of worldwide net sales of such HCV
products with a minimum sales based payment to equal $12.0 million.
Further, we have potential payment obligations under the license agreement with the University
of Cagliari pursuant to which we have the exclusive worldwide right to make, use and sell
valopicitabine and certain other HCV and HIV technology. We are liable for certain payments to the
University of Cagliari if we receive from Novartis or another collaborator license fees or
milestone payments with respect to such technology.
In March 2003, we entered into a final settlement agreement with Sumitomo under which the
rights to develop and commercialize telbivudine in Japan, China, South Korea and Taiwan previously
granted to Sumitomo were returned to us. This agreement with Sumitomo became effective upon
consummation of our collaboration with Novartis in May 2003. The settlement agreement, which we
entered into with Sumitomo, provides for a $5.0 million milestone payment to Sumitomo if and when
the first commercial sale of telbivudine occurs in Japan.
In October 2006, we entered into a two-year research collaboration agreement with Metabasis
Therapeutics, Inc. or Metabasis. Under the terms of the agreement, Metabasis proprietary
liver-targeted technology will be applied to certain of our compounds to develop second-generation
nucleoside analog product candidates for the treatment of HCV. In July 2007, we notified Metabasis
that we would exercise our option to terminate the research collaboration on the first anniversary
of the agreement in October 2007. Prior to the termination of the agreement, Metabasis asserted
that a certain scientific milestone was met and thus a $1.0 million payment under the collaboration
agreement came due, We do not agree with Metabasis assessment that the scientific milestone has
been met and therefore do not believe that we have any liability for this payment and have so
notified Metabasis.
We believe that our current cash and cash equivalents and marketable securities together with
funding we expect to receive from Novartis relating to the development of our licensed product
candidates together with anticipated royalty payments associated with product sales of Tyzeka
®
/Sebivo
®
will be sufficient to satisfy our cash needs for the next two years.
We also estimate that we will generate cost savings of $40 million to
$45 million on an annualized basis as a result of our restructuring.
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, other
than Novartis, which has the right to maintain its current ownership level, 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 condition and results of operations are based on
our financial statements, which have been prepared in accordance with accounting principles
generally accepted in the United States of America. The preparation of the financial statements
requires us to make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and
29
expenses. On an ongoing basis, we evaluate our estimates and judgments,
including those related to revenue recognition, accrued expenses and stock-based compensation. We
base our estimates on historical experience and on various other assumptions that we believe to be
reasonable under the circumstances, the results of which form the basis for making judgments about
the carrying value of assets and liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates under different assumptions or conditions.
Our significant accounting policies are more fully described in Note 2 to our consolidated
financial statements included in our Annual Report on Form 10-K for the year ended December 31,
2006. There have been no material changes to our critical accounting policies for revenue
recognition, accrued expenses and stock based compensation for the three months ended September 30,
2007 .
Recent Accounting Pronouncements
In September 2006, FASB Statement No. 157, Fair Value Measurements, or SFAS No. 157, was
issued. This statement defines fair value, establishes a framework for measuring fair value in
generally accepted accounting principles, or GAAP, and expands disclosures about fair value
measurements. This statement applies under other accounting pronouncements that require or permit
fair value measurements, the FASB having previously concluded in those accounting pronouncements
that fair value is the relevant
measurement attribute. Accordingly, this statement does not require any new fair value
measurements. However, for some entities, the application of this Statement will change current
practice. The statement is effective for financial statements issued for fiscal years beginning
after November 15, 2007, and interim periods within those fiscal years. We are currently evaluating
the impact, if any, that this standard will have on our financial statements.
In February 2007, FASB Statement No. 159, The Fair Value Option for Financial Assets and
Financial Liabilities or SFAS No. 159, was issued. SFAS No. 159 includes an amendment of FASB
Statement No. 115, Accounting for Certain Investments in Debt and Equity Securities and permits
entities to choose, at specified election dates, to measure eligible items at fair value and
requires unrealized gains and losses on items for which the fair value option has been elected to
be reported in earnings. This statement is effective for fiscal years beginning after November 15,
2007. We are currently evaluating the impact, if any, that this standard will have on our financial
statements.
In June 2007, EITF Issue No. 07-03, Accounting for Nonrefundable Advance Payment for Goods
and Services Received for Use in Future Research and Development Activities, or EITF 07-03 was
issued. EITF 07-03 provides guidance on whether nonrefundable advance payments for goods and
services that will be used in research and development activities should be expensed when the
advance payment is made or when the research and development activity has been performed. EITF
07-03 is effective for fiscal years beginning after December 15, 2007. We are currently evaluating
the impact, if any, that this standard will have on our financial statements.
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 12 months and no security with an
effective maturity in excess of 24 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
Disclosure Controls and Procedures
We have conducted an evaluation under the supervision and with the participation of our
management, including our chief executive officer and chief financial officer (our principal
executive officer and principal financial officer, respectively), regarding the effectiveness of
our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934, as amended, or the Exchange Act) as of the end of the period
covered by this report. Based on such evaluation, our chief executive officer and chief financial
officer concluded that, as of September 30, 2007, our disclosure controls and procedures are
effective.
Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting (as defined in Rules
13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter ended September
30, 2007 that has materially affected, or is reasonably likely to materially affect, our internal
control over financial reporting.
30
Part II. Other Information
Item 1. Legal Proceedings
See Part I, Item 3 of our Annual Report on Form 10-K for the year ended December 31, 2006 for
a discussion of legal proceedings. There were no material developments in regard to such
proceedings for the quarter ended September 30, 2007.
Item 1A. Risk Factors
Our business faces many risks. The risks described below may not be the only risks we face.
Additional risks we do not yet know of or we currently believe are immaterial may also impair our
business operations. If any of the events or circumstances described in the following risks
actually occurs, our business, financial condition or results of operations could suffer, and the
trading price of our common stock could decline. You should consider the following risks, together
with all of the other information in our Annual Report on Form 10-K for the year ended December 31,
2006, before deciding to invest in our securities.
Factors Related to Our Business
We have a limited operating history and have incurred a cumulative loss since inception. If we do
not receive significant royalties associated with product sales, we will not be profitable.
We have incurred significant losses since our inception in May 1998. We have generated limited
revenue from the sale of products to date and are unable to make an accurate assessment of
potential future revenue associated with royalty payments of product sales. We expect to incur
annual operating losses over the next several years as we expand our drug discovery and development
efforts. We also expect that the net loss we will incur will fluctuate from quarter to quarter and
such fluctuations may be substantial. To generate revenue from royalty payments associated with
product sales or revenue directly from product sales, regulatory approval for products we
successfully develop must be obtained and we and /or Novartis must effectively manufacture, market
and sell such products. We introduced Tyzeka ® commercially in the United States in the
fourth quarter of 2006. In April 2007, Sebivo ® was approved in the European Union for
the treatment of patients with chronic hepatitis B. Effective October 1, 2007, we transitioned to
Novartis all of our development, commercialization and manufacturing
rights and obligations related to telbivudine
(Tyzeka®/Sebivo®) on a world-wide basis in exchange for royalty payments
equal to a percentage of net sales of Tyzeka®/Sebivo®, with such percentage
increasing according to specified tiers of net sales. The royalty payment will vary based upon the
territory and the aggregate dollar amount of net sales. Even if we successfully commercialize other
product candidates that receive regulatory approval, we may not be able to realize revenues at a
level that would allow us to achieve or sustain profitability. Our failure to become and remain
profitable may depress the market price of our common stock and impair our ability to raise
capital, expand our business or continue our operations.
We will need additional capital to fund our operations, including the development, manufacture
and commercialization of our product candidates. If we do not have or cannot raise additional
capital when needed, we will be unable to develop and commercialize our product candidates
successfully.
Our cash, cash equivalents and marketable securities balance was approximately $136.5 million
at September 30, 2007. We believe that this balance, the development funding we expect to receive
from Novartis relating to preclinical HCV compounds, and the anticipated royalty payments
associated with product sales of Tyzeka ® /Sebivo ® will be sufficient to
satisfy our anticipated cash needs for the next two years.
We also estimate that we will generate cost savings of $40 million to
$45 million on an annualized basis as a result of our restructuring. However, we may need or choose to seek
additional funding within this period of time. The development of our product candidates will
require substantial cash to fund expenses that we will incur in connection with preclinical studies
and clinical trials and regulatory review.
Our need for additional funding will depend in large part on whether:
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with respect to Tyzeka® /Sebivo®, the level of royalty payments received from Novartis is significant, |
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with respect to our preclinical HCV compound, Novartis reimburses us for development expenses and we achieve and receive
from Novartis additional license fees and milestone payments relating to the development and regulatory approval of this precinical
compound; |
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with respect to our other product candidates, Novartis exercises its option to license other product candidates, and we
receive related license fees, milestone payments and development expense reimbursement payments from Novartis; and
with.
with respect to our other product candidates not licensed by Novartis, we receive related license fees, milestone payments
and development expense reimbursement payments from third parties. |
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In addition, although Novartis has agreed to pay for certain development expenses incurred
under development plans it approves for products and product candidates it has licensed from us,
Novartis has the right to terminate its license and the related funding
obligations with respect to any such product or product candidate by providing us with six months
written notice.
Our future capital needs will also depend generally on many other factors, including:
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the amount of revenue that we may be able to realize from commercialization and sale of product candidates, if
any, which are approved for commercial sale by regulatory authorities; |
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the royalty payments we may receive from the product sales of telbivudine; |
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the scope and results of our preclinical studies and clinical trials; |
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the progress of our current preclinical and clinical development programs for HCV and HIV; |
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the cost of obtaining, maintaining and defending patents on telbivudine, our product candidates and our processes; |
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the arrangements we establish for manufacturing; |
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the cost, timing and outcome of regulatory reviews; |
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the cost of re-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 in-licensing new discovery compounds, technologies, product candidates or other business
assets; |
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the magnitude of our general and administrative expenses; |
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any costs we may incur under current and future licensing arrangements; and |
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the costs of commercializing and launching other products, if any, which are
successfully developed and approved for commercial sale by regulatory authorities. |
We expect that we will incur significant costs to complete the clinical trials and other
studies required to enable us to submit NDAs with the FDA for our HCV and HIV product candidates as
we continue 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,
other than Novartis, which has the right to maintain its current level of ownership, 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.
Novartis,
our collaboration partner, may be unable to commercialize Sebivo
® in
jurisdictions outside the United States.
Even though we have received approval from regulatory authorities in several jurisdictions
outside the United States for Sebivo ® , commercialization of Sebivo ® in
these jurisdictions could be delayed for a number of reasons, which are outside of our control.
Specifically, commercialization of Sebivo ® in these jurisdictions may be delayed by
the failure of Novartis to timely finalize distribution arrangements, manufacturing process and
arrangements, produce sufficient inventory and/or properly prepare the sales force. If Novartis is
unable to launch and commercialize Sebivo ® on the timeline we anticipate, our
business and financial position may be materially adversely affected due to reduced revenue from
royalty payments associated with product sales during the period that commercialization is delayed.
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We will incur significant expense to re-establish our marketing and sales capabilities.
We will incur significant expenses in order to re-establish U.S. marketing and sales
capabilities and establish marketing and sales capabilities in the European countries in which we
intend to co-promote and co-market any products, other than telbivudine, for which we receive
marketing authorization. The cost of establishing a marketing and sales force may not be
justifiable in light of the revenues generated by any particular product or combination of products
in any one or more markets and if we fail to obtain marketing authorization in any particular
market, we will have incurred significant unrecoverable expenses.
Our markets are subject to intense competition. If we are unable to compete effectively, products
we successfully develop and 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 commercializing or
pursuing the development of products that target viral diseases, including the same diseases we are
targeting.
We face intense competition from existing products and we expect to face increasing
competition as new products enter the market
and advanced technologies become available. For the treatment of hepatitis B infection, we are
aware of four other drug products, specifically, lamivudine, entecavir and adefovir dipivoxil, each
nucleoside analogs, and pegylated interferon, which are approved by the FDA and commercially
available in the United States. These products have preceded Tyzeka ® /Sebivo
® into the marketplace and have gained acceptance with physicians and patients. For the
treatment of chronic hepatitis C, the current standard of care is pegylated interferon in
combination with ribavirin, a nucleoside analog. Currently, for the treatment of HIV infection,
there are 22 antiviral therapies approved for commercial sale in the United States. Of these
approved therapies, seven are nucleosides, three are non-nucleosides, 11 are protease inhibitors
and one is an entry inhibitor.
We believe that a significant number of product candidates that are currently under
development may become available in the future for the treatment of HBV, HCV and HIV infections.
Our competitors products may be more effective, have fewer side effects, lower costs or be better
marketed and sold, than any of our products. Additionally, products our competitors successfully
develop for the treatment of HCV and HIV may be marketed prior to any HCV or HIV product we
successfully develop. Many of our competitors have:
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significantly greater financial, technical and human resources than we have and may be better
equipped to discover, develop, manufacture and commercialize products; |
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more extensive experience in conducting preclinical studies and clinical trials, obtaining
regulatory approvals and manufacturing and marketing pharmaceutical products; |
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products that have been approved or product candidates that 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 products and product
candidates 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.
With respect to Tyzeka® /Sebivo® and other products, if any, we may
successfully develop and obtain approval to commercialize, we will face competition based on the
safety and effectiveness of our products, the timing and scope of regulatory approvals, the
availability and cost of supply, marketing and sales capabilities, reimbursement coverage, price,
patent position and other factors. Our competitors may develop or commercialize more effective or
more affordable products, or obtain more effective patent protection, than we do. Accordingly, our
competitors may commercialize products more rapidly or effectively than we do, which could
adversely affect our competitive position and business.
Our ability to compete successfully will depend in part on the success of our future marketing
and sales efforts and Novartis marketing and sales efforts relating to Tyzeka®
/Sebivo®. We do not know if any sales force we may establish in the future will be
sufficient in size or scope to compete successfully in such marketplaces. Among other factors, we
may not be able to gain sufficient access to healthcare practitioners, which would have a negative
effect on our ability to promote our products, gain market acceptance and acquire market share from
existing products.
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In addition to direct competition, to receive attention from and be considered by physicians
and patients, Tyzeka
® /Sebivo ®
and any other product we may successfully develop and receive approval to commercialize will compete against the promotional efforts of other
companies and products. In the pharmaceutical and biopharmaceutical markets, the level of
promotional effort required to effect awareness of new products is substantial. Market acceptance
of our products will be affected by the level of promotional effort that we, or Novartis in the
case of Tyzeka®/Sebivo ® , are able to provide for our products. We cannot
offer assurance that the levels of promotional effort that we, or Novartis in the case of
Tyzeka®/Sebivo ®, will be able to provide for products we successfully
develop will be effective in allowing our products to compete successfully in the market.
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 Tyzeka® /Sebivo® and other products, if any, we successfully develop
and obtain regulatory approval to commercialize fail to achieve and maintain market acceptance, our
business will not be successful.
Our success and growth will depend upon the acceptance by physicians, healthcare professionals
and third-party payers of Tyzeka ® /Sebivo ® and other products, if any,
we successfully develop. Acceptance will be a function of:
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our products being clinically useful and demonstrating similar or superior
therapeutic effect with an acceptable side effect profile as compared to
existing or future treatments; |
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the timing of our receipt of marketing approvals, the terms of any approval
(including labeling requirements and/or limitations), and the countries in
which approvals are obtained; |
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the perception of our products by physicians and other members of the
healthcare community and the success of our physician and healthcare
professional education programs; and |
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the availability and level of government and third-party payer reimbursement. |
Lamivudine, entecavir and adefovir dipivoxil are small molecule therapeutics currently
approved in the United States and some other jurisdictions 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, a small molecule therapeutic. The labeling for our approved
products will have a direct impact on our marketing, promotional and sales programs, and that of
Novartis in the case of Tyzeka®/Sebivo ® . Unfavorable labeling will restrict
our marketing, promotional and sales programs, and that of Novartis in the case of
Tyzeka®/Sebivo ®, which would adversely affect market acceptance of our
products.
We are aware that a significant number of competitor product candidates are currently under
development and may become available in the future for the treatment of HBV, HCV and HIV
infections. If our products do not achieve market acceptance, then we will not be able to generate
sufficient revenue from or royalty payments associated with product sales to maintain or grow our
business. In addition, even if Tyzeka ® /Sebivo ® and other products, if
any, achieve market acceptance, Novartis (in the case of Tyzeka®/Sebivo ®) or
we may not be able to maintain that market acceptance over time if:
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new products, including lower priced generic products or technologies, are introduced that are more
favorably received than our products or render our products obsolete; |
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there are changes in the regulatory environment affecting the manufacture, marketing or use of our products; |
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litigation or threatened litigation arises with respect to the use of our products; |
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we or Novartis are not successful in marketing and sales efforts; |
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we or Novartis encounter unfavorable publicity regarding our products or similar products; or |
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complications, such as unacceptable levels of viral resistance or adverse side effects,
arise with respect to the use of our products. |
Our research and development efforts may not result in additional product candidates being
discovered on anticipated timelines, if at all, which could limit our ability to generate revenues.
Our research and development programs, other than our program for NNRTIs for HIV, 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 any commercialization may occur. We cannot predict whether our research will
lead to the discovery of any additional product candidates that could generate revenues for us. We
submitted to the FDA exploratory INDs for two HIV product candidates.
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Our failure to successfully acquire or develop and market additional product candidates or approved
drugs would impair our ability to grow.
As part of our strategy, we intend to establish a franchise in the HCV and HIV market by
developing product candidates for each therapeutic indication. The success of this strategy depends
upon the development and commercialization of additional product candidates that we successfully
discover, license or otherwise acquire.
Product candidates we discover, license or acquire will require additional and likely
substantial development, including extensive clinical testing and approval by the FDA and
applicable foreign regulatory authorities. All product candidates are prone to the risks of failure
inherent in pharmaceutical product development, including the possibility that the product
candidate will not be shown to be sufficiently safe and effective for approval by regulatory
authorities.
Proposing, negotiating and implementing acquisition or in-license of product candidates may be
a lengthy and complex process. Other companies, including those with substantially greater
financial, marketing and sales resources, may compete with us for the acquisition of product
candidates. We may not be able to acquire the rights to additional product candidates on terms that
we find acceptable, if at all.
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.
The growth of our business and our success depends in large part on our ability to attract and
retain key management and research and development personnel. Our key personnel include our senior
officers, many of whom have very specialized scientific, medical or operational knowledge. The loss
of the service of any of the key members of our senior management team may significantly delay or
prevent our discovery of additional product candidates, the development of our product candidates
and achievement of our other business objectives. Our ability to attract and retain qualified
personnel, consultants and advisors is critical to our success.
We face intense competition for qualified individuals from numerous pharmaceutical and
biotechnology companies, universities, governmental entities and other research institutions. We
may be unable to attract and retain these individuals, and our failure to do so would have an
adverse effect on our business.
Our business has a substantial risk of product liability claims. If we are unable to obtain
appropriate levels of insurance, a product liability claim against us could adversely affect our
business.
Our business exposes us to significant potential product liability risks that are inherent in
the development, manufacturing and marketing of human therapeutic products. Product liability
claims could result in a recall of products or a change in the therapeutic indications for which
such products may be used. In addition, product liability claims may distract our management and
key personnel from our core business, require us to spend significant time and money in litigation
or to pay significant damages, which could prevent or interfere with commercialization efforts and
could adversely affect our business. Claims of this nature would also adversely affect our
reputation, which could damage our position in the marketplace.
For Tyzeka® /Sebivo® , product liability claims could be made against us
based on the use of our product in people. For Tyzeka ® /Sebivo ® and our
product candidates, product liability claims could be made against us based on the use of our
product candidates in clinical trials. We have obtained product liability insurance for Tyzeka
® /Sebivo ® and maintain clinical trial insurance for our product
candidates in development. Such insurance may not provide adequate coverage against potential
liabilities. In addition, clinical trial and product liability insurance is becoming increasingly
expensive. As a result, we may be unable to maintain or increase current amounts of product
liability and clinical trial insurance coverage, obtain product liability insurance for other
products, if any, that we seek to commercialize, obtain additional clinical trial insurance or
obtain sufficient insurance at a reasonable cost. If we are unable to obtain or maintain sufficient
insurance coverage on reasonable terms or to otherwise protect against potential product liability
claims, we may be unable to commercialize our products or conduct the clinical trials necessary to
develop our product candidates. A successful product liability claim brought against us in excess
of our insurance coverage, if any, may require us to pay substantial amounts in damages. This could
adversely affect our cash position and results of operations.
Our insurance policies are expensive and protect us only from some business risks, which will leave
us exposed to significant, uninsured liabilities.
We do not carry insurance for all categories of risk that our business may encounter. We
currently maintain general liability, property, auto, workers compensation, products liability,
directors and officers, and employment practices insurance policies. We do not know, however, if
we will be able to maintain existing insurance with adequate levels of coverage. Any significant
uninsured liability may require us to pay substantial amounts, which would adversely affect our
cash position and results of operations.
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If the estimates we make, and the assumptions on which we rely, in preparing our financial
statements prove inaccurate, our actual results may vary from those reflected in our projections
and accruals.
Our financial statements have been prepared in accordance with accounting principles generally
accepted in the United States of America. The preparation of these financial statements requires us
to make estimates and judgments that affect the reported amounts of our assets, liabilities,
revenues and expenses, the amounts of charges accrued by us and related disclosure of contingent
assets and liabilities. We base our estimates on historical experience and on various other
assumptions that we believe to be reasonable under the circumstances. There can be no assurance,
however, that our estimates, or the assumptions underlying them, will not change.
One of these estimates is our estimate of the development period to amortize license fee
revenue from Novartis which we review on a quarterly basis. As of September 30, 2007, we have
estimated that the performance period during which the development of our licensed product and
product candidates will be completed is a period of approximately ten years following
the effective date of the development agreement that we entered into with Novartis, or June 2013.
If the estimated development period changes, we will adjust periodic revenue that is being
recognized and will record the remaining unrecognized license fees and other 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 financial results. This, in turn, could
adversely affect our stock price.
If we fail to design and maintain an effective system of internal controls, we may not be able to
accurately report our financial results or prevent fraud. As a result, current and potential
stockholders could lose confidence in our financial reporting, which could harm our business and
the trading price of our common stock.
As directed by Section 404 of the Sarbanes-Oxley Act of 2002, the Securities and Exchange
Commission adopted rules requiring public companies to include a report in Annual Reports on Form
10-K that contains an assessment by management of the effectiveness
of the companys internal control over financial reporting. In addition, the companys registered
independent public accountants must attest to and report on managements assessment of the
effectiveness of the companys internal control over financial reporting.
We have completed an assessment and will continue to review in the future our internal control
over financial reporting in an effort to ensure compliance with the Section 404 requirements. The
manner by which companies implement, maintain and enhance these requirements including internal
control reforms, if any, to comply with Section 404, and how registered independent public
accountants apply these requirements and test companies internal controls, is subject to change
and will evolve over time. As a result, notwithstanding our efforts, it is possible that either our
management or our registered independent public accountants may in the future determine that our
internal control over financial reporting is not effective.
A determination that our internal controls over financial reporting are ineffective could
result in an adverse reaction in the financial marketplace due to a loss of investor confidence in
the reliability of our financial statements, which ultimately could negatively impact the market
price of our stock, increase the volatility of our stock price and adversely affect our ability to
raise additional funding.
Factors Related to Development, Clinical Testing and Regulatory Approval of Our Product Candidates
All of our product candidates are in development. Our product candidates remain subject to clinical
testing and regulatory approval. If we are unable to develop our product candidates, we will not be
successful.
To date, we have limited experience marketing, distributing and selling any products. The
success of our business depends primarily upon Novartis ability to commercialize Tyzeka
® /Sebivo ® and our ability to successfully commercialize other products, if
any, we successfully develop. We received approval from the FDA in the fourth quarter of 2006 to
market and sell Tyzeka ® for the treatment of chronic hepatitis B in the United
States. In April 2007, Sebivo ® was approved in the European Union for the treatment
of patients with chronic hepatitis B. Effective October 1, 2007, we transitioned to Novartis all of
our development, commercialization and manufacturing rights and obligations related to telbivudine
(Tyzeka®/Sebivo®) on a world-wide basis in exchange for royalty payments
equal to a percentage of net sales of Tyzeka®/Sebivo®, with such percentage
increasing according to specified tiers of net sales. The royalty payment will vary based upon the
territory and the aggregate dollar amount of net sales. Our other product candidates are in various
earlier stages of development. All of our product candidates require regulatory review and approval
prior to commercialization. Approval by regulatory authorities requires, among other things, that
our product candidates satisfy rigorous standards of safety, including assessments of the toxicity
and carcinogenicity of the product candidates we are developing, and efficacy. To satisfy these
standards, we must engage in expensive and lengthy testing. As a result of efforts to satisfy these
regulatory standards, our product candidates may not:
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offer therapeutic or other improvements over existing drugs; |
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be proven safe and effective in clinical trials; |
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meet applicable regulatory standards; |
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be capable of being produced in commercial quantities at acceptable costs; or |
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be successfully commercialized.
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Commercial availability of our product candidates is dependent upon successful clinical
development and receipt of requisite regulatory approvals. Clinical data often are susceptible to
varying interpretations. Many companies that have believed that their product candidates performed
satisfactorily in clinical trials in terms of both safety and efficacy have nonetheless failed to
obtain approval for such product candidates. Furthermore, the FDA may request from us and the EMEA
and regulatory agencies in other jurisdictions may request from Novartis, additional information
including data from additional clinical trials, which may delay significantly any approval and
these regulatory agencies ultimately may not grant marketing approval for any of our product
candidates. For example, in July 2007, we announced that the FDA had placed on clinical hold in the
United States our development program of valopicitabine for the treatment of HCV based on the
overall risk/benefit profile observed in clinical testing. We do not plan to continue the
development of valopicitabine.
If our clinical trials are not successful, we will not obtain regulatory approval for the
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 prohibit the initiation or 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. In
July 2007, we announced that the FDA had placed on clinical hold in the United States our
development program of valopicitabine for the treatment of HCV based on the overall risk/benefit
profile observed in clinical testing. We do not plan to continue to develop valopicitabine. The
observation of adverse side effects in a clinical trial may result in the FDA or foreign regulatory
authorities refusing to approve a particular product candidate for any or all indications of use.
Additionally, adverse or inconclusive clinical trial results concerning any of our product
candidates could require us to conduct additional clinical trials, result in increased costs,
significantly delay the submission of applications seeking marketing approval for such product
candidates, result in a filing or approval, if any, for a narrower indication than was originally
sought or result in a decision to discontinue development of such product candidates.
Clinical trials require sufficient patient enrollment, which is a function of many factors,
including the size of the patient population, the nature of the protocol, the proximity of patients
to clinical sites, the availability of effective treatments for the relevant disease, the
eligibility criteria for the clinical trial and clinical trials evaluating other investigational
agents, which may compete with us for patient enrollment. Delays in patient enrollment can result
in increased costs and longer development times.
We cannot predict whether we will encounter problems with any of our completed, ongoing or
planned clinical trials that will cause us or regulatory authorities to delay or suspend our
clinical trials, delay or suspend patient enrollment into our clinical trials or delay the analysis
of data from our completed or ongoing clinical trials. Delays in the development of our product
candidates would delay our ability to seek and potentially obtain regulatory approvals, increase
expenses associated with clinical development and likely increase the volatility of the price of
our common stock.
Any of the following could suspend, terminate or delay the completion of our ongoing, or the
initiation of our planned, clinical trials:
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discussions with the FDA or comparable foreign authorities regarding the scope or design of our clinical trials; |
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delays or the inability to obtain required approvals from, or suspensions or termination by institutional
review boards or other governing entities at clinical sites selected for participation in our clinical trials; |
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delays enrolling participants into clinical trials; |
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lower than anticipated retention of participants in clinical trials; |
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insufficient supply or deficient quality of product candidate materials or other materials necessary to conduct
our clinical trials; |
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serious or unexpected drug-related side effects experienced by participants in our clinical trials; or |
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negative results of clinical trials. |
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 commence human clinical trials of any HIV product candidate, HCV product candidates or
other product candidates; |
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Novartis may choose not to license our product candidates 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 the research and development of our product candidates. |
If our product candidates fail to obtain U.S. and/or foreign regulatory approval, we and our
partners will be unable to commercialize our product candidates.
Each of our product candidates is subject to extensive governmental regulations relating to
development, clinical trials, manufacturing and commercialization. Rigorous preclinical studies and
clinical trials and an extensive regulatory approval process are required in the United States and
in many foreign jurisdictions prior to the commercial sale of our 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 are a rigorous set of
requirements. In addition, facilities where the principal commercial supply
of a product is to be manufactured must pass FDA inspection prior to approval. Satisfaction of
these and other regulatory requirements is costly, time consuming, uncertain and subject to
unanticipated delays. It is possible that none of the product candidates we are
currently developing will obtain the appropriate regulatory approvals necessary to permit
commercial distribution.
The time required for FDA review and other approvals is uncertain and typically takes a number
of years, depending upon the complexity of the 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, and we, with Novartis, are subject to numerous foreign regulatory requirements
relating to manufacturing and marketing authorization, pricing and third-party reimbursement. The
foreign regulatory approval processes include all of the risks associated with FDA approval
described above as well as risks attributable to the satisfaction of local regulations in foreign
jurisdictions. Approval by any one regulatory authority does not assure approval by regulatory
authorities in other jurisdictions. Many foreign regulatory authorities, including those in the
European Union and in China, have different approval procedures than those required by the FDA and
may impose additional testing requirements for our product candidates. Any failure or delay in
obtaining such marketing authorizations for our product candidates would have a material adverse
effect on our business.
Our products will be subject to ongoing regulatory review even after approval to market such
products is obtained. If we fail to comply with applicable U.S. and foreign regulations, we could
lose approvals we have been granted and our business would be seriously harmed.
Even after approval, any drug product we successfully develop will remain subject to
continuing regulatory review, including the review of clinical results, which are reported after
our product becomes commercially available. The marketing claims we are permitted to make in
labeling or advertising regarding our marketed drugs in the United States will be limited to those
specified in any FDA approval, and in other markets such as the European Union, regulatory
approvals similar to FDA approval. Any manufacturer we use to make approved products will be
subject to periodic review and inspection by the FDA or other similar regulatory authorities in the
European Union and other jurisdictions. We are required to report any serious and unexpected
adverse experiences and certain quality problems with our products and make other periodic reports
to the FDA or other similar regulatory authorities in the European Union and other jurisdictions.
The subsequent discovery of previously unknown problems with the product, manufacturer or facility
may result in restrictions on the drug manufacturer or facility, including withdrawal of the drug
from the market. We do not have, and currently do not intend to develop, the ability to manufacture
material at commercial scale or for our clinical trials. Our reliance on third-party manufacturers
entails risks to which we would not be subject if we manufactured products ourselves, including
reliance on such manufacturers for regulatory compliance. Certain changes to an approved product,
including the way it is manufactured or promoted, often require prior approval from regulatory
authorities before the product as modified may be marketed.
If we fail to comply with applicable continuing regulatory requirements, we may be subject to
civil penalties, suspension or withdrawal of any regulatory approval obtained, product recalls and
seizures, injunctions, operating restrictions and criminal prosecutions and penalties. Because of
these potential sanctions, we seek to monitor compliance with these regulations.
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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 marketing authorization, 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 marketing
authorization 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 or Novartis 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. Any of our commercial
products may not be considered cost effective and reimbursement may not be available or sufficient
to allow sale of our products on a competitive basis. We may need to conduct expensive
pharmacoeconomic studies to demonstrate to third-party payers the cost effectiveness of our product
candidates. Sales of prescription drugs depend on the availability and level of
reimbursement from third-party payers, such as government and private insurance plans. These
third-party payers frequently require
that drug companies provide predetermined discounts from list prices, and third-party payers are
increasingly challenging the prices charged for medical products. Other than Tyzeka ®
in the United States and Sebivo ® in countries outside of the United States, none of
our product candidates have received the pricing approvals required to commercialize such products,
and therefore we do not know the level of reimbursement, if any, received for our product
candidates. If the reimbursement we, or Novartis in the case of
Tyzeka®/Sebivo®, receive for any of our products is inadequate in light of
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 increase pressure on drug pricing and continue to affect the business and
financial condition of pharmaceutical and biopharmaceutical companies. If we, or Novartis in the
case of Tyzeka®/Sebivo®, fail to obtain adequate reimbursement for respective
current or future products, healthcare providers may limit how much or under what circumstances
they will prescribe or administer them, which could reduce the demand for and use of our products
or cause us to reduce the price of our products.
If we fail to comply with ongoing regulatory requirements after receipt of approval to
commercialize a product, we may be subject to significant sanctions imposed by the FDA, EMEA or
other U.S. and foreign regulatory authorities.
The research, testing, manufacturing and marketing of product candidates and products are
subject to extensive regulation by numerous regulatory authorities in the United States and other
countries. Failure to comply with FDA or other applicable U.S. and foreign regulatory requirements
may subject a company to administrative or judicially imposed sanctions. These enforcement actions
may include without limitation:
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warning letters and other regulatory authority communications
objecting to matters such as promotional materials and requiring
corrective action such as revised communications to healthcare
practitioners; |
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civil penalties; |
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criminal penalties; |
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injunctions; |
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product seizure or detention; |
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product recalls; |
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total or partial suspension of manufacturing; and |
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FDA refusal to review or approve pending new drug applications or
supplements to new drug applications for previously approved products,
and/or similar rejections of marketing applications or supplements by
foreign regulatory authorities. |
The imposition of one or more of these sanctions could have a material adverse effect on our
business.
If we violate healthcare statutes such as fraud and abuse laws, we could be subject to significant
penalties and expenses.
Commercialization efforts in which we expect at a future time period to engage in the United
States are subject to various federal and state laws pertaining to pharmaceutical promotion and
healthcare fraud and abuse, including the Food, Drug and Cosmetic Act, the Prescription Drug
Marketing Act, federal and state anti-kickback laws and false claims laws. Our future efforts to
comply with
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these laws will be time consuming and expensive.
Anti-kickback laws make it illegal for any prescription drug manufacturer to offer or pay any
remuneration in exchange for, or to induce, the referral of business, including the purchase or
prescription of a particular drug. The federal government has published regulations that identify
specific safe harbors or exemptions for types of payment arrangements that do not violate the
anti-kickback statutes. We intend to align our commercialization activities to such safe harbors,
however, there can be no assurance that such activities will not be subject to scrutiny by
government or private authorities. False claims laws prohibit anyone from knowingly and willingly
presenting, or causing to be presented for payment to third-party payers (including Medicare and
Medicaid), claims for reimbursed drugs or services that are false or fraudulent, claims for items
or services not provided as claimed, or claims for medically unnecessary items or services.
The activities in which we expect to engage relating to the sale and marketing of products, if
any, that are approved for commercialization will be subject to scrutiny under these laws and
regulations. Violations may be punishable by significant criminal and/or civil fines and other
penalties, as well as the possibility of exclusion of the approved product from governmental
healthcare programs (including Medicare and Medicaid). If the government were to allege against or
convict us or any of our employees of violating these laws, there could be a material adverse
effect on our business, including our stock price.
Our activities could be subject to challenge for many reasons, including the broad scope and
complexity of these laws and regulations and the high degree of prosecutorial resources and
attention being devoted to the sales practices of
pharmaceutical companies by law enforcement authorities. During the last few years, several
companies have agreed to enter into corporate integrity agreements and have paid multi-million
dollar fines and settlements for alleged violation of these laws, and other companies are under
active investigation.
We have limited marketing and sales experience, and we cannot assure you that we or our
employees, directors or agents are or will be or will act in compliance with all applicable laws
and regulations. If we fail to comply with any of these laws or regulations, various negative
consequences could result, including the termination of clinical trials, the failure to gain
regulatory approval of a product candidate, restrictions on our products or manufacturing
processes, withdrawal of the approved product from the market, exclusion of the approved product
from governmental healthcare programs (including Medicare and Medicaid), significant criminal
and/or civil fines or other penalties, and costly litigation.
Additionally, Novartis has the right to terminate the development agreement due to our uncured
material breach, which could include our failure to comply with applicable laws and regulations
relating to our efforts to commercialize products that we successfully develop and receive approval
to commercialize.
If we do not comply with laws regulating the protection of the environment and health and human
safety, our business could be adversely affected.
Our research and development activities involve the controlled use of hazardous materials,
chemicals and various radioactive compounds. Although we believe that our safety procedures for
handling and disposing of these materials comply with the standards prescribed by state and federal
laws and regulations, the risk of accidental contamination or injury from these materials cannot be
eliminated. If an accident occurs, we could be held liable for resulting damages, which could be
substantial. We are also subject to numerous environmental, health and workplace safety laws and
regulations, including those governing laboratory procedures, exposure to blood-borne pathogens and
the handling of biohazardous materials. Although we maintain workers compensation insurance to
cover us for costs we may incur due to injuries to our employees resulting from the use of these
materials and environmental liability insurance to cover us for costs associated with environmental
or toxic tort claims that may be asserted against us, this insurance may not provide adequate
coverage against all potential liabilities. Additional federal, state, foreign and local laws and
regulations affecting our operations may be adopted in the future. We may incur substantial costs
to comply with, and substantial fines or penalties if we violate any of these laws or regulations.
Factors Related to Our Relationship with Novartis
Novartis has substantial control over us and could delay or prevent a change in corporate control.
As of September 30, 2007, Novartis owned 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:
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the election of directors; |
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any amendment of our restated certificate of incorporation or amended and restated by-laws;
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the approval of mergers and other significant corporate transactions, including a sale of substantially
all of our assets; or |
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the defeat of any non-negotiated takeover attempt that might otherwise benefit our other stockholders. |
Novartis has the right to exercise control over certain corporate actions that may not otherwise
require stockholder approval as long as it holds at least 19.4% of our voting stock.
As long as Novartis and its affiliates own at least 19.4% of our voting stock, which we define
below, we cannot take certain actions without the consent of Novartis. These actions include:
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the authorization or issuance of additional shares of our capital stock or the capital stock of
our subsidiaries, except for a limited number of specified issuances; |
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any change or modification to the structure of our board of directors or a similar governing body
of any of our subsidiaries; |
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any amendment or modification to any of our organizational documents or those of our subsidiaries; |
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the adoption of a three-year strategic plan; |
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the adoption of an annual operating plan and budget, if there is no approved strategic plan; |
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any decision that would result in a variance of total annual expenditures, capital or expense, in
excess of 20% from the approved three-year strategic plan; |
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any decision that would result in a variance in excess of the greater of $10 million or 20% of our
profit or loss target in the strategic plan or annual operating plan; |
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the acquisition of stock or assets of another entity that exceeds 10% of our consolidated net revenue,
net income or net assets; |
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the sale, lease, license or other disposition of any assets or business which exceeds 10% of our net
revenue, net income or net assets; |
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the incurrence of any indebtedness by us or our subsidiaries for borrowed money in excess of $2 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 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 plan. |
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 the commercialization of Tyzeka ® /Sebivo ® and for support in the
development of product candidates Novartis has licensed from us. If our development, license and
commercialization agreement with Novartis terminates, our business and, in particular, the
development of our product candidates and the commercialization of any products that we
successfully develop would be significantly harmed.
In May 2003, we received a $75 million license fee from Novartis in connection with the
license to Novartis of our then 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. Telbivudine is being marketed in the United States under the
trade name Tyzeka ® and outside the United States under the tradename Sebivo
® . In April 2007, we received a $10 million milestone payment for regulatory approval of
Sebivo ® in China and in June 2007 we received an additional $10 million milestone
payment for regulatory approval of Sebivo ® in the European Union. Pursuant to the
development agreement, as amended, Novartis also acquired options to license valopicitabine and
additional product candidates from us. In March 2006, Novartis exercised its option
and acquired a license to valopicitabine. In exchange we received a $25 million license fee from
Novartis and the right to receive up to an additional $45 million in license fee payments from
Novartis upon advancement of an HCV product candidate into phase III clinical trials. In July 2007,
we announced that the FDA had placed on clinical hold in the United States our development program
of valopicitabine for the treatment of HCV based on the overall risk/benefit profile observed in
clinical testing. We do not plan to continue the development of valopicitabine. As a result, we
will not receive any additional license fees or other milestone payments for valopicitabine from
Novartis. Assuming we continue to successfully develop and commercialize these product candidates
(other than valopicitabine), under the terms of the development agreement, we are entitled to
receive reimbursement of expenses we incur in connection with the development of these product
candidates and additional milestone payments from Novartis. Additionally, if any of the product
candidates we have licensed to Novartis are approved for commercialization, we anticipate receiving
proceeds in connection with the sales of such products. If Novartis exercises the option to license
with respect to other product candidates that we discover, or in some cases, acquire, we are
entitled to receive license fees and milestone payments as well as reimbursement of expenses we
incur in the development of such product candidates in accordance with development plans mutually
agreed with Novartis.
Pursuant to the development agreement, we initially co-promoted and co-marketed with Novartis
in the United States, United Kingdom, Germany, Italy, France and Spain, Sebivo ® .
Additionally Novartis was expected to exclusively commercialize Sebivo ® in the rest of
the world, including China, a major market for chronic hepatitis B therapeutics. Under the
existing terms of the development agreement, we will co-promote and co-market with Novartis in the
United States, United Kingdom, Germany, Italy, France and Spain other products, if any, we
successfully develop that are licensed by Novartis and Novartis will exclusively commercialize such
products in the rest of the world. On September 28, 2007 we entered into an amendment to the
development agreement and a transition services agreement, both of which became effective on
October 1, 2007, whereby we transitioned to Novartis all of our development, commercialization and
manufacturing rights and obligations related to telbivudine (Tyzeka®/Sebivo®) on a world-wide basis
in exchange for royalty payments equal to a percentage of net sales of
Tyzeka®/Sebivo®, with such percentage increasing according to specified tiers
of net sales. The royalty payment will vary based upon the territory and the aggregate dollar
amount of net sales.
Novartis is responsible for development and commercialization expenses relating to telbivudine
after October 1, 2007 and is also responsible for certain costs associated with the transition of
third party contracts and arrangements relating to telbivudine and any intellectual property
prosecution and enforcement activities. Pursuant to the transition services agreement, we will
provide Novartis with certain services relating to telbivudine through June 2008 (or later if
agreed to by the parties). We will be reimbursed for these services at an agreed upon rate.
As a result of the amendment to the development agreement discussed above, each of our master
manufacturing and supply agreement, dated as of May 8, 2003, and our commercial manufacturing
agreement, dated June 2006, between us and Novartis were terminated without penalty.
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 with 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 or partners, our business would be materially
adversely affected.
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Novartis has the option to license from us product candidates we discover, or in some cases,
acquire. If Novartis 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.
Our drug development programs and potential commercialization of our product candidates will
require substantial additional funding. In addition to its license of Tyzeka ® /Sebivo
® , valtorcitabine and valopicitabine, Novartis has the option under the development
agreement to license our other product candidates. If Novartis elects not to exercise such option,
we may be required to seek other collaboration arrangements to provide funds necessary to enable us
to develop such product candidates.
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 HCV and HBV 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 UAB and 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 HCV product candidates. Under the
terms of the settlement agreement, we agreed to make payments to UABRF, including an initial
payment made 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 our stockholders who sold shares to Novartis, which include
many of our officers and directors, the losses it suffers as a result of any breach of the
representations and warranties we made relating to our HCV product candidates and may assert that
such losses include the settlement payments.
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 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 HBV 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 Novartiss 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 with
Novartis, we may lose our rights to develop or commercialize our product candidates.
We have significant obligations to Novartis under the development 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 include covenants relating to payment of our required portion of development
expenses under the development agreement, compliance with certain third-party license agreements,
the conduct of our clinical studies and activities relating to the commercialization of any
products that we successfully develop. If we materially breach this agreement and are unable within
an agreed time period to cure such breach, the agreement may be terminated and we may be required
to grant Novartis an exclusive license to develop, manufacture and/or sell such products. Although
such a license would be subject to payment of a royalty by Novartis to be negotiated in good faith,
we and Novartis have stipulated that no such payments would permit the breaching party to receive
more than 90% of the net benefit it was entitled to receive before the agreement were terminated.
Accordingly, if we materially breach our obligations under the development agreement, we may lose
our rights to develop our product candidates or commercialize our successfully developed products
and receive lower payments from Novartis than we had anticipated.
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If we issue capital stock, in certain situations Novartis will be able to purchase shares at par
value to maintain its percentage ownership in Idenix and, if that occurs, this could cause
dilution. In addition, Novartis has the right, under specified circumstances, to purchase a pro
rata portion of other shares that we may issue.
Under the terms of the stockholders agreement, Novartis has the right to purchase at par
value of $0.001 per share, such number of shares required to maintain its percentage ownership of
our voting stock if we issue shares of capital stock in connection with the acquisition or
in-licensing of technology through the issuance of up to 5% of our stock in any 24-month period. If
Novartis elects to maintain its percentage ownership of our voting stock under the rights described
above, Novartis will be buying such shares at a price, which is substantially below market value,
which would cause dilution. This right of Novartis will remain in effect until the earlier of:
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the date that Novartis and its affiliates own less than 19.4% of our voting stock; or |
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the date that Novartis becomes obligated under the stock purchase agreement to make
the additional future contingent payments of $357 million to 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
or equity incentive plans. Novartis right to purchase a pro rata portion does not include:
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securities issuable in connection with any stock split, reverse stock split,
stock dividend or recapitalization that we undertake that affects all holders
of our common stock proportionately; |
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shares that Novartis has the right to purchase at par value, as described above; |
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shares of common stock issuable upon exercise of stock options and
other awards pursuant to our 1998 Equity Incentive Plan; and |
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securities issuable in connection with our acquisition of all the
capital stock or all or substantially all of the assets of another
entity. |
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 product candidates licensed to Novartis and the
development and commercialization of our other product candidates could be delayed, curtailed or
terminated.
Under the amended development agreement, Novartis is solely responsible for the development,
commercialization and manufacturing rights to telbivudine on a world-wide basis and we expect to
co-promote or co-market with Novartis other products, if any, that Novartis has licensed from us
which are successfully developed and approved for commercialization. As a result, we will depend
upon the success of the efforts of Novartis to manufacture, market and sell Tyzeka ®
/Sebivo ® and our other products, if any, that we successfully develop. However, we
have limited control over the resources that Novartis may devote to such manufacturing and
commercialization efforts and, if Novartis does not devote sufficient time and resources to such
efforts, we may not realize the commercial or financial benefits we anticipate, and our results of
operations may be adversely affected.
In addition, Novartis has the right to terminate the development 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 with respect to that
country; and |
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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. In the
event that Novartis competes with us, our business could be materially and adversely affected.
Factors Related to Our Dependence on Third Parties
If we seek to enter into collaboration agreements for any product candidates other than those
licensed to Novartis and we are not successful in establishing such collaborations, we may not be
able to continue development of those product candidates.
Our drug development programs and product commercialization efforts will require substantial
additional cash to fund expenses to be incurred in connection with these activities. While we have
entered into the development agreement with Novartis, 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 such product candidate 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. |
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 such 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 that assist us in our
research and development efforts. Telbivudine, valtorcitabine and valopicitabine were discovered
with the research and development assistance of these chemists and biologists. Many of the
scientists who have contributed to the discovery and development of our 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.
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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
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, Novartis may not be able to successfully commercialize
Tyzeka ® /Sebivo ® or we may not be able to successfully commercialize
other products, if any, that we successfully develop.
Our success will depend in part on our ability to obtain and maintain patent protection both
in the United States and in other countries for any products we successfully develop. The patents
and patent applications in our patent portfolio are either owned by us, exclusively licensed to us,
or co-owned by us and others and exclusively licensed to us. Our ability to protect any products we
successfully develop from unauthorized or infringing use by third parties depends substantially on
our ability to obtain and maintain valid and enforceable patents. Due to evolving legal standards
relating to the patentability, validity and enforceability of patents covering pharmaceutical
inventions and the scope of claims made under these patents, our ability to obtain and enforce
patents is uncertain and involves complex legal and factual questions. Accordingly, rights under
any issued patents may not provide us with sufficient protection for any products we successfully
develop or provide sufficient protection to afford us a commercial advantage against our
competitors or their competitive products or processes. In addition, we cannot guarantee that any
patents will be issued from any pending or future patent applications owned by or licensed to us.
Even if patents have been issued or will be issued, we cannot guarantee that the claims of these
patents are, or will be, valid or enforceable, or provide us with any significant protection
against competitive products or otherwise be commercially valuable to us.
We may not have identified all patents, published applications or published literature that
affect our business either by blocking our ability to commercialize our product candidates, by
preventing the patentability of our product candidates to us or our licensors or co-owners, or by
covering the same or similar technologies that may invalidate our patents, limit the scope of our
future patent claims or adversely affect our ability to market our product candidates. For example,
patent applications in the United States are maintained in confidence for up to 18 months after
their filing. In some cases, however, patent applications remain confidential in the U.S. Patent
and Trademark Office, which we refer to as the U.S. Patent Office, for the entire time prior to
issuance of a U.S. patent. Patent applications filed in countries outside the United States are not
typically published until at least 18 months from their first filing date. Similarly, publication
of discoveries in the scientific or patent literature often lags behind actual discoveries.
Therefore, we cannot be certain that we or our licensors or co-owners were the first to invent, or
the first to file, patent applications on our product candidates or for their uses. 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 United
States. The costs of these proceedings could be substantial and it is possible that our efforts
could be unsuccessful, resulting in a loss of our U.S. patent position. The laws of some foreign
jurisdictions do not protect intellectual property rights to the same extent as in the United
States and many companies have encountered significant difficulties in protecting and defending
such rights in foreign jurisdictions. If we encounter such difficulties in protecting or are
otherwise precluded from effectively protecting our intellectual property rights in foreign
jurisdictions, our business prospects could be substantially harmed.
Since our HBV product, telbivudine, was a known compound before the filing of our patent
applications covering the use of this product candidate to treat HBV infection, we cannot obtain
patent protection on telbivudine itself. As a result, we have obtained and maintain patents granted
on the method of using telbivudine as a medical therapy for the treatment of hepatitis B infection.
Our HBV product candidate, valtorcitabine, is a prodrug of the L-nucleoside
ß-L-2-deoxycytidine, or LdC, which is converted into biologically active LdC in the body. The U.S.
Patent Office has issued to us a patent on valtorcitabine itself, as well as claims on
pharmaceutical compositions that include valtorcitabine. Claims to the method to treat HBV 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 HBV 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 valtorcitabine. 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, on an exclusive basis or at all.
Pursuant to the UAB license agreement, we were granted an exclusive license to the rights that
the 1998 licensors have to a 1995 U.S. patent application and progeny thereof and counterpart
patent applications in Europe, Canada, Japan and Australia that cover the use of certain synthetic
nucleosides for the treatment of HBV infection.
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In February 2006, UABRF notified us that it and Emory University were asserting a claim that,
as a result of the filing of a continuation patent application in July 2005 by UABRF, the UAB
license agreement covers our telbivudine technology. UABRF contends that we are obligated to pay
the 1998 licensors an aggregate of $15.3 million comprised of 20% of the $75 million license fee we
received from Novartis in May 2003 in connection with the license of our HBV product candidates and
a $0.3 million payment in connection with the submission to the FDA of the IND pursuant to which we
conducted clinical trials of telbivudine. We disagree with UABRFs contentions and have advised UABRF and Emory University that we will utilize the dispute
resolution procedures set forth in the UAB license agreement for resolution of this dispute. Under
the terms of that agreement, if resolution cannot be achieved through negotiations between the parties or mediation, it must be decided by binding arbitration
under the rules of the American Arbitration Association before a panel of three arbitrators.
Pursuant to the terms of the dispute resolutions procedure in the UAB license agreement, in
September 2007 the CEOs of UABRF and the Company met and agreed to begin a process of mediation.
If it is determined that the UAB license agreement does cover our use of telbivudine to treat
HBV, we will be obligated to make payments to the 1998 licensors in the amounts and manner
specified in the UAB license agreement. While we dispute the demands made by UABRF, even if
liability were found to exist, UABRFs claims, in addition to those described above would likely
include payments in the aggregate amount of $1.0 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,
UABRF would likely contend that we would be obligated to pay to the 1998 licensors 30% of all
royalties received on sales by the sublicensee of telbivudine and 20% of all fees, milestone
payments and other cash consideration received from the sublicensee with respect to telbivudine.
If we fail to perform our material obligations under the UAB license agreement, UABRF, acting
for the 1998 licensors, may attempt to terminate the UAB license agreement or render the license to
us non-exclusive. We do not believe that we are in default of any of the material obligations to
which we are subject under the UAB license agreement. Any attempt to terminate the agreement would
be subject to binding arbitration. 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 generally covers the use of telbivudine to treat hepatitis B,
it may 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 the commercialization of 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, but a non-exclusive license
could be granted to one or more of our competitors by one or more of the 1998 licensors. In the
event that the 1998 licensors exclusively or non-exclusively license any claims covering the use of
telbivudine to treat HBV to a competitor, we believe that such a competitor would have to overcome
substantial legal and commercial hurdles to successfully commercialize the product. For example, we
have five U.S. patents covering the use of telbivudine to treat HBV, which we believe a competitor
would infringe if it sought to commercialize telbivudine. Patent applications covering the use of
telbivudine to treat HBV are also pending or have already been granted in numerous other countries.
The FDA granted approval for the commercial use of Tyzeka® on October 25, 2006 and also granted
five years of marketing exclusivity, during which period the FDA will not approve the applications
of any competitiors who seek approval of telbivudine for the treatment of hepatitis B. We may also
receive regulatory exclusivity periods in Europe and in other countries.
If it is determined that the UAB license agreement between us and UABRF does cover our use of
telbivudine to treat HBV, 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 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.
In January 2007, the Board of Trustees of the University of Alabama and related entities filed
a complaint in the United States District Court for the Northern District of Alabama, Southern
Division against us, CNRS and the University of Montpellier. The complaint alleges that a former
employee of UAB is a co-inventor of certain patents in the United States and corresponding foreign
patent applications related to the use of ß-L-2-deoxy-nucleosides for the treatment of HBV;
assigned to one or more of us, CNRS and the University of Montpellier and which cover the use of
Tyzeka ® /Sebivo ® .
If the Board of Trustees of the University of Alabama and related entities are successful in
the lawsuit against us, CNRS and the University of Montpellier, then UAB could obtain rights in
certain patents in the United States and corresponding foreign patent applications related to the
use of ß-L-2-deoxy-nucleosides for the treatment of HBV currently assigned to one or more of us,
CNRS and the University of Montpellier and which cover the use of Tyzeka ® /Sebivo
®. The University of Alabama has included a demand for damages under various theories
in its complaint, but did not specify the amount of damages that it alleges to have incurred. In
response to the complaint, in March 2007, we filed a motion to dismiss based upon lack of personal
jurisdiction. In September 2007, the parties agreed to stay the action for one hundred twenty (120)
days and pursue mediation relating to the disputes associated with the license agreement and this
litigation. We continue to actively prepare for the defense of this claim, if necessary. While we
are vigorously defending this lawsuit, we are not able to ascertain the likelihood of success at
this time .
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Our initial HCV clinical product candidate, valopicitabine, is a prodrug of the active
molecule NM107, which is converted into biologically active NM107 in the body. We believe that
valopicitabine may be a new compound, and therefore we are prosecuting patent applications directed
to valopicitabine itself , as well as a method to treat HCV infection with valopicitabine. NM107
was a known compound at the time that the patent applications covering the use of this active form of
valopicitabine to treat HCV infection were filed. We have been granted U.S. patents claiming
methods of treatment using NM107, each directed to treating HCV infection specifically to treating
flavivirus and pestivirus infection. We have a pending U.S. patent application covering the
compound valopicitabine. We cannot, however, obtain patent protection on the compound NM107.
Despite the fact that NM107 is a known compound, we are aware that a number of companies have
filed patent applications attempting to cover NM107 specifically as a compound, as well as
valopicitabine, as members of broad classes of compounds. Companies have also filed patent
applications covering the use of NM107, specifically, and valopicitabine, generically, to treat HCV
infection, or infection by any member of the Flaviviridae virus family to which the HCV virus
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
HCV infection. Because patents in countries outside the United States are awarded to the first to
file a patent application covering an invention, we believe that we are entitled to patent
protection in 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 a patent to the other company 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 United States, a patent is awarded to the first to invent the subject matter. The U.S.
Patent Office could initiate an interference between us and any or all of Merck/Isis, Ribapharm,
Genelabs, Biota or another company to determine the priority of invention of the use of these
compounds to treat HCV 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 HCV or other viral
infection under U.S. law, we would need to obtain a license that may not be available on
commercially reasonable terms or at all.
A number of companies have filed patent applications and have obtained patents covering
general methods for the treatment of HBV, HCV and HIV infections that could materially affect the
ability to develop and commercialize Tyzeka ® /Sebivo ® , and other product
candidates we may develop in the future. For example, we are aware that Chiron Corporation, now a
subsidiary of Novartis, and Apath, LLC have obtained broad patents covering HCV proteins, nucleic
acids, diagnostics and drug screens. If we need to use these patented materials or methods to
develop any of our HCV product candidates and the materials or methods fall outside certain safe
harbors in the laws governing patent infringement, we will need to buy these products from a
licensee of the company authorized to sell such products or we will require a license from one or
more companies, which may not be available to us on commercially reasonable terms or at all. This
could materially affect or preclude our ability to develop and sell our HCV product candidates.
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 and disputes related to intellectual property matters occur frequently in the
biopharmaceutical industry. Litigation regarding patents, patent applications and other proprietary
rights may be expensive and time consuming. If we are unsuccessful in litigation concerning patents
or patent applications owned or co-owned by us or licensed to us, we may not be able to protect our
products from competition or we may be precluded from selling our products. If we are involved in
such litigation, it could cause delays in bringing 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 products we successfully
develop. Proceedings involving our patents or patent applications could result in adverse decisions
regarding:
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ownership of patents and patent applications; |
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the patentability of our inventions relating to our 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.
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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 valopicitabine.
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 other HCV
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 valopicitabine and
our HCV program, including representations regarding our ownership of the inventions and
discoveries. If one or more of our representations or warranties were not true at the time we made
them to Novartis, we would be in breach of these agreements. In the event of a breach by us,
Novartis has the right to seek indemnification from us and, under certain circumstances, us and our
stockholders who sold shares to Novartis, which include many of our directors and officers, for
damages suffered by Novartis as a result of such breach. The amounts for which we could be liable
to Novartis may be substantial.
Our success will also depend in part on our ability to avoid infringement of the patent rights
of others. If it is determined that we do infringe a patent right of another, we may be required to
seek a license, 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 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 collaborators, employees, consultants, outside scientific
collaborators and sponsored researchers and other advisors. These agreements may not effectively
prevent disclosure of confidential information and may not provide an adequate remedy in the event
of unauthorized disclosure of confidential information. In addition, others may independently
discover our trade secrets and 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, or Novartis the exclusive right to sell Tyzeka® /Sebivo ® , are
terminated, we may be unable to develop or commercialize our product candidates.
We, together with Novartis, entered into an amended and restated agreement with CNRS and the
University of Montpellier, co-owners of the patents and patent applications covering Tyzeka
® /Sebivo ® and valtorcitabine. This agreement covers both the cooperative
research program and the terms of our exclusive right to exploit the results of the cooperative
research, including Tyzeka ® /Sebivo ® and valtorcitabine. The
cooperative research program with CNRS and the University of Montpellier ended in December 2006
although many of the terms remain in effect for the duration of the patent life of the affected
products. We, together with Novartis, have also entered into two agreements with the Universita
degli Studi di Cagliari, which we refer to as the University of Cagliari, the co-owner of the
patents and patent applications covering our HCV product candidates and certain HIV preclinical
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
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Cagliari are currently governed by, and will be interpreted and enforced under, French and Italian
law, respectively, which are different in substantial respects from U.S. law, and which may be
unfavorable to us in material respects. Under French law, co-owners of intellectual property cannot
exploit, assign or license their individual rights without the permission of the co-owners.
Similarly, under Italian law, co-owners of intellectual property cannot exploit or license their
individual rights without the permission of the co-owners. Accordingly, if our agreements with the University of Cagliari terminate, we may not be
able to exploit, license or otherwise convey to Novartis or other third parties our rights in our
product 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 utilize 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 rights are also granted under a separate license agreement. Our
cooperative agreement with the University of Cagliari currently expires in January 2011 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 result in dilution to existing stockholders
and cause the price of our common stock to decline.
Sales of substantial amounts of our common stock in the public market, or the availability of
such shares for sale, could adversely affect the price of our common stock. In addition, the
issuance of common stock upon exercise of outstanding options could be dilutive, and may cause the
market price for a share of our common stock to decline. As of October 31, 2007, we had 56,189,467
shares of common stock issued and outstanding, together with outstanding options to purchase
approximately 4,851,751 shares of common stock with a weighted average exercise price of $11.46 per
share.
Novartis and other holders of an aggregate of approximately 37,137,061 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 proceeds associated with Novartis right
to maintain its percentage ownership of our voting stock when we issue shares at a price below fair market value; |
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adverse developments regarding the safety and efficacy of Tyzeka ® /Sebivo ®; or our product candidates; |
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the results of ongoing and planned clinical trials of our product candidates; |
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developments in the market with respect to competing products or more generally the treatment of HBV, HCV or HIV; |
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the results of regulatory reviews relating to the approval of our product candidates; |
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the timing and success of the launch of products, if any, we successfully develop; |
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future royalty payments received by us associated with sales of Tyzeka ® /Sebivo ®; |
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the 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, including
those relating to our clinical trials, marketing authorizations, pricing and reimbursement; |
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the timing and success of launches of any product we successfully develop; |
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future royalty payments received by us associated with sales of Tyzeka ® /Sebivo ®; |
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the market acceptance of any products we successfully develop; |
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significant changes to our existing business model; |
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the initiation 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. |
In addition, if we fail to reach an important research, development or commercialization
milestone or result by a publicly expected deadline, even if by only a small margin, there could be
a significant impact on the market price of our common stock. Additionally, as we approach the
announcement of important clinical data or other significant information and as we announce such
results and information, we expect the price of our common stock to be particularly volatile, and
negative results would have a substantial negative impact on the price of our common stock.
We could be subject to class action litigation due to stock price volatility, which, if it occurs,
will distract our management and could result in substantial costs or large judgments against us.
The stock market frequently experiences extreme price and volume fluctuations. In addition,
the market prices of securities of companies in the biotechnology and pharmaceutical industry have
been extremely volatile and have experienced fluctuations that have often been unrelated or
disproportionate to the operating performance of these companies. These fluctuations could
adversely affect the market price of our common stock. In the past, securities class action
litigation has often been brought against companies following periods of volatility in the market
prices of their securities. 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 2. Unregistered Sales of Equity Securities and Use of Proceeds
None
Item 3. Defaults Upon Senior Securities
None.
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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.
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, 2007 |
By: |
/s/ Jean-Pierre Sommadossi
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Jean-Pierre Sommadossi |
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Chairman and Chief Executive Officer
(Principal Executive Officer) |
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Date: November 8, 2007 |
By: |
/s/ Ronald C. Renaud, Jr.
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Ronald C. Renaud, Jr. |
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Chief Financial Officer
(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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Amendment No. 4 to the Development, License and Commercialization
Agreement, dated as of September 28, 2007, by and among the
Registrant, Idenix (Cayman) Limited and Novartis Pharma AG |
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10.2+ |
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Transition Services Agreement, dated as of September 28, 2007, by
and among the Registrant, Idenix (Cayman) Limited and Novartis
Pharma AG |
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10.3 |
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Letter Agreement, dated October 19, 2007, by and between Idenix
Pharmaceuticals, Inc. and Guy Macdonald. previously filed with the
Securities and Exchange Commission as an exhibit to a Current
Report on Form 8-K, dated October 16, 2007. |
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21.1 |
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Subsidiaries of the Registrant |
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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 separately
filed with the Securities and Exchange Commission |
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