INHIBITEX, INC.
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-Q
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(Mark One)
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
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For the quarterly period ended
June 30, 2007
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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
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For the transition period
from to
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Commission File
No. 0-50772
INHIBITEX, 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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74-2708737
(I.R.S. Employer
Identification No.)
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9005 Westside Parkway
Alpharetta, Georgia
(Address of principal
executive offices)
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30004
(Zip Code)
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(678) 746-1100
(Registrants telephone
number, including area code)
Not Applicable
(Former name, former address and
former fiscal year,
if changed since last
report)
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. (Check one):
Large Accelerated
Filer o Accelerated
Filer þ Non
Accelerated Filer o
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the
Act). Yes o No þ
As of August 1, 2007, 30,924,719 shares of the
Registrants Common Stock were outstanding.
PART I
FINANCIAL INFORMATION
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June 30,
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December 31,
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2007
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2006
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(Unaudited)
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ASSETS
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Current assets:
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Cash and cash equivalents
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$
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14,142,932
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$
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19,681,861
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Short-term investments
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42,469,914
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41,676,223
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Prepaid expenses and other current
assets
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656,197
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1,002,810
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Note receivable
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750,000
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Accounts receivable
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2,086,472
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|
332,669
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|
|
|
|
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Total current assets
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60,105,515
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62,693,563
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Property and equipment, net
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2,997,217
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3,530,796
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Other assets
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797,522
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Total assets
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$
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63,900,254
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$
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66,224,359
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LIABILITIES AND
STOCKHOLDERS EQUITY
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Current liabilities:
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Accounts payable
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$
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515,451
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$
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629,249
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Accrued expenses
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5,889,392
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7,392,210
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Current portion of notes payable
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312,500
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833,333
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Current portion of capital lease
obligations
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775,604
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|
816,184
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|
Current portion of deferred revenue
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1,441,668
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|
|
191,667
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Other current liabilities
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152,728
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152,728
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Total current liabilities
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9,087,343
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10,015,371
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Long-term liabilities:
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Notes payable, net of current
portion
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781,250
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625,000
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Capital lease obligations, net of
current portion
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388,112
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|
829,871
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Deferred revenue, net of current
portion
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462,500
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537,500
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Other liabilities, net of current
portion
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1,062,186
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1,139,599
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|
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Total long-term liabilities
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2,694,048
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3,131,970
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|
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Total liabilities
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11,781,391
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|
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13,147,341
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Stockholders equity:
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Preferred stock, $.001 par
value; 5,000,000 shares authorized at June 30, 2007
and December 31, 2006; none issued and outstanding
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Common stock, $.001 par
value; 75,000,000 shares authorized at June 30, 2007
and December 31, 2006; 30,901,566 and
30,278,135 shares issued and outstanding at June 30,
2007 and December 31, 2006, respectively
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30,902
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30,278
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Warrants
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7,377,678
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11,517,743
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Additional paid-in capital
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219,247,991
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214,204,588
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Deficit accumulated during the
development stage
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(174,537,708
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)
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(172,675,591
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)
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Total stockholders equity
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52,118,863
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53,077,018
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Total liabilities and
stockholders equity
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$
|
63,900,254
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$
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66,224,359
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The accompanying notes are an integral part of these financial
statements.
3
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Period from
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Inception
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(May 13,
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1994)
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Three Months Ended
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Six Months Ended
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through
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June 30,
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June 30,
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June 30
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2007
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2006
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2007
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2006
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2007
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Revenue:
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|
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License fees and milestones
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$
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412,500
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$
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37,500
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$
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825,000
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$
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75,000
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$
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2,137,500
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Collaborative research and
development
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250,000
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125,000
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500,000
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250,000
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3,999,455
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Grants and other revenue
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22,500
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|
|
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22,065
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28,500
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|
|
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187,452
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|
|
810,551
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Total revenue
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685,000
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184,565
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1,353,500
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512,452
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|
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6,947,506
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Operating expense:
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|
|
|
|
|
|
|
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|
|
|
|
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Research and development
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1,678,463
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6,048,198
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3,245,037
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13,474,750
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|
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136,457,712
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General and administrative
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|
1,961,906
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|
|
|
2,607,913
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|
|
|
3,268,064
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|
|
|
5,374,366
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|
|
|
40,091,782
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|
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|
|
|
|
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|
|
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|
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|
|
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Total operating expense
|
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3,640,369
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|
|
|
8,656,111
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|
|
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6,513,101
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|
18,849,116
|
|
|
|
176,549,494
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|
|
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|
|
|
|
|
|
|
|
|
|
|
|
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Loss from operations
|
|
|
(2,955,369
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)
|
|
|
(8,471,546
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)
|
|
|
(5,159,601
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)
|
|
|
(18,336,664
|
)
|
|
|
(169,601,988
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)
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Other (loss) income, net
|
|
|
(1,013
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)
|
|
|
(717
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)
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|
|
1,944,579
|
|
|
|
57,743
|
|
|
|
3,662,237
|
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Interest income, net
|
|
|
632,066
|
|
|
|
799,562
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|
|
|
1,352,905
|
|
|
|
1,624,445
|
|
|
|
7,784,106
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Net loss
|
|
|
(2,324,316
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)
|
|
|
(7,672,701
|
)
|
|
|
(1,862,117
|
)
|
|
|
(16,654,476
|
)
|
|
|
(158,155,645
|
)
|
Dividends and accretion to
redemption value of redeemable preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(16,382,063
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to common
stockholders
|
|
$
|
(2,324,316
|
)
|
|
$
|
(7,672,701
|
)
|
|
$
|
(1,862,117
|
)
|
|
$
|
(16,654,476
|
)
|
|
$
|
(174,537,708
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per
share
|
|
$
|
(0.08
|
)
|
|
$
|
(0.25
|
)
|
|
$
|
(0.06
|
)
|
|
$
|
(0.55
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares used to
compute basic and diluted net loss per share
|
|
|
30,812,510
|
|
|
|
30,255,312
|
|
|
|
30,659,861
|
|
|
|
30,244,288
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
The accompanying notes are an integral part of these financial
statements.
4
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|
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Period from
|
|
|
|
|
|
|
|
|
|
Inception
|
|
|
|
|
|
|
|
|
|
(May 13,
|
|
|
|
|
|
|
|
|
|
1994)
|
|
|
|
Six Months Ended
|
|
|
through
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
Cash flows from operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(1,862,117
|
)
|
|
$
|
(16,654,476
|
)
|
|
$
|
(158,155,645
|
)
|
Adjustments to reconcile net loss
to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
532,041
|
|
|
|
1,016,056
|
|
|
|
10,311,224
|
|
Share-based compensation
|
|
|
887,110
|
|
|
|
914,051
|
|
|
|
4,682,792
|
|
Loss on sale of equipment
|
|
|
1,538
|
|
|
|
1,017
|
|
|
|
102,546
|
|
Amortization of investment premium
or discount
|
|
|
(735,542
|
)
|
|
|
109,815
|
|
|
|
(396,439
|
)
|
Forgiveness of receivables from
stockholders
|
|
|
|
|
|
|
|
|
|
|
28,695
|
|
Amortization of warrants and
discount on debt
|
|
|
|
|
|
|
|
|
|
|
176,477
|
|
Stock issued for interest
|
|
|
|
|
|
|
|
|
|
|
126,886
|
|
Cumulative effect of change in
accounting principle
|
|
|
|
|
|
|
(58,460
|
)
|
|
|
41,040
|
|
Changes in operating assets and
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid expenses and other assets
|
|
|
346,613
|
|
|
|
171,489
|
|
|
|
(656,197
|
)
|
Accounts receivable
|
|
|
(1,753,803
|
)
|
|
|
(125,786
|
)
|
|
|
(2,086,472
|
)
|
Accounts payable and other
liabilities
|
|
|
(191,211
|
)
|
|
|
(762,947
|
)
|
|
|
1,730,365
|
|
Accrued expenses
|
|
|
(1,502,818
|
)
|
|
|
(2,152,288
|
)
|
|
|
5,889,392
|
|
Deferred revenue
|
|
|
1,175,001
|
|
|
|
(200,000
|
)
|
|
|
1,904,168
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating
activities
|
|
|
(3,103,188
|
)
|
|
|
(17,741,529
|
)
|
|
|
(136,301,168
|
)
|
Cash flows from investing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
|
|
|
|
(232,863
|
)
|
|
|
(8,963,041
|
)
|
Purchases of short-term investments
|
|
|
(40,258,149
|
)
|
|
|
(11,630,208
|
)
|
|
|
(254,762,073
|
)
|
Proceeds from maturities of
short-term investments
|
|
|
40,200,000
|
|
|
|
32,067,000
|
|
|
|
212,688,598
|
|
Increase in deferred merger assets
|
|
|
(797,522
|
)
|
|
|
|
|
|
|
(797,522
|
)
|
Advance on note receivable
|
|
|
(750,000
|
)
|
|
|
|
|
|
|
(750,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
investing activities
|
|
|
(1,605,671
|
)
|
|
|
20,203,929
|
|
|
|
(52,584,038
|
)
|
Cash flows from financing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from promissory notes,
notes payable and related warrants
|
|
|
|
|
|
|
|
|
|
|
5,513,492
|
|
Payments on promissory notes and
capital leases
|
|
|
(846,922
|
)
|
|
|
(1,266,863
|
)
|
|
|
(7,703,972
|
)
|
Proceeds from bridge loan and
related warrants
|
|
|
|
|
|
|
|
|
|
|
2,220,000
|
|
Net proceeds from the issuance of
preferred stock and warrants
|
|
|
|
|
|
|
|
|
|
|
81,788,868
|
|
Proceeds from the issuance of
common stock, net of issuance costs
|
|
|
16,852
|
|
|
|
70,967
|
|
|
|
121,209,750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by
financing activities
|
|
|
(830,070
|
)
|
|
|
(1,195,896
|
)
|
|
|
203,028,138
|
|
(Decrease) increase in cash and
cash equivalents
|
|
|
(5,538,929
|
)
|
|
|
1,266,504
|
|
|
|
14,142,932
|
|
Cash and cash equivalents at
beginning of period
|
|
|
19,681,861
|
|
|
|
33,842,937
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of
period
|
|
$
|
14,142,932
|
|
|
$
|
35,109,441
|
|
|
$
|
14,142,932
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
83,520
|
|
|
$
|
119,138
|
|
|
$
|
1,366,032
|
|
Supplemental non-cash investing and
financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed assets capitalized using
promissory notes and capital leases
|
|
|
|
|
|
|
|
|
|
|
4,447,946
|
|
Conversion of bridge loans and
interest payable into preferred stock
|
|
|
|
|
|
|
|
|
|
|
2,124,576
|
|
Preferred stock dividends and
accretion of preferred stock to redemption value
|
|
|
|
|
|
|
|
|
|
|
16,382,063
|
|
The accompanying notes are an integral part of these financial
statements.
5
Inhibitex, Inc. (Inhibitex or the
Company) was incorporated in the state of Delaware
in May 1994. Inhibitex is a biopharmaceutical company that has
historically focused on the discovery and development of novel
antibody-based products for the prevention and treatment of
serious bacterial and fungal infections. The Companys
primary activities since incorporation have been recruiting
personnel, conducting research, conducting pre-clinical studies
and clinical trials, performing business and financial planning,
and raising capital. Accordingly, the Company is considered to
be in the development stage for financial reporting purposes.
The Company has incurred operating losses in each year since its
inception and expects such annual losses to continue, and
possibly increase for the foreseeable future. These losses have
largely been the result of research and development expenses
related to advancing the Companys clinical-stage product
candidates, both of which were based upon the Companys
proprietary MSCRAMM protein platform. The Companys lead
product candidate was,
Veronate®,
which was the subject of a pivotal Phase III clinical trial
that concluded in 2006 and failed to meet its primary endpoint.
Veronate had been in development to prevent hospital-associated
infections in very low birth weight infants. Aurexis, the
Companys second clinical stage product candidate, has
completed one Phase II clinical trial and is being
developed to treat, in combination with antibiotics, serious
life-threatening Staphylococcus aureus (S. aureus)
bloodstream infections in hospitalized patients. The Company
has also licensed the rights to use its MSCRAMM protein platform
to Wyeth for use in the development of staphylococcal vaccines
and to 3M Company for use in developing diagnostic applications.
In light of the unfavorable results of its Veronate
Phase III trial reported in April 2006, the Company reduced
its workforce, discontinued the development of Veronate, and
adopted a strategy to pursue antiviral pre-clinical or
clinical-stage development opportunities beyond its proprietary
MSCRAMM protein platform through in-licensing, acquisition or
merger. The Company postponed the initiation of any additional
clinical trials of Aurexis pending the outcome of these
strategic activities and plans to further leverage, develop or
monetize its Aurexis program and MSCRAMM platform through
licenses, co-development, collaborations, alliances or other
transactions.
In April 2007, the Company entered into an agreement to acquire
FermaVir Pharmaceuticals, Inc. (FermaVir), which is
developing pre-clinical stage antiviral compounds for the
treatment of shingles and the prevention or treatment of
cytomegalovirus (CMV). The transaction is structured
as a stock-for-stock tax-free merger, requires the approval of
the shareholders of both Inhibitex and FermaVir, and is
anticipated to close in September 2007. The Company intends to
pursue in-licensing or acquire additional antiviral development
programs to expand its emerging antiviral pipeline.
The Company plans to continue to finance its operations with its
existing cash, cash equivalents and short-term investments, or
through future equity
and/or debt
financings, or proceeds from potential future collaborations or
partnerships. The Companys ability to continue its
operations is dependent, in the near term, upon managing its
cash resources, successful development of its product
candidates, entering into additional in-licensing, collaboration
or partnership agreements, executing future financings or
transactions and ultimately, upon achieving positive cash flow
from operations. There can be no assurance that additional funds
will be available on terms acceptable to the Company or that the
Company will ever become profitable.
|
|
2.
|
Summary
of Significant Accounting Policies
|
The accompanying unaudited condensed consolidated financial
statements for the three and six months ended June 30, 2007
and 2006 should be read in conjunction with the financial
statements contained in the Companys Annual Report on
Form 10-K
filed with the Securities and Exchange Commission (the
SEC) on
6
INHIBITEX,
INC.
(A Development Stage Company)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
March 16, 2007. The Companys significant accounting
policies have not changed since December 31, 2006, except
as outlined below:
Principles of Consolidation. In April 2007,
the Company formed Frost Acquisition Corp., a Delaware
corporation, as a wholly-owned subsidiary. Currently, Frost
Acquisition Corp. does not engage in any operations and exists
solely to facilitate the merger with FermaVir (See
Note 3-Agreement
and Plan of Merger and Reorganization). The accompanying
consolidated financial statements include all accounts of the
Company and its wholly-owned subsidiary.
Income Taxes. In July 2006, the Financial
Accounting Standards Board (FASB) issued FASB
Interpretation No. 48, Accounting for Uncertainty in
Income Taxes (FIN 48). Interpretation
No. 48 clarifies the accounting for uncertainty in income
taxes recognized in an enterprises financial statements in
accordance with Statement of Financial Accounting Standards
(SFAS) No. 109, Accounting for Income
Taxes. Interpretation No. 48 prescribes a recognition
threshold and measurement attributes for the financial statement
recognition and measurement of a tax position taken or expected
to be taken in a tax return. Interpretation No. 48 also
provides guidance on derecognition, classification, interest and
penalties, accounting in interim periods, disclosure and
transition. The Company adopted the provisions of Interpretation
No. 48 effective January 1, 2007. No cumulative
adjustment was required or recorded as a result of the adoption
of Interpretation No. 48. Please see
Note 12-Income
Taxes.
Recent Accounting Pronouncements. In September
2006, the FASB issued Statement of Financial Accounting
Standards No. 157, Fair Value Measurements
(SFAS No. 157), which provides guidance on
the use of fair value in such measurements. It also prescribes
expanded disclosures in regards to fair value measurements
contained in the financial statements. The new standard is not
expected to have any effect on the Companys financial
position or results of operations. SFAS No. 157 will
become effective for the Company as of the first quarter of 2008.
In February 2007, the FASB issued Statement of Financial
Accounting Standards No. 159, The Fair Value Option
for Financial Assets and Financial Liabilities
(SFAS No. 159). SFAS No. 159
expands opportunities to use fair value measurement in financial
reporting and permits entities to choose to measure many
financial instruments and certain other items at fair value.
SFAS No. 159 is effective for fiscal years beginning
after November 15, 2007. The new standard is not expected
to have any effect on the Companys financial position or
results of operations.
|
|
3.
|
Agreement
and Plan of Merger and Reorganization
|
In April 2007, the Company and FermaVir entered into an
Agreement and Plan of Merger and Reorganization. Under the
merger agreement, FermaVir will merge with and into Frost
Acquisition Corp., a wholly-owned subsidiary of the Company,
which is referred to as the merger sub, with the merger sub
continuing as a wholly-owned subsidiary of the Company under the
name FermaVir Pharmaceuticals, Inc., which transaction is
referred to as the merger. At the effective time of the merger,
each share of FermaVir common stock outstanding immediately
prior to the effective time of the merger will be converted into
the right to receive 0.55 shares of the Company common
stock. In addition, the Company will also assume
13.2 million of outstanding FermaVir options and warrants,
all of which will be converted to the Companys options and
warrants at the same exchange ratio. Completion of the merger is
subject to the approval of Inhibitex and FermaVir shareholders
and certain other conditions as set forth in the definitive
agreement. The merger is expected to close in September 2007. A
copy of the agreement and plan of merger and reorganization are
filed as exhibits to the Companys current report filed on
Form 8-K
filed on April 13, 2007. Further information can be found
in the Companys preliminary prospectus filed on
Form S-4
filed on June 6, 2007. The merger is intended to qualify as
a tax-free reorganization under the provisions of
Section 368(a) of the Internal Revenue Code.
7
INHIBITEX,
INC.
(A Development Stage Company)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The merger agreement provides that upon the terms and subject to
the conditions set forth in the merger agreement, FermaVir will
merge with and into Frost Acquisition Corp., with Frost
Acquisition Corp. continuing as the surviving corporation and a
wholly-owned subsidiary of Inhibitex under the name FermaVir
Pharmaceuticals, Inc. The merger will be accounted for as an
acquisition of assets in accordance with Statement of Financial
Accounting Standards, or SFAS, No. 142, Goodwill and
Other Intangible Assets. The total estimated purchase price
is allocated to the tangible and intangible assets acquired and
liabilities assumed in connection with the transaction, based on
their estimated fair values. As FermaVir is a development stage
enterprise, the acquisition is not considered to be a business
combination, and the allocation of the preliminary purchase
price does not result in goodwill.
Concurrent with the execution of the merger agreement with
FermaVir, the Company entered into a note purchase agreement
with FermaVir pursuant to which to the Company agreed to loan
FermaVir up to $1.5 million of 12% senior secured
promissory notes. The indebtedness is secured by a first
priority lien on all of the assets of FermaVir and its
subsidiaries. All borrowings under the note purchase agreement
are repayable no later than December 31, 2007 or the end of
specified periods of time following termination of the merger
agreement for certain reasons and consummation of an acquisition
proposal other than the merger. As of June 30, 2007, the
Company has loaned FermaVir $750,000 of the note purchase
agreement and is obligate to loan $500,000 on July 9, 2007
and $250,000 on August 9, 2007. A copy of the note purchase
agreement and security agreement are filed as exhibits to the
Companys current report filed on
Form 8-K
filed on April 13, 2007.
In connection with the proposed merger with FermaVir, the
Company has incurred $797,522 in deferred direct merger assets.
These costs, including other additional direct merger costs,
will be included in the acquisition accounting of FermaVir (See
Note 3-Agreement
and Plan of Merger and Reorganization) upon consummation of the
merger. If the merger does not close, these deferred merger
costs would be charged to operations.
In December 2004, the Company entered into an interest-free,
$2.5 million note payable with a local development
authority for laboratory-related leasehold improvements at the
Companys research and headquarters facility. Beginning in
October 2005, the Company made the first of 16 equal quarterly
installments of principal of $208,333. On March 15, 2007,
the note payable was amended such that the remaining balance of
$1,250,000 will be paid in 16 equal quarterly installments of
$78,125 over a four year period beginning April 1, 2007.
As of June 30, 2007 and December 31, 2006, $1,093,750
and $1,458,333 were outstanding under this note payable,
respectively.
Future minimum payments due under notes payable as of
June 30, 2007 are as follows:
|
|
|
|
|
Year Ending December 31,
|
|
|
|
|
2007
|
|
$
|
156,250
|
|
2008
|
|
|
312,500
|
|
2009
|
|
|
312,500
|
|
2010
|
|
|
312,500
|
|
|
|
|
|
|
Total future payments
|
|
$
|
1,093,750
|
|
|
|
|
|
|
8
INHIBITEX,
INC.
(A Development Stage Company)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Common Stock Warrants. In February 2007, a
total of 1,199,671 Series D warrants expired with an
exercise price of $14.07. The total Black-Scholes value of those
warrants was $4,140,065, and such amount was reclassified from
warrants to additional paid-in capital. As of June 30,
2007, and 2006, there were 2,608,035 and 3,807,706 warrants
outstanding, respectively. As of June 30, 2007, all of the
warrants are exercisable and expire from August 20, 2008 to
May 12, 2011. The weighted average strike price as of
June 30, 2007 and 2006 was $9.87 and $11.03, respectively.
The Company calculates net loss per share in accordance with
SFAS No. 128, Earnings Per Share
(SFAS No. 128). Under the provisions of
SFAS No. 128, basic net loss per share is computed by
dividing the net loss for the period by the weighted average
number of common shares outstanding for the period. Diluted net
loss per share is computed by dividing the net income by the
weighted average number of common shares and dilutive common
stock equivalents outstanding (commonly and hereinafter referred
to as common stock equivalents). Common stock equivalents
consist of common shares issuable upon the exercise of stock
options, warrants, and non-vested restricted shares. For diluted
net loss per share common stock equivalents are excluded from
the calculation of diluted net income or net loss per share if
their effect is anti-dilutive.
The following table sets forth the computation of historical
basic and diluted net loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
Net loss available for common
stockholders
|
|
$
|
(2,324,316
|
)
|
|
$
|
(7,672,701
|
)
|
|
$
|
(1,862,117
|
)
|
|
$
|
(16,654,476
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares
outstanding used to compute basic earnings per share
|
|
|
30,812,510
|
|
|
|
30,255,312
|
|
|
|
30,659,861
|
|
|
|
30,244,288
|
|
Dilutive effect of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options and restricted stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used to compute diluted
earnings per share
|
|
|
30,812,510
|
|
|
|
30,255,312
|
|
|
|
30,659,861
|
|
|
|
30,244,288
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net loss per share
|
|
$
|
(0.08
|
)
|
|
$
|
(0.25
|
)
|
|
$
|
(0.06
|
)
|
|
$
|
(0.55
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted loss per share
|
|
$
|
(0.08
|
)
|
|
$
|
(0.25
|
)
|
|
$
|
(0.06
|
)
|
|
$
|
(0.55
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of antidilutive stock
options and restricted stock excluded from computation
|
|
|
2,716,166
|
|
|
|
3,195,200
|
|
|
|
2,716,166
|
|
|
|
3,195,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of antidilutive warrants
excluded from computation
|
|
|
2,608,035
|
|
|
|
3,807,706
|
|
|
|
2,608,035
|
|
|
|
3,807,706
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9.
|
License
Fees and Collaborative Research and Support
|
In January 2007, the Company entered into an exclusive worldwide
license and commercialization agreement with 3M Company
(3M) for the development of various diagnostic
products using its MSCRAMM protein platform. Under the terms of
the agreement, the Company granted 3M exclusive global licenses
to use MSCRAMM protein intellectual property in the development
of diagnostic products in exchange for license fees, future
milestone payments, financial support of future research and
development
9
INHIBITEX,
INC.
(A Development Stage Company)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
activities and royalty payments on net product sales. The
development, manufacture and sale of any products resulting from
the collaboration are the responsibility of 3M. The Company may
terminate this agreement if 3M fails to use certain reasonable
commercial efforts to bring related products to the market. 3M
may terminate the agreement without cause upon three months
written notice, upon payment of all license fees, development
support for the calendar year, reimbursement of certain patent
expenses, and any other amounts potentially due upon the
termination of the agreement. Either party may terminate the
agreement for cause upon providing two months written notice.
Otherwise, this agreement will terminate upon the expiration of
all licensed patents. Under the agreement, the Company is
entitled to receive the following: (i) non-refundable
license fees of $3.0 million, of which $1.75 million
was paid in April 2007 and the balance of which is due in the
first quarter of 2008, (ii) $1.0 million in
development support payments over the next two years,
(iii) milestone payments on the first commercial sale of
each (a) diagnostic product that targets detect organisms
in the MSCRAMM protein platform, (iv) a tiered royalty
based on net sales of diagnostic products, and
(v) reimbursement of certain patent expenses related to
licensed MSCRAMM proteins. The Company is obligated to provide
support to 3M pursuant to a mutually
agreed-upon
development and collaboration plan for a period of at least two
years. The Company will amortize on a straight-lined basis the
non-refundable license fees of $3.0 million over the length
of the obligation to provide service, which is two years of
research associated support. Research associated support fees
will be amortized on a straight-line basis over the period the
services are provided.
|
|
10.
|
Share-Based
Award Plans
|
The Company has two share-based award plans, one of which has
shares reserved for future share-based awards. For the three
months ended June 30, 2007 and 2006, the Company recorded
share-based compensation expense related to grants from this
plan of $409,716 and $580,574, or $0.01 and $0.02 basic and
fully diluted per share. For the six months ended June 30,
2007 and 2006, the Company recorded share-based compensation
expense related to grants from this plan of $887,110 and
$914,051, or $0.03 and $0.03 basic and fully diluted per share.
No income tax benefit was recognized in the statements of
operations and no share-based compensation expense was
capitalized as part of any assets for the three and six months
ended June 30, 2007 and 2006.
Stock
Options
The fair value of each stock option award was estimated at its
respective date of grant using the Black-Scholes method with the
following assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
Weighted average risk-free
interest rate
|
|
|
|
|
|
|
4.89
|
%
|
|
|
4.83
|
%
|
|
|
4.81
|
%
|
Dividend yield
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected weighted average
volatility
|
|
|
|
|
|
|
.70
|
|
|
|
.76
|
|
|
|
.70
|
|
Expected weighted average life of
options (years)
|
|
|
|
|
|
|
4.0
|
|
|
|
4.0
|
|
|
|
4.0
|
|
Weighted average fair value of
options granted
|
|
|
|
|
|
$
|
1.36
|
|
|
$
|
0.91
|
|
|
$
|
2.28
|
|
The Company had no stock option grants for the three months
ended June 30, 2007. The risk-free interest rate is based
on the expected term of the option and the corresponding
U.S. Treasury bond, which in most cases is the
U.S. five year Treasury bond. The Company uses historical
and expected option behavior, as well as contractual life to
estimate the expected life that options granted are expected to
be outstanding. The Company uses historical data and expected
patterns to estimate future employee terminations to determine
10
INHIBITEX,
INC.
(A Development Stage Company)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
applied forfeiture rates. Expected volatility is based on
historical volatilities from the Companys publicly traded
stock.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average
|
|
|
Aggregate
|
|
|
|
|
|
|
Weighted Average
|
|
|
Remaining
|
|
|
Intrinsic
|
|
|
|
Number of
|
|
|
Exercise Price
|
|
|
Contractual
|
|
|
Value
|
|
|
|
Stock Options
|
|
|
per Option
|
|
|
Term
|
|
|
($000)
|
|
|
Balance at December 31, 2006
|
|
|
2,081,054
|
|
|
$
|
5.35
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
78,000
|
|
|
|
1.62
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(11,977
|
)
|
|
|
0.48
|
|
|
|
|
|
|
|
|
|
Forfeited or expired
|
|
|
(495,480
|
)
|
|
|
7.84
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2007
|
|
|
1,651,597
|
|
|
$
|
4.46
|
|
|
|
3.09
|
|
|
$
|
110
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted-average fair value of stock options granted during
the six month period ended June 30, 2007 was $0.91 based on
their respective date of grant. As of June 30, 2007, there
was $1,418,671 of total unrecognized share-based compensation
expense related to non-vested stock option awards, not
discounted for future forfeitures. This balance is expected to
be recognized over a weighted-average period of 1.22 years.
Restricted
Stock
A summary of the Companys unvested restricted stock as of
June 30, 2007 is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Grant Date
|
|
Restricted Stock
|
|
Shares
|
|
|
Fair Value
|
|
|
Balance at December 31, 2006
|
|
|
1,659,157
|
|
|
$
|
1.87
|
|
Granted
|
|
|
35,377
|
|
|
|
1.59
|
|
Released
|
|
|
(626,615
|
)
|
|
|
1.93
|
|
Forfeited
|
|
|
(3,350
|
)
|
|
|
2.05
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2007
|
|
|
1,064,569
|
|
|
$
|
1.82
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2007 there was $1,262,842 of total
unrecognized share-based compensation expense related to
unvested restricted stock granted, not discounted for future
forfeitures. This balance is expected to be recognized over a
weighted-average period of 1.09 years.
During the six months ended June 30, 2007, the Company
recognized other income in the amount of $1.9 million as a
result of the sale of excess raw material related to the
manufacture of Veronate.
The Company files a U.S. federal and Georgia income tax
return on an annual basis. The Company is no longer subject to
U.S. federal income or state tax examinations by tax
authorities for years before 2002. However, since the Company
has substantial tax net operating losses originating in years
before 2002, the tax authorities may adjust the amount of the
pre-2002 net operating loss carried to a year after 2002.
The Company is not currently under examination by any tax
authority. No tax provision was required for the six months
ended June 30, 2007 due to the substantial net operating
loss carryforwards.
The Company adopted the provisions of Interpretation No. 48
effective January 1, 2007. No cumulative adjustment was
required or recorded as a result of the implementation of
Interpretation No. 48. As of
11
INHIBITEX,
INC.
(A Development Stage Company)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
January 1, 2007, the Company had no unrecognized tax
benefits. The Company will recognize accrued interest and
penalties related to unrecognized tax benefits in income tax
expense when and if incurred. The Company had no interest or
penalties related to unrecognized tax benefits accrued as of
January 1, 2007. The Company does not anticipate that the
amount of the unrecognized benefit will significantly increase
or decrease within the next 12 months.
|
|
13.
|
Severance
and Termination Benefits
|
On June 30, 2007, the Company terminated the employment of
one executive in accordance with his employment contracts. As a
result, the Company recorded a charge of $0.3 million in
the second quarter of 2007 in general and administrative
expenses related to the cost of severance and termination
benefits. Of this amount, $0.3 million is recorded as an
accrued liability as of June 30, 2007, and was paid in full
on July 15, 2007. In addition due to this termination the
Company partially accelerated share-based compensation expense
on previously issued unvested restricted stock grant of
20,000 shares.
In February 2007, an arbitrator ruled that the Company was
liable to Nabi Biopharmaceuticals, Inc. (Nabi) for
cancellation payments and restitution in the aggregate amount of
approximately $4.5 million as a result of the
Companys termination of a contract manufacturing agreement
with Nabi during 2006. The Company recorded a charge of
$4.5 million in 2006 as a result of the arbitration ruling.
The ruling required the Company to make this payment to Nabi
within 30 days of the arbitrators decision, which was
March 9, 2007, or incur interest at a rate of 9% per annum
from March 9, 2007. The Company has not paid any of the
amounts due to Nabi and such amounts have accrued interest,
which also have been recorded by the Company. The Company is
evaluating all of its options in this matter and has sought to
have the arbitrators ruling set aside.
12
|
|
ITEM 2.
|
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANICAL CONDITION AND RESULTS OF
OPERATIONS
|
This Quarterly Report on
Form 10-Q
contains forward-looking statements. These forward-looking
statements involve known and unknown risks, uncertainties and
other factors that may cause actual results, performance or
achievements to be materially different from any future results,
performance or achievements expressed or implied by the
forward-looking statements. In some cases, you can identify
forward-looking statements by terms such as may,
will, should, could,
would, expect, plan,
intend, anticipate, believe,
estimate, project, predict,
forecast, potential, likely
or possible, as well as the negative of such
expressions, and similar expressions intended to identify
forward-looking statements. These forward-looking statements
include, without limitation, statements relating to:
|
|
|
|
|
our ability to receive shareholder approval and consummate the
FermaVir Pharmaceuticals, Inc. (FermaVir)
acquisition;
|
|
|
|
the expected timing and development plans associated with
FermaVir s two development programs;
|
|
|
|
our ability to execute our strategy;
|
|
|
|
our plan to preserve a significant portion of our financial
resources to acquire additional pre-clinical or clinical-stage
development opportunities beyond our
MSCRAMM®
platform through in-licensing, acquisition or merger to expand
our development pipeline;
|
|
|
|
our plans if the FermaVir acquisition is not consummated;
|
|
|
|
our intent to further leverage, develop or monetize our
MSCRAMM®
platform including Aurexis through licenses, co-development,
collaborations or other transactions;
|
|
|
|
the number of months that our current cash, cash equivalents,
and short-term investments will allow us to operate;
|
|
|
|
our future financing requirements, the factors that influence
these requirements, and how we expect to fund them;
|
|
|
|
potential future revenue from collaborative research agreements,
partnerships, license agreements, or materials transfer
agreements;
|
|
|
|
our ability to successfully develop our programs or to be
acquired FermaVir programs and generate product-related revenue
in the future;
|
|
|
|
and anticipated future and increased losses from operations and
the potential volatility of our quarterly and annual operating
costs.
|
These statements reflect our current views with respect to
future events and are based on assumptions and subject to risks
and uncertainties including, without limitation: our expectation
to close the FermaVir acquisition in September 2007; the
continued successful development of FermaVirs product
candidates; 3M Company or Wyeth terminating our license and
collaborative research agreements; maintaining sufficient
resources, including executive management and key employees; our
ability to successfully develop current and future product
candidates either independently or in collaboration with partner
and through the regulatory process; our collaborators do not
fulfill their obligations under our agreements with them in the
future; our ability to attract suitable organizations to
collaborate on the development and commercialization of our
product candidates; the condition of the financial equity and
debt markets and our ability to raise sufficient funding in such
markets; our ability to manage our current cash reserves as
planned; intention and ability to in-license or acquire
additional antiviral development programs in the future to
expand our emerging antiviral pipeline; changes in general
economic business or competitive conditions; and other
statements contained elsewhere in this Quarterly Report on
Form 10-Q
and risk factors described in or referred to in greater detail
in the Risk Factors section of this
Form 10-K
for December 31, 2006. There may be events in the future
that we are unable to predict accurately, or over which we have
no control. You should read this
Form 10-Q
and the documents that we reference herein and have been filed
or incorporated by reference as exhibits
13
completely and with the understanding that our actual future
results may be materially different from what we expect. Our
business, financial condition, results of operations, and
prospects may change. We may not update these forward-looking
statements, even though our situation may change in the future,
unless we have obligations under the federal securities laws to
update and disclose material developments related to previously
disclosed information. We qualify all of the information
presented in this
Form 10-Q,
and particularly our forward-looking statements, by these
cautionary statements.
Inhibitex®,
MSCRAMM®,
Veronate®,
and
Aurexis®
are registered trademarks of Inhibitex, Inc. MSCRAMM is an
acronym for Microbial Surface Components Recognizing Adhesive
Matrix Molecules.
The following discussion should be read in conjunction with
the financial statements and the notes thereto included in
Item 1 of this Quarterly Report on
Form 10-Q.
Overview
We are a development stage company that is focused on the
development of anti-infective products that can diagnose,
prevent and treat serious infections. From our inception in 1994
to June 30, 2007, we have devoted substantially all of our
resources and efforts towards the discovery and development of
novel antibody-based products, all of which were based upon our
proprietary MSCRAMM protein platform, for the prevention and
treatment of serious bacterial and fungal infections. In
November 2005, we completed enrollment of a pivotal
Phase III clinical trial of Veronate, our lead product
candidate at that time, which we had been developing for the
prevention of certain hospital-associated infections in
premature, very low birth weight infants. On April 3, 2006,
we announced that this pivotal Phase III trial did not
achieve its primary endpoint or any of its secondary endpoints.
In light of these Phase III trial results, in April 2006 we
discontinued the development of Veronate, reduced our work-force
and realigned our operations consistent with the status of our
other MSCRAMM-based development programs. In addition, after a
comprehensive review of the entire Veronate program and an
assessment of our pipeline, assets, resources and capabilities,
in June 2006 we adopted a strategy to preserve a significant
portion of our financial resources in order to pursue other
pre-clinical or clinical-stage development product candidates
beyond our MSCRAMM platform via in-licensing, acquisition or
merger activities. We postponed the initiation of any additional
clinical trials of Aurexis pending the outcome of these
strategic activities and intend to further leverage, develop or
monetize our Aurexis program and MSCRAMM platform through
licenses, co-development, collaborations, alliances or other
transactions.
We expect to incur losses for the foreseeable future as we
intend to support the clinical development of the antiviral
development programs that we expect to obtain through the
acquisition of FermaVir, as described in Recent Developments
and Outlook below, or those we may obtain through future
in-licensing, acquisition or merger activities. As of
June 30, 2007, we had an accumulated deficit of
$174.5 million.
We have neither received regulatory approval for any of our
product candidates, nor do we have any commercialization
capabilities; therefore, it is possible that we may never
successfully derive significant collaboration revenues or any
commercial revenues from any of our existing or future product
candidates or preclinical development programs.
Recent
Developments and Outlook
On February 7, 2007, an arbitrator ruled we were liable to
Nabi Biopharmaceuticals, Inc. (Nabi) for
cancellation payments and restitution in the aggregate amount of
approximately $4.5 million as a result of our termination
of a contract manufacturing agreement with Nabi during 2006. The
ruling provided for interest at a rate of 9% per annum
commencing 30 days after the date of the award. In March
2007, Nabi filed a petition with the Supreme Court of the State
of New York to confirm the arbitrators award, and we
cross-petitioned to have the award set aside. Arguments on the
cross-petitions were heard on April 16, 2007, and the judge
has not yet issued a decision. Accordingly, as of June 30,
2007, we had not made any payments to Nabi on the award for
which we have accrued interest since March 2007.
14
On April 10, 2007, we announced that we had entered into a
definitive merger agreement to acquire FermaVir. FermaVirs
development-stage antiviral pipeline includes FV-100, a highly
potent nucleoside analogue for the treatment of herpes zoster
infections (shingles) that is expected to enter
clinical trials in the fourth quarter of 2007, and a series of
preclinical compounds for the treatment of human
cytomegalovirus, or CMV disease. Under the terms of the
definitive agreement, each of the 20.8 million outstanding
shares of FermaVir common stock will be exchanged for
0.55 shares of our common stock. We will also assume up to
13.2 million of outstanding FermaVir options and warrants
at the same exchange ratio. Completion of the transaction is
subject to the approval of our shareholders and the shareholders
of FermaVir and certain other conditions as set forth in the
definitive agreement, and is expected to occur in September
2007. Concurrent with the execution of the merger agreement,
FermaVir entered into a Note Purchase Agreement with us pursuant
to which to we agreed to loan FermaVir up to $1.5 million
of 12% senior secured promissory notes. We loaned FermaVir
$750,000 in April 2007 and $500,000 in July 2007 and have agreed
to loan $250,000 on August 9, 2007. The indebtedness is
secured by a first priority lien on all of the assets of
FermaVir and its subsidiaries. The amounts due under the notes
are payable on the earliest of December 31, 2007, or the
end of specified periods of time following termination of the
merger agreement for certain reasons and consummation of an
acquisition proposal other than the merger.
On August 8, 2007, FermaVir announced that FV-100 has
completed preclinical studies. Based upon the encouraging data
from these studies, and subject to the closing of the
transaction and regulatory review we anticipate initiating a
single ascending dose trial in healthy volunteers in the fourth
quarter of 2007. We also announced that we and FermaVir are
currently screening a number of the CMV compounds for potency
and cytoxicity and we anticipate determining whether one or more
of these compounds could serve as a lead clinical candidate by
year-end.
We intend to complete the acquisition of FermaVir in September
2007, we anticipate that our future operating expenses will
increase, primarily due to higher research and development
expenses for FermaVirs two antiviral programs, including
the expensing of material in-process research and development
charges upon the completion of the acquisition. We cannot
predict with any certainty what future impact the acquisition of
FermaVir or any future transaction will have on future operating
results.
In the event that the acquisition with FermaVir does not occur,
we may or may not decide to pursue other antiviral development
programs through in-licensing, acquisition or merger, and may
consider other strategic alternatives or pathways in which to
utilize our assets, including a merger with or being acquired by
another life science, pharmaceutical or other company, or
liquidation of the Company.
We intend to pursue in-licensing or acquire additional antiviral
development programs in the future to expand our emerging
antiviral pipeline, however, we cannot assure you when, if ever,
we might be successful in doing so on terms acceptable to us.
As a result of our pursuit of acquiring and developing a
pipeline of antiviral programs and product candidates, we plan
to leverage our capabilities and intellectual property
associated with our MSCRAMM protein platform by pursuing
licenses, co-development, alliances, or collaborations that
could provide financial and other synergistic capabilities to
support the further development and potential of Aurexis or
other MSCRAMM programs. We have several existing license and
collaboration agreements based upon its MSCRAMM protein
platform, which includes those with Wyeth for the development of
staphylococcal vaccines and 3M for the development of diagnostic
products. We cannot assure you that we will be able to
successfully enter into any additional licenses, co-development,
collaborations or other transactions related to Aurexis, or our
MSCRAMM protein platform in general, on terms acceptable to us
or at all.
The research phase of our collaboration with Dyax for the
development of human monoclonal antibodies for the treatment of
enterococcal infections has been completed and both parties have
mutually agreed not to proceed with additional research at this
time.
We expect that our future operations will result in a net loss
on a quarterly and yearly basis for the foreseeable future.
15
Critical
Accounting Policies
Managements Discussion and Analysis of Results of
Operations discusses our financial statements, which have been
prepared in accordance with U.S. generally accepted
accounting principles. The preparation of these financial
statements requires us to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues
and expenses during the reporting period.
We base our estimates and judgments on historical experience,
current economic and industry conditions and on various other
factors that are believed to be reasonable under the
circumstances. This forms the basis for making judgments about
the carrying values of assets and liabilities that are not
readily apparent from other sources. Actual results may differ
from these estimates under different assumptions or conditions.
We believe the following critical accounting policies require
significant judgment and estimates:
|
|
|
|
|
Revenue Recognition
|
|
|
|
Share-based Compensation
|
There has been no change in the above critical accounting
policies used to create the underlying accounting assumptions
and estimates used in 2007.
In addition we adopted Financial Accounting Standards Board
(FASB) Interpretation No. 48, Accounting
for Uncertainty in Income Taxes (FIN 48)
and are currently evaluating FASB issued Statement of Financial
Accounting Standards No. 157, Fair Value
Measurements (SFAS No. 157), and
FASB issued Statement of Financial Accounting Standards
No. 159, The Fair Value Option for Financial Assets
and Financial Liabilities
(SFAS No. 159). None of these have or are
expected to have a material impact on our results of operations.
Results
of Operations
Three
Months Ended June 30, 2007 and 2006
Revenue. Revenue increased to
$0.7 million for the three months ended June 30, 2007
from $0.2 million for the same quarter in 2006. This
increase of $0.5 million or 250% was the result of the
amortization of an upfront non-refundable license fee and
periodic research-associated support fees related to the license
and development agreement we entered into with 3M in January
2007. A $3.0 million non-refundable license fee and the
$1.0 million in research-associated support fees are being
amortized on a straight-line basis over the length of the
obligation to provide support service, which is two years.
Research and Development Expense. Research and
development expense decreased to $1.7 million during the
three months ended June 30, 2007 from $6.0 million in
the same period in 2006. This decrease of $4.3 million, or
72%, was primarily the result of the discontinuation of the
development of the Veronate program, and consisted of a
$2.8 million decrease in clinical and manufacturing
expenses, $1.2 million decrease in salaries, benefits, and
share-based compensation, a $0.2 million decrease in
license fees, patent-related legal fees and other expenses and a
$0.1 million decrease in depreciation and facility related
expenses.
Clinical and manufacturing-related expenses decreased as the
result of a $1.8 million decrease in expenditures for the
manufacture of clinical trial materials for the Veronate program
in 2007. In addition there was a decrease of $1.0 million
in direct clinical trial expenses due to the completion of the
Veronate Phase III clinical trial in April 2006. Salaries,
benefits and share-based compensation expenses decreased due to
staff reductions that occurred in 2006 and 2007. License fees,
patent-related legal fees and other expenses decreased due to
lower sponsored research activities, fewer laboratory supplies
and a decrease in other expenses, offset in part by increases in
patent-related legal fees. Depreciation and facility-related
expenses decreased primarily due to lower depreciation expenses
from decreased amounts of property, plant and equipment.
16
The following table summarizes the components of our research
and development expense for the three months ended June 30,
2007 and 2006.
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In millions)
|
|
|
Clinical and manufacturing-related
expenses
|
|
$
|
|
|
|
$
|
2.8
|
|
Salaries, benefits and share-based
compensation expenses
|
|
|
0.8
|
|
|
|
2.0
|
|
License fees, patent-related legal
fees and other expenses
|
|
|
0.4
|
|
|
|
0.6
|
|
Depreciation and facility related
expenses
|
|
|
0.5
|
|
|
|
0.6
|
|
|
|
|
|
|
|
|
|
|
Total research and development
expense
|
|
$
|
1.7
|
|
|
$
|
6.0
|
|
|
|
|
|
|
|
|
|
|
General and Administrative Expense. General
and administrative expense decreased to $2.0 million for
the three months ended June 30, 2007 from $2.6 million
in the same period of 2006. The decrease of $0.6 million,
or 23%, was due to $0.2 million decrease in professional
and legal fees and market research expenses that were incurred
in 2006, but not in 2007 for the planned commercialization of
Veronate, a decrease of $0.2 million in salaries, benefits,
and share-based compensation expense associated with previously
announced staff reductions in 2006 and 2007, a decrease in
depreciation and facility-related expenses of $0.1 million
and a decrease in other expenses of $0.1 million.
Professional and legal fees and market research expenses
decreased primarily due to a decrease in legal, consulting and
investor relations fees. Salaries, benefits and share-based
compensation expense decreased by $0.5 million primarily as
a result of staff reductions in 2006 and 2007, offset in part by
a $0.3 million severance and termination benefits charge in
2007. Depreciation and facility-related expenses decreased
primarily due to lower depreciation expenses from decreased
amounts of property, plant and equipment. Other expenses
decreased due to reduced board compensation, lower license fees
and decreases in other expenses.
The following table summarizes the components of our general and
administrative expense for the three months ended June 30,
2007 and 2006.
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In millions)
|
|
|
Professional and legal fees and
market research expenses
|
|
$
|
0.4
|
|
|
$
|
0.6
|
|
Salaries, benefits and share-based
compensation expense
|
|
|
1.1
|
|
|
|
1.3
|
|
Other expenses
|
|
|
0.4
|
|
|
|
0.5
|
|
Depreciation and facility-related
expenses
|
|
|
0.1
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
Total general and administrative
expense
|
|
$
|
2.0
|
|
|
$
|
2.6
|
|
|
|
|
|
|
|
|
|
|
Six
Months Ended June 30, 2007 and 2006
Revenue. Revenue increased to
$1.4 million for the six months ended June 30, 2007
from $0.5 million for the same period in 2006. This
increase of $0.9 million or 180%, was the result of the
amortization of an upfront non-refundable license fee and
periodic research-associated support fees related to the license
and development agreement we entered into with 3M in January
2007, offset in part by reduced revenue in 2007 from research
activities performed under materials transfer agreements. The
$3.0 million non-refundable license fee and the
$1.0 million research-associated support fees are being
amortized on a straight-line basis over the length of the
obligation to provide support service, which is two years.
Research and Development Expense. Research and
development expense decreased to $3.2 million during the
six months ended June 30, 2007 from $13.5 million in
the same period in 2006. This decrease of $10.3 million, or
76%, was primarily the result of the discontinuation of the
development of the Veronate program due to its failure in
Phase III clinical trials, and consisted of a
$6.5 million decrease in clinical and manufacturing
expenses, $2.3 million decrease in salaries, benefits, and
share-based compensation related to
17
previously announced staff reductions in 2006 and 2007, a
$1.2 million decrease in license fees, patent-related legal
fees and other expenses and a $0.3 million decrease in
depreciation and facility related expenses.
Clinical and manufacturing-related expenses decreased as the
result of a $2.5 million decrease in expenditures for the
manufacture of clinical trial materials for the Veronate program
in 2007. In addition there was a decrease of $3.9 million
in direct clinical trial expenses due to the completion of the
Veronate Phase III clinical trial in April 2006 and a
decrease of $0.1 million in clinical trial expenses
associated with the Aurexis program. Salaries, benefits and
share-based compensation expenses decreased due to staff
reductions that occurred in 2006 and 2007. License fees,
patent-related legal fees and other expenses decreased due to
lower patent-related legal fees, sponsored research activities,
lower laboratory supplies and decrease in other expenses.
Depreciation and facility-related expenses decreased primarily
due to lower depreciation expenses from decreased amounts of
property, plant and equipment.
The following table summarizes the components of our research
and development expense for the six months ended June 30,
2007 and 2006.
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In millions)
|
|
|
Clinical and manufacturing-related
expenses
|
|
$
|
|
|
|
$
|
6.5
|
|
Salaries, benefits and share-based
compensation expense
|
|
|
1.6
|
|
|
|
3.9
|
|
License fees, patent-related legal
fees and other expenses
|
|
|
0.6
|
|
|
|
1.8
|
|
Depreciation and facility related
expenses
|
|
|
1.0
|
|
|
|
1.3
|
|
|
|
|
|
|
|
|
|
|
Total research and development
expense
|
|
$
|
3.2
|
|
|
$
|
13.5
|
|
|
|
|
|
|
|
|
|
|
General and Administrative Expense. General
and administrative expense decreased to $3.3 million for
the six months ended June 30, 2007 from $5.4 million
in the same period of 2006. The decrease of $2.1 million,
or 39%, was due to a $1.3 million decrease in professional
and legal fees and market research expenses that were incurred
in 2006 for the planned commercialization of Veronate, a
decrease of $0.4 million in salaries, benefits, and
share-based compensation expense associated with previously
announced staff reductions in 2006 and 2007, a decrease in other
expenses of $0.3 million and a decrease in depreciation and
facility-related expenses of $0.1 million.
Professional and legal fees and market research expenses
decreased due to a favorable $0.5 million mediation
settlement with a third party for litigation-related legal fees
incurred in prior years and a $0.8 million decrease in
legal, consulting, and investor relations fees that were
incurred in 2006, but not in 2007 for the planned
commercialization of Veronate. Salaries, benefits and
share-based compensation expense decreased by $0.7 million
primarily as a result of staff reductions in 2006 and 2007,
offset in part by a $0.3 million severance and termination
benefits charge. Other expenses decreased due to reduced board
compensation, and decreases in other expenses. Depreciation and
facility-related expenses decreased primarily due to lower
depreciation expenses from decreased amounts of property, plant
and equipment.
The following table summarizes the components of our general and
administrative expense for the six months ended June 30,
2007 and 2006.
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In millions)
|
|
|
Professional and legal fees and
market research expenses
|
|
$
|
0.5
|
|
|
$
|
1.8
|
|
Salaries, benefits and share-based
compensation expense
|
|
|
1.8
|
|
|
|
2.2
|
|
Other expenses
|
|
|
0.7
|
|
|
|
1.0
|
|
Depreciation and facility-related
expenses
|
|
|
0.3
|
|
|
|
0.4
|
|
|
|
|
|
|
|
|
|
|
Total general and administrative
expense
|
|
$
|
3.3
|
|
|
$
|
5.4
|
|
|
|
|
|
|
|
|
|
|
18
Other Income (Loss), net. Other income (loss),
net increased to $1.9 million for the six months ended
June 30, 2007 from $0.1 million for the comparable
period in 2006. This net increase of $1.9 million was
primarily due to the sale of excess raw material in 2007 that
was planned to be used to manufacture Veronate. The cash
proceeds from this sale were received in the beginning of the
third quarter of 2007. The amount has been recorded in other
income because the sale of raw materials does not represent our
normal business activity.
Liquidity
and Capital Resources
Sources
of Liquidity
Since our inception in May 1994 through June 30, 2007, we
have funded our operations primarily with $214.4 million in
gross proceeds raised from a series of five private equity
financings, our IPO in June 2004, and two PIPE financings, or
private placement of public equity financings. We have also
borrowed a total of $12.2 million under various notes
payable, capital leases, and a credit facility with a commercial
bank, and have received approximately $9.8 million in
license fees, collaborative research payments and grants, of
which $1.9 million was recorded as deferred revenue as of
June 30, 2007.
On March 15, 2007, we amended our note payable with a
remaining balance of $1,250,000 to be paid in 16 equal quarterly
installments of $78,125 over a four year period beginning
April 1, 2007.
From January 1, 2007 to June 30, 2007, we made
payments of $0.8 million on our existing capital leases and
notes payable. We currently are and have been in compliance with
all debt covenants.
At June 30, 2007, our cash, cash equivalents and short-term
investments totaled $56.6 million and we held no
investments with a planned maturity greater than 12 months.
Our cash, cash equivalents and short-term investments are
generally held in a variety of interest-bearing instruments,
generally consisting of United States government agency
securities, high-grade corporate bonds, asset-backed securities,
commercial paper, certificates of deposit, and money market
accounts.
Cash
Flows
For the six months ended June 30, 2007, cash, cash
equivalents and short-term investments decreased by
$4.8 million, from $61.4 million to
$56.6 million. This decrease was primarily the result of
net cash used for operating activities, costs incurred in
connection with the proposed merger with FermaVir, a loan to
FermaVir and the repayment of capital lease obligations and
notes payable.
Net cash used in operating activities was $3.1 million for
the six months ended June 30, 2007, reflecting our net loss
for the period of $1.9 million plus a net increase in
operating assets over operating liabilities of
$1.9 million, offset in part by non-cash charges of
$0.7 million. Net loss resulted from expenses related to
research and development and ongoing general and administrative
activities, less the sale of excess raw materials used to
manufacture Veronate, the amortization of deferred revenue from
license and collaboration agreements, and net interest income.
The net increase in operating assets over operating liabilities
reflected a net increase of $1.4 million in accounts
receivable and prepaid expenses due principally to the sale of
the excess raw materials and lower prepaid expenses, and a net
increase of $0.5 million in accounts payable, accrued
liabilities, and deferred revenue resulting from reduced
clinical trial and manufacturing-related expenses, offset in
part by higher deferred revenue.
We used net cash of $1.6 million from investing activities
during the six months ended June 30, 2007, which primarily
consisted of $0.8 million of deferred merger assets
incurred in connection with the proposed merger with FermaVir
and $0.8 million of loan advances to FermaVir.
We used net cash of $0.8 million from financing activities
during the six months ended June 30, 2007 for scheduled
payments on our capital leases and notes payable.
19
Funding
Requirements
Our future funding requirements are difficult to determine and
will depend on a number of factors, including:
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whether we complete the acquisition of FermaVir as planned;
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whether we are successful in obtaining additional pre-clinical
development or clinical-stage product candidates or programs
through future in-licensing, acquisition or merger activities;
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the terms and timing of any collaborative, licensing, alliances
and other arrangements that we may establish;
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the scope, rate of progress and cost of our pre-clinical
activities including the acquisition of the FermaVir programs
and advancing our existing and to be acquired FermaVir programs
or future research and development programs through clinical
development;
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the cost of manufacturing clinical trial materials for our
product candidates;
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the timing and costs involved in conducting pre-clinical tests
or clinical trials;
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the cost to obtain and timing of regulatory approvals;
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the number of product candidates we may advance into preclinical
or clinical development;
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future payments received or made under existing or future
license or collaboration agreements;
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the cost to maintain a corporate infrastructure to support a
publicly-traded company;
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the cost of filing, prosecuting, and enforcing patent and other
intellectual property claims; and
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the future need to acquire additional licenses or acquire
product candidates or programs.
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Based on our current operations, and considering the potential
costs associated with acquiring FermaVir, we believe that our
existing cash, cash equivalents and short-term investments of
$56.6 million as of June 30, 2007, will enable us to
operate the combined company post-acquisition for a period of at
least 24 months from the date of this filing. Our estimate
assumes that we complete the FermaVir acquisition in September
2007, we advance FermaVirs two antiviral programs into
clinical development and that we have to pay the full
$4.5 million arbitration award plus accrued interest to
Nabi. This estimate does not include or consider the potential
expenses associated with in-licensing or acquiring additional
pre-clinical or clinical stage product candidates we may obtain
in the future, or any partnerships, collaborations or alliances
for Aurexis or any other MSCRAMM-based programs that we may
enter into, any other significant transaction or change in our
strategy. We cannot predict with any certainty what impact the
acquisition of FermaVir or any future transaction will have on
our liquidity.
We currently do not have any commitments for future funding, nor
do we anticipate that we will generate significant revenue from
the sale of any products in the foreseeable future. Therefore,
in order to meet our anticipated liquidity needs beyond
24 months, or possibly sooner in the event we obtain
additional pre-clinical or clinical stage products or programs
through in-licensing, acquisition or merger activities or
otherwise enter into other transactions or change our strategy,
we may need to raise additional capital. We would expect to do
so primarily through the sale of additional common stock or
other equity securities and to a lesser extent, licensing
agreements, strategic collaborations or debt financing. Funds
from these sources may not be available to us on acceptable
terms, if at all, and our failure to raise such funds could have
a material adverse impact on our business strategy, plans,
financial condition and results of operations. If adequate funds
are not available to us in the future, we may be required to
delay, reduce the scope of, or eliminate one or more of our
research and development programs, delay or curtail our clinical
trials, or obtain funds through license agreements,
collaborative or partner arrangements pursuant to which we will
likely have to relinquish rights to certain product candidates
that we might otherwise choose to develop or commercialize
independently. Additional equity financings may be dilutive to
holders of our common stock, and debt financing, if available,
may involve significant payment obligations and restrictive
covenants that restrict how we operate our business.
20
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ITEM 3.
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QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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Our primary exposure to market risk relates to changes in
interest rates on our cash, cash equivalents and short-term
investments. The objective of our investment activities is to
preserve principal. To achieve this objective, we invest in
highly liquid and high-quality investment grade debt instruments
of financial institutions, corporations, and United States
government agency securities with a weighted average maturity of
no longer than 12 months. Due to the relatively short-term
nature of these investments, we believe that we are not subject
to any material market risk exposure, and as a result, the
estimated fair value of our cash, cash equivalents and
short-term investments approximates their principal amounts. If
market interest rates were to increase immediately and uniformly
by 10% from levels at June 30, 2007, we estimate that the
fair value of our investment portfolio would decline by an
immaterial amount. We do not have any foreign currency or other
derivative financial instruments, and we do not have significant
interest rate risk associated with our debt obligations. We have
the ability to hold any of our fixed income investments until
maturity, and therefore we would not expect our operating
results or cash flows to be affected to any significant degree
by the effect of a change in market interest rates on our
investments.
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ITEM 4.
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CONTROLS
AND PROCEDURES
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Evaluation
of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed
to ensure that information required to be disclosed in the
reports that we file or submit pursuant to the Securities
Exchange Act is recorded, processed, summarized and reported
within the time periods specified in the SECs rules and
forms and that such information is accumulated and communicated
to our management, including our Chief Executive Officer and
Chief Financial Officer, who is currently the same individual,
to allow timely decisions regarding required disclosure. Our
management, under the supervision of such individual, carried
out an evaluation of the effectiveness of the design and
operation of our disclosure controls and procedures as of the
end of the period covered by this report. Based on the
evaluation of these disclosure controls and procedures, such
individual concluded that our disclosure controls and procedures
were effective. It should be noted that any system of controls,
however well designed and operated, can provide only reasonable,
and not absolute, assurance that the objectives of the system
are met. In addition, the design of any control system is based
in part upon certain assumptions about the likelihood of future
events. Because of these and other inherent limitations of
control systems, there can be no assurance that any design will
succeed in achieving its stated goals under all potential future
conditions, regardless of how remote.
Changes
in Internal Control over Financial Reporting
There were no changes in our internal control over financial
reporting during the period ended June 30, 2007 that have
materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
PART II
OTHER INFORMATION
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ITEM 1.
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LEGAL
PROCEEDINGS
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On February 7, 2007, an arbitrator ruled we were liable to
Nabi Biopharmaceuticals, Inc. for cancellation payments and
restitution in the aggregate amount of approximately
$4.5 million as a result of our termination of a contract
manufacturing agreement with Nabi during 2006. We incurred a
charge of $4.5 million in 2006 as a result of the
arbitration ruling. The ruling provided for interest at a rate
of 9% per annum commencing 30 days after the date of the
award. In March 2007, Nabi filed a petition with the Supreme
Court of the State of New York to confirm the arbitrators
award, and we cross-petitioned to have the award set aside.
Arguments on the cross-petitions were heard on April 16,
2007, and the judge has not yet issued a decision. Accordingly,
as of June 30, 2007, we had not made any payments to Nabi
on the award.
21
You should carefully consider the following discussion of
risks, together with the other information contained in this
Form 10-Q.
The occurrence of any of the following risks could materially
harm our business, our financial condition, and our ability to
raise additional capital in the future or ever become
profitable. In that event, the market price of our common stock
could decline and you could lose part or all of your investment.
The Risk Factors included in the Companys Annual Report on
Form 10-K
for the year ended December 31, 2006 and the Companys
Quarterly Report on
Form 10-Q
for the period ended March 31, 2007 have not materially
changed except as set forth below.
If we
close the merger transaction with FermaVir or otherwise succeed
in implementing our strategy of pursuing other preclinical and
clinical antiviral development opportunities or programs through
in-licensing,
acquisition or merger, we may encounter difficulties managing
our operations.
We plan to obtain antiviral development programs that are based
on chemical compounds, or small molecules. Historically, we have
been focused on the development and commercialization of
antibody-based product candidates, which are made from biologic
materials and are generally considered to be large molecules.
Therefore, we have limited experience in the discovery,
development and manufacturing of antiviral small molecule
compounds. In order to successfully manage this shift in
operational focus, we will need to expand and supplement our
research and clinical development, regulatory, and manufacturing
functions through the addition of key employees, consultants or
third-party contractors to provide certain skill sets including
virology, medicinal chemistry drug formulation and pharmacology.
We cannot assure you that we can attract or retain such
qualified employees, consultants or third-party contractors that
have appropriate antiviral small molecule drug development
experience. In the event we cannot successfully manage these
changes, if they occur, there may be an adverse impact on our
business.
Our
business and stock price may be adversely affected if the
acquisition of FermaVir is not completed.
The acquisition of FermaVir is subject to several customary
conditions, including the effectiveness of the registration
statement and the approvals of the transaction by our
stockholders and the stockholders of FermaVir. If the
acquisition of FermaVir is not completed, we could be subject to
a number of risks that may adversely affect our business and
stock price, including:
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the diversion of our managements attention from its
day-to-day business as a result of efforts relating to seeking
to identify, negotiate and consummate another transaction the
acquisition;
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the current market price of our common stock reflects a market
assumption that the acquisition will be completed;
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under certain circumstances, we could be required to pay
FermaVir a $900,000 termination fee;
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we must pay costs related to the merger; and
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we would not realize the benefits we expect from acquiring
FermaVir.
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If we
are unable to retain or, in the future, attract key employees,
advisors or consultants, we may be unable to successfully
develop and commercialize our product candidates or otherwise
manage our business effectively.
Our success depends in part on our ability to retain qualified
management and personnel, directors and academic scientists and
clinicians as advisors or consultants. We are currently
dependent upon the efforts of our executive officers and senior
management. In order to pursue our strategy of obtaining
preclinical and clinical-stage development opportunities through
in-licensing, acquisition or merger, we will need to retain
personnel with experience in a number of disciplines, including
research and development, clinical testing, government
regulation, manufacturing, business development, accounting,
finance, human resources and information systems. Although we
have not had material difficulties in retaining and attracting
key personnel in the past, we may not be able to continue to
retain and attract such personnel on acceptable terms, if at
all.
22
If we lose any key employees, or we are unable to attract and
retain qualified personnel, advisors or consultants, our
business may be harmed.
If we
are successful in obtaining preclinical or clinical-stage
antiviral development opportunities or programs through
in-licensing, acquisition or merger activities, we may need
additional capital, which may not be available to us on
acceptable terms, if at all.
We expect that we may need additional capital in the future, and
the extent of this need will depend on many factors, some of
which very difficult to predict and others that are beyond our
control, including:
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our ability to obtain and successfully integrate preclinical or
clinical-stage antiviral development programs we may obtain
through in-licensing, acquisition or merger activities;
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the successful and continued preclinical and clinical
development of our MSCRAMM product candidates independently or
through collaborations;
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the time it takes to receive regulatory approvals needed to
clinically advance or market our product candidates;
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the stage of development of the program we may obtain;
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future payments, if any, received or made under existing or
possible future collaborative arrangements;
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the costs associated with protecting and expanding our patent
and other intellectual property rights; and
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the extent to which we acquire licenses to new products,
development programs or compounds in the future.
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We anticipate that our existing cash, cash equivalents and
short-term investments will enable us to operate for a period of
at least 24 months from the date of this filing. This
estimate assumes we complete the acquisition of FermaVir in
September 2007 as described herein and we proceed with the
development of FermaVirs two anti-viral programs. If we
are successful in implementing our strategy and obtain
additional preclinical or clinical-stage antiviral development
programs through in-licensing, acquisition or merger, the number
of months that our existing cash resources might allow us to
operate may be significantly reduced as the level of anticipated
expenditures on research and development activities would
increase. We have no other committed sources of additional
capital at this time. We cannot assure you that funds will be
available to us in the future on acceptable terms, if at all. If
adequate funds are not available to us on terms that we find
acceptable, or at all, we may be required to delay, reduce the
scope of, or eliminate research and development efforts or
clinical trials on any or all of our product candidates. We may
also be forced to curtail or restructure our operations, obtain
funds by entering into arrangements with collaborators or
partners on unattractive terms, sell or relinquish rights to
certain technologies, product candidates or our intellectual
property that we would not otherwise sell or relinquish in order
to continue our operations.
If we
are successful in pursuing other preclinical and clinical
antiviral development opportunities through in-licensing,
acquisition or merger, your ownership in us could be
diluted.
We anticipate that we will need to issue additional shares of
common stock in the future to support or fund our current
strategy and our planned operations. Any issuance of equity we
may undertake in the future could cause the price of our common
stock to decline, or require us to issue shares at a price that
is lower than that paid by holders of our common stock in the
past, which would result in those shares being dilutive. If we
obtain funds through a credit facility or through the issuance
of debt or preferred securities, these securities would likely
have rights senior to your rights as a common stockholder.
We may
be unable to enter into future license, collaborations or other
transactions with respect to Aurexis or our MSCRAMM protein
platform, which could harm our business.
At this time, we do not intend to continue to independently
advance the clinical development of Aurexis or any of our other
MSCRAMM-related programs. We plan to leverage our capabilities
and intellectual
23
property associated with our MSCRAMM protein platform by
pursuing licenses or corporate collaborations that could provide
financial and other synergistic capabilities to support the
further development and potential of these programs, including
Aurexis. We have several existing license and collaboration
agreements based upon our MSCRAMM protein platform, which
include those with Wyeth for the development of staphylococcal
vaccines and 3M Company for the development of diagnostics
products. We cannot assure you that we will be able to
successfully enter into any additional licenses, collaborations,
or other transactions related to Aurexis, or our MSCRAMM protein
platform in general, on terms acceptable to us or at all.
We may
be unable to successfully develop or commercialize product
candidates that are the subject of collaborations if our
collaborators do not perform.
We have in the past and expect to continue to enter into and
rely on collaborations or other arrangements with third parties
to develop and / or commercialize our existing and
future product candidates. Such collaborators may not perform as
agreed, or may fail to comply with strict regulations or elect
to delay or terminate their efforts in developing or
commercializing our product candidates. We cannot assure you
that any product candidates will emerge from our relationships
with Wyeth, or 3M Company, or other collaborations we may enter
into in the future related to any of our other product
candidates.
Our
revenues, expenses and results of operations will be subject to
significant fluctuations, which will make it difficult to
compare our operating results from period to
period.
Until we have successfully developed and commercialized an
existing or future product candidate, we expect that
substantially all of our revenue will result from payments we
receives under collaborative arrangements or license agreements
where we grant others the right to use our intellectual
property. We may not be able to generate additional revenues
under existing or future collaborative agreements. Furthermore,
payments potentially due to us under our existing and any future
collaborative arrangements, including any milestone and up-front
payments, are subject to significant fluctuation in both timing
and amount, or may never be earned or paid. Therefore, our
historical and current revenues may not be indicative of our
ability to achieve additional payment-generating milestones. In
addition, certain of our contract agreements provide for minimum
commitment obligation amounts that we may not need and therefore
may not be cost effective to us. As of December 31, 2006,
our minimum future commitments, including debt and lease
obligations amounted to an aggregate of $11.2 million,
assuming the relevant agreements are not cancelled or terminated
by them. We expect that our operating results will also vary
significantly from quarter to quarter and year to year as a
result of the timing of in-licensing, acquisition, our research
and development efforts, the execution or termination of
collaborative arrangements, the initiation, success or failure
of clinical trials, the timing of the manufacture of our product
candidates or other development related factors. Accordingly,
our revenues and results of operations for any period may not be
comparable to the revenues or results of operations for any
other period.
We
have experienced losses since our inception. We expect to
continue to incur such losses for the foreseeable future and we
may never become profitable.
Since inception (May 13, 1994) through June 30,
2007, we have incurred a cumulative deficit of approximately
$174.5 million. Our losses to date have resulted
principally from:
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costs related to our research programs and the clinical
development of our product candidates; and
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general and administrative costs relating to our operations.
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We anticipate incurring losses for the foreseeable future if we
further develop our product candidates or acquire additional
product candidates or programs, which will generally require us
to conduct significant research and laboratory testing, conduct
extensive and expensive clinical trials, and seek regulatory
approvals. We cannot assure you that we will ever generate
direct or royalty revenue from the sale of products or ever
become profitable. Based on our current strategy, our quarterly
and annual operating costs and revenues may become highly
volatile, and comparisons to previous periods will be difficult.
24
Risks
Related to Owning Our Common Stock
Our
common stock price has been highly volatile, and your investment
in us could suffer a decline in value.
The market price of our common stock has been highly volatile
since the completion of our initial public offering in June
2004. The market price of our common stock is likely to continue
to be highly volatile and could be subject to wide fluctuations
in response to various factors and events, including but not
limited to:
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our ability to complete the FermaVir merger and other
in-licensing or acquisition transactions to obtain other
preclinical or clinical-stage development programs on terms
acceptable to us, our stockholders, analysts, and institutional
buyers;
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our ability to manage our cash burn rate at an acceptable level;
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disclosure of our or our competitors clinical trial status
or data;
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the approval or commercialization of new products by us or our
competitors, and the disclosure thereof;
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developments regarding our MSCRAMM program and Aurexis;
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announcements of scientific innovations by us or our competitors;
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rumors relating to us or our competitors;
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public concern about the safety of our product candidates,
products or similar classes of products;
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litigation to which we may become subject;
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disclosures of any favorable or unfavorable clinical or
regulatory developments concerning our clinical trials,
manufacturing, or product candidates;
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actual or anticipated variations in our annual and quarterly
operating results;
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changes in general conditions or trends in the biotechnology and
pharmaceutical industries;
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changes in drug reimbursement rates or government policies
related to reimbursement;
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announcements by us or our competitors of significant
acquisitions, strategic partnerships, joint ventures or capital
commitments;
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new regulatory legislation adopted in the United States or
abroad;
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our failure to achieve or meet equity research analysts
expectations or their estimates of our business, or a change in
their recommendations concerning us, the value of our common
stock or our industry in general;
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termination or delay in any of our existing or future
collaborative arrangements;
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future sales of equity or debt securities, including large block
trades or the sale of shares held by our directors or management;
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the loss of our eligibility to have shares of our common stock
traded on the Nasdaq Global Market due to our failure to
maintain listing standards;
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changes in accounting principles;
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failure to comply with the periodic reporting requirements of
publicly-owned companies, under the Securities Exchange Act of
1934, as amended, and the Sarbanes-Oxley Act of 2002; and
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general economic conditions.
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In addition, the stock market in general, and more specifically
the Nasdaq Global Market and the market for biotechnology stocks
in particular, have historically experienced significant price
and volume fluctuations.
25
Volatility in the market price for a particular biotechnology
companys stock has often been unrelated or
disproportionate to the operating performance of that company.
Market and industry factors may seriously harm the market price
of our common stock, regardless of our operating performance.
Due to this volatility, you may be unable to sell your shares of
common stock at or above the price you paid.
The following is a list of exhibits filed as part of this Report:
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Exhibit
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No.
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Description
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31
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.1
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Section 302 Certification of
the Chief Executive Officer and Chief Financial Officer Required
by
Rule 13a-14(a)
or
Rule 15d-14(a)
of the Securities Exchange Act of 1934, as Adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
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32
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.1
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Section 906 Certifications of
the Chief Executive Officer and the Chief Financial Officer
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26
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.
INHIBITEX, INC
Russell H. Plumb
President, Chief Executive Officer, and
Chief Financial Officer
Date: August 9, 2007
27
EXHIBIT INDEX
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Exhibit
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No.
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Description
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31
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.1
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Section 302 Certification of
the Chief Executive Officer and Chief Financial Officer as
Required by
Rule 13a-14(a)
or
Rule 15d-14(a)
of the Securities Exchange Act of 1934, as Adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
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32
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.1
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Section 906 Certifications of
the Chief Executive Officer and the Chief Financial Officer
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28