UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal
year ended December 31,
2009
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OR
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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 number 0-17758
EMISPHERE TECHNOLOGIES,
INC.
(Exact name of registrant as
specified in its charter)
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Delaware
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13-3306985
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(State or other jurisdiction
of
incorporation or organization)
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(I.R.S. Employer
Identification Number)
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240 Cedar Knolls Road, Suite 200
Cedar Knolls, NJ
(Address of principal
executive offices)
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07927
(Zip Code)
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(973) 532-8000
(Registrants telephone number, including area code)
Securities registered pursuant to Section 12(b) of the
Act:
None
Securities registered pursuant to Section 12(g) of the
Act:
Common Stock $.01 par value
Preferred Stock Purchase Rights
Indicate by check mark if the Registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o No þ
Indicate by check mark if the Registrant is not required to file
reports pursuant to Section 13 or 15(d) of the
Act. Yes o No þ
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 Registrant was
required to file such reports) and (2) has been subject to
such filing requirements for at least the past
90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if
any, every Interactive Data File required to be submitted and
posted pursuant to Rule 405 of Regulation S-T during the
preceding 12 months (or for such shorter period that the
registrant was required to submit and post such
files). Yes o No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
(§ 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrants
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this
Form 10-K
or any amendment to this
Form 10-K. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act. (Check one):
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Large
accelerated
filer o
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Accelerated
filer o
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Non-accelerated
filer o
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Smaller
reporting
company þ
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(Do not check if a smaller reporting company)
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 June 30, 2009 (the last business day of the
registrants most recently completed second quarter), the
aggregate market value of the common stock held by
non-affiliates of the Registrant (i.e. excluding shares held by
executive officers, directors, and control persons) was
$26,084,325 computed at the closing price on that date.
The number of shares of the Registrants common stock,
$.01 par value, outstanding as of March 11, 2010 was
42,070,401.
PART I
SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements made under the captions Business
(Item 1) and Managements Discussion and
Analysis of Financial Condition and Results of Operations
(Item 7), the notes to our audited financial statements
(Item 8) and elsewhere in this Annual Report on
Form 10-K,
as well as statements made from time to time by our
representatives may constitute forward-looking
statements within the meaning of the Private Securities
Litigation Reform Act of 1995. These forward-looking statements
include, without limitation, statements regarding planned or
expected studies and trials of oral formulations that utilize
our
Eligen®
Technology; the timing of the development and commercialization
of our product candidates or potential products that may be
developed using our
Eligen®
Technology; the potential market size, advantages or therapeutic
uses of our potential products; variation in actual savings and
operating improvements resulting from restructurings; and the
sufficiency of our available capital resources to meet our
funding needs. We do not undertake any obligation to publicly
update any forward-looking statement, whether as a result of new
information, future events, or otherwise, except as required by
law. Such forward-looking statements involve known and unknown
risks, uncertainties and other factors which may cause our
actual results or achievements to be materially different from
any future results or achievements expressed or implied by such
forward-looking statements. Such factors include the factors
described under Item 1A. Risk Factors and the
other factors discussed in connection with any forward-looking
statements.
Overview
of Emisphere
Introduction
and History
Emisphere Technologies, Inc. (Emisphere, the
Company, our, us, or
we) is a biopharmaceutical company that focuses on a
unique and improved delivery of therapeutic molecules or
nutritional supplements using its
Eligen®
Technology. These molecules could be currently available or
under development. Such molecules are usually delivered by
injection and in many cases, their benefits are limited due to
poor bioavailability, slow on-set of action or variable
absorption. In those cases, our technology may increase the
benefit of the therapy by improving bioavailability or
absorption or by increasing the rate of absorption and
accelerating the onset of action. The
Eligen®
Technology can be applied to the oral route of administration as
well other delivery pathways, such as buccal, rectal,
inhalation, intra-vaginal or transdermal. Our core business
strategy is to develop oral forms of drugs or nutrients that are
not currently available or have poor bioavailability in oral
form, either alone or with corporate partners, by applying the
Eligen®
Technology to those drugs or nutrients. Typically, the drugs
that we target have received regulatory approval, have
demonstrated safety and efficacy, and are currently available on
the market. Our website is www.emisphere.com. The contents of
that website are not incorporated herein by reference thereto.
Investor related questions should be directed to
info@emisphere.com.
Emisphere was originally founded as Clinical Technologies
Associates, Inc. in 1986. We conducted an initial public
offering in 1989 and were listed on NASDAQ under the ticker
symbol CTAI. In 1990 we decided to focus on our oral
drug delivery technology, now known as the
Eligen®
Technology. In 1991, we changed our name to Emisphere
Technologies, Inc., and we continued to be listed on NASDAQ
under the new ticker symbol EMIS. The Companys
securities were suspended from trading on The NASDAQ Capital
Market effective at the open of business on Tuesday,
June 9, 2009, and NASDAQ delisted the Companys
securities thereafter. The delisting resulted from the
Companys non-compliance with the minimum market value of
listed securities requirement for continued listing.
Simultaneously, the Companys securities began trading on
the Over-the-Counter Bulletin Board (the
OTCBB), an electronic quotation service maintained
by the Financial Industry Regulatory Authority, effective with
the open of business on Tuesday, June 9, 2009. The
Companys trading symbol remains EMIS, however, it is our
understanding that, for certain stock quote publication
websites, investors may be required to key EMIS.OB to obtain
quotes.
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Since our inception in 1986, substantial efforts and resources
have been devoted to understanding the
Eligen®
Technology and establishing a product development pipeline that
incorporates this technology with selected molecules. Since
2007, Emisphere has undergone many positive changes. A new
senior management team, led by Michael V. Novinski, was hired;
the
Eligen®
Technology was reevaluated and our corporate strategy was
refocused on commercializing the
Eligen®
Technology as quickly as possible, building high-value
partnerships and reprioritizing the product pipeline. Spending
was redirected and aggressive cost control initiatives were
implemented. These changes resulted in redeployment of resources
to programs, one of which, yielded the introduction of our first
commercial product during 2009. We continue to develop potential
product candidates in-house and the value of our
Eligen®
Technology was demonstrated and enhanced through the progress
made by our development partners Novo Nordisk A/S (Novo
Nordisk) and Novartis Pharma AG (Novartis) on
their respective product development programs. Further
development, exploration and commercialization of the technology
entail risk and operational expenses. However, we have made
significant progress on refocusing our efforts on strategic
development initiatives and cost control and continue to
aggressively seek to reduce non-strategic spending.
The
Eligen®
Technology
The
Eligen®
Technology is a broadly applicable proprietary oral drug
delivery technology based on the use of proprietary synthetic
chemical compounds known as
EMISPHERE®
delivery agents, or carriers. These delivery agents facilitate
and enable the transport of therapeutic macromolecules (such as
proteins, peptides, and polysaccharides) and poorly absorbed
small molecules across biological membranes in the
gastrointestinal tract, including the stomach, which is where
most of the eligen mediated absorption is thought to occur. We
believe no other carrier system or drug delivery company can do
this. The result is rapid absorption. The stomach as an
absorptive organ also contradicts normal absorption mechanisms
and makes the proposition easy to understand, but at the same
time difficult to believe. Another characteristic that
distinguishes
Eligen®
from the competition is that this permeability in the stomach
takes place through a transcellular, not paracellular pathway.
This underscores the safety of
Eligen®
as the passage of the
Eligen®
carrier and the molecule preserve the integrity of the tight
junctions within the cell and reduces any likelihood of
inflammatory processes and autoimmune gastrointestinal diseases.
Furthermore, because
Eligen®
Technology carriers are rapidly absorbed, metabolized and
eliminated from the body, they do not accumulate in the organs
and tissues and are considered safe at anticipated dose and
dosing regimens.
The
Eligen®
Technology was extensively reevaluated in 2007 by our
scientists, senior management and expert consultants. Based on
this analysis, we believe that our technology can enhance
overall healthcare, including patient accessibility and
compliance, while benefiting the commercial pharmaceutical
marketplace and driving company valuation. The application of
the
Eligen®
Technology is potentially broad and may provide for a number of
opportunities across a spectrum of therapeutic modalities.
Implementing the
Eligen®
Technology is quite simple. It only requires co-mixing a drug or
nutritional supplement and an
Eligen®
carrier to produce an active formulation. The carrier does not
alter the chemical properties of the drug nor its biological
activity. Some therapeutic molecules are better suited for use
with the
Eligen®
Technology than others. Drugs or nutritional supplements whose
bioavailability is limited by poor membrane permeability or
chemical or biological degradation, and which have a
moderate-to-wide therapeutic index, appear to be the best
candidates. Drugs or nutritional supplements with a narrow
therapeutic window or high molecular weight may not be favorable
with the technology.
We believe that our
Eligen®
Technology makes it possible to safely deliver a therapeutic
macromolecule orally or increase the absorption of a poorly
absorbed small molecule without altering its chemical
composition or compromising the integrity of biological
membranes. We believe that the key benefit of our
Eligen®
Technology is that it improves the ability of the body to absorb
small and large molecule drugs.
Emisphere
Today
During 2009, the Company continued to focus on efforts to apply
the
Eligen®
Technology and realize its value by developing profitable
commercial applications. In November 2009 the Company launched
its first
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commercially available product, oral
Eligen®
B12 (100 mcg), which had been specifically developed to help
improve Vitamin B12 absorption and bioavailability with a
patented formulation, in partnership with Life
Extension®.
Life
Extension®
has certain exclusivity in the USA for distribution via the
internet and at specialty health food and nutritional retail
outlets including The Vitamin Shoppe, GNC and Vitamin World.
Oral
Eligen®
B12 (100mcg) tablets have been available for sale since November
2009. We continue to develop our product pipeline utilizing the
Eligen®
Technology with prescription and nonprescription product
candidates. We prioritized our development efforts based on
overall potential returns on investment, likelihood of success,
and market and medical need. Additionally, we continue to
improve operational effectiveness and efficiency. Our goal is to
implement our
Eligen®
Technology to enhance overall healthcare, including patient
accessibility and compliance, while benefiting the commercial
pharmaceutical marketplace.
To accelerate commercialization of the technology, Emisphere
embarked on a two-pronged strategy. First, we concentrated on
unique prescription molecules and nutritional supplements
obtained through partnerships with other pharmaceutical
companies for molecules where oral absorption is difficult yet
substantially beneficial if proven. With prescription molecules,
we are working to generate new interest in the
Eligen®
Technology with new potential partners and attempt to expand our
current collaborative relationships to take advantage of the
critical knowledge that others have gained by working with our
technology. Second, we continue to pursue commercialization of
product candidates developed internally. We believe that these
internal candidates need to be developed with reasonable
investment in an acceptable time period and with a reasonable
risk-benefit profile.
To support our internal development programs, the Company
implemented its new commercialization strategy for the
Eligen®
Technology. Using extensive safety data available for its SNAC
carrier, the Company obtained GRAS (Generally Recognized
as Safe) status for its SNAC carrier, and then applied the
Eligen®
Technology with B12, another GRAS substance where
bioavailability and absorption is difficult and improving such
absorption would yield substantial benefit and value. Using this
strategy, the Company launched its first commercially available
product, oral
Eligen®
B12 (100 mcg). Given sufficient time and resources, the Company
intends to apply this strategy to develop other commercial
products. Examples of other GRAS substances that may be
developed into additional commercial products using this
strategy would include vitamins such as Vitamin D; minerals such
as iron; and other supplements such as the polyphenols and
catechins, among others. Our planned second product, a higher
dose formulation of
Eligen®
B12, for use by patients who are Vitamin B12 deficient, is under
development and we anticipate launching the product during the
second half 2010.
Funding required to continue developing our product pipeline may
be partially paid by income-generating license arrangements
whose value tends to increase as product candidates move from
pre-clinical into clinical development. It is our intention that
investments that may be required to fund our research and
development will be approached incrementally in order to
minimize disruption or dilution.
The Company also continues to focus on improving operational
efficiency. By terminating the lease of our research and
development facility in Tarrytown, NY in April 2009, and by
utilizing independent contractors to conduct research and
development, we reduced our annual operating costs by
approximately 55% from 2008 levels. Annual cash expenditures
were reduced by approximately $11 million, and the
resulting cash burn rate to support continuing operations is
approximately $8 million per year. Additionally, we expect
to accelerate the commercialization of the
Eligen®
Technology in a cost effective way and to gain operational
efficiencies by tapping into advanced scientific processes
offered by independent contractors.
Overall
Product Pipeline
Emisphere has a deep and varied pipeline that includes
prescription and nutritional supplement product candidates in
varying stages of development. We have one nutritional
supplement product using
Eligen®
Technology on the US market. We have two prescription products
in Phase III studies, several in Phase I and a number of
pre-clinical (research stage) projects. Some of the pre-clinical
projects are partnered; others are Emisphere-initiated.
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Vitamin
B12
B12 is an important nutrient that is poorly absorbed in the oral
form. In most healthy people, Vitamin B12 is absorbed in a
receptor-mediated pathway in the presence of an intrinsic
factor. A large number of people take B12 supplements by the
oral route, many in megadoses, and by injection. Currently, it
is estimated that at least five million people in the
U.S. are taking 40 million injections of Vitamin B12
per year to treat a variety of debilitating medical condition.
Another estimated five million are consuming more than
600 million tablets of Vitamin B12 orally. The
international market is larger than the U.S. market. Many
B12 deficient patients suffer from pernicious anemia and
neurological disorders and many of them are infirm or elderly.
Vitamin B12 deficiency can cause severe and irreversible damage,
especially to the brain and nervous system. At levels only
slightly lower than normal, a variety of symptoms such as
fatigue, depression, and poor memory may be experienced.
During November 2009, the Company launched its first
commercially available product, oral
Eligen®
B12 (100 mcg), which was specifically developed to help improve
Vitamin B12 absorption and bioavailability with a patented
formulation, in partnership with Life
Extension®.
Life
Extension®
has certain exclusivity in the USA for distribution via the
internet and at specialty health food and nutritional retail
outlets including The Vitamin Shoppe, GNC and Vitamin World.
Oral
Eligen®
B12 (100mcg) tablets have been available for sale since November
2009.
Also in November 2009, the Company announced that interim data
from an ongoing study demonstrated its oral
Eligen®
B12 (1000mcg) restored B12 to normal levels in individuals with
Vitamin B12 deficiency. Normal levels of serum B12 and active
B12 were achieved by 100 percent of those study
participants who had taken
Eligen®
B12 (1000mcg) 15 days into the
90-day study
when the first blood samples were taken. As part of an interim
analysis in this randomized, multi-center study, levels of serum
B12, active B12, homocysteine and methyl malonic acid were
measured on day 15, at which point a total of 18 participants (8
on IM injection and 10 on oral) had received either five 1000mcg
intramuscular injections of Vitamin B12 or once daily tablets of
oral
Eligen®
B12 (1000mcg). Study subjects taking
Eligen®
B12 also had a marked decrease in homocysteine, which is a known
risk factor for cardiovascular disease. This clinical study with
Eligen®
B12 (1000mcg) is expected to be completed within the first half
of 2010. It is estimated that as many as 10 million people
in the U.S. and over 100 million people worldwide may be
B12 deficient. Emispheres
Eligen®
B12 product (1000mcg) is planned to be available in 2010. Oral
Eligen®
B12 and the foregoing statements have not been evaluated by the
Food and Drug Administration. Oral
Eligen®
B12 is not intended to diagnose, treat, cure, or prevent any
disease.
Emisphere developed
Eligen®
B12 independently, as a nutritional supplement product
candidate. Following our proof of concept animal studies of the
absorption of Vitamin B12 using our
Eligen®
Technology, additional preclinical studies using dogs further
demonstrated that the
Eligen®
Technology enhances the absorption of oral B12 and confirmed
earlier proof of concept studies conducted in rats. We completed
our first clinical study testing our new Vitamin B12 formulation
in 20 normal healthy males.
The data from our first pharmacokinetic study showed mean
Vitamin B12 peak blood levels were more than 10 times higher for
the
Eligen®
B12 5mg formulation than for the 5mg commercial formulation. The
mean time to reach peak concentration (Tmax) was reduced by over
90%; to 0.5 hours for the
Eligen®
B12 5mg from 6.8 hours for the commercial 5mg product.
Improvement in bioavailability was approximately 240%, with
absorption time at 30 minutes and a mean bioavailability of 5%.
The study was conducted with a single administration of
Eligen®
B12; there were no adverse reactions, and
Eligen®
B12 was well-tolerated.
The data from our first
Eligen®
B12 clinical study demonstrated a new, more bioavailable oral
form of Vitamin B12 and a potential new avenue for addressing
the problems with B12 supplementation.
Eligen®
B12 avoids the normal specialized absorption process that limits
absorption of Vitamin B12 from current formulations.
In May 2009, the Company was informed by an independent expert
panel of scientists that its SNAC carrier has been provisionally
designated as Generally Recognized as Safe (GRAS)
for its intended application in combination with nutrients added
to food and dietary supplements. Following a comprehensive
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evaluation of research and toxicology data, Emispheres
SNAC was found to be safe at a dosage up to 250 mg per day
when used in combination with nutrients to improve their dietary
availability. In July 2009, concurrent with the publication of
two papers in the July/August issue of the peer reviewed
journal, International Journal of Toxicology, which
describes the toxicology of its SNAC carrier, SNAC achieved GRAS
status for its intended use in combination with nutrients added
to food and dietary supplements. The publication of those two
papers in the International Journal of Toxicology was the
final, necessary step in the process of obtaining GRAS status
for its SNAC carrier. Since SNAC achieved GRAS status, it is
exempt from pre-market approval for its intended use in
combination with nutrients added to food and dietary
supplements. This opens the way for the potential
commercialization of the
Eligen®
Technology with other substances such as vitamins. The
Companys first product is its oral
Eligen®
Vitamin B12.
During April 2009 we announced a strategic alliance with
AAIPharma, Inc. intended to expand the application of
Emispheres
Eligen®
Technology and AAIPharmas drug development services.
AAIPharma is a global provider of pharmaceutical product
development services that enhance the therapeutic performance of
its clients drugs. AAIPharma works with many
pharmaceutical and biotech companies and currently provides drug
product formulation development services to Emisphere. This
relationship expands our access to new therapeutic candidates
for the
Eligen®
Technology, which potentially could lead to new products and to
new alliance agreements as well.
We have obtained patents for the carrier we are using in the
oral B12 formulation and have filed applications covering the
combination of the carrier and many other compounds, including
Vitamin B12.
Phase III Programs
On the prescription side of our business, both of our products
in Phase III are with our partner Novartis, which is using
our drug delivery technology in combination with salmon
calcitonin, parathyroid hormone, and human growth hormone. Their
most advanced programs are testing oral formulations of salmon
calcitonin to treat osteoarthritis and osteoporosis. Novartis is
conducting two Phase III clinical studies for
osteoarthritis and one Phase III clinical study for
osteoporosis.
During the third quarter 2008, Novartis completed enrollment for
the first trial for osteoarthritis; a multi-center
Phase III study exploring the safety and efficacy of an
oral formulation of salmon calcitonin using Emispheres
proprietary
Eligen®
Technology to treat patients with osteoarthritis of the knee.
This study, which will be used to support the filing with health
authorities worldwide, includes more than 1,100 patients
between the ages of 51 and 80 years with a medical history
and symptoms of knee osteoarthritis. This study will be
conducted mainly in Europe and is estimated to be completed
during the second half 2010. In June 2009 Emisphere announced
that Novartis Pharma AG and Nordic Bioscience had completed
recruitment for a second multi-center Phase III study
exploring the safety and efficacy of an oral formulation of
salmon calcitonin using Emispheres proprietary
Eligen®
Technology to treat patients with osteoarthritis of the knee.
This study, which is intended to be used to support a regulatory
filing in the U.S., includes more than 900 patients between
the ages of 51 and 80 with a medical history and symptoms of
knee osteoarthritis. The two year study is being conducted in
Europe, the U.S., and other countries and is estimated to be
completed during the second half 2011. Approximately
21 million patients are managed for osteoarthritis in the
U.S. alone, and that number is expected to increase as the
baby boomer generation continues to age. Assuming a successful
outcome of the Phase III program, this product candidate
will also fulfill a substantial unmet need. Pre-clinical and
Phase II data indicate that oral calcitonin could become
the first disease-modifying osteoarthritis drug.
Novartis is also conducting a Phase III trial for
osteoporosis. This Phase III trial is a multi-center study
exploring the safety and efficacy of oral
Eligen®
salmon calcitonin to treat vertebral fractures in postmenopausal
women with osteoporosis, aged
60-80. The
last of over 4,500 patients were recruited for the
osteoporosis study in the final week of June 2008, and the
three-year study is being conducted in North and South America,
Europe and Asia. Since all three Phase III studies are
fully enrolled, over 5,500 clinical study patients used the
Eligen®
Technology during 2009 and are expected to continue to use it
during 2010 as these trials progress. According to the National
Osteoporosis Foundation, 10 million people in the
U.S. are estimated to have the disease with 34 million
more estimated to have low bone mass and are, therefore, at
risk. If
6
successful, this product candidate for the treatment of
osteoporosis would satisfy an unmet market need, with oral
salmon calcitonin expected to offer a safe, effective, and
convenient alternative to existing therapies.
During December 2009, the Company announced that an independent
Data Monitoring Committee (DMC) informed Novartis
and its partner Nordic Bioscience of their recommendation to
proceed with the Osteoporosis Phase III Study 2303 and the
Osteoarthritis Phase III Study 2301 exploring the safety
and efficacy of an oral formulation of salmon calcitonin to
treat patients with osteoporosis and osteoarthritis of the knee.
This recommendation is based on a futility analysis of one-year
data for all patients enrolled in the study for 12 months
and includes both an assessment of safety and efficacy
parameters. Based on this interim analysis, the DMC is of the
opinion that there are no major or unexpected safety concerns
and recommended proceeding with the studies to evaluate the
efficacy and safety profile of oral calcitonin at two years as
planned.
Also during December 2009, the Company announced a meta-analysis
published in the December 2009 edition of Rheumatology
Reports examining independent evidence of the analgesic
action of the hormone calcitonin. This publication restated the
potential of calcitonin in filling a significant unmet need for
alternative treatments for persistent musculoskeletal pain.
Scientists from Nordic Bioscience were involved in the
preparation of this meta-analysis. Non-malignant musculoskeletal
pain is the most common clinical symptom that causes patients to
seek medical attention and is a major cause of disability in the
world. Musculoskeletal pain can arise from a variety of common
conditions including osteoarthritis, rheumatoid arthritis,
osteoporosis, surgery, low back pain and bone fracture. The
meta-analysis, conducted by researchers at the Center for
Sensory-Motor Interaction in the Department of Health Science
and Technology at Aalborg University in Denmark, examined
independent pre-clinical and clinical studies spanning nearly
45 years of the possible intrinsic analgesic properties of
calcitonin, with special focus on the challenges in the
musculoskeletal system. The authors concluded that well-designed
clinical trials should be conducted to further validate evidence
of calcitonins analgesic action and its promising
potential role in the management of musculoskeletal pain. The
effects of calcitonin on clinical pain conditions have received
increasing attention in the past decades, although a consensus
on mechanism-of-action and potential indications has not been
reached. The analgesic activity of oral salmon calcitonin has
been shown in several controlled prospective double-blind
studies; besides pain management in osteoporosis, calcitonin has
shown analgesic action in painful conditions such as phantom
limb pain, diabetic neuropathy, complex regional pain syndrome,
adhesive capsulitis, rheumatoid arthritis, vertebral crush
fractures, spondylitis, tumor metastasis, cancer pain, migraine,
Pagets disease of bone as well as post-operative pain. An
ideal treatment with an optimal efficacy, safety and convenience
profile is not available for the musculoskeletal pain associated
with such conditions as osteoporosis and osteoarthritis. This
review of the literature highlights the clear unmet medical need
that could be addressed by Emispheres oral salmon
calcitonin product.
Phase I Programs
Emisphere also has several products in Phase I and a number of
pre-clinical (research stage) projects. Some of the pre-clinical
projects are partnered others are Emisphere-initiated.
Novartis conducted a Phase I study in postmenopausal women to
determine the safety and tolerability of oral PTH 1-34, a
combination of human PTH 1-34 and Emispheres delivery
agent 5-CNAC, for the treatment of postmenopausal osteoporosis.
The study is designed to assess the bioavailability profile of
increasing doses of PTH 1-34 combined with different amounts of
5-CNAC administered orally. Study results demonstrating that a
single dose of the novel oral parathyroid hormone PTH 1-34,
which utilizes Emispheres proprietary
Eligen®
Drug Delivery Technology and absorption-enhancing carrier
molecule 5-CNAC, achieved potentially therapeutically relevant
exposure and safety profiles similar to those of the currently
available injectable formulation in healthy postmenopausal
women. The results, from a single-center, partially-blinded,
incomplete cross-over study conducted by Emispheres
partner Novartis, were presented October 19, 2009 in a
poster session at the 73rd Annual Scientific Meeting of the
American College of Rheumatology in Philadelphia. This study,
designed to assess the exposure and safety of orally
administered doses of PTH1-34 and different amounts of the
absorption enhancer 5-CNAC was conducted in 32 healthy
postmenopausal women. The subjects were randomized to receive a
single dose of placebo, 20 mcg of subcutaneously injected
parathyroid
7
hormone PTH1-34
(FORTEO®),
or one of several orally administered doses of PTH1-34
formulated with either 100 or 200 mg of Emispheres
absorption-enhancer 5-CNAC. While all doses of oral PTH1-34 were
rapidly absorbed and showed appreciable blood concentrations in
a dose-dependent manner, the 2.5 and 5 mg doses of oral
PTH1-34 containing 200 mg 5-CNAC achieved exposure levels
closest to those of 20 mcg injectable PTH1-34, with a comparable
incidence of adverse events. Ionized calcium remained within
normal limits in all treatment groups. The results of this study
indicate we may be able to provide women with postmenopausal
osteoporosis a more convenient oral option for parathyroid
hormone therapy, which is now available only as an injection.
There were no serious adverse events in the study. Nine
participants withdrew from the study due to treatment-related
AEs. Of those, five (one on placebo, one on
FORTEO®
and three on either 2.5 or 5 mg PTH1-34) withdrew because
of symptomatic hypotension. Three patients on either 2.5 or
5 mg PTH1-34 withdrew because of delayed vomiting. One
patient on 2.5mg PTH1-34 (100 mg 5-CNAC) withdrew because
of symptomatic, but unconfirmed, hypercalcemia. PTH is produced
by the parathyroid glands to regulate the amount of calcium and
phosphorus in the body. When used therapeutically, it increases
bone density and bone strength to help prevent fractures. It is
approved to treat osteoporosis, a disease associated with a
gradual thinning and weakening of the bones that occurs most
frequently in women after menopause. Untreated postmenopausal
osteoporosis can lead to chronic back pain, disabling fractures,
and lost mobility.
Novartis has also conducted Phase I studies with oral salmon
calcitonin. During September 2009, Novartis and its partner,
Nordic Bioscience, issued study results in which twice-daily
oral salmon calcitonin using Emispheres proprietary
Eligen®
Drug Delivery Technology significantly suppressed markers of
cartilage and bone degradation versus placebo in men and women
with osteoarthritis, the most common form of arthritis. The
study, a Phase I, placebo-controlled, double-blind,
double-dummy, randomized, gender-stratified clinical trial, was
conducted on behalf of Emispheres partner Novartis by
Nordic Bioscience, and published online in the September 2009
issue of Osteoarthritis and Cartilage. A total of 73 male
and female subjects aged 57 to 75 years with painful
osteoarthritis of the knee received twice-daily 0.6 mg or
0.8 mg doses of oral salmon calcitonin with the
Eligen®
Technology or placebo administered over 14 days. Doses of
0.8mg compared with 0.6mg produced significantly higher Cmax and
AUC(0-4 hrs), of calcitonin, P=0.03. This resulted in
significant reductions in CTX-I and CTX-II which are biochemical
markers of bone degradation and of cartilage degradation,
respectively. Gender had no observable influence on results.
Oral sCT doses were well tolerated; 44 adverse events and
no serious adverse events were reported in this study. For
further details please consult the original publication which is
available online (Karsdal MA et al; The effect of oral salmon
calcitonin delivered with 5-CNAC on bone and cartilage
degradation in osteoarthritic patients: a
14-day
randomized study; Osteoarthritis and Cartilage; available
online September 1, 2009). Emerging data continue to
indicate oral salmon calcitonin in combination with the
Companys absorption-enhancing
Eligen®
Technology may be a potential therapeutic option for women and
men with osteoarthritis, which affects more than 20 million
people in the United States.
A study conducted by Novartis and Nordic Bioscience published in
the December 2008 issue of BMC Clinical Pharmacology
demonstrated that orally administered salmon calcitonin using
Emispheres carrier,
(5-CNAC) an
Eligen®
oral delivery technology, is effective in reducing bone
breakdown. The randomized, double-blind, double-dummy,
placebo-controlled study among 81 subjects in Copenhagen was
conducted on behalf of Emispheres partner Novartis by
Nordic Bioscience by M.A. Karsdal, I. Byrjalsen, B.J. Riis and
C. Christiansen. The study suggests that orally
administered 0.8 mg of salmon calcitonin was effective in
suppression of Serum CTX irrespective of time of dosing. Serum
CTX-1 (Serum C-terminal telo-peptide of collagen type I) is
the biochemical marker used to measure bone resorption. There
were no safety concerns with the salmon calcitonin oral
formulation using Emispheres carrier 5-CNAC, which had
been previously demonstrated in earlier studies.
A study conducted by Novartis and Nordic Bioscience published in
the October 2008 issue of BMC Clinical Pharmacology
demonstrated that oral salmon calcitonin using
Emispheres proprietary
Eligen®
Technology taken 30 to 60 minutes before meals with 50 ml of
water results in improved absorption and improved efficacy
measured by the biomarker of reduced bone resorption (sCTX-I)
compared to the commonly
8
prescribed nasal formulation. The study was a randomized,
partially-blind, placebo-controlled, single-dose exploratory
crossover clinical trial conducted with 56 healthy
postmenopausal women.
For the treatment of Diabetes, research using the
Eligen®
Technology and GLP-1 (Glucagon-Like Peptide-1) , a potential
treatment for Type 2 Diabetes is being conducted by Novo Nordisk
A/S (Novo Nordisk) and by Dr. Christoph
Beglinger, M.D., of the Clinical Research Center,
Department of Biomedicine Division of Gastroenterology, and
Department of Clinical Pharmacology and Toxicology at University
Hospital in Basel, Switzerland. We had previously conducted
extensive tests on oral insulin for Type 1 Diabetes and
concluded that a more productive pathway is to move forward with
GLP-1 and its analogs, an oral form of which might be used to
treat Type 2 Diabetes and related conditions. Our research
indicated that the development of oral formulations of Novo
Nordisk proprietary GLP-1 receptor agonists may represent an
opportunity for Emisphere. Consequently, on June 21, 2008
we entered into an exclusive Development and License Agreement
with Novo Nordisk focused on the development of oral
formulations of Novo Nordisks proprietary GLP-1 receptor
agonists. Under such Agreement Emisphere could receive more than
$87 million in contingent product development and sales
milestone payments including a $10 million non-refundable
license fee which was received during June 2008. Emisphere would
also be entitled to receive royalties in the event Novo Nordisk
commercializes products developed under such Agreement. Under
the terms of the Agreement, Novo Nordisk is responsible for the
development and commercialization of the products. Initially
Novo Nordisk is focusing on the development of oral formulations
of its proprietary GLP-1 receptor agonists.
During January 2010, we announced that Novo Nordisk had
initiated its first Phase I clinical trial with a long-acting
oral GLP-1 analogue (NN9924). This milestone released a
$2 million payment to Emisphere, whose proprietary
Eligen®
Technology is used in the formulation of NN9924. GLP-1 is a
natural hormone involved in controlling blood sugar levels. It
stimulates the release of insulin only when blood sugar levels
become too high. GLP-1 secretion is often impaired in people
with Type 2 Diabetes. The aim of this trial, which is being
conducted in the UK, is to investigate the safety, tolerability
and bioavailability of NN9924 in healthy volunteers. The trial
will enroll approximately 155 individuals and results from the
trial are expected in 2011. There are many challenges in
developing an oral formulation of GLP-1, in particular obtaining
adequate bioavailability. NN9924 addresses some of these key
challenges by utilizing Emispheres
Eligen®
Technology to facilitate absorption from the gastrointestinal
tract.
Genta released final results from the Companys Phase I
clinical trial of G4544, a new tablet formulation of a
proprietary small molecule intended as a treatment for diseases
associated with accelerated bone loss using Emispheres
Eligen®
Technology. Results showed that the drug was very
well-tolerated, and that blood levels were achieved in a range
that is known to be clinically bioactive. The data were featured
in a poster session at the Annual meeting of the American
Society of Clinical Oncology (ASCO) in Chicago
during May 2008.
Preclinical Programs
Our preclinical programs focus on the development of oral
formulations of potentially new treatments for Diabetes and
products in the areas of cardiovascular and pain and on the
development and potential expansion of nutritional supplement
products.
An early stage human study of an oral formulation that combines
PYY and native GLP-1 with Emispheres proprietary delivery
agent known as SNAC was conducted at University Hospital in
Basel, Switzerland by Professor Beglinger. The study
demonstrated the oral delivery of the GLP-1 peptide was safe and
effective and that the oral formulation of GLP-1 stimulated an
early increase in fasting insulin and a decrease in fasting
glucose as compared to placebo.
An article published in the September 2009 issue of Clinical
Pharmacology and Therapeutics, describes previously reported
findings of an independent clinical study designed to assess the
pharmacokinetics, pharmacodynamics (PK/PD) and safety of oral
administration of the peptide GLP-1 utilizing Emispheres
Eligen®
carrier technology. The study was conducted at the University
Hospital in Basel, Switzerland by Professor Beglinger. The
paper, titled Orally Administered Glucagon-Like Peptide-1
Affects Glucose Homeostasis Following an Oral Glucose Tolerance
Test in Healthy Male Subjects, was published by Steinert,
9
et.al. Publication of this data in a prominent peer reviewed
journal underscores the potential of the
Eligen®
Technology to transform oral peptide delivery. Specifically, the
data further supports the concept of the potential advantages of
utilizing GLP-1 and similar molecules as therapeutic agents in
the treatment of Type 2 Diabetes. As described in the
publication, a randomized, double-blind, placebo-controlled,
two-way crossover trial was conducted in 16 healthy male
subjects between the ages of 20 and 43. The study was designed
to investigate the PK/PD effects of a single dose (2 mg) of
oral GLP-1 formulated with Emispheres Sodium
N-[8-(2-hydroxybenzoyl)
Amino] Caprylate (SNAC) carrier (150 mg)
administered 15 minutes prior to an oral glucose tolerance test.
The published data show that the orally administered peptide,
when administered with Emispheres
SNAC®
carrier, is rapidly absorbed from the gastrointestinal tract,
leading to tenfold higher plasma concentrations compared to
control. The pharmacodynamic effects were consistent with the
known pharmacology of GLP-1, resulting in significantly
increased basal insulin release (P< 0.027), and marked
effects on glucose levels. The postprandial glucose peak was
delayed with GLP-1, suggesting an effect on gastric emptying. No
adverse events were reported.
During May 2009 the Company announced data from a clinical study
conducted by Dr. Beglinger designed to assess the effect of
oral administration of two peptides, GLP-1 and PYY3-36,
utilizing Emispheres
Eligen®
Technology on appetite suppression. The randomized,
double-blind, placebo-controlled trial was conducted in 16
normal weight males between the ages of 18 and 40. The study was
designed to investigate the effects of orally administered GLP-1
and PYY3-36 formulated with Emispheres Sodium
N-[8-(2-hydroxybenzoyl)
Amino] Caprylate (SNAC) carrier and their potential
effect in the control of food intake and satiety. Prior studies
have shown the ability of both peptides to reduce appetite and
food consumption in healthy subjects and in patients with
obesity. The study concluded that these orally administered
peptides, when delivered with Emispheres SNAC carrier,
were rapidly absorbed from the gastrointestinal tract, leading
to concentrations several times higher than endogenous hormone
levels achieved after a standard test meal. Specifically,
results showed that oral GLP-1 (2 mg tablet) alone and the
combination of oral GLP-1 (2 mg tablet) plus PYY3-36
(1 mg tablet) induced a significant reduction in calorie
intake although there was no synergistic effect when the two
peptides were used in combination. Oral PYY3-36 at a 1 mg
dose by itself, did not significantly reduce calorie intake.
Oral GLP-1 (2 mg tablet) and oral PYY3-36 (1 mg
tablet) were both shown to induce a rapid increase in plasma
GLP-1 concentrations and plasma PYY concentrations,
respectively. This new data represents further evidence of the
ability of the
Eligen®
Technology, and the SNAC carrier, to enhance oral absorption of
peptides which normally exhibit low oral bioavailability. In
this case, GLP-1 alone, and the combination of the two peptides
together, were able to cross the gastrointestinal tract into the
bloodstream in high enough concentrations to significantly
affect appetite.
In October 2008, Professor Beglinger published the results of
another study assessing the oral delivery of GLP-1 and PYY3-36
using Emispheres proprietary delivery technology. The
study was conducted at University Hospital in Basel, Switzerland
and showed, for the first time, that satiety peptides such as
GLP-1 and PYY3-36 can be delivered orally in humans with safety
and efficiency. The study, conducted in 12 healthy subjects, was
designed to establish the pharmacokinetics and pharmacodynamics
of increasing oral doses of GLP-1 and PYY3-36. Emispheres
delivery agent, known as SNAC, was formulated as a tablet with
GLP-1 or PYY3-36. Both oral GLP-1 and PYY3-36 induce rapid and
dose-dependent increases in plasma drug concentrations; GLP-1
induces a relevant insulin release; and, both peptides
suppressed ghrelin secretion in healthy male volunteers. This
clinical study of the compound confirms Professor
Beglingers earlier results that SNAC allows for rapid oral
absorption of GLP-1 or PYY3-36. The study results were published
in the October 2008 issue of Clinical Pharmacology &
Therapeutics.
Intravenous or subcutaneous applications of GLP-1 are cumbersome
and impractical for chronic treatment regimens. Current oral
application of peptides is ineffective because peptides have a
low oral bioavailability due to their molecular size and
physico-chemical characteristics. Professor Beglingers
studies show that Emispheres
Eligen®
Technology can overcome some of these oral delivery issues
safely and efficiently.
During June 2009 the Company entered into a research agreement
with Syracuse University to combine Emispheres proprietary
Eligen®
Technology with a new oral drug delivery system developed in the
laboratory of Robert Doyle, Assistant Professor of Chemistry in
Syracuse Universitys College of Arts and Sciences. The
experiments will test whether the combination of
Eligen®
and Doyles oral drug delivery technology will
10
enhance the absorption of an appetite-suppressing hormone.
Dr. Doyle and his colleagues have successfully developed
innovative methods for the oral delivery of both proteins and
peptides using novel methods. There may be significant potential
for innovation in this partnership and an opportunity for
further expansion for the use of the
Eligen®
Technology in the drug delivery arena. Researchers in
Doyles lab are trying to find a way to create an
appetite-suppressing drug using PYY that can be taken orally
rather than by injection. PYY is a hormone that is released by
the cells lining the small intestine after people eat, which
signals feelings of fullness. Recent research has
shown that the higher the level of PYY in the bloodstream, the
greater the feeling of fullness. The
Eligen®
Technology platform has shown great promise for improving the
bodys ability to absorb both small and large molecule
drugs. Dr. Doyle and his colleagues at Syracuse University
are interested in assessing its ability to overcome the limited
natural absorption of their vitamin based carrier to achieve
significant advancements in oral protein/peptide delivery.
Our other product candidates in development are in earlier or
preclinical research phases, and we continue to assess them for
their compatibility with our technology and market need. Our
intent is to seek partnerships with pharmaceutical and
biotechnology companies for certain of these products as we
continue to expand our pipeline with product candidates that
demonstrate significant opportunities for growth. Our focus is
on molecules that meet the criteria for success based on our
increased understanding of our
Eligen®
Technology.
Business
Financing
Since our inception in 1986, we have generated significant
losses from operations. However, during 2009 we introduced our
first commercial product and anticipate introducing our second
commercial product during 2010. Although we cannot assure the
commercial success of these products, at some point in the
future, potential combined sales or partnerships may generate
sufficient net proceeds to offset a part of continuing losses
from operations for the foreseeable future. As of
December 31, 2009, our accumulated deficit was
approximately $436.7 million. Our loss from operations was
$14.6 million, $26.3 million and $20.7 million
for the years ended December 31, 2009, 2008 and 2007,
respectively. Our net loss was $21.2 million,
$24.4 million and $16.9 million for the years ended
December 31, 2009, 2008 and 2007, respectively. Our net
cash outlays from operations and capital expenditures were
$11.9 million, $6.8 million and $14.7 million for
the years ended December 31, 2009, 2008 and 2007,
respectively. Net cash outlays for 2008 include
$11.3 million receipts of deferred revenue and 2007
included $11.9 million receipts from the settlement of
lawsuit. Our stockholders deficit was $47.9 million,
$37.0 million and $13.7 million as of
December 31, 2009, 2008 and 2007, respectively. On
December 1, 2004 we issued a $10 million convertible
note (the Novartis Note) to Novartis in connection
with a research collaboration option relating to the development
of PTH-1-34. The Novartis Note was originally due
December 1, 2009. On November 27, 2009, Novartis
agreed to extend the maturity date of the Novartis Note to
February 26, 2010. Subsequently, on February 23, 2010,
Novartis agreed to further extend the maturity date of the
Novartis Note to May 26, 2010.
We have limited capital resources and operations to date have
been funded with the proceeds from collaborative research
agreements, public and private equity and debt financings and
income earned on investments. We anticipate that our existing
capital resources will enable us to continue operations through
approximately June 2010 or earlier if unforeseen events or
circumstances arise that negatively affect our liquidity. While
our plan is to raise capital when needed
and/or to
pursue partnering opportunities, we cannot be sure that our
plans will be successful. These conditions raise substantial
doubt about our ability to continue as a going concern. The
audit reports prepared by our independent registered public
accounting firms relating to our financial statements for the
years ended December 31, 2009, 2008 and 2007 include an
explanatory paragraph expressing the substantial doubt about our
ability to continue as a going concern.
If we are successful in raising additional capital to continue
operations, our business will still require substantial
additional investment that we have not yet secured. Further, we
will not have sufficient resources to fully develop new products
or technologies unless we are able to raise substantial
additional financing on acceptable terms or secure funds from
new or existing partners. We cannot assure you that financing
will be available on favorable terms or at all. See
Item 1A-Risk
Factors.
11
Overview
of Drug Delivery Industry
The drug delivery industry develops technologies for the
improved administration of therapeutic molecules with the goal
of expanding markets for existing products and extending drug
franchises. Drug delivery companies also seek to develop
products on their own that would be patent-protected by applying
proprietary technologies to off-patent pharmaceutical products.
Primarily, drug delivery technologies are focused on improving
safety, efficacy, ease of patient use
and/or
patient compliance. Pharmaceutical and biotechnology companies
consider improved drug delivery as a means of gaining
competitive advantage over their peers.
Therapeutic macromolecules, of which proteins are the largest
sub-class, are prime targets for the drug delivery industry for
a number of reasons. Most therapeutic macromolecules must
currently be administered by injection (most common) or other
device such as an inhaler or nasal spray system. Many of these
compounds address large markets for which there is an
established medical need. These drugs are widely used, as
physicians are familiar with them and accustomed to prescribing
them. Therapeutic macromolecules could be significantly enhanced
through alternative delivery. These medicines are comprised of
proteins and other large or highly charged molecules
(carbohydrates, peptides, ribonucleic acids) that, if orally
administered using traditional oral delivery methods, would
degrade in the stomach or intestine before they are absorbed
into the bloodstream. Also, these molecules are typically not
absorbed following oral administration due to their poor
permeability. Therefore, the vast majority are administered
parenterally. However, for many reasons, parenteral
administration is undesirable, including patient discomfort,
inconvenience and risk of infection. Poor patient acceptance of
parenteral therapies can lead to medical complications. In
addition, parenteral therapies can often require incremental
costs associated with administration in hospitals or
doctors offices.
Previously published research indicates that patient acceptance
of and adherence to a dosing regimen is higher for orally
delivered medications than it is for non-orally delivered
medications. Our business strategy is partly based upon our
belief that the development of an efficient and safe oral
delivery system for therapeutic macromolecules represents a
significant commercial opportunity. We believe that more
patients will take orally delivered drugs more often, spurring
market expansion.
Leading
Current Approaches to Drug Delivery
Transdermal
(via the skin) and Needleless
Injection
The size of most macromolecules makes penetration into or
through the skin inefficient or ineffective. Some peptides and
proteins can be transported across the skin barrier into the
bloodstream using high-pressure needleless injection
devices. Needleless devices, which inject proteins through the
skin into the body, have been in development for many years. We
believe these devices have not been well accepted due to patient
discomfort, relatively high cost, and the inconvenience of
placing the drugs into the device.
Nasal
(via the nose)
The nasal route (through the membranes of the nasal passage) of
drug administration has been limited by low and variable
bioavailability for proteins and peptides. As a result,
penetration enhancers often are used with nasal delivery to
increase bioavailability. These enhancers may cause local
irritation to the nasal tissue and may result in safety concerns
with long-term use. A limited number of peptides delivered
nasally have been approved for marketing in the
U.S. including
MIACALCIN®,
developed by Novartis as an osteoporosis therapy, a therapeutic
area we have targeted.
Pulmonary
(via the lung)
Pulmonary delivery (through the membranes of the lungs) of drugs
is emerging as a delivery route for large molecules. Although
local delivery of respiratory drugs to the lungs is common, the
systemic delivery (i.e., delivery of the drugs to the peripheral
vasculature) of macromolecular drugs is less common because it
requires new formulations and delivery technologies to achieve
efficient, safe and reproducible dosing. Only one protein using
pulmonary delivery has been approved for marketing in the U.S.,
which is
EXUBERA®,
an
12
insulin product developed by Pfizer and Nektar, as a Diabetes
therapy, a therapeutic area we have targeted. However after
market acceptance of
EXUBERA®
was demonstrated to be limited, Pfizer withdrew from further
commercialization of, and terminated its license with Nektar for
EXUBERA®.
Intraoral
(via the membranes in the mouth)
Intraoral delivery is also emerging as a delivery route for
large molecules. Buccal delivery (through the membrane of the
cheek) and sublingual delivery (through the membrane under the
tongue) are forms of intraoral delivery. Some Vitamin B12
manufactures sell and distribute sublingual versions of their
product.
Oral
(via the mouth)
We believe that the oral method of administration is the most
patient-friendly option, in that it offers convenience, is a
familiar method of administration that enables increased
compliance and, for some therapies, may be considered the most
physiologically appropriate. We, and other drug delivery and
pharmaceutical companies, have developed or are developing
technologies for oral delivery of drugs. We believe that our
Eligen®
Technology provides an important competitive advantage in the
oral route of administration because it does not alter the
chemical composition of the therapeutic macromolecules. We have
conducted over 140,000 human dosings and have witnessed no
serious adverse events that can be attributed to the
EMISPHERE®
delivery agents dosed or the mechanism of action of the
Eligen®
Technology.
In general, we believe that oral administration will be
preferred to other methods of administration. However, such
preference may be offset by possible negative attributes of
orally administered drugs such as the quantity or frequency of
the dosage, the physical size of the capsule or tablet being
swallowed or the taste. For example, in our previous
Phase III trial with heparin as an oral liquid formulation,
patient compliance was hindered by patients distaste for
the liquid being administered. In addition, patients and the
marketplace will more likely respond favorably to improvements
in absorption, efficacy, safety, or other attributes of
therapeutic molecules. It is possible that greater convenience
alone may not lead to success.
The
Eligen®
Technology
The
Eligen®
Technology is a broadly applicable proprietary oral drug
delivery technology based on the use of proprietary synthetic
chemical compounds known as
EMISPHERE®
delivery agents, or carriers. These delivery agents facilitate
and enable the transport of therapeutic macromolecules (such as
proteins, peptides, and polysaccharides) and poorly absorbed
small molecules across biological membranes targeted in the
stomach; enabling the therapeutic molecules to exert their
desired pharmacological effect. The delivery agents have no
known pharmacological activity themselves at the intended
clinical dose levels. Emispheres
Eligen®
Technology makes it possible to deliver therapeutic molecules
orally without altering their chemical form or biological
integrity.
Proposed
Delivery Agent Mechanism
The
Eligen®
Technology facilitates absorption in the stomach and takes place
through a transcellular, not paracellular, pathway. This
underscores the safety of
Eligen®
as the passage of the
Eligen®
carrier and the molecule preserve the integrity of the tight
junctions within the cell and reduces any likelihood of
inflammatory processes and autoimmune gastrointestinal diseases.
Furthermore, because
Eligen®
Technology carriers are rapidly absorbed, metabolized and
eliminated from the body; they do not accumulate in the organs
and tissues and are considered safe at anticipated dose and
dosing regimens.
Drug molecules exist in many different shapes, or
conformations. Some conformations can be transported
across the cell membranes while others are too large or too
charged to do so. The
Eligen®
Technology uses the bodys natural passive transcellular
transport process to enable large or highly charged molecules to
cross cell membranes. Once the drug molecule crosses the
membrane, the
EMISPHERE®
delivery agent dissociates from the drug molecule, which then
reestablishes its natural conformation and returns to its
therapeutically active state. Studies have shown that this
process does not involve chemical modification of the drug
molecule and the integrity of cell membrane and cytoskeletal
structure are maintained.
13
We have designed and synthesized a library of approximately
4,000 delivery agents and continue to evaluate our delivery
agents for their ability to facilitate the delivery of
therapeutic macromolecules across biological membranes.
Ongoing
Collaborative Agreements
We are a party to certain collaborative agreements with
corporate partners to provide development and commercialization
services relating to the products under collaboration. These
agreements are in the form of research and development
collaborations and licensing agreements. Under these agreements,
we have granted licenses or the rights to obtain licenses to our
oral drug delivery technology. In return, we are entitled to
receive certain payments upon the achievement of milestones and
royalties on the sales of the products should a product
ultimately be commercialized. We also are entitled to be
reimbursed for certain research and development costs that we
incur.
All of our collaborative agreements are subject to termination
by our corporate partners, without significant financial penalty
to them. Under the terms of these agreements, upon a termination
we are entitled to reacquire all rights in our technology at no
cost and are free to re-license the technology to other
collaborative partners.
Novartis
Pharma AG Oral Salmon Calcitonin (sCT)
Program for Osteoporosis and Osteoarthritis
During December 2009, the Company announced that an independent
Data Monitoring Committee (DMC) informed Novartis
and its partner Nordic Bioscience about their recommendation to
proceed with the Osteoporosis Phase III Study 2303 and the
Osteoarthritis Phase III Study 2301 exploring the safety
and efficacy of an oral formulation of salmon calcitonin to
treat patients with osteoporosis and osteoarthritis of the knee.
This recommendation is based on a futility analysis of one-year
data for all patients enrolled in the study for 12 months
and includes both an assessment of safety and efficacy
parameters. Based on this interim analysis, the DMC is of the
opinion that there are no major or unexpected safety concerns
and recommended proceeding with the studies to evaluate the
efficacy and safety profile of oral calcitonin at two years as
planned.
Within the various Phase III trials with Novartis, over
5,500 patients are using the
Eligen®
Technology during 2010.
To date, we have received $12.4 million in payments from
Novartis under the sCT programs. Under the terms of the sCT
agreement, we may receive up to $5 million in additional
milestone payments, as well as royalties based on sales.
Osteoporosis
In December 1997, we entered into a collaboration agreement with
Novartis to develop an oral form of sCT, currently used to treat
osteoporosis. sCT is a hormone that inhibits the bone-tissue
resorbing activity of specialized bone cells called osteoclasts,
enabling the bone to retain more of its mass and functionality.
sCT has demonstrated efficacy in increasing lumbar spine bone
mineral density and in reducing vertebral fractures. sCT is
estimated to be about 30 times more potent than the human
version. Synthetic sCT, which is identical to the naturally
occurring one, currently is available only as a nasal spray or
injectable therapy. Novartis markets synthetic sCT in the
U.S. as
MIACALCIN®
nasal spray, which is indicated for the treatment of
post-menopausal osteoporosis in women greater than five years
post menopause with low bone mass.
Treatment with sCT has been shown to increase bone mineral
density in the spine and reduce the risk of new vertebral
fractures in post-menopausal women with osteoporosis. It is also
used to treat Pagets disease, a disease that results in,
among other things, bone pain and breakdown. In its nasal spray
forms, it is believed that sCTs major advantages are its
efficacy resulting from a lack of serious side effects,
excellent long-term safety profile and ease of administration.
Some studies even suggest that sCT produces an analgesic effect.
Worldwide market sales for products to treat osteoporosis are
forecasted to reach $10.4 billion by 2011, from
approximately $5.0 billion in 2003.
14
In February 2003, we announced favorable results of a Phase IIa
study conducted by Novartis evaluating the performance in
post-menopausal women of an oral tablet form of sCT. The purpose
of the study was to assess the efficacy and safety of various
doses of an oral tablet of sCT in post-menopausal women and to
confirm the activity of sCT when given orally, as reflected by
changes in markers of bone formation or resorption. Oral sCT was
dosed for 90 days in the study, the longest time period
that the
Eligen®
Technology has been dosed in human testing. The study
demonstrated activity on bone markers over a three month dosing
period when the peptide was delivered in combination with the
EMISPHERE®
delivery agent. Only two serious adverse events were reported,
neither of which were related to the
EMISPHERE®
delivery agent or to sCT. The side effects (mainly
gastrointestinal in nature) seen with the highest doses of sCT
were consistent with those normally seen with high plasma levels
of sCT when administered by injection. These results were
presented by Novartis at the American Society of Bone and
Mineral Research in September of 2003.
The randomized, double-blind, placebo-controlled, parallel study
was conducted for three months in OA patients to assess the
efficacy of this novel form of sCT in patients suffering from
knee OA. Patients received daily either a placebo (n=16),
0.5 mg of oral sCT (n=17) or 1 mg of oral sCT (n=18).
In February 2007, Novartis and its development partner Nordic
Bioscience notified us of the initiation of a Phase III
clinical trial for the treatment of osteoporosis with an oral
form of salmon calcitonin (referred to as SMC021), a new drug
candidate, using the Companys
Eligen®
Technology. The Phase III program that started in 2007 is a
three year trial with enrollment of over 4,500 patients
completed in June 2008. The study is exploring the safety and
efficacy of salmon calcitonin and Emispheres proprietary
Eligen®
Technology in the treatment of vertebral fractures in
postmenopausal women aged
60-80 with
osteoporosis. It will be conducted in North and South America,
Europe and Asia. This product candidate, if successful, will
meet an unmet market need, with oral calcitonin expected to
offer a safe, effective, and convenient alternative to existing
therapies.
A study conducted by Novartis and its partner Nordic Bioscience
published in the December 2008 issue of BMC Clinical
Pharmacology demonstrated that orally administered salmon
calcitonin using Emispheres carrier, (5-CNAC) an
Eligen®
oral delivery technology, is effective in reducing bone
breakdown. The randomized, double-blind, double-dummy,
placebo-controlled study among 81 subjects in Copenhagen was
conducted on behalf of Emispheres partner Novartis Pharma
AG by Nordic Bioscience by M.A. Karsdal, I. Byrjalsen, B.J. Riis
and C. Christiansen. The study suggests that orally administered
0.8 mg of salmon calcitonin was effective in suppression of
Serum CTX irrespective of time of dosing. Serum CTX-1 (Serum
C-terminal telo-peptide of collagen type I) is the
biochemical marker used to measure bone resorption. There were
no safety concerns with the salmon calcitonin oral formulation
using Emispheres carrier 5-CNAC, which had been previously
demonstrated in earlier studies.
A study conducted by Novartis and its partner Nordic Bioscience
published in the October 2008 issue of BMC Clinical
Pharmacology demonstrated that oral salmon calcitonin using
Emispheres proprietary
Eligen®
Technology taken 30 to 60 minutes before meals with 50 ml of
water results in improved absorption and improved efficacy
measured by the biomarker of reduced bone resorption (sCTX-I)
compared to the commonly prescribed nasal formulation. The study
was a randomized, partially-blind, placebo-controlled,
single-dose exploratory crossover clinical trial using 56
healthy postmenopausal women.
According to the National Osteoporosis Foundation,
10 million people in the U.S. are estimated to have
the disease with 34 million more estimated to have low bone
mass and are, therefore, at risk. If successful, this product
candidate for the treatment of osteoporosis would satisfy an
unmet market need, with oral salmon calcitonin expected to offer
a safe, effective, and convenient alternative to existing
therapies.
Under the sCT agreements, Novartis has an option to an exclusive
worldwide license to develop in conjunction with us, make, have
made, use and sell products developed under this program.
Novartis also had the right to exercise an option to commence a
research collaboration with us on a second compound under this
agreement. Novartis rights to certain specified financial
terms concerning a license of a second compound have since
expired. We have no payment obligations with respect to this
program; we are, however, obligated to collaborate with Novartis
by providing access to our technology that is relevant to this
program. We are also obligated to help to manage this program
through a joint steering committee with Novartis.
15
Osteoarthritis
On a parallel track, Novartis is also pursuing an osteoarthritis
indication for salmon calcitonin. Approximately 21 million
patients are managed for osteoarthritis in the U.S. alone,
and that number is expected to increase as the baby boomer
generation continues to age. Osteoarthritis (OA) is
a clinical syndrome in which low-grade inflammation results in
joint pain, caused by a wearing-away of cartilage that cushions
the joints and the destruction or decrease of synovial fluid
that lubricates those joints. As OA progresses, pain can result
when the patient bears weight upon the joints, including walking
and standing. OA is the most common form of arthritis, and
affects nearly 21 million people in the U.S., accounting
for 25% of visits to primary care physicians, and half of all
non-steroidal anti-inflammatory drug prescriptions. It is
estimated that 80% of the population will have radiographic
evidence of OA by age 65.
Novartis is engaged in two, simultaneous Phase III trials
for salmon calcitonin in the treatment of osteoarthritis. During
September 2008, Novartis and Nordic Bioscience completed
recruitment for a multi-center Phase III study exploring
the safety and efficacy of an oral formulation of salmon
calcitonin using Emispheres proprietary
Eligen®
Technology to treat patients with osteoarthritis of the knee.
This study, which will be used to support the filing with health
authorities worldwide, includes more than 1,100 patients
between 51 and 80 years old with a medical history and
symptoms of knee osteoarthritis. The study will be conducted
mainly in Europe and is estimated to be completed during second
half 2010.
During October 2008, Novartis and Nordic Bioscience initiated a
second multi-center Phase III study exploring the safety
and efficacy of an oral formulation of salmon calcitonin using
Emispheres proprietary
Eligen®
Technology to treat patients with osteoarthritis of the knee.
This second study, designed to meet FDA requirements for
U.S. registration, will examine patients between 51 and
80 years old suffering from painful symptoms of knee
osteoarthritis. The study will be conducted in multiple sites,
including the U.S. Enrollment is scheduled to be completed
during 2009 with an estimated completion during the second half
of 2011.
During September 2009, Novartis and its partner, Nordic
Bioscience, issued study results in which twice-daily oral
salmon calcitonin using Emispheres proprietary
Eligen®
Technology significantly suppressed markers of cartilage and
bone degradation versus placebo in men and women with
osteoarthritis, the most common form of arthritis. The study, a
Phase I, placebo-controlled, double-blind, double-dummy,
randomized, gender-stratified clinical trial, was conducted on
behalf of Emispheres partner Novartis Pharma AG by
Nordic Bioscience, and published online in the September
2009 issue of Osteoarthritis and Cartilage. A total of 73
male and female subjects aged 57 to 75 years with painful
osteoarthritis of the knee received twice-daily 0.6 mg or
0.8 mg doses of oral salmon calcitonin with the
Eligen®
Technology or placebo administered over 14 days. Doses of
0.8mg compared with 0.6mg produced significantly higher Cmax and
AUC(0-4 hrs), of calcitonin, P=0.03. This resulted in
significant reductions in CTX-I and CTX-II which are biochemical
markers of bone degradation and of cartilage degradation,
respectively. Gender had no observable influence on results.
Oral sCT doses were well tolerated; 44 adverse events and no
serious adverse events were reported in this study. For further
details please consult the original publication which is
available online (Karsdal MA et al; The effect of oral salmon
calcitonin delivered with 5-CNAC on bone and cartilage
degradation in osteoarthritic patients: a
14-day
randomized study; Osteoarthritis and Cartilage; available
online September 1, 2009). Emerging data continue to
indicate oral salmon calcitonin in combination with the
Companys absorption-enhancing
Eligen®
Technology may be a potential therapeutic option for women and
men with osteoarthritis, which affects more than 20 million
people in the United States.
In December 2005, we announced positive clinical data generated
by Drs. Daniel Manicourt and Jean-Pierre Devogelaer from
the Department of Rheumatology at the University Hospital
St-Luc, Universite Catholique de Louvain, Brussels, Belgium. The
results of this study, which evaluated oral salmon calcitonin
supplied by Novartis using our
Eligen®
Technology in treating osteoarthritis (OA) were
presented at the 10th World Congress of the Osteoarthritis
Research Society International in Boston, MA. Results of this
study suggest that oral sCT (enabled by our proprietary
Eligen®
Technology licensed to Novartis for use with sCT) exhibits not
only clinical efficacy but also reduces the levels of several
biochemical markers of joint metabolism, which all have been
shown to have a pejorative prognostic value of the OA disease
process in longitudinal studies including large cohorts of
patients.
16
Assuming a successful outcome of the Phase III program,
this product candidate will also fulfill a substantial unmet
medical need. Pre-clinical and Phase II data indicate that
oral salmon calcitonin could become the first disease modifying
osteoarthritis drug.
Other
Potential Applications of Salmon Calcitonin
(sCT)
During December 2009, the Company announced a meta-analysis
published in the December 2009 edition of Rheumatology Reports
examining independent evidence of the analgesic action of the
hormone calcitonin. This publication restated the potential of
calcitonin in filling a significant unmet need for alternative
treatments for persistent musculoskeletal pain. Scientists from
Nordic Bioscience were involved in the preparation of this
meta-analysis. Non-malignant musculoskeletal pain is the most
common clinical symptom that causes patients to seek medical
attention and is a major cause of disability in the world.
Musculoskeletal pain can arise from a variety of common
conditions including osteoarthritis, rheumatoid arthritis,
osteoporosis, surgery, low back pain and bone fracture. The
meta-analysis, conducted by researchers at the Center for
Sensory-Motor Interaction in the Department of Health Science
and Technology at Aalborg University in Denmark, examined
independent pre-clinical and clinical studies spanning nearly
45 years of the possible intrinsic analgesic properties of
calcitonin, with special focus on the challenges in the
musculoskeletal system. The authors concluded that well-designed
clinical trials should be conducted to further validate evidence
of calcitonins analgesic action and its promising
potential role in the management of musculoskeletal pain. The
effects of calcitonin on clinical pain conditions have received
increasing attention in the past decades, although a consensus
on mechanism-of-action and potential indications has not been
reached. The analgesic activity of oral salmon calcitonin has
been shown in several controlled prospective double-blind
studies; besides pain management in osteoporosis, calcitonin has
shown analgesic action in painful conditions such as phantom
limb pain, diabetic neuropathy, complex regional pain syndrome,
adhesive capsulitis, rheumatoid arthritis, vertebral crush
fractures, spondylitis, tumor metastasis, cancer pain, migraine,
Pagets disease of bone as well as post-operative pain. An
ideal treatment with an optimal efficacy, safety and convenience
profile is not available for the musculoskeletal pain associated
with such conditions as osteoporosis and osteoarthritis. This
review of the literature highlights the clear unmet medical need
that could be addressed by Emispheres oral salmon
calcitonin product.
Novartis
Pharma AG Oral PTH-1-34 Program
On December 1, 2004, we entered into a Research
Collaboration Option and License Agreement with Novartis whereby
Novartis obtained an option to license our existing technology
to develop oral forms of PTH-1-34. At the time we entered this
new agreement, Novartis also purchased from us a
$10 million convertible note (the Novartis
Note) which was originally due December 1, 2009 that
we may repay, at our option, in either stock or cash. On
March 7, 2006, Novartis exercised its option to the
license. Based on the terms of the agreement, we may receive
milestone payments totaling up to a maximum of $30 million,
plus royalties on sales of product developed using our
Eligen®
Technology. Novartis will fund all necessary pre-clinical,
clinical and manufacturing costs for all products. The Novartis
Note was originally due December 1, 2009. On
November 27, 2009, Novartis agreed to extend the maturity
date to February 26, 2010. On February 23, 2010,
Novartis agreed to extend the maturity date to May 26, 2010.
Parathyroid hormone continues on a progressive clinical
development path in collaboration with Novartis. During June
2008, Novartis launched a Phase I study in postmenopausal women
to determine the safety and tolerability of oral PTH-1-34, a
combination of human PTH-1-34 and the absorption enhancer 5-CNAC
using Emispheres proprietary
Eligen®
Technology, for the treatment of postmenopausal osteoporosis.
The study is designed to assess the bioavailability profile of
increasing doses of PTH-1-34 combined with different amounts of
5-CNAC administered orally. The trial was conducted in
Switzerland and its first interpretable results were released
during November 2008.
The results of the study demonstrated the achievement of a
suitable PK profile of a new oral formulation of Parathyroid
Hormone (PTH) using Emispheres
Eligen®
Technology. This initial study of 20 healthy postmenopausal
female patients aged 40 to 70 years resulted in peak
concentrations (Cmax) in the range of those obtained with the
commercially available subcutaneous formulation FORTEO
(teriparatide). This initial
17
trial reported no significant adverse affects, no hypocalcaemia,
and no drug-exposure related discontinuation. The plan is to
continue the development program. Recombinant PTH, currently
approved for the treatment of osteoporosis, is available only by
injection. PTH exists naturally in the body; it increases bone
density and bone strength to help prevent fractures. It may also
be used to treat osteoporosis in patients at high risk of bone
fracture.
Novartis also conducted a Phase I study in postmenopausal women
to determine the safety and tolerability of oral PTH 1-34, a
combination of human PTH 1-34 and Emispheres delivery
agent 5-CNAC, for the treatment of postmenopausal osteoporosis.
The study was designed to assess the pharmacokinetic profile of
increasing doses of PTH 1-34 combined with different amounts of
5-CNAC administered orally. Study results demonstrated that a
single dose of the novel oral parathyroid hormone PTH 1-34,
which utilizes Emispheres proprietary
Eligen®
Technology and absorption-enhancer carrier molecule 5-CNAC,
achieved potentially therapeutically relevant exposure and
safety profiles similar to those of the currently available
injectable formulation in healthy postmenopausal women. The
results from this single-center, partially-blinded, incomplete
cross-over study conducted by Emispheres partner Novartis,
were presented October 19, 2009 in a poster session at the
73rd Annual Scientific Meeting of the American College of
Rheumatology in Philadelphia. This study, designed to assess the
exposure and safety of orally administered doses of PTH1-34 and
different amounts of the absorption enhancer 5-CNAC was
conducted in 32 healthy postmenopausal women. The subjects were
randomized to receive a single dose of placebo, 20 mcg of
subcutaneously injected parathyroid hormone PTH1-34
(FORTEO®),
or one of several orally administered doses of PTH1-34
formulated with either 100 or 200 mg of Emispheres
absorption-enhancer 5-CNAC. While all doses of oral PTH1-34 were
rapidly absorbed and showed appreciable blood concentrations in
a dose-dependent manner, the 2.5 and 5 mg doses of oral
PTH1-34 containing 200 mg 5-CNAC achieved exposure levels
closest to those of 20 mcg injectable PTH1-34, with a comparable
incidence of adverse events. Ionized calcium remained within
normal limits in all treatment groups. The results of this study
indicates we may be able to provide women with postmenopausal
osteoporosis a more convenient oral option for parathyroid
hormone therapy, which is now available only as an injection.
There were no serious adverse events in the study. Nine
participants withdrew from the study due to treatment-related
AEs. Of those, five (one on placebo, one on
FORTEO®
and three on either 2.5 or 5 mg PTH1-34) withdrew because
of symptomatic hypotension. Three patients on either 2.5 or
5 mg PTH1-34 withdrew because of delayed vomiting. One
patient on 2.5mg PTH1-34 (100 mg 5-CNAC) withdrew because
of symptomatic, but unconfirmed, hypercalcemia. PTH is produced
by the parathyroid glands to regulate the amount of calcium and
phosphorus in the body. When used therapeutically, it increases
bone density and bone strength to help prevent fractures. It is
approved to treat osteoporosis, a disease associated with a
gradual thinning and weakening of the bones that occurs most
frequently in women after menopause. Untreated postmenopausal
osteoporosis can lead to chronic back pain, disabling fractures,
and lost mobility.
Novartis
Pharma AG Oral Recombinant Human Growth Hormone
Program
From 1998 through August 2003, we developed oral rhGH in
collaboration with Eli Lilly and Company (Lilly). As
of August 2003, Lilly returned to us all rights to the oral rhGH
program pursuant to the terms of our license agreement. On
September 23, 2004 we announced a new partnership with
Novartis to develop our oral rhGH program. Under this
collaboration, we are working with Novartis to initiate clinical
trials of a convenient oral human growth hormone product using
the
Eligen®
Technology. On May 1, 2006, we announced that Novartis will
initiate the development of an oral rhGH product using
Emispheres
Eligen®
Technology.
Under this agreement, Novartis has an exclusive worldwide
license to develop, make, have made, use and sell products
developed under this program. We have no payment obligations
with respect to this program; we are, however, obligated to
collaborate with Novartis by providing access to our technology
that is relevant to this program. We are also obligated to help
to manage this program through a joint steering
committee with Novartis.
18
To date, we have received $6 million in non-refundable
payments from Novartis under this program, including the
$5 million milestone payment received in 2006. We may
receive up to $28 million in additional milestone payments
during the course of product development and royalties based on
sales.
Novo
Nordisk AS Agreement
On June 21, 2008, we entered into an exclusive Development
and License Agreement with Novo Nordisk pursuant to which Novo
Nordisk will develop and commercialize oral formulations of Novo
Nordisk proprietary products in combination with Emisphere
carriers. Under such agreement Emisphere could receive more than
$87 million in contingent product development and sales
milestone payments, including a $10 million non-refundable
license fee which was received in June 2008. Emisphere would
also be entitled to receive royalties in the event Novo Nordisk
commercializes products developed under such Agreement. Under
the Agreement, Novo Nordisk is responsible for the development
and commercialization of the products.
During January 2010, we announced that Novo Nordisk had
initiated its first Phase I clinical trial with a long-acting
oral GLP-1 analogue (NN9924). This milestone released a
$2 million payment to Emisphere, whose proprietary
Eligen®
Technology is used in the formulation of NN9924. GLP-1
(Glucagon-Like Peptide-1) is a natural hormone involved in
controlling blood sugar levels. It stimulates the release of
insulin only when blood sugar levels become too high. GLP-1
secretion is often impaired in people with Type 2 Diabetes. The
aim of this trial, which is being conducted in the UK, is to
investigate the safety, tolerability and bioavailability of
NN9924 in healthy volunteers. The trial will enroll
approximately 155 individuals and results from the trial are
expected in 2011. There are many challenges in developing an
oral formulation of GLP-1, in particular obtaining adequate
bioavailability. NN9924 addresses some of these key challenges
by utilizing Emispheres
Eligen®
Technology to facilitate absorption from the gastrointestinal
tract.
Genta,
Incorporated Oral Gallium Program
In March 2006, we announced that we have entered into an
exclusive worldwide licensing agreement with Genta, Incorporated
(Genta) to develop an oral formulation of a
gallium-containing compound. Under the agreement, we will
utilize our
Eligen®
Technology to supply a finished oral dosage form to Genta. Genta
will be responsible for toxicology, clinical development,
regulatory submissions, and worldwide commercialization. In
addition to royalties on net sales of the product, Genta has
agreed to fund Emispheres development activities and
to pay performance milestones related to the filing and approval
of regulatory applications. An Investigational New Drug
application was filed by Genta on gallium on July 31, 2007.
Genta released final results from the Companys Phase I
clinical trial of G4544, a new tablet formulation of a
proprietary small molecule intended as a treatment for diseases
associated with accelerated bone loss using delivery technology
developed by Emisphere Technologies, Inc. Results showed that
the drug was very well-tolerated, and that blood levels were
achieved in a range that is known to be clinically bioactive.
The data were featured in a poster session at the annual meeting
of the American Society of Clinical Oncology (ASCO)
in 2008.
Revenue
Recognized From Significant Collaborators 2007 through 2009 (in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Collaborator
|
|
2009
|
|
2008
|
|
2007
|
|
Novartis Pharma AG
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2,666
|
|
Roche
|
|
|
|
|
|
|
|
|
|
|
73
|
|
Novo Nordisk AS
|
|
|
|
|
|
|
46
|
|
|
|
|
|
Genta
|
|
|
|
|
|
|
118
|
|
|
|
1,159
|
|
Research
and Development Costs
We have devoted substantially all of our efforts and resources
to research and development conducted on our own behalf
(self-funded) and in collaborations with corporate partners
(partnered). Generally, research and development expenditures
are allocated to specific research projects. Due to various
uncertainties and risks, including those described in
Item 1A. Risk Factors below, relating to the
progress of our product candidates
19
through development stages, clinical trials, regulatory
approval, commercialization and market acceptance, it is not
possible to accurately predict future spending or time to
completion by project or project category.
The following table summarizes research and development spending
to date by project category:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative
|
|
|
|
Year Ended December 31,
|
|
|
Spending
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2009(1)
|
|
|
|
(In thousands)
|
|
|
Research(2)
|
|
$
|
70
|
|
|
$
|
1,143
|
|
|
$
|
1,954
|
|
|
$
|
51,918
|
|
Feasibility projects
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Self-funded
|
|
|
1,287
|
|
|
|
1,688
|
|
|
|
457
|
|
|
|
11,044
|
|
Partnered
|
|
|
38
|
|
|
|
425
|
|
|
|
178
|
|
|
|
4,224
|
|
Development projects
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oral heparin (self-funded)
|
|
|
148
|
|
|
|
392
|
|
|
|
3,834
|
|
|
|
99,437
|
|
Oral insulin (self-funded)
|
|
|
3
|
|
|
|
53
|
|
|
|
1,184
|
|
|
|
21,287
|
|
Partnered
|
|
|
2
|
|
|
|
59
|
|
|
|
611
|
|
|
|
12,157
|
|
Other(3)
|
|
|
2,498
|
|
|
|
9,025
|
|
|
|
12,858
|
|
|
|
103,956
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total all projects
|
|
$
|
4,046
|
|
|
$
|
12,785
|
|
|
$
|
21,076
|
|
|
$
|
304,023
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Cumulative spending from August 1, 1995 through
December 31, 2009. |
|
(2) |
|
Research is classified as resources expended to expand the
ability to create new carriers, to ascertain the mechanisms of
action of carriers, and to establish computer based modeling
capabilities, prototype formulations, animal models, and in
vitro testing capabilities. |
|
(3) |
|
Other includes indirect costs such as rent, utilities, training,
standard supplies and management salaries and benefits. |
Patents
and Other Forms of Intellectual Property
Our success depends, in part, on our ability to obtain patents,
maintain trade secret protection, and operate without infringing
the proprietary rights of others (see Risk Factors- Our
business will suffer if we cannot adequately protect our patent
and proprietary rights). We seek patent protection on
various aspects of our proprietary chemical and pharmaceutical
delivery technologies, including the delivery agent compounds
and the structures which encompass Emispheres delivery
agents, their method of preparation, the combination of our
compounds with a pharmaceutical, and use of our compounds with
therapeutic molecules to treat various disease states. We have
patents and patent applications in the U.S. and certain
foreign countries. As of March 25, 2010, we had 121 granted
U.S. Patents as well as 109 patent families with pending
patent applications.
We intend to file additional patent applications when
appropriate, and to aggressively prosecute, enforce, and defend
our patents and other proprietary technology.
We have five trademarks granted by the U.S. Patent and
Trademark office. They include
EMISPHERE®,
Elaprin®
(oral heparin), the Emisphere logo,
Emigent®
and
Eligen®.
We also rely on trade secrets, know-how, and continuing
innovation in an effort to develop and maintain our competitive
position. Patent law relating to the patentability and scope of
claims in the biotechnology and pharmaceutical fields is
evolving and our patent rights are subject to this additional
uncertainty. Others may independently develop similar product
candidates or technologies or, if patents are issued to us,
design around any products or processes covered by our patents.
We expect to continue, when appropriate, to file product and
other patent applications with respect to our inventions.
However, we may not file any such applications or, if filed, the
patents may not be issued. Patents issued to or licensed by us
may be infringed by the products or processes of others.
20
Defense and enforcement of our intellectual property rights can
be expensive and time consuming, even if the outcome is
favorable to us. It is possible that the patents issued to or
licensed to us will be successfully challenged, that a court may
find that we are infringing validly issued patents of third
parties, or that we may have to alter or discontinue the
development of our products or pay licensing fees to take into
account patent rights of third parties.
Manufacturing
The primary raw materials used in making the delivery agents for
our product candidates are readily available in large quantities
from multiple sources. In the past we manufactured delivery
agents internally using our own facilities on a small scale for
research purposes and for early stage clinical supplies. We
believed that our manufacturing capabilities complied with the
FDAs current Good Manufacturing Practice
(GMP). Beginning in 2004, we manufactured early
stage clinical supplies under GMP conditions for our oral
insulin program and heparin multiple arm studies. The FDA
inspected our in-house facilities in 2003 and again in 2005. The
2003 inspection resulted in only minor observations on
Form 483 which were quickly resolved to FDAs
satisfaction, while the 2005 inspection yielded no Form 483
observations.
Currently,
EMISPHERE®
delivery agents are manufactured by third parties in accordance
with GMP regulations. We have identified other commercial
manufacturers meeting the FDAs GMP regulations that have
the capability of producing
EMISPHERE®
delivery agents and we do not rely on any particular
manufacturer to supply us with needed quantities.
During April 2009 we announced a strategic alliance with
AAIPharma intended to expand the application of Emispheres
Eligen®
Technology and AAIPharmas drug development services.
AAIPharma Inc. is a global provider of pharmaceutical product
development services that enhance the therapeutic performance of
its clients drugs. AAIPharma works with many
pharmaceutical and biotech companies and currently provides drug
product formulation development services to Emisphere. This
relationship expands our access to new therapeutic candidates
for the
Eligen®
Technology, which potentially could lead to new products and to
new alliance agreements as well. We are also pleased that a
global provider of pharmaceutical product development services
with the stature of AAI has chosen to combine with Emisphere in
a synergistic alliance that will benefit both organizations.
This strategic alliance supports AAIs strategy to offer
drug delivery options to its pharmaceutical and biotech
customers.
Competition
Our success depends in part upon maintaining a competitive
position in the development of product candidates and
technologies in an evolving field in which developments are
expected to continue at a rapid pace. We compete with other drug
delivery, biotechnology and pharmaceutical companies, research
organizations, individual scientists and non-profit
organizations engaged in the development of alternative drug
delivery technologies or new drug research and testing, and with
entities developing new drugs that may be orally active. Our
product candidates compete against alternative therapies or
alternative delivery systems for each of the medical conditions
our product candidates address, independent of the means of
delivery. Many of our competitors have substantially greater
research and development capabilities, experience, marketing,
financial and managerial resources than we have. In many cases
we rely on our development partners to develop and market our
product candidates.
Oral
Osteoporosis Competition
An injectable form of PTH-1-34 is manufactured and sold by Eli
Lilly, as
FORTEO®.
Unigene Laboratories, Inc. (Unigene) has reported
that, in collaboration with GlaxoSmithKline plce
(GSK), it is developing an oral form of PTH-1-34.
Unigene also reported that it is developing an oral form of sCT.
Both candidates are in early stage clinical testing.
Novartis currently offers a nasal dosage form of sCT,
MIACALCIN®.
Other companies are currently developing pulmonary forms of
PTH-1-34. Other osteoporosis therapies include estrogen
replacement therapy, selective estrogen receptor modulators,
bisphosphonates and several new biologics that are under
development.
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Oral
Osteoarthritis Competition
There has been no cure for osteoarthritis, as cartilage has not
been induced to regenerate. Current treatment is with NSAIDs,
local injections of glucocorticoid or hyaluronan, and in severe
cases, with joint replacement surgery. Future potential
treatments might include Autologous Chondrocyte Implantation and
cartilage regeneration.
If Novartis succeeds in developing its oral treatment for
osteoarthritis, we believe it could face competition from
existing and potentially future products and treatment regimens
under development.
Oral
Diabetes Competition Type 2 Diabetes
In diabetes, there are a number of unmet needs which amplify the
need for further product development in the area. There are
three main areas of drug therapy, oral anti-diabetes, Insulin,
and Injectable in which companies are attempting to develop
innovative products for the treatment of patients.
The need for new medicines due to unmet treatment needs recently
resulted in two new products; Amylins Byetta and Symlin.
These products initially performed exceedingly well in the
market place. However due to pancreatitis associated with
Byetta, the trajectory for the Amylins franchise has
leveled off as of the third quarter 2008.
There are four leading classes for new product development in
the area of diabetes. All four seek to take advantage of the
potential to improve upon currently available products:
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GLP-1 Agonists
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Pulmonary Insulin
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DPP-IV Inhibitors
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PPAR modulators.
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The objective of our collaboration with Novo Nordisk is to
develop an orally available GLP-1 agonist for the treatment of
Type 2 diabetes and potentially obesity. A product with the
benefits of glucose control, promotion of weight loss, low risk
of hypoglycemia, and other benefits is expected to significantly
improve therapeutic options and can be expected to perform as
well as or better than the existing competition.
Oral
Vitamin B12 Competition
Emispheres potential competition in the Vitamin B12 market
will depend on the direction the company takes in the
development and commercialization of the product. In the event
that Emisphere pursues the nutritional supplements market,
competition would include a number of companies selling generic
Vitamin B12 in a variety of dosage strengths and methods of
delivery (e.g., oral, transdermal, nasal, sublingual) many of
which have substantial distribution and marketing capabilities
that exceed and will likely continue to exceed our own. In
addition, our competition is likely to include many sellers,
distributors, and others who are in the business of marketing,
selling, and promoting multiple vitamins, vitamin-mineral, and
specialized vitamin combinations. Many of these competitors are
engaged in low cost, high volume operations that could provide
substantial market barriers or other obstacles for a higher
cost, potentially superior product that has no prior market
history.
If Emisphere pursues the Vitamin B12 medical food market, the
Company would need to successfully demonstrate to physicians,
nurse-practitioners and payors that an oral dose would be safe,
efficacious, readily accessible and improve compliance. These
factors will likely require the Company to engage in a
substantial educational and promotional product launch and a
marketing outreach initiative, the time, cost, and outcome of
which are uncertain.
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Competition
Summary
Although we believe that our oral formulations, if successful,
will likely compete with well established injectable versions of
the same drugs, we believe that we will enjoy a competitive
advantage because physicians and patients prefer orally
delivered forms of products over injectable forms. Oral forms of
products enable improved compliance, and for many programs, the
oral form of products enable improved therapeutic regimens.
Government
Regulation
Our operations and product candidates under development are
subject to extensive regulation by the FDA, other governmental
authorities in the U.S. and governmental authorities in
other countries.
The duration of the governmental approval process for marketing
new pharmaceutical substances, from the commencement of
pre-clinical testing to receipt of governmental approval for
marketing a new product, varies with the nature of the product
and with the country in which such approval is sought. The
approval process for new chemical entities could take eight to
ten years or more. The process for reformulations of existing
drugs is typically shorter, although a combination of an
existing drug with a currently unapproved carrier could require
extensive testing. In either case, the procedures required to
obtain governmental approval to market new drug products will be
costly and time-consuming to us, requiring rigorous testing of
the new drug product. Even after such time and effort,
regulatory approval may not be obtained for our products.
The steps required before we can market or ship a new human
pharmaceutical product commercially in the U.S. include
pre-clinical testing, the filing of an Investigational New Drug
Application (IND), the conduct of clinical trials
and the filing with the FDA of either a New Drug Application
(NDA) for drugs or a Biologic License Application
(BLA) for biologics.
In order to conduct the clinical investigations necessary to
obtain regulatory approval of marketing of new drugs in the
U.S., we must file an IND with the FDA to permit the shipment
and use of the drug for investigational purposes. The IND sets
forth, in part, the results of pre-clinical (laboratory and
animal) toxicology testing and the applicants initial
Phase I plans for clinical (human) testing. Unless notified that
testing may not begin, the clinical testing may commence
30 days after filing an IND.
Under FDA regulations, the clinical testing program required for
marketing approval of a new drug typically involves three
clinical phases. In Phase I, safety studies are generally
conducted on normal, healthy human volunteers to determine the
maximum dosages and side effects associated with increasing
doses of the substance being tested. Phase II studies are
conducted on small groups of patients afflicted with a specific
disease to gain preliminary evidence of efficacy, including the
range of effective doses, and to determine common short-term
side effects and risks associated with the substance being
tested. Phase III involves large-scale trials conducted on
disease-afflicted patients to provide statistically significant
evidence of efficacy and safety and to provide an adequate basis
for product labeling. Frequent reports are required in each
phase and if unwarranted hazards to patients are found, the FDA
may request modification or discontinuance of clinical testing
until further studies have been conducted. Phase IV testing
is sometimes conducted, either to meet FDA requirements for
additional information as a condition of approval. Our drug
product candidates are and will be subjected to each step of
this lengthy process from conception to market and many of those
candidates are still in the early phases of testing.
Once clinical testing has been completed pursuant to an IND, the
applicant files an NDA or BLA with the FDA seeking approval for
marketing the drug product. The FDA reviews the NDA or BLA to
determine whether the drug is safe and effective, and adequately
labeled, and whether the applicant can demonstrate proper and
consistent manufacture of the drug. The time required for
initial FDA action on an NDA or BLA is set on the basis of user
fee goals; for most NDA or BLAs the action date is
10 months from receipt of the NDA or BLA at the FDA. The
initial FDA action at the end of the review period may be
approval or a request for additional information that will be
needed for approval depending on the characteristics of the drug
and whether the FDA has concerns with the evidence submitted.
Once our product candidates reach this stage, we will be
subjected to these additional costs of time and money.
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The FDA has different regulations and processes governing and
regulating food products, including vitamin supplements and
nutraceuticals. These products are variously referred to as
dietary supplements, food additives,
dietary ingredients, medical foods, and,
most broadly, food. These foods products do not
require the IND, NDA or BLA process outlined above.
The facilities of each company involved in the commercial
manufacturing, processing, testing, control and labeling of
pharmaceutical products must be registered with and approved by
the FDA. Continued registration requires compliance with GMP
regulations and the FDA conducts periodic establishment
inspections to confirm continued compliance with its
regulations. We are subject to various federal, state and local
laws, regulations and recommendations relating to such matters
as laboratory and manufacturing practices and the use, handling
and disposal of hazardous or potentially hazardous substances
used in connection with our research and development work.
While we do not currently manufacture any commercial products
ourselves, if we did, we would bear additional cost of FDA
compliance.
Employees
As of December 31, 2009, we had 17 employees, 6 of
whom are engaged in scientific research and technical functions
and 11 of whom are performing accounting, information
technology, engineering, facilities maintenance, legal and
regulatory and administrative functions. Of the 6 scientific
employees, 4 hold Ph.D.
and/or
D.V.M. degrees. We believe our relations with our employees are
good.
Available
Information
Emisphere files annual, quarterly, and current reports, proxy
statements, and other documents with the Securities and Exchange
Commission, (the SEC) under the Securities Exchange
Act of 1934 (the Exchange Act). The public may read
and copy any materials that we file with the SEC at the
SECs Public Reference Room at 100 F Street, NE,
Washington, D.C. 20549. The public may obtain information
on the operation of the Public Reference Room by calling the SEC
at
1-800-SEC-0330.
Also, the SEC maintains an internet website that contains
reports, proxy and information statements, and other information
regarding issuers, including Emisphere, that file electronically
with the SEC. The public can obtain any documents that Emisphere
files with the SEC at www.sec.gov.
We also make available free of charge on or through our internet
website (www.emisphere.com) our Annual Report on
Form 10-K,
Quarterly Reports on
Form 10-Q,
Current Reports on
Form 8-K,
Section 16 filings, and, if applicable, amendments to those
reports filed or furnished pursuant to Section 13(a) or
Section 16 of the Exchange Act as soon as reasonably
practicable after we or the reporting person electronically
files such material with, or furnishes it to, the SEC. Our
internet website and the information contained therein or
connected thereto are not intended to be incorporated into the
Annual Report or this
Form 10-K.
Our Board of Directors has adopted a Code of Business Conduct
and Ethics which is posted on our website at
http://ir.emisphere.com/documentdisplay.cfm?DocumentID=4947.
From time to time, information provided by us, statements made
by our employees or information included in our filings with the
Securities and Exchange Commission (including this Report) may
contain statements that are not historical facts, so-called
forward-looking statements, which involve risks and
uncertainties. Such forward-looking statements are made pursuant
to the safe harbor provisions of Section 21E of the
Securities Exchange Act of 1934, as amended. In some cases you
can identify forward-looking statements by terminology such as
may, should, could,
will, expect, intend,
plans, predict, anticipate,
estimate, continue,
believe or the negative of these terms or other
similar words. These statements discuss future expectations,
contain projections of results of operations or of financial
condition or
24
state other forward-looking information. When considering
forward-looking statements, you should keep in mind the risk
factors and other cautionary statements in this Report.
Our actual future results may differ significantly from those
stated in any forward-looking statements. Factors that may cause
such differences include, but are not limited to, the factors
discussed below. Each of these factors, and others, are
discussed from time to time in our filings with the Securities
and Exchange Commission.
Our operating results may fluctuate because of a number of
factors, many of which are beyond our control. If our operating
results are below the expectations of public market analysts or
investors, then the market price of our common stock could
decline. Some of the factors that affect our quarterly and
annual results, but which are difficult to control or predict,
are:
We
have a history of operating losses and we may never achieve
profitability. If we continue to incur losses or we fail to
raise additional capital or receive substantial cash inflows
from our partners by June 2010, we may be forced to cease
operations.
As of December 31, 2009, we had approximately
$3.8 million in cash and restricted cash, approximately
$20.4 million in working capital deficiency, a
stockholders deficit of approximately $47.9 million
and an accumulated deficit of approximately $436.7 million.
Our operating and net loss for the year ended December 31,
2009 was approximately $14.6 million and
$21.2 million, respectively. Since our inception in 1986,
we have generated significant losses from operations. We
anticipate that we will continue to generate significant losses
from operations for the foreseeable future, and that our
business will require substantial additional investment that we
have not yet secured. These conditions raise substantial doubt
about our ability to continue as a going concern. The audit
reports prepared by our independent registered public accounting
firms relating to our financial statements for the years ended
December 31, 2007, 2008 and 2009, respectively included an
explanatory paragraph expressing substantial doubt about our
ability to continue as a going concern.
We anticipate that our existing capital resources will enable us
to continue operations through approximately June 2010, or
earlier if unforeseen events or circumstances arise that
negatively affect our liquidity. If we fail to raise additional
capital or obtain substantial cash inflows from existing
partners prior to June 2010, we will be forced to cease
operations.
While our plan is to raise capital when needed
and/or to
pursue product partnering opportunities, we cannot be sure how
much we will need to spend in order to develop, market, and
manufacture new products and technologies in the future. We
expect to continue to spend substantial amounts on research and
development, including amounts spent on conducting clinical
trials for our product candidates. Further, we will not have
sufficient resources to develop fully any new products or
technologies unless we are able to raise substantial additional
financing or to secure funds from new or existing partners. We
cannot assure you that financing will be available when needed,
or on favorable terms or at all. The current economic
environment combined with a number of other factors pose
additional challenges to the Company in securing adequate
financing under acceptable terms. If additional capital is
raised through the sale of equity or convertible debt
securities, the issuance of such securities would result in
dilution to our existing stockholders. Additionally, these
conditions may increase the costs to raise capital. Our failure
to raise capital when needed would adversely affect our
business, financial condition, and results of operations, and
could force us to reduce or discontinue operations.
We may
not be able to make the payments we owe to
Novartis.
On December 1, 2004 we issued a $10 million
convertible note (the Novartis Note) to Novartis in
connection with a research collaboration option relating to the
development of PTH-1-34. The Novartis Note, as amended, bears
interest at a rate of 3% prior to December 1, 2006, 5% from
December 1, 2006 through December 1, 2008, and 7% from
that point until maturity. The Novartis Note was originally due
December 1, 2009. On November 27, 2009, Novartis
agreed to extend the maturity date of the Novartis Note to
February 26, 2010. Subsequently, on February 23, 2010,
Novartis agreed to further extend the maturity date of the
Novartis
25
Note to May 26, 2010. We have the option to pay interest in
cash on a current basis or accrue the periodic interest as an
addition to the principal amount of the Novartis Note. In the
event that interest accrues on the Novartis Note, the accretion
to principal will cause future interest payments to rise.
Approximately $12.6 million was due as payment of the
Novartis Note as of December 31, 2009. The Novartis Note is
convertible, at our option, at any time prior to maturity into a
number of shares of our common stock equal to the principal and
accrued and unpaid interest thereon divided by the conversion
price, which conversion price is equal to the average of the
highest bid and lowest ask prices of our common stock as quoted
on the
Over-The-Counter
Bulletin Board (OTCBB) averaged over a period
of twenty (20) days, consisting of the day on which the
conversion price is being determined and the nineteen
(19) consecutive business days prior to such day, provided
certain conditions contained in the Novartis Note are met. Those
conditions include that, at the time of such conversion, no
event of default under the Novartis Note has occurred and is
continuing and that there is either an effective registration
statement in effect covering the resale of the shares issued in
connection with such conversion or the shares may be resold by
Novartis pursuant to Rule 144 as promulgated under the
Securities Act of 1933, as amended. Based on the price per share
of our common stock on December 31, 2009, the Novartis Note
was convertible into 14,944,980 shares of our common stock,
assuming Novartis does not exercise their right to limit the
number of shares issued to it upon conversion of the Novartis
Note such that the shares of common stock they receive upon
conversion do not exceed 19.9% of the total shares of our common
stock outstanding. If upon conversion, Novartis decided to
exercise their right to limit their ownership to 19.9%, we would
still be obligated to pay the remaining balance due, after
deducting the value of the stock issued upon conversion, in cash.
The Novartis Note contains customary events of default including
our failure to timely cure a default in the payment of certain
other indebtedness, acceleration of certain indebtedness, we
become entitled to terminate the registration of our securities
or the filing of reports under the Securities Exchange Act of
1934, our common stock is no longer listed, we experience a
change of control (including by, among other things, a change in
the composition of a majority of our board (other than as
approved by the board) in any one-year period, a merger which
results in our stockholders holding shares that represent less
than a majority of the voting power of the merged entity, and
any other acquisition by a third party of shares that represent
a majority of the voting power of the company), we sell
substantially all of our assets, or we are effectively unable to
honor or perform our obligations under the new research
collaboration option relating to the development of PTH-1-34.
Upon the occurrence of an event of default prior to conversion,
any unpaid principal and accrued interest on the Novartis Note
would become immediately due and payable. If the Novartis Note
is converted into our common stock, Novartis would have the
right to require us to repurchase the shares of common stock
within six months after an event of default under the Novartis
Note, for an aggregate purchase price equal to the principal and
interest that was converted, plus interest from the date of
conversion, as if no conversion had occurred.
We are currently in discussions with Novartis to arrange a
settlement to meet our obligations under the Note. We can not be
certain that the discussions between the parties will result in
an agreement regarding the Novartis Note that will be
advantageous for the Company. If the Company is unable to
satisfy the terms of the Novartis Note, the Company would be in
default and could be forced into bankruptcy or otherwise to
liquidate its assets. Any of these events would materially and
adversely affect our business, financial condition and results
of operations. Furthermore, in the event of our bankruptcy or
liquidation, holders of common stock would not be entitled to
receive any cash or other property or assets until holders of
our debt securities and other creditors have been paid in full.
We may
not be able to meet the covenants detailed in the Convertible
Notes with MHR Institutional Partners IIA LP, which could result
in an increase in the interest rate on the Convertible Notes
and/or
accelerated maturity of the Convertible Notes, which we would
not be able to satisfy.
On September 26, 2005, we executed a Senior Secured Loan
Agreement (the Loan Agreement) with MHR
Institutional Partners IIA LP (together with its affiliates,
MHR). The Loan Agreement, as amended, provides for a
seven year, $15 million secured loan from MHR to us at an
interest rate of 11% (the Loan). Under the Loan
Agreement, MHR requested, and on May 16, 2006 we effected,
the exchange of the Loan for
26
11% senior secured convertible notes (the Convertible
Notes) with substantially the same terms as the Loan
agreement, except that the Convertible Notes are convertible, at
the sole discretion of MHR or any assignee thereof, into shares
of our common stock at a price per share of $3.78. Interest will
be payable in the form of additional Convertible Notes rather
than in cash and we have the right to call the Convertible Notes
after September 26, 2010 if certain conditions are
satisfied. The Convertible Notes are secured by a first priority
lien in favor of MHR on substantially all of our assets.
The Convertible Notes provide for certain events of default
including failure to perfect liens in favor of MHR created by
the transaction, failure to observe any covenant or agreement,
failure to maintain the listing and trading of our common stock,
sale of a substantial portion of our assets, or merger with
another entity without the prior consent of MHR, or any
governmental action renders us unable to honor or perform our
obligations under the Convertible Notes or results in a material
adverse effect on our operations among other things. If an event
of default occurs, the Convertible Notes provide for the
immediate repayment of the Notes and certain additional amounts
described above and as set forth in the Convertible Notes. At
such time, we may not be able to make the required payment, and
if we are unable to pay the amount due under the Notes, the
resulting default would enable MHR to foreclose on all of our
assets. Any of the foregoing events would have a material
adverse effect on our business and on the value of our
stockholders investments in our common stock. We currently
have a waiver from MHR for failure to perfect liens on certain
intellectual property rights, through April 1, 2011.
Our
stock was de-listed from NASDAQ.
Our common stock was suspended from trading on The NASDAQ
Capital Market effective at the open of business on June 9,
2009, and NASDAQ delisted the Companys securities
thereafter. The delisting resulted from the Companys
non-compliance with the minimum market value of listed
securities requirement for continued listing on The NASDAQ
Capital Market pursuant to NASDAQ Marketplace
Rule 4310(c)(3)(B). Simultaneously, the Companys
securities began trading on the
Over-the-Counter
Bulletin Board (the OTCBB), an electronic
quotation service maintained by the Financial Industry
Regulatory Authority, effective with the open of business on
June 9, 2009. The Companys trading symbol has
remained EMIS; however, it is our understanding that, for
certain stock quote publication websites, investors may be
required to key EMIS.OB to obtain quotes.
Because our stock is traded on the
Over-the-Counter
Bulletin Board market, selling our common stock could be
more difficult because smaller quantities of shares would likely
be bought and sold, transactions could be delayed, and security
analysts coverage of us may be reduced or harder to
obtain. In addition, because our common stock was de-listed from
the NASDAQ Capital Market, broker-dealers have certain
regulatory burdens imposed upon them, which may discourage
broker-dealers from effecting transactions in our common stock,
further limiting the liquidity thereof. These factors could
result in lower prices and larger spreads in the bid and ask
prices for shares of our common stock
and/or limit
an investors ability to execute a transaction.
The delisting from The NASDAQ Capital Market or future declines
in our stock price could also greatly impair our ability to
raise additional necessary capital through equity or debt
financing, and could significantly increase the ownership
dilution to stockholders caused by our issuing equity in
financing or other transactions.
Our
business will suffer if we fail or are delayed in developing and
commercializing an improved oral form of Vitamin
B12.
We are focusing substantial resources on the development of an
oral dosage form of Vitamin B12 that will demonstrate improved
bioavailability compared with current B12 tablets. During
November 2009 the Company launched its first commercially
available product, oral
Eligen®
B12 (100 mcg), which had been specifically developed to help
improve Vitamin B12 absorption and bioavailability with a
patented formulation, in partnership with Life
Extension®.
Life
Extension®
has certain exclusivity in the USA for distribution via the
internet and at specialty health food and nutritional retail
outlets including The Vitamin Shoppe, GNC and Vitamin World.
Oral
Eligen®
B12 (100mcg) tablets have been available for sale since November
2009. In
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addition, we are developing a higher dose
Eligen®
B12 oral formulation as a medical food for B12 deficient
patients and for certain generic
over-the-counter
B12. Our inability or delay in developing or commercializing the
B12 product candidate could have a significant material adverse
effect on our business.
To commercialize this higher dose product candidate, we will be
required to complete certain clinical studies, develop a market
introduction plan, and possibly obtain financing to support our
commercialization efforts, among other things. We cannot assure
you that we will succeed in these efforts as these involve
activities (or portions of activities) that we have not
previously completed. In addition, if we succeed in these
activities, Vitamin B12 is available at reasonably low prices
both in injections and tablet forms (as well as other forms)
through a variety of distributors, sellers, and other sources.
We have no current commercial capabilities. Therefore, we would
be entering a highly competitive market with an untested,
newly-established commercial capability. This outline of risks
involved in the development and commercialization of B12 is not
exhaustive, but illustrative. For example, it does not include
additional competitive, intellectual property, commercial,
product liability, and commercial risks involved in a launch of
the B12 product candidate outside the U.S. or certain of
such risks in the U.S.
We are
highly dependent upon collaborative partners to develop and
commercialize compounds using our delivery agents.
A key part of our strategy is to form collaborations with
pharmaceutical companies that will assist us in developing,
testing, obtaining government approval for and commercializing
oral forms of therapeutic macromolecules using the
Eligen®
Technology. We have a collaborative agreement for candidates in
clinical development with Novartis, Novo Nordisk and Genta.
We negotiate specific ownership rights with respect to the
intellectual property developed as a result of the collaboration
with each partner. While ownership rights vary from program to
program, in general we retain ownership rights to developments
relating to our carrier and the collaborator retains rights
related to the drug product developed.
Despite our existing agreements, we cannot make any assurances
that:
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we will be able to enter into additional collaborative
arrangements to develop products utilizing our drug delivery
technology;
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any existing or future collaborative arrangements will be
sustainable or successful;
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the product candidates in collaborative arrangements will be
further developed by partners in a timely fashion;
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any collaborative partner will not infringe upon our
intellectual property position in violation of the terms of the
collaboration contract; or
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milestones in collaborative agreements will be met and milestone
payments will be received.
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If we are unable to obtain development assistance and funds from
other pharmaceutical companies to fund a portion of our product
development costs and to commercialize our product candidates,
we may be unable to issue equity to allow us to raise sufficient
capital to fund clinical development of our product candidates.
Lack of funding would cause us to delay, curtail, or stop
clinical development of one or more of our projects. The
determination of the specific project to curtail would depend
upon the relative future economic value to us of each program.
Our
collaborative partners control the clinical development of the
drug candidates and may terminate their efforts at
will.
Novartis controls the clinical development of oral salmon
calcitonin, PTH, and rhGH. Novo Nordisk controls the clinical
development of oral GLP-1 analogs. Genta controls the clinical
development of oral gallium. Novartis, Novo Nordisk and Genta
control the decision-making for the design and timing of their
clinical studies.
28
Moreover, the agreements with Novartis, Novo Nordisk and Genta
provide that they may terminate their programs at will for any
reason and without any financial penalty or requirement to fund
any further clinical studies. We cannot make any assurance that
Novartis, Novo Nordisk or Genta will continue to advance the
clinical development of the drug candidates subject to
collaboration.
Our
collaborative partners are free to develop competing
products.
Aside from provisions preventing the unauthorized use of our
intellectual property by our collaborative partners, there is
nothing in our collaborative agreements that prevent our
partners from developing competing products. If one of our
partners were to develop a competing product, our collaboration
could be substantially jeopardized.
Our
product candidates are in various stages of development, and we
cannot be certain that any will be suitable for commercial
purposes.
To be profitable, we must successfully research, develop, obtain
regulatory approval for, manufacture, introduce, market, and
distribute our products under development, or secure a partner
to provide financial and other assistance with these steps. The
time necessary to achieve these goals for any individual
pharmaceutical product is long and can be uncertain. Before we
or a potential partner can sell any of the pharmaceutical
products currently under development, pre-clinical (animal)
studies and clinical (human) trials must demonstrate that the
product is safe and effective for human use for each targeted
indication. We have never successfully commercialized a drug or
a nonprescription candidate and we cannot be certain that we or
our current or future partners will be able to begin, or
continue, planned clinical trials for our product candidates, or
if we are able, that the product candidates will prove to be
safe and will produce their intended effects.
Even if safe and effective, the size of the solid dosage form,
taste, and frequency of dosage may impede their acceptance by
patients.
A number of companies in the drug delivery, biotechnology, and
pharmaceutical industries have suffered significant setbacks in
clinical trials, even after showing promising results in earlier
studies or trials. Only a small number of research and
development programs ultimately result in commercially
successful drugs. Favorable results in any pre-clinical study or
early clinical trial do not imply that favorable results will
ultimately be obtained in future clinical trials. We cannot make
any assurance that results of limited animal and human studies
are indicative of results that would be achieved in future
animal studies or human clinical studies, all or some of which
will be required in order to have our product candidates obtain
regulatory approval. Similarly, we cannot assure you that any of
our product candidates will be approved by the FDA. Even if
clinical trials or other studies demonstrate safety and
effectiveness of any of our product candidates for a specific
disease or condition and the necessary regulatory approvals are
obtained, the commercial success of any of our product
candidates will depend upon their acceptance by patients, the
medical community, and third-party payers and on our
partners ability to successfully manufacture and
commercialize our product candidates.
Our future business success depends heavily upon
regulatory approvals, which can be difficult and expensive to
obtain.
Our pre-clinical studies and clinical trials of our prescription
drug and biologic product candidates, as well as the
manufacturing and marketing of our product candidates, are
subject to extensive, costly and rigorous regulation by
governmental authorities in the U.S. and other countries.
The process of obtaining required approvals from the FDA and
other regulatory authorities often takes many years, is
expensive, and can vary significantly based on the type,
complexity, and novelty of the product candidates. We cannot
assure you that we, either independently or in collaboration
with others, will meet the applicable regulatory criteria in
order to receive the required approvals for manufacturing and
marketing. Delays in obtaining U.S. or foreign approvals
for our self-developed projects could result in substantial
additional costs to us, and, therefore, could adversely affect
our ability to compete with other companies. Additionally,
delays in obtaining regulatory approvals encountered by others
with whom we collaborate also could adversely affect our
business and
29
prospects. Even if regulatory approval of a product is obtained,
the approval may place limitations on the intended uses of the
product, and may restrict the way in which we or our partner may
market the product.
The regulatory approval process for our prescription drug
product candidates presents several risks to us:
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In general, pre-clinical tests and clinical trials can take many
years, and require the expenditure of substantial resources. The
data obtained from these tests and trials can be susceptible to
varying interpretation that could delay, limit or prevent
regulatory approval
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Delays or rejections may be encountered during any stage of the
regulatory process based upon the failure of the clinical or
other data to demonstrate compliance with, or upon the failure
of the product to meet, a regulatory agencys requirements
for safety, efficacy, and quality or, in the case of a product
seeking an orphan drug indication, because another designee
received approval first
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Requirements for approval may become more stringent due to
changes in regulatory agency policy or the adoption of new
regulations or guidelines
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New guidelines can have an effect on the regulatory decisions
made in previous years
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The scope of any regulatory approval, when obtained, may
significantly limit the indicated uses for which a product may
be marketed and may impose significant limitations in the nature
of warnings, precautions, and contraindications that could
materially affect the profitability of the drug
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Approved drugs, as well as their manufacturers, are subject to
continuing and ongoing review, and discovery of problems with
these products or the failure to adhere to manufacturing or
quality control requirements may result in restrictions on their
manufacture, sale or use or in their withdrawal from the market
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Regulatory authorities and agencies may promulgate additional
regulations restricting the sale of our existing and proposed
products
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Once a product receives marketing approval, the FDA may not
permit us to market that product for broader or different
applications, or may not grant us clearance with respect to
separate product applications that represent extensions of our
basic technology. In addition, the FDA may withdraw or modify
existing clearances in a significant manner or promulgate
additional regulations restricting the sale of our present or
proposed products
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Additionally, we face the risk that our competitors may gain FDA
approval for a product before us. Having a competitor reach the
market before us would impede the future commercial success for
our competing product because we believe that the FDA uses
heightened standards of approval for products once approval has
been granted to a competing product in a particular product
area. We believe that this standard generally limits new
approvals to only those products that meet or exceed the
standards set by the previously approved product.
The regulatory approval process for nonprescription product
candidates will likely vary by the nature of therapeutic
molecule being delivered,
Our
business will suffer if we cannot adequately protect our patent
and proprietary rights.
Although we have patents for some of our product candidates and
have applied for additional patents, there can be no assurance
that patents applied for will be granted, that patents granted
to or acquired by us now or in the future will be valid and
enforceable and provide us with meaningful protection from
competition, or that we will possess the financial resources
necessary to enforce any of our patents. Also, we cannot be
certain that any products that we (or a licensee) develop will
not infringe upon any patent or other intellectual property
right of a third party.
We also rely upon trade secrets, know-how, and continuing
technological advances to develop and maintain our competitive
position. We maintain a policy of requiring employees,
scientific advisors, consultants, and collaborators to execute
confidentiality and invention assignment agreements upon
commencement of
30
a relationship with us. We cannot assure you that these
agreements will provide meaningful protection for our trade
secrets in the event of unauthorized use or disclosure of such
information.
Part of our strategy involves collaborative arrangements with
other pharmaceutical companies for the development of new
formulations of drugs developed by others and, ultimately, the
receipt of royalties on sales of the new formulations of those
drugs. These drugs are generally the property of the
pharmaceutical companies and may be the subject of patents or
patent applications and other rights of protection owned by the
pharmaceutical companies. To the extent those patents or other
forms of rights expire, become invalid or otherwise ineffective,
or to the extent those drugs are covered by patents or other
forms of protection owned by third parties, sales of those drugs
by the collaborating pharmaceutical company may be restricted,
limited, enjoined, or may cease. Accordingly, the potential for
royalty revenues to us may be adversely affected.
We may
be at risk of having to obtain a license from third parties
making proprietary improvements to our technology.
There is a possibility that third parties may make improvements
or innovations to our technology in a more expeditious manner
than we do. Although we are not aware of any such circumstance
related to our product portfolio, should such circumstances
arise, we may need to obtain a license from such third party to
obtain the benefit of the improvement or innovation.
Royaltys payable under such a license would reduce our
share of total revenue. Such a license may not be available to
us at all or on commercially reasonable terms. Although we
currently do not know of any circumstances related to our
product portfolio which would lead us to believe that a third
party has developed any improvements or innovation with respect
to our technology, we cannot assure you that such circumstances
will not arise in the future. We cannot reasonably determine the
cost to us of the effect of being unable to obtain any such
license.
We are
dependent on third parties to manufacture and test our
products.
Currently, we have no manufacturing facilities for production of
our carriers or any therapeutic compounds under consideration as
products. We have no facilities for clinical testing. The
success of our self-developed programs is dependent upon
securing manufacturing capabilities and contracting with
clinical service and other service providers.
The availability of manufacturers is limited by both the
capacity of such manufacturers and their regulatory compliance.
Among the conditions for NDA approval is the requirement that
the prospective manufacturers quality control and
manufacturing procedures continually conform with the FDAs
current GMP (GMP are regulations established by the FDA that
govern the manufacture, processing, packing, storage and testing
of drugs intended for human use). In complying with GMP,
manufacturers must devote extensive time, money, and effort in
the area of production and quality control and quality assurance
to maintain full technical compliance. Manufacturing facilities
and company records are subject to periodic inspections by the
FDA to ensure compliance. If a manufacturing facility is not in
substantial compliance with these requirements, regulatory
enforcement action may be taken by the FDA, which may include
seeking an injunction against shipment of products from the
facility and recall of products previously shipped from the
facility. Such actions could severely delay our ability to
obtain product from that particular source.
The success of our clinical trials and our partnerships is
dependent on the proposed or current partners capacity and
ability to adequately manufacture drug products to meet the
proposed demand of each respective market. Any significant delay
in obtaining a supply source (which could result from, for
example, an FDA determination that such manufacturer does not
comply with current GMP) could harm our potential for success.
Additionally, if a current manufacturer were to lose its ability
to meet our supply demands during a clinical trial, the trial
may be delayed or may even need to be abandoned.
We may
face product liability claims related to participation in
clinical trials or future products.
We have product liability insurance with a policy limit of
$5.0 million per occurrence and in the aggregate. The
testing, manufacture, and marketing of products for humans
utilizing our drug delivery technology may expose us to
potential product liability and other claims. These may be
claims directly by
31
consumers or by pharmaceutical companies or others selling our
future products. We seek to structure development programs with
pharmaceutical companies that would complete the development,
manufacturing and marketing of the finished product in a manner
that would protect us from such liability, but the indemnity
undertakings for product liability claims that we secure from
the pharmaceutical companies may prove to be insufficient.
We are
subject to environmental, health, and safety laws and
regulations for which we incur costs to comply.
We use some hazardous materials in our research and development
activities and are subject to environmental, health, and safety
laws and regulations governing the use of such materials. For
example, our operations involve the controlled use of chemicals,
biologicals and radioactive materials and we bear the costs of
complying with the various regulations governing the use of such
materials. Costs of compliance have not been material to date.
While we believe we are currently in compliance with the
federal, state, and local laws governing the use of such
materials, we cannot be certain that accidental injury or
contamination will not occur. Should we be held liable or face
regulatory actions regarding an accident involving personal
injury or an environmental release, we potentially could incur
costs in excess of our resources or insurance coverage,
although, to date, we have not had to deal with any such
actions. During each of 2009, 2008, and 2007, we incurred costs
of approximately $0.1 million, $0.2 million and
$0.2 million, respectively, in our compliance with
environmental, health, and safety laws and regulations.
We
face rapid technological change and intense
competition.
Our success depends, in part, upon maintaining a competitive
position in the development of products and technologies in an
evolving field in which developments are expected to continue at
a rapid pace. We compete with other drug delivery, biotechnology
and pharmaceutical companies, research organizations, individual
scientists, and non-profit organizations engaged in the
development of alternative drug delivery technologies or new
drug research and testing, as well as with entities developing
new drugs that may be orally active. Many of these competitors
have greater research and development capabilities, experience,
and marketing, financial, and managerial resources than we have,
and, therefore, represent significant competition.
Our products, when developed and marketed, may compete with
existing parenteral or other versions of the same drug, some of
which are well established in the marketplace and manufactured
by formidable competitors, as well as other existing drugs. For
example, our salmon calcitonin product candidate, if developed
and marketed, would compete with a wide array of existing
osteoporosis therapies, including a nasal dosage form of salmon
calcitonin, estrogen replacement therapy, selective estrogen
receptor modulators, bisphosphonates, and other compounds in
development.
Our competitors may succeed in developing competing technologies
or obtaining government approval for products before we do.
Developments by others may render our product candidates, or the
therapeutic macromolecules used in combination with our product
candidates, noncompetitive or obsolete. At least one competitor
has notified the FDA that it is developing a competing
formulation of salmon calcitonin. If our products are marketed,
we cannot assure you that they will be preferred to existing
drugs or that they will be preferred to or available before
other products in development.
If a competitor announces a successful clinical study involving
a product that may be competitive with one of our product
candidates or an approval by a regulatory agency of the
marketing of a competitive product, such announcement may have a
material adverse effect on our operations or future prospects
resulting from reduced sales of future products that we may wish
to bring to market or from an adverse impact on the price of our
common stock or our ability to obtain regulatory approval for
our product candidates.
We are
dependent on our key personnel and if we cannot recruit and
retain leaders in our research, development, manufacturing, and
commercial organizations, our business will be
harmed.
We are dependent on our executive officers. Our President and
Chief Executive Officer, Michael V. Novinski, joined the Company
in May 2007. We could be significantly disadvantaged if
Mr. Novinski were to
32
leave Emisphere. The loss of other officers could have an
adverse effect as well, given their specific knowledge related
to our proprietary technology and personal relationships with
our pharmaceutical company partners. If we are not able to
retain our executive officers, our business may suffer. None of
our key officers have announced any intention to leave
Emisphere. We do not maintain key-man life insurance
policies for any of our executive officers.
There is intense competition in the biotechnology industry for
qualified scientists and managerial personnel in the
development, manufacture, and commercialization of drugs. We may
not be able to continue to attract and retain the qualified
personnel necessary for developing our business. Additionally,
because of the knowledge and experience of our scientific
personnel and their specific knowledge with respect to our drug
carriers the continued development of our product candidates
could be adversely affected by the loss of any significant
number of such personnel.
Provisions
of our corporate charter documents, Delaware law, and our
stockholder rights plan may dissuade potential acquirers,
prevent the replacement or removal of our current management and
may thereby affect the price of our common stock.
Our Board of Directors has the authority to issue up to
1,000,000 shares of preferred stock and to determine the
rights, preferences and privileges of those shares without any
further vote or action by our stockholders. Of these
1,000,000 shares, 200,000 are currently designated
Series A Junior Participating Cumulative Preferred Stock
(A Preferred Stock) in connection with our
stockholder rights plan, and the remaining 800,000 shares
remain available for future issuance. Rights of holders of
common stock may be adversely affected by the rights of the
holders of any preferred stock that may be issued in the future.
We also have a stockholder rights plan, commonly referred to as
a poison pill, in which Preferred Stock Purchase
Rights (the Rights) have been granted at the rate of
one one-hundredth of a share of A Preferred Stock at an exercise
price of $80 for each share of our common stock. The Rights are
not exercisable or transferable apart from the common stock,
until the earlier of (i) ten days following a public
announcement that a person or group of affiliated or associated
persons have acquired beneficial ownership of 20% or more of our
outstanding common stock or (ii) ten business days (or such
later date, as defined) following the commencement of, or
announcement of an intention to make a tender offer or exchange
offer, the consummation of which would result in the beneficial
ownership by a person, or group, of 20% or more of our
outstanding common stock. If we enter into consolidation,
merger, or other business combinations, as defined, each Right
would entitle the holder upon exercise to receive, in lieu of
shares of A Preferred Stock, a number of shares of common stock
of the acquiring company having a value of two times the
exercise price of the Right, as defined. By potentially diluting
the ownership of the acquiring company, our rights plan may
dissuade prospective acquirors of our company. MHR is
specifically excluded from the provisions of the plan.
The A Preferred Stockholders will be entitled to a preferential
cumulative quarterly dividend of the greater of $1.00 per share
or 100 times the per-share dividend declared on our stock and
are also entitled to a liquidation preference, thereby hindering
an acquirers ability to freely pay dividends or to
liquidate the company following an acquisition. Each A Preferred
Stock share will have 100 votes and will vote together with the
common shares, effectively preventing an acquirer from removing
existing management. The Rights contain anti-dilutive provisions
and are redeemable at our option, subject to certain defined
restrictions for $.01 per Right. The Rights expire on
April 7, 2016.
Provisions
of our corporate charter documents, Delaware law and financing
agreements may prevent the replacement or removal of our current
management and members of our Board of Directors and may thereby
affect the price of our common stock.
In connection with the MHR financing transaction, and after
approval by our Board of Directors, Dr. Mark H. Rachesky
was appointed to the Board of Directors by MHR (the MHR
Nominee) and Dr. Michael Weiser was appointed to the
Board of Directors by both the majority of our Board of
Directors and MHR (the Mutual Director), as
contemplated by our bylaws. Our certificate of incorporation
provides that the MHR Nominee and the Mutual Director may be
removed only by the affirmative vote of at least 85% of the
shares
33
of common stock outstanding and entitled to vote at an election
of directors. Our certificate of incorporation also provides
that the MHR Nominee may be replaced only by an individual
designated by MHR unless the MHR Nominee has been removed for
cause, in which case the MHR Nominee may be replaced only by an
individual approved by both a majority of our Board of Directors
and MHR. Furthermore, the amendments to the by-laws and the
certificate of incorporation provide that the rights granted to
MHR by these amendments may not be amended or repealed without
the unanimous vote or unanimous written consent of the Board of
Directors or the affirmative vote of the holders of at least 85%
of the shares of Common Stock outstanding and entitled to vote
at the election of directors. The amendments to the by-laws and
the certificate of incorporation will remain in effect as long
as MHR holds at least 2% of the shares of fully diluted Common
Stock. The amendments to the by-laws and the certificate of
incorporation will have the effect of making it more difficult
for a third party to gain control of our Board of Directors.
Additional provisions of our certificate of incorporation and
by-laws could have the effect of making it more difficult for a
third party to acquire a majority of our outstanding voting
common stock. These include provisions that classify our Board
of Directors, limit the ability of stockholders to take action
by written consent, call special meetings, remove a director for
cause, amend the by-laws or approve a merger with another
company.
We are subject to the provisions of Section 203 of the
Delaware General Corporation Law which prohibits a publicly-held
Delaware corporation from engaging in a business
combination with an interested stockholder for
a period of three years after the date of the transaction in
which the person became an interested stockholder, unless the
business combination is approved in a prescribed manner. For
purposes of Section 203, a business combination
includes a merger, asset sale or other transaction resulting in
a financial benefit to the interested stockholder, and an
interested stockholder is a person who, either alone
or together with affiliates and associates, owns (or within the
past three years, did own) 15% or more of the corporations
voting stock.
Our
stock price has been and may continue to be
volatile.
The trading price for our common stock has been and is likely to
continue to be highly volatile. The market prices for securities
of drug delivery, biotechnology and pharmaceutical companies
have historically been highly volatile.
Factors that could adversely affect our stock price include:
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fluctuations in our operating results; announcements of
partnerships or technological collaborations;
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innovations or new products by us or our competitors;
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governmental regulation;
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developments in patent or other proprietary rights;
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public concern as to the safety of drugs developed by us or
others;
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the results of pre-clinical testing and clinical studies or
trials by us, our partners or our competitors;
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litigation;
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general stock market and economic conditions;
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number of shares available for trading (float); and
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inclusion in or dropping from stock indexes.
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As of December 31, 2009, our 52-week high and low closing
market price for our common stock was $1.38 and $0.44,
respectively.
34
Future
sales of common stock or warrants, or the prospect of future
sales, may depress our stock price.
Sales of a substantial number of shares of common stock or
warrants, or the perception that sales could occur, could
adversely affect the market price of our common stock. As of
December 31, 2009, we have 7,000,000 shares of common
stock registered on a shelf registration for future sale.
Additionally, as of December 31, 2009, there were
outstanding options to purchase up to 1,814,982 shares of
our common stock that are currently exercisable, and additional
outstanding options to purchase up to 919,754 shares of
common stock that are exercisable over the next several years.
As of December 31, 2009, the Novartis Note was convertible
into 14,944,980 shares of common stock and the MHR
Convertible Notes were convertible into 5,983,146 shares of
our common stock. As of December 31, 2009, there were
outstanding warrants to purchase 9,934,253 shares of our
stock. The holders of these options have an opportunity to
profit from a rise in the market price of our common stock with
a resulting dilution in the interests of the other. The
existence of these options may adversely affect the terms on
which we may be able to obtain additional financing. The
weighted average exercise price of issued and outstanding
options is $6.29 and the weighted average exercise price of
warrants is $2.33 which compares to the $1.06 market price at
closing on December 31, 2009.
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ITEM 1B.
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UNRESOLVED
STAFF COMMENTS
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None.
We lease approximately 15,000 square feet of office space
at 240 Cedar Knolls Road, Suite 200, Cedar Knolls, New
Jersey for use as our corporate office. The lease for our
corporate office is set to expire on January 31, 2013.
At the beginning of 2009 we had leased approximately
80,000 square feet of office space at 765 Old Saw Mill
River Road, Tarrytown, NY for use as administrative offices and
laboratories. The lease for our administrative and laboratory
facilities had been set to expire on August 31, 2012.
However, on April 29, 2009, the Company entered into a
Lease Termination Agreement (the Agreement) with
BMR-Landmark
at Eastview, LLC, a Delaware limited liability company
(BMR) pursuant to which the Company and BMR
terminated the lease of space at 765 Old Saw Mill River Road in
Tarrytown, NY. Pursuant to the Agreement, the Lease was
terminated effective as of April 1, 2009. The Agreement
provided that the Company make the following payments to BMR:
(a) $1 million, paid upon execution of the Agreement,
(b) $0.5 million, paid six months after the execution
date of the Agreement, and (c) $0.75 million, payable
twelve months after the execution date of the Agreement. Initial
and six months payments were made on schedule. The final payment
was originally due April 29, 2010. However, on
March 17, 2010 the Company and BMR agreed to amend the
Agreement (the Amendment). According to the
Amendment, the final payment will be modified as follows: the
Company will pay Eight Hundred Thousand Dollars ($800,000), as
follows: (i) Two Hundred Thousand Dollars ($200,000) within
five (5) days after the Execution Date and (ii) One
Hundred Thousand Dollars ($100,000) on each of the following
dates: July 15, 2010, August 15, 2010,
September 15, 2010, October 15, 2010,
November 15, 2010, and December 15, 2010.
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ITEM 3.
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LEGAL
PROCEEDINGS
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In April 2005, the Company entered into an amended and restated
employment agreement with its then Chief Executive Officer,
Dr. Michael M. Goldberg, for services through July 31,
2007. On January 16, 2007, the Board of Directors
terminated Dr. Goldbergs services. On April 26,
2007, the Board of Directors held a special hearing at which it
determined that Dr. Goldbergs termination was for
cause. On March 22, 2007, Dr. Goldberg, through his
counsel, filed a demand for arbitration asserting that his
termination was without cause and seeking $1,048,000 plus
attorneys fees, interest, arbitration costs and other
relief alleged to be owed to him in connection with his
employment agreement with the Company. During the arbitration,
Dr. Goldberg sought a total damage amount of at least
$9,223,646 plus interest. On February 11, 2010, the
arbitrator issued the final award in favor of Dr. Goldberg
for a total amount of approximately $2,333,115 as full and final
payment for all claims, defenses, counterclaims, and related
matters. As a result of the February 11, 2010 final
35
award, the Company adjusted its estimate of costs to settle this
matter to $2,333,115. If the awards are upheld and confirmed in
court, the Company will be required to make the final payment to
Dr. Goldberg.
On August 18, 2008, Emisphere filed a complaint in the
United States District Court for the District of New Jersey
against Laura A. Kragie and Kragie BioMedWorks, Inc. seeking a
declaratory judgment affirming Emispheres sole rights to
its proprietary technology for the oral administration of
Vitamin B12, as set forth in several Emisphere United States
provisional patent applications. The complaint also includes a
claim under the Lanham Act arising from statements made by
defendants on their web site. Laura A. Kragie, M.D., is a
former consultant for Emisphere who later was employed by
Emisphere. On February 13, 2009, the defendants filed an
answer, affirmative defenses and counterclaims, adding as
counterclaim defendants current or former Emisphere executives
or employees, including Michael V. Novinski. The countersuit
against Emisphere alleged breach of contract, fraudulent
inducement, trademark infringement, false advertising, and other
claims, which Emisphere believed to be without merit. The
litigation with the Kragie parties has been resolved. On
February 23, 2010, the Court entered an Order, pursuant to
the parties written settlement agreement, dismissing the
case with prejudice.
PART II
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ITEM 5.
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MARKET
FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
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Nasdaq
Listing
The Companys securities were suspended from trading on The
NASDAQ Capital Market effective at the open of business on
Tuesday, June 9, 2009, and NASDAQ delisted the
Companys securities thereafter. The delisting resulted
from the Companys non-compliance with the minimum market
value of listed securities requirement for continued listing on
The NASDAQ Capital Market pursuant to NASDAQ Marketplace
Rule 4310(c)(3)(B. Simultaneously, the Companys
securities began trading on the
Over-the-Counter
Bulletin Board (the OTCBB), an electronic
quotation service maintained by the Financial Industry
Regulatory Authority, effective with the open of business on
Tuesday, June 9, 2009. The Companys trading symbol
has remained EMIS; however, it is our understanding that, for
certain stock quote publication websites, investors may be
required to key EMIS.OB to obtain quotes.
The following table sets forth the range of high and low
intra-day
sale prices as reported by The NASDAQ Stock Market or the
Over-the-Counter
Bulletin Board (the OTCBB), electronic
quotation service (post de-listing from the NASDAQ Stock Market
on June 9, 2009) for each period indicated:
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High
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Low
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2008
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First quarter
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$
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2.78
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$
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1.43
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Second quarter
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2.69
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1.33
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Third quarter
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4.21
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1.98
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Fourth quarter
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2.05
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0.57
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2009
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First quarter
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1.06
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0.43
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Second quarter
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1.49
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0.42
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Third quarter
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1.18
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0.72
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Fourth quarter
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1.08
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0.46
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2010
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First quarter (through March 22, 2010)
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1.94
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0.92
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36
As of March 1, 2010 there were 229 stockholders of record,
including record owners holding shares on behalf of an
indeterminate number of beneficial owners, and
42,084,075 shares of common stock outstanding. The closing
price of our common stock on March 1, 2010 was $1.25.
We have never paid cash dividends and do not intend to pay cash
dividends in the foreseeable future. We intend to retain
earnings, if any, to finance the growth of our business.
Equity
Compensation Plan Information
The following table provides information as of December 31,
2009 about the common stock that may be issued upon the exercise
of options granted to employees, consultants or members of our
board of directors under all of our existing equity compensation
plans, including the 1991 Stock Option Plan, 1995 Stock Option
Plan, 2000 Stock Option Plan, the 2002 Broad Based Plan, the
2007 Stock Award and Incentive Plan, (collectively the
Plans), the Stock Incentive Plan for Outside Directors,
and the Directors Deferred Compensation Plan:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
|
|
|
|
(c)
|
|
|
|
Number of
|
|
|
(b)
|
|
|
Number of Securities
|
|
|
|
Securities to be
|
|
|
Weighted
|
|
|
Remaining Available for
|
|
|
|
Issued Upon
|
|
|
Average
|
|
|
Future Issuance Under
|
|
|
|
Exercise of
|
|
|
Exercise Price
|
|
|
Equity Compensation Plans
|
|
|
|
Outstanding
|
|
|
of Outstanding
|
|
|
(Excluding Securities
|
|
Plan Category
|
|
Options
|
|
|
Options
|
|
|
Reflected in Column (a))
|
|
|
Equity Compensation Plans Approved by Security Holders
|
|
|
|
|
|
|
|
|
|
|
|
|
The Plans
|
|
|
2,734,736
|
|
|
$
|
6.29
|
|
|
|
2,055,977
|
|
Stock Incentive Plan for Outside Directors
|
|
|
121,000
|
|
|
|
15.59
|
|
|
|
|
|
Directors Deferred Compensation Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Compensation Plans not approved by Security
Holders(1)
|
|
|
10,000
|
|
|
|
3.64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
2,865,736
|
|
|
$
|
6.29
|
|
|
|
2,055,977
|
|
|
|
|
(1) |
|
Our Board of Directors has granted options which are currently
outstanding for a former consultant. The Board of Directors
determines the number and terms of each grant (option exercise
price, vesting and expiration date). These grants were made on
July 12, 2002 and July 14, 2003. |
37
Comparative
Stock Performance Graph
The graph below compares the cumulative total stockholder return
through December 31, 2009 on Emispheres Common Stock
with the cumulative total stockholder return of the NASDAQ
Composite Index, the NASDAQ Pharmaceutical Index, the RDG
MicroCap Pharmaceutical Index, the Dow Jones US Pharmaceuticals
Total Stock Market Index, and SIC Code: 2834
Pharmaceutical Preparations, assuming an investment of $100 on
December 31, 2004 in the Companys Common Stock, and
in the stocks comprising each index (with all dividends
reinvested).
COMPARISON
OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Emisphere Technologies, Inc.
|
|
|
* |
|
$100 invested on 12/31/04 in stock or index, including
reinvestment of dividends. |
|
|
|
Fiscal year ending December 31.
Copyright©
2010 Dow Jones & Co. All rights reserved. |
38
ITEM 6. SELECTED
FINANCIAL DATA
The following selected financial data for the years ended
December 31, 2009, 2008, 2007, 2006, and 2005 have been
derived from the financial statements of Emisphere and notes
thereto, which have been audited by our independent registered
public accounting firm. We recognize expense for our share-based
compensation in accordance with FASB ASC 718,
Compensation-Stock Compensation, which requires that
the costs resulting from all stock based payment transactions be
recognized in the financial statements at their fair values.
Results from prior periods have not been restated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
(In thousands, except per share data)
|
|
|
|
|
|
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
92
|
|
|
$
|
251
|
|
|
$
|
4,077
|
|
|
$
|
7,259
|
|
|
$
|
3,540
|
|
Costs, expenses and income from lawsuit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development expenses
|
|
|
4,046
|
|
|
|
12,785
|
|
|
|
21,076
|
|
|
|
18,892
|
|
|
|
18,915
|
|
General and administrative expenses
|
|
|
10,068
|
|
|
|
9,176
|
|
|
|
14,459
|
|
|
|
11,693
|
|
|
|
13,165
|
|
Other costs and expenses
|
|
|
(422
|
)
|
|
|
779
|
|
|
|
1,083
|
|
|
|
3,802
|
|
|
|
3,915
|
|
Restructuring charge
|
|
|
(356
|
)
|
|
|
3,831
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Income) expense from lawsuit, net
|
|
|
1,293
|
|
|
|
|
|
|
|
(11,890
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs, expenses and income from lawsuit
|
|
|
14,629
|
|
|
|
26,571
|
|
|
|
24,728
|
|
|
|
34,387
|
|
|
|
35,995
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(14,552
|
)
|
|
|
(26,320
|
)
|
|
|
(20,651
|
)
|
|
|
(27,128
|
)
|
|
|
(32,455
|
)
|
Beneficial conversion of convertible security
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,215
|
)
|
|
|
|
|
Gain on extinguishment of note payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,663
|
|
Change in fair value of derivative instruments
|
|
|
(2,473
|
)
|
|
|
2,220
|
|
|
|
5,057
|
|
|
|
(1,390
|
)
|
|
|
(624
|
)
|
Interest expense (income)
|
|
|
5,081
|
|
|
|
2,956
|
|
|
|
2,615
|
|
|
|
2,335
|
|
|
|
1,141
|
|
Sale of patent
|
|
|
500
|
|
|
|
1,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(21,243
|
)
|
|
|
(24,388
|
)
|
|
|
(16,928
|
)
|
|
|
(41,766
|
)
|
|
|
(18,051
|
)
|
Net loss per share Basic
|
|
|
(0.61
|
)
|
|
|
(0.80
|
)
|
|
|
(0.58
|
)
|
|
|
(1.58
|
)
|
|
|
(0.81
|
)
|
Net loss per share Diluted
|
|
|
(0.61
|
)
|
|
|
(0.80
|
)
|
|
|
(0.76
|
)
|
|
|
(1.58
|
)
|
|
|
(0.81
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2009
|
|
2008
|
|
2007
|
|
2006
|
|
2005
|
|
|
(In thousands)
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents, restricted cash and investments
|
|
$
|
3,825
|
|
|
$
|
7,469
|
|
|
$
|
14,100
|
|
|
$
|
21,533
|
|
|
$
|
9,218
|
|
Working capital (deficit)
|
|
|
(20,441
|
)
|
|
|
(7,954
|
)
|
|
|
9,868
|
|
|
|
13,377
|
|
|
|
(522
|
)
|
Total assets
|
|
|
5,933
|
|
|
|
10,176
|
|
|
|
19,481
|
|
|
|
28,092
|
|
|
|
18,988
|
|
Derivative instruments
|
|
|
10,780
|
|
|
|
267
|
|
|
|
2,487
|
|
|
|
6,498
|
|
|
|
6,528
|
|
Long-term liabilities and deferrals
|
|
|
24,652
|
|
|
|
31,531
|
|
|
|
27,648
|
|
|
|
24,744
|
|
|
|
23,121
|
|
Accumulated deficit
|
|
|
(436,671
|
)
|
|
|
(433,688
|
)
|
|
|
(409,300
|
)
|
|
|
(392,372
|
)
|
|
|
(350,606
|
)
|
Stockholders (deficit) equity
|
|
|
(47,864
|
)
|
|
|
(37,028
|
)
|
|
|
(13,674
|
)
|
|
|
(6,106
|
)
|
|
|
(14,895
|
)
|
39
|
|
ITEM 7.
|
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
Managements Discussion and Analysis of Financial
Conditions and Results of Operations (MD&A) is provided to
supplement the accompanying financial statements and notes in
Item 8 to help provide an understanding of our financial
condition, changes in our financial condition and results of
operations. To supplement its audited financial statements
presented in accordance with US GAAP, the company is providing a
comparison of operating results describing net income and
operating expenses which removed certain non-cash and one-time
or nonrecurring charges and receipts. The Company believes that
this presentation of net income and operating expense provides
useful information to both management and investors concerning
the approximate impact of the items above. The Company also
believes that considering the effect of these items allows
management and investors to better compare the Companys
financial performance from period to period and to better
compare the Companys financial performance with that of
its competitors. The presentation of this additional information
is not meant to be considered in isolation of, or as a
substitute for, results prepared in accordance with US GAAP.
CAUTION
CONCERNING FORWARD-LOOKING STATEMENTS
The following discussion and analysis contain forward-looking
statements that involve risks and uncertainties. When used in
this report, the words, intend,
anticipate, believe,
estimate, plan, expect and
similar expressions as they relate to us are included to
identify forward-looking statements. Our actual results could
differ materially from those anticipated in these
forward-looking statements as a result of factors, including
those set forth under Item 1A.Risk Factors
(above) and elsewhere in this report. This discussion and
analysis should be read in conjunction with the Selected
Financial Data and the Financial Statements and notes
thereto included in this report.
Overview
Emisphere Technologies, Inc. is a biopharmaceutical company that
focuses on a unique and improved delivery of therapeutic
molecules or nutritional supplements using its
Eligen®
Technology. These molecules could be currently available or are
under development. Such molecules are usually delivered by
injection; in many cases, their benefits are limited due to poor
bioavailability, slow on-set of action or variable absorption.
In those cases, our technology may increase the benefit of the
therapy by improving bioavailability or absorption or by
increasing the onset of action. The
Eligen®
Technology can be applied to the oral route of administration as
well other delivery pathways, such as buccal, rectal,
inhalation, intra-vaginal or transdermal. The
Eligen®
Technology can make it possible to orally deliver certain
therapeutic molecules without altering their chemical form or
biological integrity.
Eligen®
delivery agents, or carriers, facilitate or enable
the transport of therapeutic molecules across the mucous
membranes of the gastrointestinal tract, to reach the tissues of
the body where they can exert their intended pharmacological
effect.
Since our inception in 1986, substantial efforts and resources
have been devoted to understanding the
Eligen®
Technology and establishing a product development pipeline that
incorporated this technology with selected molecules. Since
2007, Emisphere has undergone many positive changes. A new
senior management team, led by Michael V. Novinski, was hired;
the
Eligen®
Technology was reevaluated and our corporate strategy was
refocused on commercializing the
Eligen®
Technology as quickly as possible, building high-value
partnerships and reprioritizing the product pipeline. Spending
was redirected and aggressive cost control initiatives were
implemented. These changes resulted in redeployment of resources
to programs, one of which, yielded the introduction of our first
commercial product during 2009. We continue to develop potential
product candidates in-house and we demonstrated and enhanced the
value of the
Eligen®
Technology as evident in the progress made by our development
partners Novo Nordisk A/S (Novo Nordisk) and
Novartis Pharma AG (Novartis) on their respective
product development programs. Further development, exploration
and commercialization of the technology entail risk and
operational expenses. However, we have made significant progress
on refocusing our efforts on strategic development initiatives
and cost control and continue to aggressively seek to reduce
non-strategic spending.
40
The application of the
Eligen®
Technology is potentially broad and may provide for a number of
opportunities across a spectrum of therapeutic modalities or
nutritional supplements. During 2009, we continued to develop
our product pipeline utilizing the
Eligen®
Technology with prescription and nonprescription product
candidates. We prioritized our development efforts based on
overall potential returns on investment, likelihood of success,
and market and medical need. Our goal is to implement our
Eligen®
Technology to enhance overall healthcare, including patient
accessibility and compliance, while benefiting the commercial
pharmaceutical marketplace and driving company valuation.
Investments required to continue developing our product pipeline
may be partially paid by income-generating license arrangements
whose value tends to increase as product candidates move from
pre-clinical into clinical development. It is our intention that
incremental investments that may be required to fund our
research and development will be approached incrementally in
order to minimize disruption or dilution.
On the nutritional supplements side, during November 2009, the
Company launched its first commercially available product, oral
Eligen®
B12 (100 mcg), which was specifically developed to help improve
Vitamin B12 absorption and bioavailability with a patented
formulation, in partnership with Life
Extension®.
Life
Extension®
has certain exclusivity in the USA for distribution via the
internet and at specialty health food and nutritional retail
outlets including The Vitamin Shoppe, GNC and Vitamin World.
Oral
Eligen®
B12 (100mcg) tablets have been available for sale since November
2009.
The Company also reported progress on its planned second
product, a higher dose formulation of
Eligen®
B12 for use by B12 deficient patients. During November 2009, the
Company announced that interim data from an ongoing study
demonstrated its oral
Eligen®
B12 (1000mcg) restored B12 to normal levels in individuals with
Vitamin B12 deficiency. Normal levels of serum B12 and active
B12 were achieved by 100 percent of those study
participants who had taken
Eligen®
B12 (1000mcg) 15 days into the
90-day study
when the first blood samples were taken. As part of an interim
analysis in this randomized, multi-center study, levels of serum
B12, active B12, homocysteine and methyl malonic acid were
measured on day 15, at which point a total of 18 participants (8
on IM injection and 10 on oral) had received either five 1000mcg
intramuscular injections of Vitamin B12 or once daily tablets of
oral
Eligen®
B12 (1000mcg). Study subjects taking
Eligen®
B12 also had a marked decrease in homocysteine, which is a known
risk factor for cardiovascular disease. This clinical study with
Eligen®
B12 (1000mcg) is expected to be completed within the first half
of 2010. It is estimated that as many as 10 million people
in the U.S. and over 100 million people worldwide may be
B12 deficient. Emispheres
Eligen®
B12 product (1000mcg) is planned to be available in 2010. Oral
Eligen®
B12 and the foregoing statements have not been evaluated by the
Food and Drug Administration. Oral
Eligen®
B12 is not intended to diagnose, treat, cure, or prevent any
disease.
On the prescription side, our licensees include Novartis, which
is using our drug delivery technology in combination with salmon
calcitonin, parathyroid hormone, and human growth hormone. Their
most advanced program is testing an oral formulation of
calcitonin to treat osteoarthritis and osteoporosis. Novartis is
conducting two Phase III clinical studies for
osteoarthritis and one Phase III clinical study for
osteoporosis. Now that these Phase III studies are fully
enrolled, over 5,500 clinical study patients used the
Eligen®
Technology during 2009 and continue to use it during 2010.
During December 2009, the Company announced that an independent
Data Monitoring Committee (DMC) informed Novartis
and its partner Nordic Bioscience about their recommendation to
proceed with the Osteoporosis Phase III Study 2303 and the
Osteoarthritis Phase III Study 2301 exploring the safety
and efficacy of an oral formulation of salmon calcitonin to
treat patients with osteoporosis and osteoarthritis of the knee.
This recommendation is based on a futility analysis of one-year
data for all patients enrolled in the study for 12 months
and includes both an assessment of safety and efficacy
parameters. Based on this interim analysis, the DMC is of the
opinion that there are no major or unexpected safety concerns
and recommended proceeding with the studies to evaluate the
efficacy and safety profile of oral calcitonin at two years as
planned.
Research using the
Eligen®
Technology and GLP-1, a potential treatment for Type 2 Diabetes
is being conducted by Novo Nordisk A/S (Novo
Nordisk) and by Dr. Christoph Beglinger, M.D.,
of the Clinical Research Center, Department of Biomedicine
Division of Gastroenterology, and Department of Clinical
Pharmacology and Toxicology at University Hospital in Basel,
Switzerland. We had previously conducted extensive tests on oral
insulin for Type 1 Diabetes and concluded that a more productive
pathway is to move
41
forward with GLP-1 and its analogs, an oral form of which might
be used to treat Type 2 Diabetes and related conditions.
Consequently, on June 21, 2008 we entered into an exclusive
Development and License Agreement with Novo Nordisk focused on
the development of oral formulations of Novo Nordisks
proprietary GLP-1 receptor agonists.
During January 2010, we announced that Novo Nordisk had
initiated its first Phase I clinical trial with a long-acting
oral GLP-1 analogue (NN9924). This milestone released a
$2 million payment to Emisphere, whose proprietary
Eligen®
Technology is used in the formulation of NN9924. GLP-1
(Glucagon-Like
Peptide-1)
is a natural hormone involved in controlling blood sugar levels.
It stimulates the release of insulin only when blood sugar
levels become too high. GLP-1 secretion is often impaired in
people with Type 2 Diabetes. The aim of this trial, which is
being conducted in the UK, is to investigate the safety,
tolerability and bioavailability of NN9924 in healthy
volunteers. The trial will enroll approximately 155 individuals
and results from the trial are expected in 2011. There are many
challenges in developing an oral formulation of GLP-1, in
particular obtaining adequate bioavailability. NN9924 addresses
some of these key challenges by utilizing Emispheres
Eligen®
Technology to facilitate absorption from the gastrointestinal
tract.
Our other product candidates in development are in earlier or
preclinical research phases, and we continue to assess them for
their compatibility with our technology and market need. Our
intent is to seek partnerships with pharmaceutical and
biotechnology companies for certain of these products. We plan
to expand our pipeline with product candidates that demonstrate
significant opportunities for growth.
The Company also continues to focus on improving operational
efficiency. During 2009 we implemented plans to strengthen our
financial foundation while maintaining our focus on advancing
and commercializing the
Eligen®
Technology. By closing our research and development facility in
Tarrytown, NY and utilizing independent contractors to conduct
essential research and development, we reduced our annual
operating costs by approximately 55% from 2008 levels. Annual
cash expenditures were reduced by approximately
$11 million, and the resulting cash burn rate to support
continuing operations is approximately $8 million per year.
Additionally, we expect to accelerate the commercialization of
the
Eligen®
Technology in a cost effective way and to gain operational
efficiencies by tapping into more advanced scientific processes
independent contractors can provide.
During April 2009 we entered into a Lease Termination Agreement
with
BMR-Landmark
at Eastview, LLC, pursuant to which the Company and BMR
terminated the lease of space at 765 and 777 Old Saw Mill River
Road in Tarrytown, NY. The Company agreed to make the following
payments to BMR: (a) $1 million, paid upon execution
of the Lease Termination Agreement, (b) $0.5 million,
paid six months after the execution date of the Lease
Termination Agreement, and (c) $0.75 million, payable
twelve months after the execution date of the Lease Termination
Agreement. The first two payments were made in accordance with
the terms of the Agreement. The final payment was originally due
April 29, 2010 However, on March 17, 2010, the Company
and BMR agreed to modify the final payment as follows: the
Company will pay Eight Hundred Thousand Dollars ($800,000), as
follows: (i) Two Hundred Thousand Dollars ($200,000) within
five (5) days after the Execution Date and (ii) One
Hundred Thousand Dollars ($100,000) on each of the following
dates: July 15, 2010, August 15, 2010,
September 15, 2010, October 15, 2010,
November 15, 2010, and December 15, 2010.
By terminating its Tarrytown lease, the Companys monthly
cash burn rate was reduced by approximately $0.3 million.
In addition, a total of approximately $14 million in future
lease payments were avoided.
Liquidity
and Capital Resources
Since our inception in 1986, we have generated significant
losses from operations. However, during 2009 we introduced our
first commercial product and anticipate introducing our second
commercial product during 2010. At some point in the future,
potential combined sales or partnerships may generate sufficient
net proceeds to offset a part of continuing losses from
operations for the foreseeable future. Until those potential net
proceeds are realized, we anticipate that we will continue to
generate significant losses from operations for the foreseeable
future. As of December 31, 2009, our working capital
deficit was $20.4 million, our accumulated deficit was
approximately $436.7 million and our stockholders deficit
was $47.9 million. Our
42
operating loss was $14.6 million, $26.3 million and
$20.7 million for the years ended December 31, 2009,
2008, and 2007, respectively, after net sales of Eligen B-12 of
$0.1 million in 2009 and receipts of collaboration and
feasibility payments of $0.3 million, and $4.1 million
in 2008 and 2007, respectively (which do not occur with
regularity or at all), as well as income from the settlement of
a lawsuit in 2007 of $11.9 million. Our net loss was
$21.2 million, $24.4 million, and $16.9 million
for the years ended December 31, 2009, 2008, and 2007,
respectively. Our operating and net losses for 2008 included a
$3.8 million one time restructuring charge which
represented our best estimate of current and future costs
associated with the closure of our research and development
facility in Tarrytown, NY. During 2009 we received
$0.2 million from Novo Nordisk in connection with the
exclusive Development and License Agreement with Novo Nordisk
focused on the development of oral formulations of Novo
Nordisks proprietary GLP-1 receptor agonists. In
accordance with GAAP, these payments were deferred and included
in deferred revenue on our balance sheet (please see the
Critical Accounting Estimates section for more
information). We have limited capital resources and operations
to date have been funded primarily with the proceeds from
collaborative research agreements, public and private equity and
debt financings and income earned on investments. As of
December 31, 2009, total cash, cash equivalents, restricted
cash and investments were $3.8 million. We anticipate that
our existing capital resources, without implementing cost
reductions, raising additional capital, or obtaining substantial
cash inflows from potential partners for our products, will
enable us to continue operations through approximately June
2010. However, this expectation is based on the current
operating plan that could change as a result of many factors and
additional funding may be required sooner than anticipated.
These conditions raise substantial doubt about our ability to
continue as a going concern. The audit reports prepared by our
independent registered public accounting firms relating to our
financial statements for the years ended December 31, 2009,
2008 and 2007 include an explanatory paragraph expressing
substantial doubt about our ability to continue as a going
concern.
Our business will require substantial additional investment that
has not yet been secured. While our plan is to raise capital
when needed
and/or to
pursue partnering opportunities, we cannot be sure how much we
will need to spend in order to develop, market and manufacture
new products and technologies in the future. We expect to
continue to spend substantial amounts on research and
development, including amounts spent on conducting clinical
trials for our product candidates. Further, we will not have
sufficient resources to develop fully any new products or
technologies unless we are able to raise substantial additional
financing on acceptable terms or secure funds from new or
existing partners. We cannot assure you that financing will be
available on favorable terms or at all. Additionally, these
conditions may increase the cost to raise capital. If additional
capital is raised through the sale of equity or convertible debt
securities, the issuance of such securities would result in
dilution to our existing stockholders. Additionally, these
conditions may increase costs to raise capital
and/or
result in further dilution. Our failure to raise capital when
needed would adversely affect our business, financial condition
and results of operations, and could force us to reduce or cease
our operations.
During the year ended December 31, 2009, our cash liquidity
(consisting of $3.6 million cash at December 31,
2009) decreased as follows:
Cash
and Investments:
|
|
|
|
|
|
|
(In thousands)
|
|
|
At December 31, 2008
|
|
$
|
7,200
|
|
At December 31, 2009
|
|
|
3,600
|
|
|
|
|
|
|
Decrease in cash and investments
|
|
$
|
3,600
|
|
|
|
|
|
|
43
The (decrease) increase in cash and investments is comprised of
the following components for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Proceeds, net, from issuance of equity securities
|
|
$
|
7,300
|
|
|
$
|
|
|
Proceeds from collaboration, sale of patent, real estate
sublease and other projects
|
|
|
1,500
|
|
|
|
14,500
|
|
|
|
|
|
|
|
|
|
|
Sources of cash and investments
|
|
|
8,800
|
|
|
|
14,500
|
|
|
|
|
|
|
|
|
|
|
Cash used in operations (grossed up for collaborations)
|
|
|
12,100
|
|
|
|
20,900
|
|
Repayment of debts and capital expenditures
|
|
|
|
|
|
|
100
|
|
Restriction of cash
|
|
|
300
|
|
|
|
200
|
|
|
|
|
|
|
|
|
|
|
Uses of cash and investments
|
|
|
12,400
|
|
|
|
21,200
|
|
|
|
|
|
|
|
|
|
|
Decrease in cash and investments
|
|
$
|
(3,600
|
)
|
|
$
|
(6,700
|
)
|
During the year ended December 31, 2009, our working
capital liquidity decreased by $12.4 million as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
|
(In thousands)
|
|
|
Current assets
|
|
$
|
4,100
|
|
|
$
|
7,700
|
|
|
$
|
(3,600
|
)
|
Current liabilities
|
|
|
24,500
|
|
|
|
15,700
|
|
|
|
8,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Working capital (deficiency)
|
|
$
|
(20,400
|
)
|
|
$
|
(8,000
|
)
|
|
$
|
(12,400
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The decrease in current assets is driven primarily by the
decrease in cash and investments. The increase in current
liabilities is driven primarily by the derivative instrument
liability as a result of the increase in the price of our common
stock and the adoption of ASC
815-40-15-5,
the accrual of costs to settle legal proceedings in connection
with Dr. Goldberg; and accrued interest related to the
Novartis note payable.
Primary
Sources of Cash
During 2009, we received net proceeds of $7.3 million
through the issuance of common stock and associated derivative
instruments from the August 2009 registered direct and private
placement offerings; we received $1.0 million net proceeds
from the sale of our equipment utilized in the former laboratory
facility located at 765 Old Saw Mill River Road, Tarrytown, NY.;
and we received a $0.5 million installment payment for sale
of certain Emisphere patents and a patent application relating
to diketopiparazine technology to MannKind Corporation.
During 2008 we received a $10.0 million upfront payment and
reimbursement of $1.3 million in costs from Novo Nordisk in
connection with the development and license agreement to develop
an oral formulation of GLP-1 receptor agonists for Diabetes.
Also during 2008 we received an initial $1.5 million
payment for sale of certain Emisphere patents and a patent
application relating to diketopiparazine technology to MannKind
Corporation. Also during 2008 we received $800 thousand in
sublease and related payments in connection with sublease
agreements for space at our laboratory and office facilities
located at Tarrytown, NY.
During 2007, we received a $2 million milestone payment and
reimbursement of $0.7 million in costs from Novartis on the
oral salmon calcitonin program. Also during 2007, we received
$6.9 million through the issuance of common stock and
derivative instruments from the August 2007 offering of
2 million shares of our common stock and warrants. MHR was
a purchaser in this offering.
During 2006, we received a $5 million milestone payment
from Novartis on the oral recombinant human growth Hormone
(rhGH) program. Also during 2006, we received
$35.2 million through the issuance of common stock and
derivative instruments, including $31.1 million from the
May 2006 offering of four million
44
shares of our common stock and warrants, $3.6 million from
the exercise of warrants and stock options and $0.6 million
from the purchase of warrants. MHR was a purchaser in this
offering.
During 2005, we received net proceeds of approximately
$12.9 million under a $15 million secured loan
agreement (the Loan Agreement) executed with MHR.
Under the Loan Agreement, MHR requested, and on May 16,
2006, we effected, the exchange of the loan from MHR for senior
secured convertible notes (the Convertible Notes)
with substantially the same terms as the Loan Agreement, except
that the Convertible Notes are convertible, at the sole
discretion of MHR, into shares of our common stock at a price
per share of $3.78. The Convertible Notes are due on
September 26, 2012, bear interest at 11% and are secured by
a first priority lien in favor of MHR on substantially all of
our assets. Interest is payable in the form of additional
Convertible Notes rather than in cash and we have the right to
call the Convertible Notes after September 26, 2010 if
certain conditions are satisfied. Further, the Convertible Notes
provide MHR with the right to require redemption in the event of
a change in control, as defined, prior to September 26,
2009. The Convertible Notes provide for various events of
default. If an event of default occurs, the Convertible Notes
provide for the immediate repayment and certain additional
amounts as set forth in the Convertible Notes. We have received
a waiver from MHR, through March 18, 2010 for certain
defaults under the agreement. Additionally, MHR was granted
certain registration rights.
In connection with the MHR financing, the Company agreed to
appoint a representative of MHR (MHR Nominee) and
another person (the Mutual Director) to its Board of
Directors. MHR nominees constitute 33% of our Directors.
Further, the Company amended its certificate of incorporation to
provide for continuity of the MHR Nominee and the Mutual Nominee
on the Board, as described therein, so long as MHR holds at
least 2% of the outstanding common stock of the Company.
On December 1, 2004 we received $10.0 million in
exchange for issuance of a convertible note to Novartis (the
Novartis Note) in connection with a new research
collaboration option relating to the development of PTH-1-34.
The Novartis Note is convertible, at our option, at any time
prior to maturity into a number of shares of our common stock
equal to the principal and accrued and unpaid interest divided
by the then market price of our common stock, provided certain
conditions are met. The Novartis Note bears interest at a rate
of 3% until December 1, 2006, 5% from then until
December 1, 2008, and 7% from that point until maturity.
The Novartis Note was originally due December 1, 2009. On
November 27, 2009, Novartis agreed to extend the maturity
date of the Novartis Note to February 26, 2010.
Subsequently, on February 23, 2010, Novartis agreed to
further extend the maturity date of the Novartis Note to
May 26, 2010. We have the option to pay interest in cash on
a current basis or accrue the periodic interest as an addition
to the principal amount of the Novartis Note. We are accruing
interest which is being recorded using the effective interest
rate method, which results in a level interest rate of 4.6%.
Results
of Operations
Year
Ended December 31, 2009 Compared to Year Ended
December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
|
December 31,
|
|
|
|
|
2009
|
|
2008
|
|
Change
|
|
|
(In thousands)
|
|
Revenue
|
|
$
|
92
|
|
|
$
|
251
|
|
|
$
|
(159
|
)
|
Operating expenses (including a $3.8 million restructuring
charge in 2008 and a $0.4 million reduction to the
restructuring liability in 2009 relating to the closure of the
facility in Tarrytown, NY)
|
|
$
|
14,644
|
|
|
$
|
26,571
|
|
|
$
|
11,927
|
|
Operating loss
|
|
$
|
(14,552
|
)
|
|
$
|
(26,320
|
)
|
|
$
|
11,768
|
|
Change in fair value of derivative instruments
|
|
$
|
(2,473
|
)
|
|
$
|
2,220
|
|
|
$
|
(4,693
|
)
|
Interest Expense
|
|
$
|
(5,081
|
)
|
|
$
|
(2,956
|
)
|
|
$
|
(2,125
|
)
|
Other non-operating income (expenses)
|
|
$
|
863
|
|
|
$
|
2,668
|
|
|
$
|
(1,805
|
)
|
Net loss
|
|
$
|
(21,243
|
)
|
|
$
|
(24,388
|
)
|
|
$
|
3,145
|
|
45
Revenue decreased $0.2 million for the year ended
December 31, 2009 compared to December 31, 2008, due
to decreased receipts from development partners, the deferral of
cost reimbursements received from Novo Nordisk in connection
with the development of an oral formulation of GLP-1 receptor
agonists in accordance with the Companys revenue
recognition policy; offset by the receipt of $92 thousand B12
operating revenue during 2009. Revenue reported in 2009 relates
to the sales of low dose Eligen B-12 to Life Extension
Foundation.
Our principal operating costs include the following items as a
percentage of total expenses:
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
December 31, 2009
|
|
December 31, 2008
|
|
Human resource costs, including benefits
|
|
|
35
|
%
|
|
|
42
|
%
|
Professional fees for legal, intellectual property, accounting
and consulting
|
|
|
35
|
%
|
|
|
22
|
%
|
Occupancy for our laboratory and operating space
|
|
|
8
|
%
|
|
|
19
|
%
|
Clinical costs
|
|
|
8
|
%
|
|
|
5
|
%
|
Depreciation and amortization
|
|
|
3
|
%
|
|
|
4
|
%
|
Other
|
|
|
11
|
%
|
|
|
8
|
%
|
Operating expenses, decreased by $11.9 million (45%) as a
result of the following items:
|
|
|
|
|
|
|
(In thousands)
|
|
|
Decrease in human resource costs
|
|
$
|
(4,400
|
)
|
Increase in clinical costs and lab fees
|
|
|
400
|
|
Increase in professional and consulting fees
|
|
|
200
|
|
Decrease in occupancy costs
|
|
|
(3,300
|
)
|
Reduction in depreciation and amortization
|
|
|
(500
|
)
|
All other
|
|
|
(4,300
|
)
|
|
|
|
|
|
Net decrease
|
|
$
|
(11,900
|
)
|
|
|
|
|
|
Human resource costs decreased approximately $4.4 million
primarily due to an 80% reduction in headcount from 87 as of
December 31, 2008 to 17 as of December 31, 2009.
Clinical costs and lab fees increased approximately
$0.4 million primarily as a result of studies and clinical
testing related to the B-12 program.
Professional and consulting fees increased approximately
$0.2 million primarily due to an increase of approximately
$1.0 million in legal fees offset by a $0.5 million
reduction in consulting fees in connection with the completion
of toxicology and clinical studies; $0.2 million reduction
in accounting fees; and a $0.1 million reduction in various
miscellaneous professional fees.
Occupancy costs decreased $3.3 million primarily due to the
closure of the Tarrytown, NY facility and subsequent termination
of our lease for that facility.
Depreciation and amortization expense decreased
$0.5 million primarily due to the write-off of leasehold
improvements, laboratory equipment, abandoned furniture,
fixtures and computer hardware in connection with the closure of
the Tarrytown, NY facility.
All other operating costs decreased $4.3 million primarily
due to the $3.8 million restructuring charge incurred
during 2008, a $0.4 million adjustment to the restructuring
liability during 2009, an increase of $0.7 million on the
gain on sale of fixed assets during 2009, and $0.7 million
decrease in insurance, travel related, software licensing,
maintenance, and other operating expenses during 2009; offset by
the incremental accrual of $1.3 million expense in
connection with the final ruling of the arbitrator awarding
legal fees to Dr. Goldberg.
46
As a result of the factors above, Emispheres operating
expenses were $14.6 million for the year ended
December 31, 2009; a decrease of $11.9 million or 45%
compared to operating expenses for the year ended
December 31, 2008.
Other non-operating expense increased by approximately
$8.6 million for the year ended December 31, 2009 in
comparison to the same period last year primarily due to a
$4.7 million increase in the change in the value of
derivative instruments, a $2.1 million increase in interest
expense due primarily to the adoption of FASB ASC
815-40-15-5,
a $1.0 million reduction in the gain from sale of patent to
MannKind Corporation, a decrease of $0.6 million in
sublease income during 2009, and a $0.2 million decrease in
investment income. Expense from the change in the fair value of
derivatives instruments for 2009 and 2008 is the result of the
adoption of FASB ASC
815-40-15-5,
an increase in stock price from $0.79 on December 31, 2008
to $1.06 on December 31, 2009 and from the decrease in
stock price from $2.73 on December 31, 2007 to $0.79 on
December 31, 2008, and the addition of 4,523,755 warrants
in connection with the August 2009 offering. The change in value
of derivative instruments: increases in value of the underlying
shares of the Companys common stock increase the liability
with a corresponding loss recognized in the Companys
operating statement while decreases in the value of the
Companys common stock decrease the value of the liability
with a corresponding gain recognized in the Companys
operating statement. Future gains and losses recognized in the
Companys operating results from changes in value of the
derivative instrument liability are based in part on the fair
value of the Companys common stock which is outside the
control of the Company. Gains and losses could be material.
As a result of the above factors, we reported a net loss of
$21.2 million, compared to a net loss of
$24.4 million, or $3.1 million (13%) lower than the
net loss for the year ended December 31, 2008.
Year
Ended December 31, 2008 Compared to Year Ended
December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
|
December 31,
|
|
|
|
|
2008
|
|
2007
|
|
Change
|
|
|
(In thousands)
|
|
Revenue
|
|
$
|
251
|
|
|
$
|
4,077
|
|
|
$
|
(3,826
|
)
|
Operating expenses (excluding income from settlement of lawsuit
in 2007, net; including the $3.8 million restructuring
charge in 2008)
|
|
$
|
26,571
|
|
|
$
|
36,618
|
|
|
$
|
(10,047
|
)
|
Income from settlement of lawsuit, net
|
|
$
|
|
|
|
$
|
11,890
|
|
|
$
|
(11,890
|
)
|
Operating loss
|
|
$
|
(26,320
|
)
|
|
$
|
(20,651
|
)
|
|
$
|
(5,669
|
)
|
Change in fair value of derivative instruments
|
|
$
|
2,220
|
|
|
$
|
5,057
|
|
|
$
|
(2,837
|
)
|
Interest Expense
|
|
$
|
(2,956
|
)
|
|
$
|
(2,615
|
)
|
|
$
|
(341
|
)
|
Other non-operating income (expenses)
|
|
$
|
2,668
|
|
|
$
|
1,281
|
|
|
$
|
1,387
|
|
Net loss
|
|
$
|
(24,388
|
)
|
|
$
|
(16,928
|
)
|
|
$
|
(7,460
|
)
|
Revenue decreased $3.8 million for the year ended
December 31, 2008 compared to year ended December 31,
2007 due to the receipt of milestone payments during 2007. In
connection with the development and license agreement with Novo
Nordisk to develop an oral formulation of GLP-1 receptor
agonists for Diabetes we received a $10.0 million
non-refundable license fee payment and $1.2 million in
reimbursement of costs in 2008; all of which was deferred in
accordance with the Companys revenue recognition policy.
Under such agreement Emisphere could receive more than
$87.0 million in contingent product development and sales
milestone payments. Emisphere would also be entitled to receive
royalties in the event Novo Nordisk commercializes products
developed under such agreement.
47
Our principal operating costs include the following items as a
percentage of total expenses:
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
December 31, 2008
|
|
December 31, 2007
|
|
Human resource costs, including benefits
|
|
|
42
|
%
|
|
|
50
|
%
|
Professional fees for legal, intellectual property, accounting
and consulting
|
|
|
22
|
%
|
|
|
17
|
%
|
Occupancy for our laboratory and operating space
|
|
|
19
|
%
|
|
|
12
|
%
|
Clinical costs
|
|
|
5
|
%
|
|
|
8
|
%
|
Depreciation and amortization
|
|
|
4
|
%
|
|
|
3
|
%
|
Other
|
|
|
8
|
%
|
|
|
10
|
%
|
Operating expenses, excluding income from settlement of lawsuit,
net, and excluding the restructuring charge, decreased by
$13.9 million (38%) as a result of the following items:
|
|
|
|
|
|
|
(In thousands)
|
|
|
Decrease in human resource costs
|
|
$
|
(8,800
|
)
|
Decrease in clinical costs and lab fees
|
|
|
(2,800
|
)
|
Decrease in professional and consulting fees
|
|
|
(1,400
|
)
|
Decrease in occupancy costs
|
|
|
(100
|
)
|
Reduction in depreciation and amortization
|
|
|
(100
|
)
|
All other
|
|
|
(700
|
)
|
|
|
|
|
|
Net decrease
|
|
$
|
(13,900
|
)
|
|
|
|
|
|
Human resource costs decreased by approximately
$8.8 million primarily due to a 77% reduction in headcount
from 87 employees as of December 31, 2007 to 20 as of
December 31, 2008; in addition to a reduction in severance
payments and approximately $2.0 reduction in non-cash
compensation expense due to the cancellation or expiration of
employee stock options.
Clinical costs and lab fees decreased approximately
$2.8 million primarily as a result of the completion of
clinical and toxicology studies in connection with the
anticipated heparin trial.
The decrease of approximately $1.4 million in professional
and consulting fees is primarily due to an approximately
$0.8 million reduction in legal fees in connection with the
settlement of our law suit with Eli Lilly, and streamlining
corporate legal support; a $0.3 million reduction in
professional and consulting fees in connection with the
completion of toxicology and clinical studies and an
$0.1 million reduction in recruiting costs.
All other operating costs decreased by $0.9 million
primarily due to decreases in insurance, travel related,
software licensing and maintenance, depreciation and
amortization, utilities and a gain on the sale of fixed assets
and a reduction in other operating expenses.
As a result of the factors above Emispheres operating
expenses were $26.6 million for the year ended
December 31, 2008, including the $3.8 million one time
restructuring charge in connection with the closure of the
research and development facility in Tarrytown, NY; an increase
of $1.8 million or 7% compared to operating expenses for
the year ended December 31, 2007. Total operating expenses
for the year ended December 31, 2008, excluding the one
time restructuring charge of $3.8 million would have been
$22.7 million, compared to $36.6 million operating
costs, excluding $11.9 million net proceeds from the
settlement of the lawsuit with Eli Lilly for the year ended
December 31, 2007, a decrease of $13.9 million or 38%.
Other non-operating income decreased by approximately
$1.8 million for the year ended December 31, 2008 in
comparison to the same period last year primarily due to a
reduction of approximately $2.8 million in the change in
the value of derivative instruments, a $0.7 million
decrease in investment income, and an approximately
$0.3 million increase in interest expense; offset by the
$1.5 million gain from sale of patent to MannKind
48
Corporation and an increase of approximately $0.6 million
in sublease income during 2008, Income from the change in the
fair value of derivatives instruments for 2008 and 2007 is the
result of the decrease in stock price from $2.73 on
December 31, 2007 to $0.79 on December 31, 2008 and
from $5.29 on December 31, 2006 to $2.73 on
December 31, 2007, partially offset by the addition of
400,000 warrants in connection with the August 2007 offering.
The change in value of derivative instruments: increases in
value of the underlying shares of the Companys common
stock increase the liability with a corresponding loss
recognized in the Companys operating statement while
decreases in the value of the Companys common stock
decrease the value of the liability with a corresponding gain
recognized in the Companys operating statement. Future
gains and losses recognized in the Companys operating
results from changes in value of the derivative instrument
liability are based in part on the fair value of the
Companys common stock which is outside the control of the
Company. Gains and losses could be material.
As a result of the above factors, we reported a net loss of
$24.4 million, including the $3.8 million one-time
restructuring charge in connection with the closure of its
research and development facility in Tarrytown, NY; compared to
a net loss of $16.9 million, including $11.9 million
net proceeds from the settlement of the lawsuit with Eli Lilly
and Company. The net loss for year ended December 31, 2008
excluding the one time restructuring charge of $3.8 million
would have been $20.6 million, compared to
$28.8 million, or $8.3 million (29%) lower than the
net loss for the year ended December 31, 2007, excluding
$11.9 million net proceeds from the settlement of the
lawsuit with Eli Lilly in 2007.
The $3.8 million one-time restructuring charge related to
the closure of the Tarrytown facility is comprised of
$2.6 million present value in rent, net of
sub-lease
income through the expiration of the lease; termination benefits
of $0.2 million; and a $1.0 million charge to write
down the net book value of leasehold improvements in space no
longer used by the Company as of December 8, 2008.
Critical
Accounting Estimates and New Accounting Pronouncements
Critical
Accounting Estimates
The preparation of financial statements in accordance with
accounting principles generally accepted in the
U.S. requires management to make estimates and assumptions
that affect reported amounts and related disclosures in the
financial statements. Management considers an accounting
estimate to be critical if:
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It requires assumptions to be made that were uncertain at the
time the estimate was made, and
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Changes in the estimate or different estimates that could have
been selected could have a material impact on our results of
operations or financial condition
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Share-Based Payments We recognize expense for
our share-based compensation in accordance with FASB ASC 718,
compensation-stock compensation, which establishes
standards for share-based transactions in which an entity
receives employees services for (a) equity
instruments of the entity, such as stock options, or
(b) liabilities that are based on the fair value of the
entitys equity instruments or that may be settled by the
issuance of such equity instruments. FASB ASC 718 requires that
companies expense the fair value of stock options and similar
awards, as measured on the awards grant date. FASB ASC 718
applies to all awards granted after the date of adoption, and to
awards modified, repurchased or cancelled after that date.
We estimate the value of stock option awards on the date of
grant using the Black-Scholes-Merton option-pricing model (the
Black-Scholes model). The determination of the fair
value of share-based payment awards on the date of grant is
affected by our stock price as well as assumptions regarding a
number of complex and subjective variables. These variables
include our expected stock price volatility over the term of the
awards, expected term, risk-free interest rate, expected
dividends and expected forfeiture rates.
If factors change and we employ different assumptions in the
application of FASB ASC 718 in future periods, the compensation
expense that we record under FASB ASC 718 may differ
significantly from what we have recorded in the current period.
There is a high degree of subjectivity involved when using
option pricing models to estimate share-based compensation under
FASB ASC 718. Consequently, there is a risk that our estimates
of the fair values of our share-based compensation awards on the
grant dates may bear little
49
resemblance to the actual values realized upon the exercise,
expiration, early termination or forfeiture of those share-based
payments in the future. Employee stock options may expire
worthless or otherwise result in zero intrinsic value as
compared to the fair values originally estimated on the grant
date and reported in our financial statements. Alternatively,
value may be realized from these instruments that are
significantly in excess of the fair values originally estimated
on the grant date and reported in our financial statements.
During the year ended December 31, 2009, we do not believe
that reasonable changes in the projections would have had a
material effect on share-based compensation expense.
Revenue Recognition Revenue includes amounts
earned from sales of our oral
Eligen®
B12 product to Life
Extension®,
collaborative agreements and feasibility studies. Revenue earned
from the sale of
Eligen®
B12 is recognized when products are shipped to Life
Extension®.
Revenue from feasibility studies, which are typically short term
in nature, is recognized upon delivery of the study, provided
that all other revenue recognition criteria are met. Revenue
from collaboration agreements are recognized using the
proportional performance method provided that we can reasonably
estimate the level of effort required to complete our
performance obligations under an arrangement and such
performance obligations are provided on a best effort basis and
based on expected payments. Under the proportional
performance method, periodic revenue related to nonrefundable
cash payments is recognized as the percentage of actual effort
expended to date as of that period to the total effort expected
for all of our performance obligations under the arrangement.
Actual effort is generally determined based upon actual hours
incurred and include research and development
(R&D) activities performed by us and time spent
for joint steering committee (JSC) activities. Total
expected effort is generally based upon the total R&D and
JSC hours incorporated into the project plan that is agreed to
by both parties to the collaboration. Significant management
judgments and estimates are required in determining the level of
effort required under an arrangement and the period over which
we expect to complete the related performance obligations.
Estimates of the total expected effort included in each project
plan are based on historical experience of similar efforts and
expectations based on the knowledge of scientists for both the
Company and its collaboration partners. The Company periodically
reviews and updates the project plan for each collaborative
agreement; the most recent reviews took place in January 2010.
In the event that a change in estimate occurs, the change will
be accounted for using the cumulative
catch-up
method which provides for an adjustment to revenue in the
current period. Estimates of our level of effort may change in
the future, resulting in a material change in the amount of
revenue recognized in future periods.
Generally under collaboration arrangements, nonrefundable
payments received during the period of performance may include
time- or performance-based milestones. The proportion of actual
performance to total expected performance is applied to the
expected payments in determining periodic revenue.
However, revenue is limited to the sum of (1) the amount of
nonrefundable cash payments received and (2) the payments
that are contractually due but have not yet been paid.
With regard to revenue recognition from collaboration
agreements: the Company previously interpreted expected payments
to equate to total payments subject to each collaboration
agreement. On a prospective basis, the Company has revised its
application of expected payments to equate to a best
estimate of payments. Under this application, expected
payments typically include (i) payments already received
and (ii) those milestone payments not yet received but that
the Company believes are more likely than not of
receiving. Our support for the assertion that the next milestone
is likely to be met is based on the (a) project status
updates discussed at JSC meetings; (b) clinical
trial/development results of prior phases; (c) progress of
current clinical trial/development phases; (c) directional
input of collaboration partners and (d) knowledge and
experience of the Companys scientific staff. After
considering the above factors, the Company believes those
payments included in expected payments are more
likely than not of being received. While this interpretation
differs from that used previously by the Company, it does not
result in any change to previously recognized revenues in either
timing or amount for periods through December 31, 2009.
With regard to revenue recognition in connection with the
agreement with Novo Nordisk: such agreement includes multiple
deliverables including the license grant, several versions of
the Companys
Eligen®
Technology (or carriers), support services and manufacturing.
Emispheres management reviewed the relevant terms of the
Novo Nordisk agreement and determined such deliverables should
be accounted for as a single unit of accounting in accordance
with FASB ASC
605-25,
Multiple-Element Arrangements since the
50
delivered license and
Eligen®
Technology do not have stand-alone value and Emisphere does not
have objective evidence of fair value of the undelivered
Eligen®
Technology or the manufacturing value of all the undelivered
items. Such conclusion will be reevaluated as each item in the
arrangement is delivered. Consequently any payments received
from Novo Nordisk pursuant to such agreement, including the
initial $10 million upfront payment and any payments
received for support services, will be deferred and included in
Deferred Revenue within our balance sheet. Management cannot
currently estimate when all of such deliverables will be
delivered nor can they estimate when, if ever, Emisphere will
have objective evidence of the fair value for all of the
undelivered items, therefore all payments from Novo Nordisk are
expected to be deferred for the foreseeable future.
As of December 31, 2009 total deferred revenue from the
agreement was $11.5 million, comprised of the
$10.0 million non-refundable license fee and
$1.5 million in support services.
Purchased Technology Purchased technology
represents the value assigned to patents and the rights to use,
sell or license certain technology in conjunction with our
proprietary carrier technology. These assets underlie our
research and development projects related to various research
and development projects.
Warrants Warrants issued in connection with
the equity financing completed in March 2005 and August 2007 and
to MHR have been classified as liabilities due to certain
provisions that may require cash settlement in certain
circumstances. At each balance sheet date, we adjust the
warrants to reflect their current fair value. We estimate the
fair value of these instruments using the Black-Scholes option
pricing model which takes into account a variety of factors,
including historical stock price volatility, risk-free interest
rates, remaining term and the closing price of our common stock.
Changes in the assumptions used to estimate the fair value of
these derivative instruments could result in a material change
in the fair value of the instruments. We believe the assumptions
used to estimate the fair values of the warrants are reasonable.
See Item 7A. Quantitative and Qualitative Disclosures about
Market Risk for additional information on the volatility in
market value of derivative instruments.
Equipment and Leasehold Improvements
Equipment and leasehold improvements are stated at cost.
Depreciation and amortization are provided for on a
straight-line basis over the estimated useful life of the asset.
Leasehold improvements are amortized over the life of the lease
or of the improvements, whichever is shorter. Expenditures for
maintenance and repairs that do not materially extend the useful
lives of the respective assets are charged to expense as
incurred. The cost and accumulated depreciation or amortization
of assets retired or sold are removed from the respective
accounts and any gain or loss is recognized in operations.
Impairment of Long-Lived Assets We review our
long-lived assets for impairment whenever events and
circumstances indicate that the carrying value of an asset might
not be recoverable. An impairment loss, measured as the amount
by which the carrying value exceeds the fair value, is triggered
if the carrying amount exceeds estimated undiscounted future
cash flows. Actual results could differ significantly from these
estimates, which would result in additional impairment losses or
losses on disposal of the assets. During the years ended
December 31, 2007 and 2006, we did not recognize any
significant impairment losses. During the year ended
December 31, 2008 we recognized an approximately
$1.0 million charge to write down the value of leasehold
improvements in connection with the restructuring charge to
estimate current and future costs to close the laboratory and
office facility located in Tarrytown, NY. In addition, with
regards to the restructuring, we accelerated the useful life of
approximately $0.2 million in leasehold improvements for a
portion of the laboratory facility in Tarrytown that we
continued to use through January 29, 2009. Approximately
$0.1 million in additional depreciation expense was
recognized during December 2008 and approximately
$0.1 million during January 2009.
Clinical Trial Accrual Methodology Clinical
trial expenses represent obligations resulting from our
contracts with various research organizations in connection with
conducting clinical trials for our product candidates. We
account for those expenses on an accrual basis according to the
progress of the trial as measured by patient enrollment and the
timing of the various aspects of the trial. Accruals are
recorded in accordance with the following methodology:
(i) the costs for period expenses, such as investigator
meetings and initial
start-up
costs, are expensed as incurred based on managements
estimates, which are impacted by
51
any change in the number of sites, number of patients and
patient start dates; (ii) direct service costs, which are
primarily on-going monitoring costs, are recognized on a
straight-line basis over the life of the contract; and
(iii) principal investigator expenses that are directly
associated with recruitment are recognized based on actual
patient recruitment. All changes to the contract amounts due to
change orders are analyzed and recognized in accordance with the
above methodology. Change orders are triggered by changes in the
scope, time to completion and the number of sites. During the
course of a trial, we adjust our rate of clinical expense
recognition if actual results differ from our estimates.
New
Accounting Pronouncements
In June 2008, the Financial Accounting Standards Board (FASB)
ratified the final consensuses for
ASC 815-40-15-5
Evaluating Whether an Instrument Involving a Contingency
is Considered Indexed to an Entitys Own Stock
(ASC
815-40-15-5).
ASC
815-40-15-5
became effective for fiscal years beginning after
December 15, 2008. The Company adopted ASC
815-40-15-5
on January 1, 2009. See Note 2 of the Financial
Statements for additional information.
Effective July 1, 2009, the Company adopted the Financial
Accounting Standards Board (FASB) Accounting
Standards Codification (ASC)
105-10,
Generally Accepted Accounting Principles Overall
(ASC
105-10).
ASC 105-10
establishes the FASB Accounting Standards Codification
(the Codification) as the source of
authoritative accounting principles recognized by the FASB to be
applied by nongovernmental entities in the preparation of
financial statements in conformity with U.S. GAAP. Rules
and interpretive releases of the SEC under authority of federal
securities laws are also sources of authoritative U.S. GAAP
for SEC registrants. All guidance contained in the Codification
carries an equal level of authority. The Codification superseded
all existing non-SEC accounting and reporting standards. All
other non-grandfathered, non-SEC accounting literature not
included in the Codification is non-authoritative. The FASB will
not issue new standards in the form of Statements, FASB Staff
Positions or Emerging Issues Task Force Abstracts. Instead, it
will issue Accounting Standards Updates (ASUs). The
FASB will not consider ASUs as authoritative in their own right.
ASUs will serve only to update the Codification, provide
background information about the guidance and provide the bases
for conclusions on the change(s) in the Codification. References
made to FASB guidance throughout this document have been updated
for the Codification.
Effective January 1, 2008, the Company adopted FASB ASC
820-10,
Fair Value Measurements and Disclosures Overall
(ASC
820-10)
with respect to its financial assets and liabilities. In
February 2008, the FASB issued updated guidance related to fair
value measurements, which is included in the Codification in ASC
820-10-55,
Fair Value Measurements and Disclosures Overall
Implementation Guidance and Illustrations. The
updated guidance provided a one year deferral of the effective
date of ASC
820-10 for
non-financial assets and non-financial liabilities, except those
that are recognized or disclosed in the financial statements at
fair value at least annually. Therefore, the Company adopted the
provisions of ASC
820-10 for
non-financial assets and non-financial liabilities effective
January 1, 2009, and such adoption did not have a material
impact on the Companys results of operations or financial
condition.
Effective April 1, 2009, the Company adopted FASB ASC
820-10-65,
Fair Value Measurements and Disclosures
Overall Transition and Open Effective Date
Information (ASC
820-10-65).
ASC
820-10-65
provides additional guidance for estimating fair value in
accordance with ASC
820-10 when
the volume and level of activity for an asset or liability have
significantly decreased. ASC
820-10-65
also includes guidance on identifying circumstances that
indicate a transaction is not orderly. The adoption of ASC
820-10-65
did not have an impact on the Companys consolidated
results of operations or financial condition.
Effective April 1, 2009, the Company adopted FASB ASC
825-10-65,
Financial Instruments Overall
Transition and Open Effective Date Information (ASC
825-10-65).
ASC
825-10-65
amends ASC
825-10 to
require disclosures about fair value of financial instruments in
interim financial statements as well as in annual financial
statements and also amends ASC
270-10 to
require those disclosures in all interim financial statements.
The adoption of ASC
825-10-65
did not have a material impact on the Companys results of
operations or financial condition.
52
Effective April 1, 2009, the Company adopted FASB ASC
855-10,
Subsequent Events Overall
(ASC 855-10).
ASC 855-10
establishes general standards of accounting for and disclosure
of events that occur after the balance sheet date but before
financial statements are issued or are available to be issued.
It requires the disclosure of the date through which an entity
has evaluated subsequent events and the basis for that
date that is, whether that date represents the date
the financial statements were issued or were available to be
issued. This disclosure should alert all users of financial
statements that an entity has not evaluated subsequent events
after that date in the set of financial statements being
presented. Adoption of ASC
855-10 did
not have a material impact on the Companys results of
operations or financial condition.
Effective July 1, 2009, the Company adopted FASB ASU
No. 2009-05,
Fair Value Measurements and Disclosures (Topic 820)
(ASU
2009-05).
ASU 2009-05
provided amendments to ASC
820-10,
Fair Value Measurements and Disclosures Overall,
for the fair value measurement of liabilities. ASU
2009-05
provides clarification that in circumstances in which a quoted
price in an active market for the identical liability is not
available, a reporting entity is required to measure fair value
using certain techniques. ASU
2009-05 also
clarifies that when estimating the fair value of a liability, a
reporting entity is not required to include a separate input or
adjustment to other inputs relating to the existence of a
restriction that prevents the transfer of a liability. ASU
2009-05 also
clarifies that both a quoted price in an active market for the
identical liability at the measurement date and the quoted price
for the identical liability when traded as an asset in an active
market when no adjustments to the quoted price of the asset are
required are Level 1 fair value measurements. Adoption of
ASU 2009-05
did not have a material impact on the Companys results of
operations or financial condition.
In October 2009, the FASB issued ASU
2009-13,
Multiple-Deliverable Revenue Arrangements, (amendments to
FASB ASC Topic 605, Revenue Recognition ) (ASU
2009-13)
and ASU
2009-14,
Certain Arrangements That Include Software Elements,
(amendments to FASB ASC Topic 985, Software ) (ASU
2009-14).
ASU 2009-13
requires entities to allocate revenue in an arrangement using
estimated selling prices of the delivered goods and services
based on a selling price hierarchy. The amendments eliminate the
residual method of revenue allocation and require revenue to be
allocated using the relative selling price method.
ASU 2009-14
removes tangible products from the scope of software revenue
guidance and provides guidance on determining whether software
deliverables in an arrangement that includes a tangible product
are covered by the scope of the software revenue guidance. ASU
2009-13 and
ASU 2009-14
should be applied on a prospective basis for revenue
arrangements entered into or materially modified in fiscal years
beginning on or after June 15, 2010, with early adoption
permitted. The Company does not expect adoption of ASU
2009-13 or
ASU 2009-14
to have a material impact on the Companys results of
operations or financial condition.
In October, 2009, the FASB issued ASU
2009-15,
Accounting for Own-Share Lending Arrangements in
Contemplation of Convertible Debt Issuance or Other
Financing, (ASU-2009-15), which provides
guidance for accounting and reporting for own-share lending
arrangements issued in contemplation of a convertible debt
issuance. At the date of issuance, a share-lending arrangement
entered into on an entitys own shares should be measured
at fair value in accordance with Topic 820 and recognized as an
issuance cost, with an offset to additional paid-in capital.
Loaned shares are excluded from basic and diluted earnings per
share unless default of the share-lending arrangement occurs.
The amendments also require several disclosures including a
description and the terms of the arrangement and the reason for
entering into the arrangement. The effective dates of the
amendments are dependent upon the date the share-lending
arrangement was entered into and include retrospective
application for arrangements outstanding as of the beginning of
fiscal years beginning on or after December 15, 2009.
Management is currently evaluating the potential impact of ASU
2009-15 on
our financial statements.
In January 2010, the FASB issued ASU
2010-06,
Improving Disclosures about Fair Value Measurements. ASU
2010-06
amends ASC 820 to require a number of additional disclosures
regarding fair value measurements. The amended guidance requires
entities to disclose the amounts of significant transfers
between Level 1 and Level 2 of the fair value
hierarchy and the reasons for these transfers, the reasons for
any transfers in or out of Level 3, and information in the
reconciliation of recurring Level 3 measurements about
purchases, sales, issuances and settlements on a gross basis.
The ASU also clarifies the requirements for entities to disclose
information about both the valuation techniques and inputs used
in estimating Level 2 and Level 3
53
fair value measurements. The amended guidance is effective for
interim and annual financial periods beginning after
December 15, 2009. ASU
2010-06 is
not expected to have a significant effect on the Companys
financial statements.
Management does not believe that any other recently issued, but
not yet effective, accounting standards if currently adopted
would have a material effect on the accompanying financial
statements.
Off-Balance
Sheet Arrangements
As of December 31, 2009, we had no material off-balance
sheet arrangements.
In the ordinary course of business, we enter into agreements
with third parties that include indemnification provisions
which, in our judgment, are normal and customary for companies
in our industry sector. These agreements are typically with
business partners, clinical sites, and suppliers. Pursuant to
these agreements, we generally agree to indemnify, hold
harmless, and reimburse indemnified parties for losses suffered
or incurred by the indemnified parties with respect to our
product candidates, use of such product candidates, or other
actions taken or omitted by us. The maximum potential amount of
future payments we could be required to make under these
indemnification provisions is unlimited. We have not incurred
material costs to defend lawsuits or settle claims related to
these indemnification provisions. As a result, the estimated
fair value of liabilities relating to these provisions is
minimal. Accordingly, we have no liabilities recorded for these
provisions as of December 31, 2009.
In the normal course of business, we may be confronted with
issues or events that may result in a contingent liability.
These generally relate to lawsuits, claims, environmental
actions or the actions of various regulatory agencies. We
consult with counsel and other appropriate experts to assess the
claim. If, in our opinion, we have incurred a probable loss as
set forth by accounting principles generally accepted in the
U.S., an estimate is made of the loss and the appropriate
accounting entries are reflected in our financial statements.
After consultation with legal counsel, we do not anticipate that
liabilities arising out of currently pending or threatened
lawsuits and claims, including the pending litigation described
in Part I, Item 3 Legal Proceedings,
will have a material adverse effect on our financial
position, results of operations or cash flows.
Contractual
Arrangements
Significant contractual obligations as of December 31, 2009
are as follows:
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Amount Due in
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Less than
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1 to 3
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3 to 5
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More than
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Type of Obligation
|
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Total
|
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1 Year
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Years
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Years
|
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5 Years
|
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(In thousands)
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Notes Payable(1)(2)
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$
|
43,105
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$
|
12,588
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|
|
$
|
30,517
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|
$
|
|
|
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$
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|
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Derivative liabilities(3)
|
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10,780
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|
|
|
6,189
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|
|
|
4,591
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|
|
|
|
|
|
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Lawsuit(4)
|
|
|
2,333
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|
|
|
2,333
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|
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Operating lease obligations
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1,089
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|
|
345
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713
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31
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Total
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$
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57,307
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$
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21,455
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$
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35,821
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$
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31
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$
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(1) |
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Amounts include both principal and related interest payments. |
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(2) |
|
In December 2004, we issued a $10.0 million convertible
note payable to Novartis (the Novartis Note). The
Novartis Note, as amended, bears interest at a rate of 3% prior
to December 1, 2006, 5% from December 1, 2006 through
December 1, 2008, and 7% from that point until maturity.
The Novartis Note was originally due December 1, 2009. On
November 27, 2009, Novartis agreed to extend the maturity
date of the Novartis Note to February 26, 2010.
Subsequently, on February 23, 2010, Novartis agreed to
further extend the maturity date of the Novartis Note to
May 26, 2010. Interest may be paid annually or accreted as
additional principal. The Novartis Note is convertible, at our
option, at any time prior to maturity into a number of shares of
our common stock equal to the principal and accrued and unpaid
interest thereon divided by the conversion price, which
conversion price is equal to the average of the highest bid and |
54
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lowest ask prices of our common stock as quoted on the
Over-The-Counter
Bulletin Board (OTCBB) averaged over a period
of twenty (20) days, consisting of the day on which the
conversion price is being determined and the nineteen
(19) consecutive business days prior to such day, provided
certain conditions contained in the Novartis Note are met. Those
conditions include that, at the time of such conversion, no
event of default under the Novartis Note has occurred and is
continuing and that there is either an effective registration
statement in effect covering the resale of the shares issued in
connection with such conversion or the shares may be resold by
Novartis pursuant to SEC Rule 144. Based on the price per
share of our common stock on December 31, 2009, the
Novartis Note was convertible into 14,944,980 shares of our
common stock, assuming Novartis does not exercise their right to
limit the number of shares issued to it upon conversion of the
Novartis Note such that the shares of common stock they receive
upon conversion do not exceed 19.9% of the total shares of our
common stock outstanding. At December 31, 2009, the balance
on the Novartis Note was approximately $12.6 million. |
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We have outstanding $13.1 million in Convertible Notes
payable to MHR and its affiliates (MHR) due
September 2012 and convertible at the sole discretion of MHR
into shares of our common stock at a price of $3.78. Interest at
11% is payable in additional Convertible Notes rather than in
cash and we have the right to call the Convertible Notes after
September 10, 2010 if certain conditions are satisfied. The
Convertible Notes are subject to acceleration upon the
occurrence of certain events of default. |
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(3) |
|
We have issued warrants to purchase shares of our common stock
which contain provisions requiring us to make a cash payment to
the holders of the warrant for any gain that could have been
realized if the holders exercise the warrants and we
subsequently fail to deliver a certificate representing the
shares to be issued upon such exercise by the third trading day
after such warrants have been exercised. As a result, these
warrants have been recorded at their fair value and are
classified as current liabilities. The value and timing of the
actual cash payments, if any, related to these derivative
instruments could differ materially from the amounts and periods
shown. |
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(4) |
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In April 2005, the Company entered into an amended and restated
employment agreement with its then Chief Executive Officer,
Dr. Michael M. Goldberg, for services through July 31,
2007. On January 16, 2007, the Board of Directors
terminated Dr. Goldbergs services. On April 26,
2007, the Board of Directors held a special hearing at which it
determined that Dr. Goldbergs termination was for
cause. On March 22, 2007, Dr. Goldberg, through his
counsel, filed a demand for arbitration asserting that his
termination was without cause and seeking $1,048,000 plus
attorneys fees, interest, arbitration costs and other
relief alleged to be owed to him in connection with his
employment agreement with the Company. During the arbitration,
Dr. Goldberg sought a total damage amount of at least
$9,223,646 plus interest. On February 11, 2010, the
arbitrator issued the final award in favor of Dr. Goldberg
for a total amount of approximately $2,333,115 as full and final
payment for all claims, defenses, counterclaims, and related
matters. As a result of the February 11, 2010 final award,
the Company adjusted its estimate of costs to settle this matter
to $2,333,115. If the awards are upheld and confirmed in court,
the Company will be required to pay the final amount due to
Dr. Goldberg. |
On April 6, 2007, the Board of Directors appointed Michael
V. Novinski to the position of President and Chief Executive
Officer. Pursuant to his appointment, the Company has entered
into a three year employment agreement with Mr. Novinski.
If Mr. Novinskis contract is terminated without cause
or at any time by the executive for good reason as defined in
his contract, we are obligated to make severance payments to
Mr. Novinski.
55
|
|
ITEM 7A.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
Fair Value of Warrants and Derivative
Liabilities. At December 31, 2009, the value
of derivative instruments was $10.8 million. We estimate
the fair values of these instruments using the Black-Scholes
option pricing model which takes into account a variety of
factors, including historical stock price volatility, risk-free
interest rates, remaining term and the closing price of our
common stock. We are required to revalue this liability each
quarter. We believe that the assumption that has the greatest
impact on the determination of fair value is the closing price
of our common stock. The following table illustrates the
potential effect on the fair value of derivative instruments
from changes in the assumptions made:
|
|
|
|
|
|
|
Increase/(Decrease)
|
|
|
(In thousands)
|
|
25% increase in stock price
|
|
$
|
1,974
|
|
50% increase in stock price
|
|
|
4,060
|
|
5% increase in assumed volatility
|
|
|
299
|
|
25% decrease in stock price
|
|
|
(1,828
|
)
|
50% decrease in stock price
|
|
|
(3,448
|
)
|
5% decrease in assumed volatility
|
|
|
(304
|
)
|
56
|
|
ITEM 8.
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
|
EMISPHERE
TECHNOLOGIES, INC.
FINANCIAL
STATEMENTS
Index
|
|
|
|
|
|
|
Page
|
|
Emisphere Technologies, Inc.
|
|
|
|
|
|
|
|
58
|
|
|
|
|
59
|
|
|
|
|
60
|
|
|
|
|
61
|
|
|
|
|
62
|
|
|
|
|
63
|
|
|
|
|
64
|
|
57
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
Emisphere Technologies, Inc.
We have audited the accompanying balance sheet of Emisphere
Technologies, Inc. as of December 31, 2009, and the related
statements of operations, cash flows and stockholders
(deficit) equity for the year then ended. These financial
statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of Emisphere Technologies, Inc. as of December 31, 2009,
and the results of its operations and its cash flows for the
year then ended, in conformity with U.S. generally accepted
accounting principles.
The accompanying financial statements have been prepared
assuming that the Company will continue as a going concern. As
discussed in Note 1 to the financial statements, the
Company has suffered recurring losses from operations and its
total liabilities exceeds its total assets. This raises
substantial doubt about the Companys ability to continue
as a going concern. Managements plans in regard to these
matters are also described in Note 1. The financial
statements do not include any adjustments that might result from
the outcome of this uncertainty.
As discussed in Note 3 to the financial statements,
Emisphere Technologies, Inc. has changed its method of
accounting for derivative instruments as of January 1, 2009
due to the adoption of Financial Accounting Standards Board
Accounting Codification Topic
815-50-15,
Evaluating Whether an Instrument Involving a Contingency
is Considered Indexed to an Entitys Own Stock.
We were not engaged to examine managements assessment of
the effectiveness of Emisphere Technologies, Inc.s
internal control over financial reporting as of
December 31, 2009, included in the accompanying
Managements Report on Internal Control Over Financial
Reporting and, accordingly, we do not express an opinion thereon.
/s/ McGladrey
& Pullen, LLP
New York, New York
March 25, 2010
58
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Emisphere
Technologies, Inc.:
In our opinion, the balance sheet as of December 31, 2008
and the related statements of operations, of cash flows and of
stockholders (deficit) equity for each of the two years in
the period ended December 31, 2008 present fairly, in all
material respects, the financial position of Emisphere
Technologies, Inc. (the Company) at
December 31, 2008, and the results of its operations and
its cash flows for each of the two years in the period ended
December 31, 2008, in conformity with accounting principles
generally accepted in the United States of America. These
financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with the
standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant
estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
The financial statements referred to above have been prepared
assuming that the Company will continue as a going concern. As
discussed in Note 1 to the financial statements, the
Company has experienced recurring operating losses, has limited
capital resources and has significant future commitments that
raise substantial doubt about its ability to continue as a going
concern. Managements plans in regard to these matters are
also described in Note 1. The financial statements do not
include any adjustments that might result from the outcome of
this uncertainty.
/s/ PricewaterhouseCoopers
LLP
New York, New York
March 16, 2009
59
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands,
|
|
|
|
except share data)
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
3,566
|
|
|
$
|
7,214
|
|
Accounts receivable, net of allowance of $0 in 2009 and $9 in
2008
|
|
|
158
|
|
|
|
232
|
|
Inventories
|
|
|
20
|
|
|
|
|
|
Prepaid expenses and other current assets
|
|
|
369
|
|
|
|
273
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
4,113
|
|
|
|
7,719
|
|
Equipment and leasehold improvements, net
|
|
|
138
|
|
|
|
465
|
|
Restricted cash
|
|
|
259
|
|
|
|
255
|
|
Purchased technology, net
|
|
|
1,077
|
|
|
|
1,316
|
|
Deferred financing cost
|
|
|
346
|
|
|
|
421
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
5,933
|
|
|
$
|
10,176
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS DEFICIT
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Notes payable, including accrued interest and net of related
discount
|
|
$
|
12,588
|
|
|
$
|
12,011
|
|
Accounts payable and accrued expenses
|
|
|
4,975
|
|
|
|
2,361
|
|
Derivative instruments:
|
|
|
|
|
|
|
|
|
Related party
|
|
|
3,205
|
|
|
|
153
|
|
Others
|
|
|
2,984
|
|
|
|
114
|
|
Deferred revenue, current
|
|
|
|
|
|
|
87
|
|
Restructuring charge, current
|
|
|
750
|
|
|
|
927
|
|
Other current liabilities
|
|
|
52
|
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
24,554
|
|
|
|
15,673
|
|
Notes payable, including accrued interest and net of related
discount, related party
|
|
|
13,076
|
|
|
|
18,209
|
|
Derivative instrument, related party
|
|
|
4,591
|
|
|
|
|
|
Restructuring charge, non-current
|
|
|
|
|
|
|
1,953
|
|
Deferred revenue, non-current
|
|
|
11,494
|
|
|
|
11,240
|
|
Deferred lease liability and other liabilities, non current
|
|
|
82
|
|
|
|
129
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
53,797
|
|
|
|
47,204
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 16)
|
|
|
|
|
|
|
|
|
Stockholders deficit:
|
|
|
|
|
|
|
|
|
Preferred stock, $.01 par value; authorized
1,000,000 shares; issued and outstanding-none
|
|
|
|
|
|
|
|
|
Common stock, $.01 par value; authorized
100,000,000 shares; issued 42,360,133 shares
(42,070,401 outstanding) in 2009 and 30,630,810 shares
(30,341,078 outstanding) in 2008
|
|
|
424
|
|
|
|
306
|
|
Additional paid-in capital
|
|
|
392,335
|
|
|
|
400,306
|
|
Accumulated deficit
|
|
|
(436,671
|
)
|
|
|
(433,688
|
)
|
Common stock held in treasury, at cost; 289,732 shares
|
|
|
(3,952
|
)
|
|
|
(3,952
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders deficit
|
|
|
(47,864
|
)
|
|
|
(37,028
|
)
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders deficit
|
|
$
|
5,933
|
|
|
$
|
10,176
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the financial
statements
60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands, except share and per share data)
|
|
|
Revenue
|
|
$
|
92
|
|
|
$
|
251
|
|
|
$
|
4,077
|
|
Cost of goods sold
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
77
|
|
|
|
251
|
|
|
|
4,077
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs, expenses and income from settlement of lawsuit:
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
4,046
|
|
|
|
12,785
|
|
|
|
21,076
|
|
General and administrative
|
|
|
10,068
|
|
|
|
9,176
|
|
|
|
14,459
|
|
Loss (gain) on disposal of fixed assets
|
|
|
(789
|
)
|
|
|
(135
|
)
|
|
|
35
|
|
Restructuring charge
|
|
|
(356
|
)
|
|
|
3,831
|
|
|
|
|
|
Depreciation and amortization
|
|
|
367
|
|
|
|
914
|
|
|
|
1,048
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from settlement of lawsuit:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from settlement of lawsuit
|
|
|
|
|
|
|
|
|
|
|
(18,000
|
)
|
Expense from settlement of lawsuit
|
|
|
1,293
|
|
|
|
|
|
|
|
6,110
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Income) expense from settlement of lawsuit, net
|
|
|
1,293
|
|
|
|
|
|
|
|
(11,890
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs, expenses and income from settlement of lawsuit
|
|
|
14,629
|
|
|
|
26,571
|
|
|
|
24,728
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(14,552
|
)
|
|
|
(26,320
|
)
|
|
|
(20,651
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other non-operating income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale of patent
|
|
|
500
|
|
|
|
1,500
|
|
|
|
|
|
Sublease income
|
|
|
232
|
|
|
|
797
|
|
|
|
215
|
|
Investment and other income
|
|
|
131
|
|
|
|
371
|
|
|
|
1,066
|
|
Change in fair value of derivative instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Related party
|
|
|
(1,853
|
)
|
|
|
1,085
|
|
|
|
2,561
|
|
Others
|
|
|
(620
|
)
|
|
|
1,135
|
|
|
|
2,496
|
|
Interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Related party
|
|
|
(4,504
|
)
|
|
|
(2,428
|
)
|
|
|
(2,111
|
)
|
Others
|
|
|
(577
|
)
|
|
|
(528
|
)
|
|
|
(504
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense)
|
|
|
(6,691
|
)
|
|
|
1,932
|
|
|
|
3,723
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(21,243
|
)
|
|
$
|
(24,388
|
)
|
|
$
|
(16,928
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share, basic
|
|
$
|
(0.61
|
)
|
|
$
|
(0.80
|
)
|
|
$
|
(0.58
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share, diluted
|
|
$
|
(0.61
|
)
|
|
$
|
(0.80
|
)
|
|
$
|
(0.76
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding, basic
|
|
|
34,679,321
|
|
|
|
30,337,442
|
|
|
|
29,039,101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding, diluted
|
|
|
34,679,321
|
|
|
|
30,337,442
|
|
|
|
29,128,013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the financial
statements
61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(21,243
|
)
|
|
$
|
(24,388
|
)
|
|
$
|
(16,928
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
367
|
|
|
|
914
|
|
|
|
1,048
|
|
Non-cash interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Related party
|
|
|
4,504
|
|
|
|
2,428
|
|
|
|
2,111
|
|
Others
|
|
|
577
|
|
|
|
528
|
|
|
|
504
|
|
Changes in the fair value of derivative instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Related party
|
|
|
1,853
|
|
|
|
(1,085
|
)
|
|
|
(2,561
|
)
|
Others
|
|
|
620
|
|
|
|
(1,135
|
)
|
|
|
(2,496
|
)
|
Non-cash restructuring charge
|
|
|
|
|
|
|
1,040
|
|
|
|
|
|
Non-cash compensation
|
|
|
1,587
|
|
|
|
1,011
|
|
|
|
3,068
|
|
Loss (gain) on disposal of fixed assets
|
|
|
(789
|
)
|
|
|
(135
|
)
|
|
|
35
|
|
Impairment of intangible and fixed assets and other
|
|
|
|
|
|
|
|
|
|
|
86
|
|
Changes in assets and liabilities excluding non-cash charges:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Increase) decrease in accounts receivable
|
|
|
73
|
|
|
|
60
|
|
|
|
(76
|
)
|
(Increase) decrease in inventories
|
|
|
(20
|
)
|
|
|
|
|
|
|
|
|
(Increase) decrease in prepaid expenses and other current assets
|
|
|
(95
|
)
|
|
|
710
|
|
|
|
400
|
|
Increase (decrease) in accounts payable, accrued expenses and
other
|
|
|
2,613
|
|
|
|
(513
|
)
|
|
|
225
|
|
Increase (decrease) in deferred revenue
|
|
|
166
|
|
|
|
11,254
|
|
|
|
43
|
|
Increase (decrease) in deferred lease and other liabilities
|
|
|
(14
|
)
|
|
|
(253
|
)
|
|
|
137
|
|
Restructuring charge
|
|
|
(2,130
|
)
|
|
|
2,880
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total adjustments
|
|
|
9,312
|
|
|
|
17,704
|
|
|
|
2,524
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(11,931
|
)
|
|
|
(6,684
|
)
|
|
|
(14,404
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sale and maturity of investments
|
|
|
|
|
|
|
9,927
|
|
|
|
15,650
|
|
Purchases investments and short term instruments
|
|
|
|
|
|
|
|
|
|
|
(12,084
|
)
|
Equipment purchases
|
|
|
|
|
|
|
(109
|
)
|
|
|
(293
|
)
|
(Increase) decrease in restricted cash
|
|
|
(4
|
)
|
|
|
(9
|
)
|
|
|
(246
|
)
|
Proceeds from sale of fixed assets
|
|
|
989
|
|
|
|
138
|
|
|
|
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by investing activities
|
|
|
985
|
|
|
|
9,947
|
|
|
|
3,055
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from exercise of stock options and warrants
|
|
|
|
|
|
|
13
|
|
|
|
346
|
|
Net proceeds from issuance of common stock and warrants
|
|
|
7,298
|
|
|
|
|
|
|
|
5,954
|
|
Proceeds from issuance of warrants
|
|
|
|
|
|
|
|
|
|
|
952
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
7,298
|
|
|
|
13
|
|
|
|
7,252
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) cash and cash equivalents
|
|
|
(3,648
|
)
|
|
|
3,276
|
|
|
|
(4,097
|
)
|
Cash and cash equivalents, beginning of year
|
|
|
7,214
|
|
|
|
3,938
|
|
|
|
8,035
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year
|
|
$
|
3,566
|
|
|
$
|
7,214
|
|
|
$
|
3,938
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of stock options to consultants
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(6
|
)
|
The accompanying notes are an integral part of the financial
statements
62
EMISPHERE
TECHNOLOGIES, INC.
For the
years ended December 31, 2009, 2008 and 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Comprehensive
|
|
|
Common Stock
|
|
|
|
|
|
|
Common Stock
|
|
|
Paid-in
|
|
|
Accumulated
|
|
|
(Loss)
|
|
|
Held in Treasury
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Income
|
|
|
Shares
|
|
|
Amount
|
|
|
Total
|
|
|
|
(In thousands, except share data)
|
|
|
Balance, December 31, 2006
|
|
|
28,528,677
|
|
|
$
|
285
|
|
|
$
|
389,935
|
|
|
$
|
(392,372
|
)
|
|
$
|
(2
|
)
|
|
|
289,732
|
|
|
$
|
(3,952
|
)
|
|
$
|
(6,106
|
)
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(16,928
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(16,928
|
)
|
Unrealized gain on investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(16,936
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity proceeds from issuance of common stock, net of share
issuance expenses
|
|
|
2,000,000
|
|
|
|
20
|
|
|
|
5,934
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,954
|
|
Sale of common stock under employee stock purchase plans and
exercise of options
|
|
|
82,023
|
|
|
|
1
|
|
|
|
345
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
346
|
|
Stock based compensation expense for employees
|
|
|
|
|
|
|
|
|
|
|
3,014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,014
|
|
Stock based compensation expense for directors
|
|
|
15,960
|
|
|
|
|
|
|
|
60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60
|
|
Issuance of stock options for consulting services
|
|
|
|
|
|
|
|
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2007
|
|
|
30,626,660
|
|
|
|
306
|
|
|
|
399,282
|
|
|
|
(409,300
|
)
|
|
|
(10
|
)
|
|
|
289,732
|
|
|
|
(3,952
|
)
|
|
|
(13,674
|
)
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(24,388
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(24,388
|
)
|
Unrealized loss on investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(24,378
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale of common stock under exercise of options
|
|
|
4,150
|
|
|
|
|
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13
|
|
Stock based compensation expense for employees
|
|
|
|
|
|
|
|
|
|
|
1,011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2008
|
|
|
30,630,810
|
|
|
|
306
|
|
|
|
400,306
|
|
|
|
(433,688
|
)
|
|
|
|
|
|
|
289,732
|
|
|
|
(3,952
|
)
|
|
|
(37,028
|
)
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(21,243
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(21,243
|
)
|
Cumulative effect of change in accounting principle
implementation of ASC
815-40-15-5
|
|
|
|
|
|
|
|
|
|
|
(12,215
|
)
|
|
|
18,260
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,045
|
|
Equity proceeds from issuance of common stock, net of share
issuance expenses
|
|
|
11,729,323
|
|
|
|
118
|
|
|
|
2,657
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,775
|
|
Stock based compensation expense for employees
|
|
|
|
|
|
|
|
|
|
|
1,532
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,532
|
|
Stock based compensation expense for directors
|
|
|
|
|
|
|
|
|
|
|
55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2009
|
|
|
42,360,133
|
|
|
$
|
424
|
|
|
$
|
392,335
|
|
|
$
|
(436,671
|
)
|
|
|
|
|
|
|
289,732
|
|
|
$
|
(3,952
|
)
|
|
$
|
(47,864
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the financial
statements
63
EMISPHERE
TECHNOLOGIES, INC.
|
|
1.
|
Nature of
Operations, Risks and Uncertainties and Liquidity
|
Nature of Operations. Emisphere Technologies,
Inc. (Emisphere, our, us,
the company or we) is a
biopharmaceutical company that focuses on our improved delivery
of therapeutic molecules and pharmaceutical compounds using its
Eligen®
Technology. These molecules and compounds could be currently
available or are in pre-clinical or clinical development.
Our core business strategy is to develop oral forms of drugs
that are not currently available or have poor bioavailability in
oral form, either alone or with corporate partners, by applying
the
Eligen®
Technology to those drugs. Typically, the drugs that we target
have received regulatory approval, have demonstrated safety and
efficacy, and are currently available on the market. In November
2009 the Company launched its first commercially available
product, oral
Eligen®
B12 (100 mcg), which had been specifically developed to help
improve Vitamin B12 absorption and bioavailability with a
patented formulation, in partnership with Life
Extension®.
Risks and Uncertainties. We have no
prescription products currently approved for sale by the
U.S. FDA. Our oral
Eligen®
Vitamin B12 products may not achieve anticipated sales targets.
There can be no assurance that our research and development will
be successfully completed, that any products developed will
obtain necessary government regulatory approval or that any
approved products will be commercially viable. In addition, we
operate in an environment of rapid change in technology and are
dependent upon the continued services of our current employees,
consultants and subcontractors.
Liquidity. As of December 31, 2009, we
had approximately $3.8 million in cash and restricted cash,
approximately $20.4 million in working capital deficiency,
a stockholders deficit of approximately $47.9 million
and an accumulated deficit of approximately $436.7 million.
Our net loss and operating loss for the year ended
December 31, 2009 was approximately $21.2 million and
$14.6 million, respectively. Since our inception in 1986,
we have generated significant losses from operations. However,
during 2009 we introduced our first commercial product and
anticipate introducing our second commercial product during
2010. Although we cannot assure the commercial success of these
products, at some point in the future, potential combined sales
or partnerships may generate sufficient net proceeds to offset a
part of continuing losses from operations for the foreseeable
future. However, until those potential net proceeds are
realized, we anticipate that we will continue to generate
significant losses from operations for the foreseeable future,
and that our business will require substantial additional
investment that we have not yet secured. As such, we anticipate
that our existing cash resources will enable us to continue
operations only through approximately June 2010 or earlier if
unforeseen events arise that negatively affect our liquidity.
Further, we have significant future commitments and obligations.
These conditions raise substantial doubt about our ability to
continue as a going concern.
Our plan is to raise capital when needed
and/or to
pursue product partnering opportunities. We expect to continue
to spend substantial amounts on research and development,
including amounts spent on conducting clinical trials for our
product candidates. Expenses will be partially offset with
income-generating license agreements, if possible. Further, we
will not have sufficient resources to develop fully any new
products or technologies unless we are able to raise substantial
additional financing on acceptable terms or secure funds from
new or existing partners. We cannot assure that financing will
be available when needed, or on favorable terms or at all. If
additional capital is raised through the sale of equity or
convertible debt securities, the issuance of such securities
would result in dilution to our existing stockholders. Our
failure to raise capital before June 2010 will adversely affect
our business, financial condition and results of operations, and
could force us to reduce or cease our operations. No adjustment
has been made in the accompanying financial statements to the
carrying amount and classification of recorded assets and
liabilities should we be unable to continue operations.
64
EMISPHERE
TECHNOLOGIES, INC.
NOTES TO
THE FINANCIAL STATEMENTS (Continued)
|
|
2.
|
Summary
of Significant Accounting Policies
|
Use of Estimates. The preparation of financial
statements in accordance with accounting principles generally
accepted in the U.S. involves the use of estimates and
assumptions that affect the recorded amounts of assets and
liabilities as of the date of the financial statements and the
reported amounts of revenue and expenses and performance period
for revenue recognition. Actual results may differ substantially
from these estimates. Significant estimates include the fair
value and recoverability of the carrying value of purchased
technology, recognition of on-going clinical trial costs,
estimated costs to complete research collaboration projects,
accrued expenses, the variables and method used to calculate
stock-based compensation, derivative instruments and deferred
taxes.
Concentration of Credit Risk. Financial
instruments, which potentially subject us to concentrations of
credit risk, consist of cash, cash equivalents, restricted cash
and investments. We invest excess funds in accordance with a
policy objective seeking to preserve both liquidity and safety
of principal. We generally invest our excess funds in
obligations of the U.S. government and its agencies, bank
deposits, money market funds, and investment grade debt
securities issued by corporations and financial institutions. We
hold no collateral for these financial instruments.
Cash, Cash Equivalents, and Investments. We
consider all highly liquid, interest-bearing instruments with
original maturity of three months or less when purchased to be
cash equivalents. Cash and cash equivalents may include demand
deposits held in banks and interest bearing money market funds.
Our investment policy requires that commercial paper be rated
A-1,
P-1 or
better by either Standard and Poors Corporation or
Moodys Investor Services or another nationally recognized
agency and that securities of issuers with a long-term credit
rating must be rated at least A (or equivalent). As
of December 31, 2009 we held no investments.
Inventory. Inventories are stated at the lower
of cost or market determined by the first in, first out method.
Equipment and Leasehold
Improvements. Equipment and leasehold
improvements are stated at cost. Depreciation and amortization
are provided on a straight-line basis over the estimated useful
life of the asset. Leasehold improvements are amortized over the
term of the lease or useful life of the improvements, whichever
is shorter. Expenditures for maintenance and repairs that do not
materially extend the useful lives of the respective assets are
charged to expense as incurred. The cost and accumulated
depreciation or amortization of assets retired or sold are
removed from the respective accounts and any gain or loss is
recognized in operations.
Purchased Technology. Purchased technology
represents the value assigned to patents and the right to use,
sell or license certain technology in conjunction with our
proprietary carrier technology that were acquired from Ebbisham
Ltd. These assets are utilized in various research and
development projects. Such purchased technology is being
amortized over 15 years, until 2014, which represents the
average life of the patents acquired.
Impairment of Long-Lived Assets. In accordance
with FASB ASC
360-10-35,
we review our long-lived assets including purchased technology,
for impairment whenever events and circumstances indicate that
the carrying value of an asset might not be recoverable. An
impairment loss, measured as the amount by which the carrying
value exceeds the fair value, is recognized if the carrying
amount exceeds estimated undiscounted future cash flows.
Deferred Lease Liability. Our leases provide
for rental holidays and escalations of the minimum rent during
the lease term, as well as additional rent based upon increases
in real estate taxes and common maintenance charges. We record
rent expense from leases with rental holidays and escalations
using the straight-line method, thereby prorating the total
rental commitment over the term of the lease. Under this
65
EMISPHERE
TECHNOLOGIES, INC.
NOTES TO
THE FINANCIAL STATEMENTS (Continued)
method, the deferred lease liability represents the difference
between the minimum cash rental payments and the rent expense
computed on a straight-line basis.
Revenue Recognition. We recognize revenue in
accordance with FASB ASC
605-10-S99 ,
Revenue Recognition. Revenue includes amounts
earned from sales of our oral
Eligen®
B12 product to Life
Extension®,
collaborative agreements and feasibility studies. Revenue earned
from the sale of oral
Eligen®
B12 is recognized when products are shipped to Life
Extension®.
Revenue earned from collaborative agreements and feasibility
studies is comprised of reimbursed research and development
costs, as well as upfront and research and development milestone
payments. Deferred revenue represents payments received which
are related to future performance. Revenue from feasibility
studies, which are typically short term in nature, is recognized
upon delivery of the study, provided that all other revenue
recognition criteria are met.
Revenue from collaboration agreements are recognized using the
proportional performance method provided that we can reasonably
estimate the level of effort required to complete our
performance obligations under an arrangement and such
performance obligations are provided on a best effort basis and
based on expected payments. Under the proportional
performance method, periodic revenue related to nonrefundable
cash payments is recognized as the percentage of actual effort
expended to date as of that period to the total effort expected
for all of our performance obligations under the arrangement.
Actual effort is generally determined based upon actual hours
incurred and include research and development
(R&D) activities performed by us and time spent
for joint steering committee (JSC) activities. Total
expected effort is generally based upon the total R&D and
JSC hours incorporated into the project plan that is agreed to
by both parties to the collaboration. Significant management
judgments and estimates are required in determining the level of
effort required under an arrangement and the period over which
we expect to complete the related performance obligations.
Estimates of the total expected effort included in each project
plan are based on historical experience of similar efforts and
expectations based on the knowledge of scientists for both the
Company and its collaboration partners. The Company periodically
reviews and updates the project plan for each collaborative
agreement; the most recent reviews took place in January 2010.
In the event that a change in estimate occurs, the change will
be accounted for using the cumulative
catch-up
method which provides for an adjustment to revenue in the
current period. Estimates of our level of effort may change in
the future, resulting in a material change in the amount of
revenue recognized in future periods.
Generally under collaboration arrangements, nonrefundable
payments received during the period of performance may include
time- or performance-based milestones. The proportion of actual
performance to total expected performance is applied to the
expected payments in determining periodic revenue.
However, revenue is limited to the sum of (i.) the amount of
nonrefundable cash payments received and (ii.) the payments that
are contractually due but have not yet been paid.
Research and Development and Clinical Trial
Expenses. Research and development expenses
include costs directly attributable to the conduct of research
and development programs, including the cost of salaries,
payroll taxes, employee benefits, materials, supplies,
maintenance of research equipment, costs related to research
collaboration and licensing agreements, the cost of services
provided by outside contractors, including services related to
our clinical trials, clinical trial expenses, the full cost of
manufacturing drug for use in research, pre-clinical
development, and clinical trials. All costs associated with
research and development are expensed as incurred.
Clinical research expenses represent obligations resulting from
our contracts with various research organizations in connection
with conducting clinical trials for our product candidates. We
account for those expenses on an accrual basis according to the
progress of the trial as measured by patient enrollment and the
timing of the various aspects of the trial. Accruals are
recorded in accordance with the following methodology:
(i) the costs for period expenses, such as investigator
meetings and initial
start-up
costs, are expensed as incurred based on managements
estimates, which are impacted by any change in the number of
sites, number of patients and patient start dates;
(ii) direct service costs, which are primarily ongoing
monitoring costs, are
66
EMISPHERE
TECHNOLOGIES, INC.
NOTES TO
THE FINANCIAL STATEMENTS (Continued)
recognized on a straight-line basis over the life of the
contract; and (iii) principal investigator expenses that
are directly associated with recruitment are recognized based on
actual patient recruitment. All changes to the contract amounts
due to change orders are analyzed and recognized in accordance
with the above methodology. Change orders are triggered by
changes in the scope, time to completion and the number of
sites. During the course of a trial, we adjust our rate of
clinical expense recognition if actual results differ from our
estimates.
Income Taxes. Deferred tax liabilities and
assets are recognized for the expected future tax consequences
of events that have been included in the financial statements or
tax returns. These liabilities and assets are determined based
on differences between the financial reporting and tax basis of
assets and liabilities measured using the enacted tax rates and
laws that will be in effect when the differences are expected to
reverse. A valuation allowance is recognized to reduce deferred
tax assets to the amount that is more likely than not to be
realized. In assessing the likelihood of realization, management
considered estimates of future taxable income.
Effective January 1, 2007, the Company adopted the
provisions of FASB ASC
740-10-05
Income Taxes. The implementation had no impact on the
Companys financial statements as the Company has not
recognized any uncertain income tax positions.
Stock-Based Employee Compensation. We
recognize expense for our share-based compensation based on the
fair value of the awards at the time they are granted. We
estimate the value of stock option awards on the date of grant
using the Black-Scholes-Merton option-pricing model (the
Black-Scholes model). The determination of the fair
value of share-based payment awards on the date of grant is
affected by our stock price as well as assumptions regarding a
number of complex and subjective variables. These variables
include our expected stock price volatility over the term of the
awards, expected term, risk-free interest rate, expected
dividends and expected forfeiture rates. The forfeiture rate is
estimated using historical option cancellation information,
adjusted for anticipated changes in expected exercise and
employment termination behavior. Our outstanding awards do not
contain market or performance conditions therefore we have
elected to recognize share-based employee compensation expense
on a straight-line basis over the requisite service period.
Fair Value of Financial Instruments. The
carrying amounts for cash, cash equivalents, accounts payable,
and accrued expenses approximate fair value because of their
short-term nature. We have determined that it is not practical
to estimate the fair value of our notes payable because of their
unique nature and the costs that would be incurred to obtain an
independent valuation. We do not have comparable outstanding
debt on which to base an estimated current borrowing rate or
other discount rate for purposes of estimating the fair value of
the notes payable and we have not yet obtained or developed a
valuation model. Additionally, we are engaged in research and
development activities and have not yet developed products for
sale. Accordingly, at this stage of our development, a credit
risk assessment is highly judgmental. These factors all
contribute to the impracticability of estimating the fair value
of the notes payable. At December 31, 2009, the carrying
value of the notes payable and accrued interest was
$25.7 million. The MHR Convertible Notes, which are due on
September 26, 2012, yield an effective interest rate of
14.2%. The Novartis Note was originally due December 1,
2009. On November 27, 2009, Novartis agreed to extend the
maturity date of the Novartis Note to February 26, 2010.
Subsequently, on February 23, 2010, Novartis agreed to
further extend the maturity date of the Novartis Note to
May 26, 2010. See Note 8 for further discussion of the
notes payable.
Derivative Instruments. Derivative instruments
consist of common stock warrants, and certain instruments
embedded in the certain Notes payable and related agreements.
These financial instruments are recorded in the balance sheets
at fair value as liabilities. Changes in fair value are
recognized in earnings in the period of change.
Effective January 1, 2009, the Company adopted the
provisions of the Financial Accounting Standards Board
Accounting Codification Topic
815-40-15-5,
Evaluating Whether an Instrument Involving a
Contingency is Considered Indexed to an Entitys Own
Stock (FASB ASC
815-40-15-5).
FASB ASC
815-40-15-5
67
EMISPHERE
TECHNOLOGIES, INC.
NOTES TO
THE FINANCIAL STATEMENTS (Continued)
provides guidance in assessing whether an equity-linked
financial instrument (or embedded feature) is indexed to an
entitys own stock for purposes of determining whether the
equity linked instrument (or embedded feature) qualifies as a
derivative instrument. We have determined that our MHR
convertible notes and certain of our warrants contain features
that that are not indexed to our own stock and therefore, were
classified as a derivative instrument. Upon adoption, we
recognized and recorded a cumulative effect of a change in
accounting principle of $18.3 million. The cumulative
adjustment included a decrease in Notes payable of approximately
$9.6 million, an increase in Derivative instruments of
approximately $3.5 million and the balance was a reduction
in Stockholders Deficit.
For comparability purposes, the following table sets forth the
effects of the adoption of FASB ASC
815-40-15-5
on net loss and loss per share for the years ended
December 31, 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As Reported
|
|
|
Pro Forma (unaudited)
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands, except per share amounts)
|
|
|
(In thousands, except per share amounts)
|
|
|
Net loss
|
|
$
|
(24,388
|
)
|
|
$
|
(16,928
|
)
|
|
$
|
(20,135
|
)
|
|
$
|
(6,766
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share, basic
|
|
$
|
(0.80
|
)
|
|
$
|
(0.58
|
)
|
|
$
|
(0.66
|
)
|
|
$
|
(0.23
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share, dilutive
|
|
$
|
(0.80
|
)
|
|
$
|
(0.76
|
)
|
|
$
|
(0.66
|
)
|
|
$
|
(0.41
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Loss. Comprehensive loss
represents the change in net assets of a business enterprise
during a period from transactions and other events and
circumstances from non-owner sources. Comprehensive loss
includes net loss adjusted for the change in net unrealized gain
or loss on marketable securities. The disclosures required by
FASB ASC
220-10-45,
Reporting Comprehensive Income for the years
ended December 31, 2009, 2008 and 2007 have been included
in the statements of stockholders equity (deficit).
Exit activities. We have adopted FASB ASC
420-10-05,
Exit or Disposal Cost Obligations. This
Standard addresses financial accounting and reporting for costs
associated with exit or disposal activities. This Standard
requires that a liability for a cost associated with an exit or
disposal activity be recognized when the liability is incurred.
This Standard also establishes that fair value is the objective
for initial measurement of the liability. This Standard
specifies that a liability for a cost associated with an exit or
disposal activity is incurred when the definition of a liability
is met, and that fair value is the measurement at the exit,
disposal or cease use date.
Fair Value Measurements. The authoritative
guidance for fair value measurements defines fair value as the
exchange price that would be received an asset or paid to
transfer a liability (an exit price) in the principal or the
most advantageous market for the asset or liability in an
orderly transaction between market participants on the
measurement date. Market participants are buyers and sellers in
the principal market that are (i) independent,
(ii) knowledgeable, (iii) able to transact, and
(iv) willing to transact. The guidance describes a fair
value hierarchy based on the levels of inputs, of which the
first two are considered observable and the last unobservable,
that may be used to measure fair value which are the following:
|
|
|
|
|
Level 1 Quoted prices in active markets for
identical assets or liabilities
|
|
|
|
Level 2 Inputs other than Level 1 that are
observable, either directly or indirectly, such as quoted prices
for similar assets or liabilities; quoted prices in markets that
are not active; or other inputs that are observable or
corroborated by observable market data or substantially the full
term of the assets or liabilities
|
|
|
|
Level 3 Unobservable inputs that are supported
by little or no market activity and that are significant to the
value of the assets or liabilities
|
68
EMISPHERE
TECHNOLOGIES, INC.
NOTES TO
THE FINANCIAL STATEMENTS (Continued)
Future
Impact of Recently Issued Accounting Standards
In October 2009, the FASB issued ASU
2009-13,
Multiple-Deliverable Revenue Arrangements, (amendments to
FASB ASC Topic 605, Revenue Recognition ) (ASU
2009-13).
ASU 2009-13
requires entities to allocate revenue in an arrangement using
estimated selling prices of the delivered goods and services
based on a selling price hierarchy. The amendments eliminate the
residual method of revenue allocation and require revenue to be
allocated using the relative selling price method. ASU
2009-13
should be applied on a prospective basis for revenue
arrangements entered into or materially modified in fiscal years
beginning on or after June 15, 2010, with early adoption
permitted. The Company does not expect adoption of ASU
2009-13 to
have a material impact on the Companys results of
operations or financial condition.
In October, 2009, the FASB issued ASU
2009-15,
Accounting for Own-Share Lending Arrangements in
Contemplation of Convertible Debt Issuance or Other
Financing, (ASU-2009-15), which provides
guidance for accounting and reporting for own-share lending
arrangements issued in contemplation of a convertible debt
issuance. At the date of issuance, a share-lending arrangement
entered into on an entitys own shares should be measured
at fair value in accordance with Topic 820 and recognized as an
issuance cost, with an offset to additional paid-in capital.
Loaned shares are excluded from basic and diluted earnings per
share unless default of the share-lending arrangement occurs.
The amendments also require several disclosures including a
description and the terms of the arrangement and the reason for
entering into the arrangement. The effective dates of the
amendments are dependent upon the date the share-lending
arrangement was entered into and include retrospective
application for arrangements outstanding as of the beginning of
fiscal years beginning on or after December 15, 2009.
Management is currently evaluating the potential impact of ASU
2009-15 on
our financial statements.
In January 2010, the FASB issued ASU
2010-06,
Improving Disclosures about Fair Value Measurements. ASU
2010-06
amends ASC 820 to require a number of additional disclosures
regarding fair value measurements. The amended guidance requires
entities to disclose the amounts of significant transfers
between Level 1 and Level 2 of the fair value
hierarchy and the reasons for these transfers, the reasons for
any transfers in or out of Level 3, and information in the
reconciliation of recurring Level 3 measurements about
purchases, sales, issuances and settlements on a gross basis.
The ASU also clarifies the requirements for entities to disclose
information about both the valuation techniques and inputs used
in estimating Level 2 and Level 3 fair value
measurements. The amended guidance is effective for interim and
annual financial periods beginning after December 15, 2009.
ASU 2010-06
is not expected to have a significant effect on the
Companys financial statements.
Management does not believe that any other recently issued, but
not yet effective, accounting standards if currently adopted
would have a material effect on the accompanying financial
statements.
Inventories consist of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Work in process
|
|
$
|
5
|
|
|
$
|
|
|
Finished goods
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
20
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
69
EMISPHERE
TECHNOLOGIES, INC.
NOTES TO
THE FINANCIAL STATEMENTS (Continued)
|
|
4.
|
Prepaid
Expenses and Other Current Assets
|
Prepaid expenses and other current assets consist of the
following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Prepaid corporate insurance
|
|
$
|
44
|
|
|
$
|
50
|
|
Deposit on inventory
|
|
|
215
|
|
|
|
|
|
Prepaid expenses and other current assets
|
|
|
110
|
|
|
|
223
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
369
|
|
|
$
|
273
|
|
|
|
|
|
|
|
|
|
|
Tarrytown Facility. On December 8, 2008,
we decided to close our research and development facilities in
Tarrytown, NY to reduce costs and improve operating efficiency.
As of December 8, 2008 we ceased using approximately 85% of
the facilities which resulted in a restructuring charge of
approximately $3.8 million in the fourth quarter, 2008. As
a result, the Company wrote down the value of approximately
$1.0 million (net) in leasehold improvements related to the
Tarrytown facility no longer in use as of December 31,
2008. In addition, the useful lives of approximately
$0.2 million in leasehold improvements were shortened
because we ceased using the facilities on January 29, 2009
resulting in an accelerated charge to amortization expense for
2008 of approximately $0.1 million. Please refer to
Footnote 16 Commitments and Contingencies for more
information on this subject.
Fixed Assets. Equipment and leasehold
improvements, net, consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
Useful Lives In Years
|
|
2009
|
|
|
2008
|
|
|
|
|
|
(In thousands)
|
|
|
Equipment
|
|
3-7
|
|
$
|
1,370
|
|
|
$
|
9,080
|
|
Leasehold improvements
|
|
Term of lease
|
|
|
61
|
|
|
|
3,013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,431
|
|
|
|
12,093
|
|
Less, accumulated depreciation and amortization
|
|
|
|
|
1,293
|
|
|
|
11,628
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
138
|
|
|
$
|
465
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense for the years ended December 31, 2009,
2008 and 2007, was $0.1 million, $0.7 million and
$0.8 million, respectively.
In 2009, in connection with the closure of our Tarrytown
facility we abandoned leasehold improvements with a historical
cost of $2.95 million and accumulated amortization of
$2.85 million. We also abandoned equipment with a
historical cost of $2.86 million and accumulated
depreciation of $2.84. Additionally, during 2009 we sold
equipment with a historical cost of $4.84 million and
accumulated depreciation of $4.76 million for
$0.99 million, The effect of these abandonments and sales
was a gain of $0.79 million.
70
EMISPHERE
TECHNOLOGIES, INC.
NOTES TO
THE FINANCIAL STATEMENTS (Continued)
The carrying value of the purchased technology is comprised as
follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Gross carrying amount
|
|
$
|
4,533
|
|
|
$
|
4,533
|
|
Less, accumulated amortization
|
|
|
3,456
|
|
|
|
3,217
|
|
|
|
|
|
|
|
|
|
|
Net book value
|
|
$
|
1,077
|
|
|
$
|
1,316
|
|
|
|
|
|
|
|
|
|
|
Annual amortization of purchased technology was
$0.2 million for 2009, 2008 and 2007 and is estimated to be
$0.2 million for the years ended 2010 through 2013 and
$0.1 million in 2014.
|
|
7.
|
Accounts
Payable and Accrued Expenses
|
Accounts payable and accrued expenses consist of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Accounts payable
|
|
$
|
1,979
|
|
|
$
|
1,539
|
|
Accrued cost of lawsuit
|
|
|
2,333
|
|
|
|
|
|
Accrued bonus
|
|
|
150
|
|
|
|
|
|
Accrued legal, professional fees and other
|
|
|
302
|
|
|
|
636
|
|
Accrued vacation
|
|
|
81
|
|
|
|
132
|
|
Clinical trial expenses and contract research
|
|
|
130
|
|
|
|
54
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,975
|
|
|
$
|
2,361
|
|
|
|
|
|
|
|
|
|
|
|
|
8.
|
Notes
Payable and Restructuring of Debt
|
Notes payable consist of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
MHR Note
|
|
$
|
13,076
|
|
|
$
|
18,209
|
|
Novartis Note
|
|
|
12,588
|
|
|
|
12,011
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
25,664
|
|
|
$
|
30,220
|
|
|
|
|
|
|
|
|
|
|
MHR Note. On September 26, 2005, we
received net proceeds of approximately $12.9 million under
a $15 million secured loan agreement (the Loan
Agreement) executed with MHR Institutional Partners IIA LP
(together with its affiliates, MHR). Under the Loan
Agreement, MHR requested, and on May 16, 2006, we effected,
the exchange of the loan from MHR for senior secured convertible
notes (the Convertible Notes) with substantially the
same terms as the Loan Agreement, except that the Convertible
Notes are convertible, at the sole discretion of MHR, into
shares of our common stock at a price per share of $3.78. At
December 31, 2009, the Convertible Notes were convertible
into 5,983,146 shares of our common stock. The Convertible
Notes are due on September 26, 2012, bear interest at 11%
and are collateralized by a first priority lien in favor of MHR
on substantially all of our assets. Interest is payable in the
form of additional Convertible Notes rather than in cash and we
have the right to call the Convertible Notes after
September 26, 2010 if certain conditions are satisfied.
71
EMISPHERE
TECHNOLOGIES, INC.
NOTES TO
THE FINANCIAL STATEMENTS (Continued)
In connection with the Loan Agreement, we amended MHRs
previously existing warrants to purchase 387,374 shares of
common stock (MHR 2005 Warrants) to provide
additional anti-dilution protection. We also granted MHR the
option (MHR Option) to purchase warrants for up to
617,211 shares of our common stock. The MHR Option was
exercised during April 2006 whereby MHR acquired 617,211
warrants (MHR 2006 Warrants) to acquire an equal
number of shares of common stock. The exercise price for the MHR
Option was $0.01 per warrant for the first 67,084 warrants and
$1.00 per warrant for each additional warrant. See Note 9
for a further discussion of the liability related to these
warrants.
Total issuance costs associated with the Loan Agreement were
$2.1 million, of which $1.9 million were allocated to
the MHR Note and $0.2 million were allocated to the related
derivative instruments. Of the $1.9 million allocated to
the MHR Note, $1.4 million represents reimbursement of
MHRs legal fees and $0.5 million represents our legal
and other transaction costs. The $1.4 million paid on
behalf of the lender has been recorded as a reduction of the
face value of the note, while the $0.5 million of our costs
has been recorded as deferred financing costs, which is included
in other assets on the balance sheet.
The Convertible Notes provide MHR with the right to require us
to redeem the Loan in the event of a change in control. The
change in control redemption feature has been determined to be
an embedded derivative instrument which must be separated from
the host contract. For the year ended December 31, 2006,
the fair value of the change in control redemption feature was
estimated using a combination of a put option model for the
penalties and the Black-Scholes option pricing model for the
conversion option that would exist under the Convertible Note.
The estimate resulted in a value that was de minimis and
therefore, no separate liability was recorded. Changes in the
assumptions used to estimate the fair value of this derivative
instrument, in particular the probability that a change in
control will occur, could result in a material change to the
fair value of the instrument. For the years ended
December 31, 2009, 2008 and 2007, management determined the
probability of exercise of the right due to change in control to
be remote. The fair value of the change in control redemption
feature is de minimis.
Effective January 1, 2009, the Company adopted the
provisions of the Financial Accounting Standards Board
Accounting Codification Topic
815-40-15-5,
Evaluating Whether an Instrument Involving a Contingency
is Considered Indexed to an Entitys Own Stock
(FASB ASC
815-40-15-5).
Under FASB ASC
815-40-15-5,
the conversion feature embedded in the MHR note has been
bifurcated from the host contract and accounted for separately
as a derivative. The bifurcation of the embedded derivative
increased the amount of debt discount thereby reducing the book
value of the MHR Note and increasing prospectively the amount of
interest expense to be recognized over the life of the MHR Note.
At December 31, 2009, the Convertible Notes were
convertible into 5,983,146 shares of our common stock.
The book value of the MHR Note is comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Face value of the note (including accrued interest)
|
|
$
|
22,616
|
|
|
$
|
20,270
|
|
Discount (related to the embedded conversion feature)
|
|
|
(793
|
)
|
|
|
|
|
Discount (related to the warrant purchase option)
|
|
|
(7,848
|
)
|
|
|
(966
|
)
|
Lenders financing costs
|
|
|
(899
|
)
|
|
|
(1,095
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
13,076
|
|
|
$
|
18,209
|
|
|
|
|
|
|
|
|
|
|
The debt discount, lenders financing costs, deferred financing
costs and amounts attributed to derivative instruments are being
amortized to interest expense over the life of the Convertible
Notes using an effective interest method to yield an effective
interest rate of 14.2%.
72
EMISPHERE
TECHNOLOGIES, INC.
NOTES TO
THE FINANCIAL STATEMENTS (Continued)
In connection with the MHR financing, the Company agreed to
appoint a representative of MHR (MHR Nominee) and
another person (the Mutual Director) to its Board of
Directors. Further, the Company agreed to amend, and in January
2006 did amend, its certificate of incorporation to provide for
continuity of the MHR Nominee and the Mutual Nominee on the
Board, as described therein, so long as MHR holds at least 2% of
the outstanding common stock of the Company.
The Convertible Notes provide for various events of default
including for failure to perfect any of the liens in favor of
MHR, failure to observe any covenant or agreement, failure to
maintain the listing and trading of our common stock, sale of a
substantial portion of our assets, merger with another entity
without the prior consent of MHR, or any governmental action
renders us unable to honor or perform our obligations under the
Loan Agreement or results in a material adverse effect on our
operations. If an event of default occurs, the Convertible Notes
provide for the immediate repayment and certain additional
amounts as set forth in the Convertible Notes. We have received
a waiver from MHR, through April 1, 2011 for certain
defaults under the agreement.
Novartis Note. On December 1, 2004 we
received $10.0 million in exchange for issuance of a
convertible note to Novartis (the Novartis Note) in
connection with a new research collaboration option relating to
the development of PTH-1-34. The Novartis Note is convertible,
at our option, at any time prior to maturity into a number of
shares of our common stock equal to the principal and accrued
and unpaid interest thereon divided by the conversion price,
which conversion price is equal to the average of the highest
bid and lowest ask prices of our common stock as quoted on the
Over-The-Counter
Bulletin Board (OTCBB) averaged over a period
of twenty (20) days, consisting of the day on which the
conversion price is being determined and the nineteen
(19) consecutive business days prior to such day, provided
certain conditions contained in the Novartis Note are met. Those
conditions include that, at the time of such conversion, no
event of default under the Novartis Note has occurred and is
continuing and that there is either an effective registration
statement in effect covering the resale of the shares issued in
connection with such conversion or the shares may be resold by
Novartis pursuant to SEC Rule 144. Based on the price per
share of our common stock on December 31, 2009, the
Novartis Note was convertible into 14,944,980 shares of our
common stock, assuming Novartis does not exercise their right to
limit the number of shares issued to it upon conversion of the
Novartis Note such that the shares of common stock they receive
upon conversion do not exceed 19.9% of the total shares of our
common stock outstanding.
The Novartis Note was originally due December 1, 2009. On
November 30, 2009, Novartis agreed to extend the maturity
date to February 26, 2010. On February 23, 2010,
Novartis agreed to extend the maturity date to May 26,
2010. The Company continues to accrue interest at 7%.
Until December 1, 2008, the Novartis Note initially accrued
interest at a rate of 3% -5%. From that date through maturity it
bears interest at a rate of 7%. We have the option to pay
interest in cash on a current basis or accrue the periodic
interest as an addition to the principal amount of the Novartis
Note. We are accruing interest which is being recorded using the
effective interest rate method, which results in an effective
interest rate of 4.6%.
The Novartis Note contains customary events of default including
our failure to timely cure a default in the payment of certain
other indebtedness, acceleration of certain indebtedness, we
become entitled to terminate the registration of our securities
or the filing of reports under the Securities Exchange Act of
1934, our common stock is no longer listed, we experience a
change of control (including by, among other things, a change in
the composition of a majority of our board (other than as
approved by the board) in any one-year period, a merger which
results in our stockholders holding shares that represent less
than a majority of the voting power of the merged entity, and
any other acquisition by a third party of shares that represent
a majority of the voting power of the company), we sell
substantially all of our assets, or we are effectively unable to
honor or perform our obligations under the new research
collaboration option relating to the development of PTH-1-34.
Upon the occurrence of an event of default prior to conversion,
any unpaid
73
EMISPHERE
TECHNOLOGIES, INC.
NOTES TO
THE FINANCIAL STATEMENTS (Continued)
principal and accrued interest on the Novartis Note would become
immediately due and payable. If the Novartis Note is converted
into our common stock, Novartis would have the right to require
us to repurchase the shares of common stock within six months
after an event of default under the Novartis Note, for an
aggregate purchase price equal to the principal and interest
that was converted, plus interest from the date of conversion,
as if no conversion had occurred.
For as long as any portion of the principal amount of this Note
or any accrued and unpaid interest thereon remains outstanding,
the Issuer shall not (i) pay any dividend or otherwise make
any distribution, directly or indirectly, in respect of any
shares of its capital stock, other than such dividends or
distributions payable solely in shares of its capital stock or
(ii) except to any employee or former employee of the
Issuer upon the death, disability or termination of such
employee pursuant any employee stock incentive plan of the
issuer or employment agreement with such employee of the Issuer,
in each case as in effect on the date hereof and in an aggregate
amount not to exceed $2.0 million , make any payment,
directly or indirectly, on account of the purchase, redemption,
retirement or acquisition of any shares of its capital stock, or
any option, warrant or other convertible or exchangeable
security or other right to acquire shares of its capital stock.
The scheduled repayments of all debt outstanding as of
December 31, 2009 are as follows:
|
|
|
|
|
|
|
Debt
|
|
|
|
(In thousands)
|
|
|
2010
|
|
$
|
12,588
|
|
2011
|
|
|
|
|
2012
|
|
|
22,616
|
|
|
|
|
|
|
|
|
$
|
35,204
|
|
|
|
|
|
|
Restructuring of Debt. Ebbisham was an Irish
corporation formed by Elan Corporation, plc (Elan)
and us to develop and market heparin products using technologies
contributed by both parties. In July 1999, we acquired from Elan
its ownership interest in Ebbisham in exchange for a seven year,
$20 million zero coupon note due July 2006 carrying a 15%
interest rate, compounding semi-annually (the Original
Elan Note), plus royalties on oral heparin product sales,
subject to an annual maximum and certain milestone payments. On
February 28, 2002 Ebbisham was voluntarily liquidated.
On December 27, 2004, we entered into a Security Purchase
Agreement with Elan, providing for our purchase of our
indebtedness to Elan under the Original Elan Note. The value of
the Original Elan Note plus accrued interest on
December 27, 2004 was $44.2 million. Pursuant to the
Security Purchase Agreement, we paid Elan $13 million and
issued to Elan 600,000 shares of our common stock with a
market value of $2 million. Also, we issued to Elan a new
zero coupon note with an issue price of $29.2 million (the
Modified Elan Note), representing the accrued value
of the Original Elan Note minus the sum of the cash payment and
the value of the 600,000 shares.
As of March 31, 2005, we issued to Elan a warrant to
purchase up to 600,000 shares of our common stock at an
exercise price of $3.88. The warrants provide for certain
anti-dilution protection. On April 1, 2005, we made a
$13 million payment to Elan, which completed the repurchase
of our indebtedness to Elan. This transaction was accounted for
as a troubled debt restructuring. The carrying amount of the
debt was reduced to an amount equal to the total cash payments,
or $13 million. The fair value of the warrant issued,
estimated using the Black-Scholes option pricing model, was
$1.6 million at the date of issuance. As such, a gain of
$14.7 million, calculated as the difference between the
carrying value of approximately $29 million and the fair
value of cash paid and warrants issued, was recognized in our
consolidated statement of operations for 2005. Under the
accounting for a restructuring of debt, no interest expense was
recorded during 2005. As of December 31, 2009 the 600,000
warrants remain outstanding and expire on September 30,
2010.
74
EMISPHERE
TECHNOLOGIES, INC.
NOTES TO
THE FINANCIAL STATEMENTS (Continued)
|
|
9.
|
Derivative
Instruments
|
Derivative instruments consist of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Elan warrant
|
|
$
|
394
|
|
|
$
|
|
|
MHR Convertible Note
|
|
|
4,591
|
|
|
|
|
|
March 2005 equity financing warrants
|
|
|
|
|
|
|
31
|
|
MHR 2006 warrants
|
|
|
213
|
|
|
|
115
|
|
August 2007 equity financing warrants
|
|
|
141
|
|
|
|
121
|
|
August 2009 equity financing warrants
|
|
|
5,092
|
|
|
|
|
|
August 2009 equity financing warrants to placement agent
|
|
|
349
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
10,780
|
|
|
$
|
267
|
|
|
|
|
|
|
|
|
|
|
Elan Warrant. In connection with a
restructuring of debt in March 2005, we issued to Elan a warrant
to purchase up to 600,000 shares of our common stock at an
exercise price of $3.88. The warrant provides for adjustment of
the exercise price upon the occurrence of certain events,
including the issuance by Emisphere of common stock or common
stock equivalents that have an effective price that is less than
the exercise price of the warrant. The anti-dilution feature of
the warrant was triggered in connection with the August 2007
financing, resulting in an adjustment to the exercise price to
$3.76. The anti-dilution feature of the warrant was triggered
again in connection with the August 2009 financing, resulting in
an adjustment to the exercise price to $0.4635. As of
December 31, 2009 the warrant remains outstanding and
expires on August 31, 2010. The Company adopted the
provisions of FASB ASC
815-40-15-5
effective January 1, 2009. Under FASB
ASC 815-40-15-5
the warrant is not considered indexed to the Companys own
stock and, therefore, does not meet the scope exception in FASB
ASC
815-10-15
and thus needs to be accounted for as a derivative liability.
The adoption of FASB ASC
815-40-15-5
requires recognition of the cumulative effect of a change in
accounting principle to the opening balance of our accumulated
deficit, additional paid in capital, and liability for
derivative financial instruments. The fair value of the warrant
is estimated at the end of each quarterly reporting period,
using the Black-Scholes option pricing model. The assumptions
used in computing the fair value as of December 31, 2009
are a closing stock price of $1.06, expected volatility of
111.43% over the remaining term of nine months and a risk-free
rate of 0.47%. The fair value of the warrant increased by
$0.3 million during the year ended December 31, 2009
which has been recognized in the accompanying statements of
operations. The warrants will be adjusted to estimated fair
value for each future period they remain outstanding.
Embedded Conversion Feature of MHR Convertible
Note. The Companys convertible notes due to
MHR contain a provision whereby, the conversion price is
adjustable upon the occurrence of certain events, including the
issuance by Emisphere of common stock or common stock
equivalents at a price which is lower than the current
conversion price of the convertible note and lower than the
current market price. However, the adjustment provision does not
become effective until after the Company raises $10 million
through the issuance of common stock or common stock equivalents
at a price which is lower than the current conversion price of
the convertible note and lower than the current market price
during any consecutive 24 month period. The Company adopted
the provisions of FASB ASC
815-40-15-5
effective January 1, 2009. Under FASB
ASC 815-40-15-5,
the embedded conversion feature is not considered indexed to the
Companys own stock and, therefore, does not meet the scope
exception in FASB ASC
815-10-15
and thus needs to be accounted for as a derivative liability.
The adoption of FASB ASC
815-40-15-5
requires recognition of the cumulative effect of a change in
accounting principle to the opening balance of our accumulated
deficit, additional paid in capital, and liability for
derivative financial instruments. The liability has been
presented as a non-current
75
EMISPHERE
TECHNOLOGIES, INC.
NOTES TO
THE FINANCIAL STATEMENTS (Continued)
liability to correspond with its host contract, the MHR
convertible note. The fair value of the embedded conversion
feature is estimated, at the end of each quarterly reporting
period, using the Black-Scholes option pricing model. The
assumptions used in computing the fair value as of
December 31, 2009 are a closing stock price of $1.06,
expected volatility of 103.09% over the remaining term of two
years and nine months and a risk-free rate of 1.70%. The fair
value of the embedded conversion feature increased by
$1.3 million during the year ended December 31, 2009
which has been recognized in the accompanying statements of
operations. The embedded conversion feature will be adjusted to
estimated fair value for each future period they remain
outstanding. See Note 8 for a further discussion of the MHR
Note.
March 2005 Equity Financing Warrants. In
connection with the March 2005 offering, Emisphere sold warrants
to purchase 1.5 million shares of common stock to MHR and
other unrelated investors. The warrants were originally issued
with an exercise price of $4.00 and expire on March 31,
2010. The warrants provide for certain anti-dilution protection
as provided therein. Warrants to purchase up to
1,010,631 shares of common stock provide that under no
circumstances will the adjusted exercise price be less than
$3.81. The remaining warrants do not limit adjustments to the
exercise price. The anti-dilution feature of the warrants was
triggered in connection with the August 2007 financing,
resulting in an increase to the warrant shares of 4,838, as well
as an adjustment to the exercise price. The anti-dilution
feature of was triggered again in connection with the August
2009 financing, resulting in an increase to the warrant shares
of 43,167 and a further adjustment to the exercise price. At
December 31, 2009, we have outstanding warrants to purchase
up to 1,398,005 shares of common stock. The adjusted
exercise price for 1,010,631 of the warrants is $3.81 and for
the 387,374 warrants held by MHR (MHR 2005 Warrants)
is $3.76. Under the terms of the warrants, we have an obligation
to make a cash payment to the holders of the warrants for any
gain that could have been realized if the holders exercise the
warrants and we subsequently fail to deliver a certificate
representing the shares to be issued upon such exercise by the
third trading day after such warrants have been exercised.
Accordingly, the warrants have been accounted for as a
liability. The fair value of the warrants is estimated, at the
end of each quarterly reporting period, using the Black-Scholes
option pricing model. The assumptions used in computing the fair
value as of December 31, 2009 are a closing stock price of
$1.06, expected volatility of 85.08% over the remaining term of
three months and a risk-free rate of 0.06%. The fair value of
the warrants decreased by $0.2 million and
$1.1 million and increased $3.0 million for the years
ended December 31, 2009, 2008 and 2007, respectively, and
the fluctuation has been recorded in the statement of operations.
MHR 2006 Warrants (MHR 2006
Warrants). In connection with the exercise in
April 2006 of the MHR Option discussed in Note 8 above, the
Company issued warrants for 617,211 shares to MHR for
proceeds of $0.6 million. The MHR 2006 Warrants have an
original exercise price of $4.00 and are exercisable through
September 26, 2011. The MHR 2006 Warrants have the same
terms as the August 2007 equity financing warrants (see below),
with no limit upon adjustments to the exercise price. The
anti-dilution feature of the MHR 2006 Warrants was triggered in
connection with the August 2007 equity financing, resulting in
an adjusted exercise price of $3.76. Based on the provisions of
FASB ASC 815, Derivatives and Hedging ,, the MHR
2006 Warrants have been determined to be an embedded derivative
instrument which must be separated from the host contract. The
MHR 2006 Warrants contain the same potential cash settlement
provisions as the August 2007 equity financing warrants and
therefore they have been accounted for as a separate liability.
The fair value of the warrants is estimated, at the end of each
quarterly period, using the Black-Scholes option pricing model.
The assumptions used in computing the fair value as of
December 31, 2009 are a closing stock price of $1.06,
expected volatility of 113.65% over the remaining term of one
year and nine months and a risk-free rate of 1.14%. The fair
value of the MHR 2006 Warrants increased by $0.1 million
for the year ended December 31, 2009 and decreased by
$0.7 million and $1.6 million for the years ended
December 31, 2008 and 2007, respectively. and the
fluctuation has been recorded in the statement of operations.
The MHR 2006 Warrants will be adjusted to estimated fair value
for each future period they remain outstanding.
August 2007 Equity Financing Warrants. In
connection with the August 2007 offering, Emisphere sold
warrants to purchase up to 400,000 shares of common stock.
Of these 400,000 warrants, 91,073 were sold to
76
EMISPHERE
TECHNOLOGIES, INC.
NOTES TO
THE FINANCIAL STATEMENTS (Continued)
MHR. Each of the warrants were issued with an exercise price of
$3.948 and expire on August 21, 2012. The warrants provide
for certain anti-dilution protection as provided therein. Under
the terms of the warrants, we have an obligation to make a cash
payment to the holders of the warrants for any gain that could
have been realized if the holders exercise the warrants and we
subsequently fail to deliver a certificate representing the
shares to be issued upon such exercise by the third trading day
after such warrants have been exercised. Accordingly, the
warrants have been accounted for as a liability. The fair value
of the warrants is estimated, at the end of each quarterly
reporting period, using the Black-Scholes option pricing model.
The warrants were accounted for with an initial value of
$1.0 million on August 22, 2007. The assumptions used
in computing the fair value as of December 31, 2009 are a
closing stock price of $1.06, expected volatility of 102.67%
over the remaining term of two years and eight months and a
risk-free rate of 1.7%.
The fair value of the warrants increased $0.02 million for
the year ended December 31, 2009 and decreased by
$0.4 million for the year ended December 31, 2008, and
decreased $0.5 million for the period between
August 22, 2007 and December 31, 2007 and the
fluctuations have been recorded in the statements of operations.
The warrants will be adjusted to estimated fair value for each
future period they remain outstanding.
August 2009 Equity Financing Investors
Warrants. In connection with the August 2009
offering, Emisphere sold warrants to purchase 6.4 million
shares of common stock to MHR (3.7 million) and other
unrelated investors (2.7 million). The warrants were issued
with an exercise price of $0.70 and expire on August 21,
2014. Under the terms of the warrants, we have an obligation to
make a cash payment to the holders of the warrants for any gain
that could have been realized if the holders exercise the
warrants and we subsequently fail to deliver a certificate
representing the shares to be issued upon such exercise by the
third trading day after such warrants have been exercised.
Accordingly, the warrants have been accounted for as a
liability. The fair value of the warrants is estimated, at the
end of each quarterly reporting period, using the Black-Scholes
option pricing model. The assumptions used in computing the fair
value as of December 31, 2009 are a closing stock price of
$1.06, expected volatility of 89.40% over the remaining term of
four years and eight months and a risk-free rate of 2.69%. The
fair value of the warrants were valued at $4.24 million at
their commitment date of August 19, 2009 and increased by
$0.85 million through December 31, 2009 and the
fluctuation has been recorded in the statements of operations.
The warrants will be adjusted to estimated fair value for each
future period they remain outstanding.
August 2009 Equity Financing Placement Agent
Warrants. In connection with the August 2009
offering, Emisphere issued to the placement agent, as part of
the compensation for acting as placement agent for the August
2009 financing, warrants to purchase 504,000 shares of
common stock. The warrants were issued with an exercise price of
$0.875 and expire on October 1, 2012. Under the terms of
the warrants, we have an obligation to make a cash payment to
the holders of the warrants for any gain that could have been
realized if the holders exercise the warrants and we
subsequently fail to deliver a certificate representing the
shares to be issued upon such exercise by the third trading day
after such warrants have been exercised. Accordingly, the
warrants have been accounted for as a liability. The fair value
of the warrants are estimated, at the end of each quarterly
reporting period, using the Black-Scholes option pricing model.
The assumptions used in computing the fair value as of
December 31, 2009 are a closing stock price of $1.06,
expected volatility of 102.88% over the remaining term of two
years and nine months and a risk-free rate of 1.70%. The fair
value of the warrants were valued at $0.29 million at their
commitment date of August 19, 2009 and increased by
$0.06 million through December 31, 2009 and the
fluctuation has been recorded in the statements of operations.
The fair value of the Placement Agent Warrants was deemed to be
a cost of the financing and accounted for as a reduction in the
proceeds. The warrants will be adjusted to estimated fair value
for each future period they remain outstanding.
Since the Company has recurring losses and a full valuation
allowance against deferred tax assets, there is no tax expense
(benefit) for all periods presented.
77
EMISPHERE
TECHNOLOGIES, INC.
NOTES TO
THE FINANCIAL STATEMENTS (Continued)
As of December 31, 2009, we have available unused federal
net operating loss (NOL) carry-forwards of $350 million and
New York NOL carry-forwards of $301.7 million, of which
$5.7 million, $4.4 million and $1.1 million will
expire in 2010, 2011 and 2012, respectively, with the remainder
expiring in various years from 2018 to 2029. We have New Jersey
NOL carry-forwards of $55.5 million, which will expire in
2014 through 2016. We have research and development tax credit
carryforwards which will expire in various years from 2010
through 2029.
The effective rate differs from the statutory rate of 34% for
2009 and 2008 primarily due to the following:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Statutory rate on pre-tax book loss
|
|
|
(34.00
|
)%
|
|
|
(34.00
|
)%
|
Stock option issuance
|
|
|
1.12
|
%
|
|
|
0.32
|
%
|
Disallowed interest
|
|
|
1.23
|
%
|
|
|
0.93
|
%
|
Derivatives
|
|
|
3.96
|
%
|
|
|
(3.09
|
)%
|
Research and experimentation tax credit
|
|
|
0.00
|
%
|
|
|
(0.71
|
)%
|
Expired net operating losses and credits
|
|
|
13.89
|
%
|
|
|
12.12
|
%
|
Other
|
|
|
(0.01
|
)%
|
|
|
0.04
|
%
|
Change in federal valuation allowance
|
|
|
13.81
|
%
|
|
|
24.39
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.00
|
)%
|
|
|
(0.00
|
)%
|
|
|
|
|
|
|
|
|
|
The tax effect of temporary differences, net operating loss
carry-forwards, and research and experimental tax credit
carry-forwards as of December 31, 2009 and 2008 is as
follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Deferred tax assets and valuation allowance:
|
|
|
|
|
|
|
|
|
Current deferred tax asset:
|
|
|
|
|
|
|
|
|
Accrued liabilities
|
|
$
|
1,213
|
|
|
$
|
240
|
|
Valuation Allowance
|
|
|
(1,213
|
)
|
|
|
(240
|
)
|
|
|
|
|
|
|
|
|
|
Net current deferred tax asset
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Noncurrent deferred tax assets:
|
|
|
|
|
|
|
|
|
Fixed and intangible assets
|
|
$
|
(50
|
)
|
|
$
|
5,709
|
|
Net operating loss carry-forwards
|
|
|
122,296
|
|
|
|
114,516
|
|
Capital loss and charitable carry-fowards
|
|
|
2,779
|
|
|
|
2,795
|
|
Research and experimental tax credits
|
|
|
12,188
|
|
|
|
12,559
|
|
Stock compensation
|
|
|
808
|
|
|
|
462
|
|
Deferred Revenue
|
|
|
4,591
|
|
|
|
4,551
|
|
Interest
|
|
|
2,534
|
|
|
|
1,737
|
|
Valuation allowance
|
|
|
(145,146
|
)
|
|
|
(142,329
|
)
|
|
|
|
|
|
|
|
|
|
Net noncurrent deferred tax asset
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Future ownership changes may limit the future utilization of
these net operating loss and research and development tax credit
carry-forwards as defined by the Internal Revenue Code. The
amount of any potential limitation is unknown. The net deferred
tax asset has been fully offset by a valuation allowance due to
our
78
EMISPHERE
TECHNOLOGIES, INC.
NOTES TO
THE FINANCIAL STATEMENTS (Continued)
history of taxable losses and uncertainty regarding our ability
to generate sufficient taxable income in the future to utilize
these deferred tax assets.
On January 1, 2007, we adopted the provisions of ASC
740-10-25.
ASC
740-10-25
provides recognition criteria and a related measurement model
for uncertain tax positions taken or expected to be taken in
income tax returns. ASC
740-10-25
requires that a position taken or expected to be taken in a tax
return be recognized in the financial statements when it is more
likely than not that the position would be sustained upon
examination by tax authorities. Tax positions that meet the more
likely than not threshold are then measured using a probability
weighted approach recognizing the largest amount of tax benefit
that is greater than 50% likely of being realized upon ultimate
settlement. The Company had no tax positions relating to open
income tax returns that were considered to be uncertain.
Accordingly, we have not recorded a liability for unrecognized
tax benefits upon adoption of ASC
740-10-25.
There continues to be no liability related to unrecognized tax
benefits at December 31, 2009.
The Companys 2006, 2007 and 2008 federal and New York tax
returns remain subject to examination by the IRS and New York,
respectively. The Companys 2007 and 2008 New Jersey tax
returns are also open to potential examination. In addition, net
operating losses and research tax credits arising from prior
years are also subject to examination at the time that they are
utilized in future years. Neither the Companys federal or
state tax returns are currently under examination.
|
|
11.
|
Stockholders
Deficit
|
On April 20, 2007, the stockholders of the Company approved
an increase in the Companys authorized common stock from
50 million to 100 million shares.
On August 22, 2007, we completed the sale of two million
registered shares of common stock at $3.785 per share. Proceeds
from this offering were $6.9 million, net of total issuance
costs of $0.7 million, which will be used for general
corporate purposes. As the shares of stock were sold in
connection with warrants, $5.9 million was allocated to the
issuance of the stock and $1.0 million was allocated to the
warrants.
Our certificate of incorporation provides for the issuance of
1,000,000 shares of preferred stock with the rights,
preferences, qualifications, and terms to be determined by our
Board of Directors. As of December 31, 2009 and 2008, there
were no shares of preferred stock outstanding.
We have a stockholder rights plan in which Preferred Stock
Purchase Rights (the Rights) have been granted at
the rate of one one-hundredth of a share of Series A Junior
Participating Cumulative Preferred Stock (A Preferred
Stock) at an exercise price of $80 for each share of our
common stock. The Rights expire on April 7, 2016.
The Rights are not exercisable, or transferable apart from the
common stock, until the earlier of (i) ten days following a
public announcement that a person or group of affiliated or
associated persons have acquired beneficial ownership of 20% or
more of our outstanding common stock or (ii) ten business
days (or such later date, as defined) following the commencement
of, or announcement of an intention to make a tender offer or
exchange offer, the consummation of which would result in the
beneficial ownership by a person, or group, of 20% or more of
our outstanding common stock. MHR is specifically excluded from
the provisions of the plan.
79
EMISPHERE
TECHNOLOGIES, INC.
NOTES TO
THE FINANCIAL STATEMENTS (Continued)
Furthermore, if we enter into consolidation, merger, or other
business combinations, as defined, each Right would entitle the
holder upon exercise to receive, in lieu of shares of A
Preferred Stock, a number of shares of common stock of the
acquiring company having a value of two times the exercise price
of the Right, as defined. The Rights contain anti-dilutive
provisions and are redeemable at our option, subject to certain
defined restrictions for $.01 per Right.
As a result of the Rights dividend, the Board of Directors
designated 200,000 shares of preferred stock as A Preferred
Stock. A Preferred Stockholders will be entitled to a
preferential cumulative quarterly dividend of the greater of
$1.00 per share or 100 times the per share dividend declared on
our common stock. Shares of A Preferred Stock have a liquidation
preference, as defined, and each share will have 100 votes and
will vote together with the common shares.
On August 22, 2009, we completed the sale of
5,714,286 shares of common stock and 2,685,714 warrants to
purchase shares of common stock to certain institutional
investors for gross proceeds of $4,000,000. Also, on
August 22, 2009, we completed the sale of
6,015,037 shares of common stock and 3,729,323 warrants to
purchase shares of common stock to MHR for gross proceeds of
$4,000,000. Both the investor warrants and the MHR warrants
expire on August 21, 2014 and have an exercise price of
$0.70. Proceeds from this offering were $7.30 million, net
of cash issuance costs of $0.70 million. Additional
issuance costs consisted of $0.29 million from the issuance
of 504,000 warrants issued to a placement agent (see
Note 9).
|
|
12.
|
Stock-Based
Compensation Plans
|
Total compensation expense recorded during the years ended
December 31, 2009, 2008 and 2007 for share-based payment
awards was $1.6 million, $1.0 million and
$3.1 million, respectively, of which $0.1 million,
$0.4 million and $1.4 million is recorded in research
and development and $1.5 million, $0.6 million and
$1.7 million is recorded in general and administrative
expenses in the statement of operations. Included in
compensation expense during the year ended December 31,
2007 are incremental costs of $0.8 million resulting from
the modification of previously granted stock option awards for 4
former executives. Under the terms of the separation agreements
with these executives, certain option grants received
accelerated vesting, extended exercise period or both.
At December 31, 2009, total unrecognized estimated
compensation expense related to non-vested stock options granted
prior to that date was approximately $0.9 million, which is
expected to be recognized over a weighted-average period of
2.0 years. No tax benefit was realized due to a continued
pattern of operating losses. We have a policy of issuing new
shares to satisfy share option exercises. There were no options
exercised during the year ended December 31, 2009. Cash
received from options exercised totaled $0.01 million and
$0.4 million for the years ended December 31, 2008 and
2007, respectively.
Using the Black-Scholes model, we have estimated our stock price
volatility using the historical volatility in the market price
of our common stock for the expected term of the option. The
risk-free interest rate is based on the yield curve of
U.S. Treasury STRIP securities for the expected term of the
option. We have never paid cash dividends and do not intend to
pay cash dividends in the foreseeable future. Accordingly, we
assumed a 0% dividend yield. The forfeiture rate is estimated
using historical option cancellation information, adjusted for
anticipated changes in expected exercise and employment
termination behavior. Forfeiture rates and the expected term of
options are estimated separately for groups of employees that
have similar historical exercise behavior. The ranges presented
below are the result of certain groups of employees displaying
different behavior.
80
EMISPHERE
TECHNOLOGIES, INC.
NOTES TO
THE FINANCIAL STATEMENTS (Continued)
The following weighted-average assumptions were used for grants
made under the stock option plans for the years ended
December 31, 2009, 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
Directors
|
|
Executives
|
|
Employees
|
|
Expected volatility
|
|
|
87.8
|
%
|
|
|
87.8
|
%
|
|
|
87.9
|
%
|
Expected term
|
|
|
6.8 years
|
|
|
|
6.8 years
|
|
|
|
6.8 years
|
|
Risk-free interest rate
|
|
|
3.19
|
%
|
|
|
3.14
|
%
|
|
|
2.90
|
%
|
Dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
Annual forfeiture rate
|
|
|
5
|
%
|
|
|
5
|
%
|
|
|
5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
Directors
|
|
Executives
|
|
Employees
|
|
Expected volatility
|
|
|
84.9
|
%
|
|
|
85.0
|
%
|
|
|
85.0
|
%
|
Expected term
|
|
|
10 years
|
|
|
|
10 years
|
|
|
|
10 years
|
|
Risk-free interest rate
|
|
|
3.89
|
%
|
|
|
3.89
|
%
|
|
|
3.89
|
%
|
Dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
Annual forfeiture rate
|
|
|
5
|
%
|
|
|
5
|
%
|
|
|
5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
Directors
|
|
Executives
|
|
Employees
|
|
Expected volatility
|
|
|
84.9
|
%
|
|
|
82.9
|
%
|
|
|
83.0
|
%
|
Expected term
|
|
|
5 years
|
|
|
|
10 years
|
|
|
|
5.5 years
|
|
Risk-free interest rate
|
|
|
4.28
|
%
|
|
|
4.82
|
%
|
|
|
4.62
|
%
|
Dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
Annual forfeiture rate
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
5
|
%
|
Stock Option Plans. On April 20, 2007,
the stockholders approved the 2007 Stock Award and Incentive
Plan (the 2007 Plan). The 2007 Plan provides for
grants of options, stock appreciation rights, restricted stock,
deferred stock, bonus stock and awards in lieu of obligations,
dividend equivalents, other stock based awards and performance
awards to executive officers and other employees of the Company,
and non-employee directors, consultants and others who provide
substantial service to us. The 2007 Plan provides for the
issuance of 3,275,334 shares as follows: 2,500,000 new
shares, 374,264 shares remaining and transferred from the
Companys 2000 Stock Option Plan (the 2000
Plan) (which was then replaced by the 2007 Plan) and
401,070 shares remaining and transferred from the
Companys Stock Option Plan for Outside Directors (the
Directors Stock Plan). In addition, shares
cancelled, expired, forfeited, settled in cash, settled by
delivery of fewer shares than the number underlying the award,
or otherwise terminated under the 2000 Plan will become
available for issuance under the 2007 Plan, once registered. As
of December 31, 2009 1,183,854 shares remain available
for issuance under the 2007 Plan. Generally, the options vest at
the rate of 20% per year and expire within a
five-to-ten-year
period, as determined by the compensation committee of the Board
of Directors and as defined by the Plans.
The Companys other active Stock Option Plan is the 2002
Broad Based Plan (the 2002 Plan). Under the 2002
Plan, a maximum of 160,000 shares are authorized for
issuance to employees in the form of either incentive stock
options (ISOs), as defined by the Internal Revenue
Code, or non-qualified stock options, which do not qualify as
ISOs. As of December 31, 2009, 143,430 shares remain
available for issuance under the 2002 Plan.
81
EMISPHERE
TECHNOLOGIES, INC.
NOTES TO
THE FINANCIAL STATEMENTS (Continued)
The Company also has grants outstanding under various expired
and terminated Stock Option Plans, including the 1991 Stock
Option Plan (the 1991 Plan), the 1995 Non-Qualified
Stock Option Plan (the 1995 Plan) and the 2000 Stock
Option Plan (the 2000 Plan). Under our 1991, 1995
and 2000 Plans a maximum of 2,500,000, 2,550,000 and
1,945,236 shares of our common stock, respectively, were
available for issuance. The 1991 Plan was available to employees
and consultants; the 2000 Plan was available to employees,
directors and consultants. The 1991 Plan and 2000 Plan provide
for the grant of either incentive stock options
(ISOs), as defined by the Internal Revenue Code, or
non-qualified stock options, which do not qualify as ISOs. The
1995 Plan provides for grants of non-qualified stock options to
officers and key employees. Generally, the options vest at the
rate of 20% per year and expire within a five- to ten-year
period, as determined by the compensation committee of the Board
of Directors and as defined by the Plans.
Transactions involving stock options awarded under the Stock
Option Plans described above during the years ended
December 31, 2009, 2008, 2007 and 2006 are summarized as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Remaining
|
|
|
|
|
|
|
Number of
|
|
|
Average
|
|
|
Contractual
|
|
|
Aggregate
|
|
|
|
Shares
|
|
|
Exercise Price
|
|
|
Term in Years
|
|
|
Intrinsic Value
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
Outstanding at December 31, 2006
|
|
|
3,807,012
|
|
|
$
|
16.63
|
|
|
|
4.3
|
|
|
|
|
|
Granted
|
|
|
1,514,735
|
|
|
$
|
4.55
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(2,041,125
|
)
|
|
$
|
21.29
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(381,696
|
)
|
|
$
|
4.30
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(31,050
|
)
|
|
$
|
1.56
|
|
|
|
|
|
|
$
|
89
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2007
|
|
|
2,867,876
|
|
|
$
|
8.73
|
|
|
|
6.4
|
|
|
|
|
|
Granted
|
|
|
133,600
|
|
|
$
|
2.84
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(300,087
|
)
|
|
$
|
12.72
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(664,385
|
)
|
|
$
|
8.75
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(4,150
|
)
|
|
$
|
3.04
|
|
|
|
|
|
|
$
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2008,
|
|
|
2,032,854
|
|
|
$
|
8.30
|
|
|
|
6.7
|
|
|
|
|
|
Granted
|
|
|
1,041,000
|
|
|
$
|
0.86
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(12,643
|
)
|
|
$
|
14.63
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(326,475
|
)
|
|
$
|
3.88
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2009
|
|
|
2,734,736
|
|
|
$
|
6.29
|
|
|
|
6.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and exercisable at December 31, 2009
|
|
|
1,814,982
|
|
|
$
|
8.31
|
|
|
|
5.9
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest at December 31, 2009
|
|
|
2,692,914
|
|
|
$
|
6.37
|
|
|
|
6.8
|
|
|
$
|
48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted-average grant date fair value of options granted
during the years ended December 31, 2009, 2008 and 2007 was
$0.92, $2.16 and $3.15, respectively.
Outside Directors Plan. We previously
issued options to outside directors who are neither officers nor
employees of Emisphere nor holders of more than 5% of our common
stock under the Stock Option Plan for Outside Directors (the
Outside Directors Plan). As amended, a maximum
of 725,000 shares of our common stock were available for
issuance under the Outside Directors Plan in the form of
options and restricted stock.
82
EMISPHERE
TECHNOLOGIES, INC.
NOTES TO
THE FINANCIAL STATEMENTS (Continued)
The outside Directors Plan expired on January 29,
2007. Options and restricted stock are now granted to directors
under the 2007 Plan discussed above.
Transactions involving stock options awarded under the Outside
Directors Plan during the years ended December 31,
2009, 2008 and 2007 are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Remaining
|
|
|
|
|
|
|
Number of
|
|
|
Average
|
|
|
Contractual
|
|
|
Aggregate
|
|
|
|
Shares
|
|
|
Exercise Price
|
|
|
Term in Years
|
|
|
Intrinsic Value
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
Outstanding at December 31, 2006
|
|
|
177,000
|
|
|
$
|
13.42
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(21,000
|
)
|
|
$
|
13.75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2007
|
|
|
156,000
|
|
|
$
|
13.38
|
|
|
|
5.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2008
|
|
|
156,000
|
|
|
$
|
13.38
|
|
|
|
4.0
|
|
|
|
|
|
Expired
|
|
|
(35,000
|
)
|
|
$
|
4.23
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2009
|
|
|
121,000
|
|
|
$
|
15.59
|
|
|
|
2.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and Exercisable at December 31, 2009
|
|
|
121,000
|
|
|
$
|
15.59
|
|
|
|
2.7
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Directors Deferred Compensation Stock
Plan. The Directors Deferred Compensation
Stock Plan (the Directors Deferred Plan)
ceased as of May 2004. Under the Directors Deferred Plan,
directors who were neither officers nor employees of Emisphere
had the option to elect to receive one half of the annual Board
of Directors retainer compensation, paid for services as a
Director, in deferred common stock. An aggregate of
25,000 shares of our common stock has been reserved for
issuance under the Directors Deferred Plan. During the
years ended December 31, 2004 and 2003, the outside
directors earned the rights to receive an aggregate of
1,775 shares and 2,144 shares, respectively. Under the
terms of the Directors Deferred Plan, shares are to be
issued to a director within six months after he or she ceases to
serve on the Board of Directors. We recorded as an expense the
fair market value of the common stock issuable under the plan.
As of December 31, 2009, there are 3,122 shares
issuable under this plan. No grants were awarded in 2009, 2008
and 2007, and none were outstanding as of December 31, 2009.
Non-Plan Options. Our Board of Directors has
granted options (Non-Plan Options) which are
currently outstanding for the accounts of two consultants. The
Board of Directors determines the number and terms of each grant
(option exercise price, vesting, and expiration date).
Transactions involving awards of Non-Plan Options during the
year ended December 31, 2009, 2008 and 2007 are summarized
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Remaining
|
|
|
|
|
|
|
Number of
|
|
|
Average
|
|
|
Contractual
|
|
|
Aggregate
|
|
|
|
Shares
|
|
|
Exercise Price
|
|
|
Term in Years
|
|
|
Intrinsic Value
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
Outstanding at December 31, 2006
|
|
|
20,000
|
|
|
$
|
14.84
|
|
|
|
5.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2007
|
|
|
20,000
|
|
|
$
|
14.84
|
|
|
|
4.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2008
|
|
|
20,000
|
|
|
$
|
14.84
|
|
|
|
3.3
|
|
|
|
|
|
Expired
|
|
|
(10,000
|
)
|
|
$
|
26.05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2009
|
|
|
10,000
|
|
|
$
|
3.64
|
|
|
|
1.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and Exercisable at December 31, 2009
|
|
|
10,000
|
|
|
$
|
3.64
|
|
|
|
1.0
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
83
EMISPHERE
TECHNOLOGIES, INC.
NOTES TO
THE FINANCIAL STATEMENTS (Continued)
|
|
13.
|
Collaborative
Research Agreements
|
We are a party to collaborative agreements with corporate
partners to provide development and commercialization services
relating to the collaborative products. These agreements are in
the form of research and development collaboration and licensing
agreements. In connection with these agreements, we have granted
licenses or the rights to obtain licenses to our oral drug
delivery technology. In return, we are entitled to receive
certain payments upon the achievement of milestones and will
receive royalties on sales of products should they be
commercialized. Under these agreements, we are entitled to also
be reimbursed for research and development costs. We also have
the right to manufacture and supply delivery agents developed
under these agreements to our corporate partners.
We also perform research and development for others pursuant to
feasibility agreements, which are of short duration and are
designed to evaluate the applicability of our drug delivery
agents to specific drugs. Under the feasibility agreements, we
are generally reimbursed for the cost of work performed.
All of our collaborative agreements are subject to termination
by our corporate partners without significant financial penalty
to them. Milestone and upfront payments received in connection
with these agreements was $0.2 million, $11.4 million
and $2.0 million in the years ended December 31, 2009,
2008 and 2007, respectively. Expense reimbursements received in
connection with these agreements was $0.2 million,
$1.3 million and $1.9 million for the years ended
December 31, 2009, 2008 and 2007, respectively. Expenses
incurred in connection with these agreements and included in
research and development were $0.2 million,
$0.1 million and $0.6 million in the years ended
December 31, 2009, 2008 and 2007, respectively. Significant
agreements are described below.
Novartis Pharma AG. In September 2004, we
entered into a licensing agreement with Novartis to develop our
oral recombinant human growth hormone (rhGH)
program. Under this collaboration, we are working with Novartis
to initiate clinical trials of a convenient oral human growth
hormone product using the
Eligen®
Technology. In November 2004, we received a non-refundable
upfront payment of $1 million. On May 3, 2006, we
received a $5 million payment from Novartis for development
commencement. We may receive up to $28 million in
additional milestone payments during the course of product
development, and royalties based on sales.
In December 2004, we entered into an agreement with Novartis
whereby Novartis obtained an option to license our existing
technology to develop oral forms of parathyroid hormone
(PTH-1-34). On March 7, 2006, Novartis
exercised its option to the license. Based on the terms of the
agreement, we are eligible for milestone payments totaling up to
a maximum of $30 million, plus royalties on sales of
product developed using our
Eligen®
Technology.
In December 1997, we entered into a collaboration agreement with
Novartis to develop an oral salmon calcitonin (sCT),
currently used to treat osteoporosis. In February 2000, Novartis
agreed to execute its option to acquire an exclusive license to
develop and commercialize oral sCT and as a result, Novartis
made a $2 million milestone payment to us. In March 2000,
Novartis paid us $2.5 million to obtain the license to our
technology for sCT, and to obtain an option to use the
Eligen®
Technology for a second compound. Novartis rights to
certain financial terms concerning the second compound have
since expired. In February 2003, we announced favorable results
of a Phase IIa study conducted by Novartis evaluating the
performance in post-menopausal women of an oral tablet form of
salmon calcitonin. Based on the data from that study, Novartis
has initiated a parallel program to develop oral salmon
calcitonin for the treatment of osteoarthritis. In February
2007, Novartis and its development partner Nordic Bioscience
notified us of the initiation of a Phase III clinical trial
for the treatment of osteoporosis with an oral form of salmon
calcitonin (referred to as SMC021), a new drug candidate, using
the Companys
Eligen®
Technology. As a result of the initiation of the trial,
Emisphere received a milestone payment from Novartis of
$2 million as well as reimbursement for approximately
$0.7 million in costs. The $2.7 million was able to be
recognized when received as we have
84
EMISPHERE
TECHNOLOGIES, INC.
NOTES TO
THE FINANCIAL STATEMENTS (Continued)
met the requirements under our revenue recognition policy. Under
the terms of the agreement, we may receive up to $5 million
in additional milestone payments.
Novo
Nordisk A/S Agreement
On June 21, 2008, we entered into an exclusive Development
and License Agreement with Novo Nordisk pursuant to which Novo
Nordisk will develop and commercialize oral formulations of Novo
Nordisk proprietary products in combination with Emisphere
carriers. Under such agreement Emisphere could receive more than
$87.0 million in contingent product development and sales
milestone payments including a $10.0 million non-refundable
license fee which was received during June 2008. Emisphere would
also be entitled to receive royalties in the event Novo Nordisk
commercializes products developed under such agreement. Under
the terms of the agreement, Novo Nordisk is responsible for the
development and commercialization of the products. Initially
Novo Nordisk is focusing on the development of oral formulations
of its proprietary GLP-1 receptor agonists.
The agreement with Novo Nordisk includes multiple deliverables
including the license grant, several versions of the
Companys
Eligen®
Technology (or carriers), support services and manufacturing.
Emisphere management reviewed the relevant terms of the Novo
Nordisk agreement and determined that such deliverables should
be accounted for as a single unit of accounting in accordance
with FASB ASC
605-25,
Multiple-Element Arrangements, since the delivered license and
Eligen®
Technology do not have stand-alone value and Emisphere does not
have objective evidence of fair value of the undelivered
Eligen®
Technology or the manufacturing value of all the undelivered
items. Such conclusion will be reevaluated as each item in the
arrangement is delivered. Consequently any payments received
from Novo Nordisk pursuant to such agreement, including the
initial $10 million upfront payment and any payments
received for support services, will be deferred and included in
Deferred Revenue within our balance sheet. Management cannot
currently estimate when all of such deliverables will be
delivered nor can they estimate when, if ever, Emisphere will
have objective evidence of the fair value for all of the
undelivered items, therefore all payments from Novo Nordisk are
expected to be deferred for the foreseeable future.
As of December 31, 2009 total deferred revenue from the
agreement was $11.5 million, comprised of the
$10.0 million non-refundable license fee and
$1.5 million in support services.
Genta. In March 2006, we entered into a
collaborative agreement with Genta, Incorporated
(Genta) to develop an oral formulation of a
gallium-containing compound. We currently receive reimbursements
from Genta for the work performed during the formulation phase.
We recognized $0.0, $0.1 million and $1.2 million in
revenue related to these reimbursements for the years ended
December 31, 2009, 2008 and 2007, respectively. We are
eligible for future milestone payments totaling up to a maximum
of $24.3 million under this agreement.
|
|
14.
|
Defined
Contribution Retirement Plan
|
We have a defined contribution retirement plan (the
Retirement Plan), the terms of which, as amended,
allow eligible employees who have met certain age and service
requirements to participate by electing to contribute a
percentage of their compensation to be set aside to pay their
future retirement benefits, as defined by the Retirement Plan.
We have agreed to make discretionary contributions to the
Retirement Plan. For the years ended December 31, 2009,
2008 and 2007, we made contributions to the Retirement Plan
totaling approximately $0.06 million, $0.2 million and
$0.3 million, respectively.
85
EMISPHERE
TECHNOLOGIES, INC.
NOTES TO
THE FINANCIAL STATEMENTS (Continued)
The following table sets forth the information needed to compute
basic and diluted earnings per share for the years ended
December 31, 2009, 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands, except per share amounts)
|
|
|
Basic net loss
|
|
$
|
(21,243
|
)
|
|
$
|
(24,388
|
)
|
|
$
|
(16,928
|
)
|
Dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
|
|
|
|
|
|
|
|
|
|
|
(5,061
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net loss
|
|
$
|
(21,243
|
)
|
|
$
|
(24,388
|
)
|
|
$
|
(21,989
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
34,679,321
|
|
|
|
30,337,442
|
|
|
|
29,039,101
|
|
Dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
|
|
|
|
|
|
|
|
|
|
|
88,911
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted average common stock equivalents outstanding
|
|
|
34,679,321
|
|
|
|
30,337,442
|
|
|
|
29,128,012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net loss per share
|
|
$
|
(0.61
|
)
|
|
$
|
(0.80
|
)
|
|
$
|
(0.58
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net loss per share
|
|
$
|
(0.61
|
)
|
|
$
|
(0.80
|
)
|
|
$
|
(0.76
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table sets forth the number of potential shares of
common stock that have been excluded from diluted net loss per
share because their effect was anti-dilutive:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Options to purchase common shares
|
|
|
2,865,736
|
|
|
|
2,208,854
|
|
|
|
3,043,876
|
|
Outstanding warrants and options to purchase warrants
|
|
|
9,934,253
|
|
|
|
2,972,049
|
|
|
|
604,838
|
|
Novartis convertible note payable
|
|
|
14,944,980
|
|
|
|
7,537,921
|
|
|
|
3,743,700
|
|
MHR note payable
|
|
|
5,983,146
|
|
|
|
5,362,596
|
|
|
|
4,806,404
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33,728,115
|
|
|
|
18,081,420
|
|
|
|
12,198,818
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16.
|
Commitments
and Contingencies
|
Commitments. At the beginning of 2009 we had
leased approximately 80,000 square feet of office space at
765 Old Saw Mill River Road, Tarrytown, NY for use as
administrative offices and laboratories. The lease for our
administrative and laboratory facilities had been set to expire
on August 31, 2012. However, on April 29, 2009, the
Company entered into a Lease Termination Agreement (the
Agreement) with
BMR-Landmark
at Eastview, LLC, a Delaware limited liability company
(BMR) pursuant to which the Company and BMR
terminated the lease of space at 765 Old Saw Mill River Road in
Tarrytown, NY. Pursuant to the Agreement, the Lease was
terminated effective as of April 1, 2009. The Agreement
provided that the Company make the following payments to BMR:
(a) $1 million, paid upon execution of the Agreement,
(b) $0.5 million, paid six months after the execution
date of the Agreement, and (c) $0.75 million, payable
twelve months after the execution date of the Agreement. Initial
and six months payments were made on schedule.
We continue to lease office space at 240 Cedar Knolls Road,
Cedar Knolls, NJ under a non-cancellable operating lease
expiring in 2013.
86
EMISPHERE
TECHNOLOGIES, INC.
NOTES TO
THE FINANCIAL STATEMENTS (Continued)
As of December 31, 2009, future minimum rental payments are
as follows:
|
|
|
|
|
Years Ending December 31,
|
|
|
|
|
|
(In thousands)
|
|
|
2010
|
|
|
345
|
|
2011
|
|
|
353
|
|
2012
|
|
|
360
|
|
2013
|
|
|
31
|
|
|
|
|
|
|
Total
|
|
|
1,089
|
|
Rent expense for the years ended December 31, 2009, 2008
and 2007 was $0.7 million, $2.3 million and
$2.0 million, respectively. Additional charges under this
lease for real estate taxes and common maintenance charges for
the years ended December 31, 2009, 2008 and 2007, were
$0.5 million, $0.8 million and $0.8 million,
respectively.
In accordance with the lease agreement in Cedar Knolls, NJ, the
Company has entered into a standby letter of credit in the
amount of $246 thousand as a security deposit. The standby
letter of credit is fully collateralized with a time certificate
of deposit account in the same amount. The certificate of
deposit has been recorded as a restricted cash balance in the
accompanying financials. As of December 31, 2009, there are
no amounts outstanding under the standby letter of credit.
On April 6, 2007, the Board of Directors appointed Michael
V. Novinski to the position of President and Chief Executive
Officer. Pursuant to his appointment, the Company has entered
into a three year employment agreement with Mr. Novinski.
If Mr. Novinskis contract is terminated without cause
by the Board of Directors or at any time by the executive for
good reason as defined in his contract, we are obligated to make
severance payments to Mr. Novinski.
In April 2005, the Company entered into an amended and restated
employment agreement with its then Chief Executive Officer,
Dr. Michael M. Goldberg, for services through July 31,
2007. On January 16, 2007, the Board of Directors
terminated Dr. Goldbergs services. On April 26,
2007, the Board of Directors held a special hearing at which it
determined that Dr. Goldbergs termination was for
cause. On March 22, 2007, Dr. Goldberg, through his
counsel, filed a demand for arbitration asserting that his
termination was without cause and seeking $1,048,000 plus
attorneys fees, interest, arbitration costs and other
relief alleged to be owed to him in connection with his
employment agreement with the Company. During the arbitration,
Dr. Goldberg sought a total damage amount of at least
$9,223,646 plus interest. On February 11, 2010, the
arbitrator issued the final award in favor of Dr. Goldberg
for a total amount of approximately $2,333,115 as full and final
payment for all claims, defenses, counterclaims, and related
matters. As a result of the February 11, 2010 final award,
the Company adjusted its estimate of costs to settle this matter
to $2,333,115. If the awards are upheld and confirmed in court,
the Company will be required to pay the final amount due to
Dr. Goldberg.
On August 18, 2008, Emisphere filed a complaint in the
United States District Court for the District of New Jersey
against Laura A. Kragie and Kragie BioMedWorks, Inc. seeking a
declaratory judgment affirming Emispheres sole rights to
its proprietary technology for the oral administration of
Vitamin B12, as set forth in several Emisphere United States
provisional patent applications. The complaint also includes a
claim under the Lanham Act arising from statements made by
defendants on their web site. Laura A. Kragie, M.D., is a
former consultant for Emisphere who later was employed by
Emisphere. On February 13, 2009, the defendants filed an
answer, affirmative defenses and counterclaims, adding as
counterclaim defendants current or former Emisphere executives
or employees, including Michael V. Novinski. The countersuit
against Emisphere alleged breach of contract, fraudulent
inducement, trademark infringement, false advertising, and other
claims. Emisphere believed that the counterclaims were without
merit, and litigated all claims vigorously. The litigation with
the Kragie Parties has been resolved. On February 23, 2010,
the Court entered an Order, pursuant to the parties
written settlement agreement, dismissing the case with prejudice.
87
EMISPHERE
TECHNOLOGIES, INC.
NOTES TO
THE FINANCIAL STATEMENTS (Continued)
The Company evaluates the financial consequences of legal
actions periodically or as facts present themselves and books
accruals to account for its best estimate of future costs
accordingly.
Contingencies. In the ordinary course of
business, we enter into agreements with third parties that
include indemnification provisions which, in our judgment, are
normal and customary for companies in our industry sector. These
agreements are typically with business partners, clinical sites,
and suppliers. Pursuant to these agreements, we generally agree
to indemnify, hold harmless, and reimburse indemnified parties
for losses suffered or incurred by the indemnified parties with
respect to our product candidates, use of such product
candidates, or other actions taken or omitted by us. The maximum
potential amount of future payments we could be required to make
under these indemnification provisions is unlimited. We have not
incurred material costs to defend lawsuits or settle claims
related to these indemnification provisions. As a result, the
estimated fair value of liabilities relating to these provisions
is minimal. Accordingly, we have no liabilities recorded for
these provisions as of December 31, 2009.
In the normal course of business, we may be confronted with
issues or events that may result in a contingent liability.
These generally relate to lawsuits, claims, environmental
actions or the action of various regulatory agencies. If
necessary, management consults with counsel and other
appropriate experts to assess any matters that arise. If, in our
opinion, we have incurred a probable loss as set forth by
accounting principles generally accepted in the U.S., an
estimate is made of the loss and the appropriate accounting
entries are reflected in our financial statements. After
consultation with legal counsel, we do not anticipate that
liabilities arising out of currently pending or threatened
lawsuits and claims will have a material adverse effect on our
financial position, results of operations or cash flows.
Restructuring
Expense
On December 8, 2008, as part of our efforts to improve
operational efficiency we decided to close our research and
development facilities in Tarrytown to reduce costs and improve
operating efficiency. As of December 8, 2008 we terminated
all research and development staff and ceased using
approximately 85% of the facilities which resulted in a
restructuring charge of approximately $3.8 million in the
fourth quarter, 2008. As part of the restructuring charge, we
wrote down the value of our leasehold improvements in Tarrytown
by approximately $1.0 million (net); additionally, the
useful life of leasehold improvements in portions of the
facility that were still in use as of December 31, 2008 was
recalculated, resulting in an accelerated charge to amortization
expense of approximately $0.1 million.
In accordance with FASB ASC
420-10-5,Exit
or Disposal Cost Obligations, we estimated our
liability for net costs associated with terminating our lease
obligation for the laboratory and office facilities in Tarrytown
and recorded a charge net of estimated sublease income. To
develop our estimate, we considered our liability under the
Tarrytown lease, and estimated costs to be incurred to satisfy
rental commitments under the lease, the lead time
necessary to sublease the space, projected sublease rental
rates, and the anticipated duration of subleases. We validated
our estimate and assumptions through consultations with
independent third parties having relevant expertise. We used a
credit adjusted risk free rate of 1.55% to discount
estimated cash flows. We intend to review our estimate and
assumptions on a quarterly basis or more frequently as
appropriate; and will make modifications to the estimated
liability as deemed appropriate, based on our judgment to
reflect changing circumstances. Any change in our estimate may
result in additional restructuring charges, and those charges
may be material.
The restructuring liability at December 31, 2008 of
$2.9 million related primarily to the portion of the
Tarrytown facility we ceased using as of December 8, 2008,
and was recorded at net present value, and included several
obligations related to the restructuring. We classified
$0.9 million as short term as of December 31, 2008 and
$2.0 million as long term.
88
EMISPHERE
TECHNOLOGIES, INC.
NOTES TO
THE FINANCIAL STATEMENTS (Continued)
We recorded $3.8 million in restructuring expenses
comprised of $2.6 million lease restructuring expense (net
of subleases), $0.2 million in termination benefits
(employee severance and related costs) and $1.0 million in
leasehold improvement abandonment. In December 2008, we made $47
thousand in net rental payments (calculated at net present
value) on the Tarrytown property and made termination payments
of $91 thousand which represent employee severance and benefits
charges. The restructuring liability was reduced by these
amounts.
On April 29, 2009, the Company entered into a Lease
Termination Agreement with BMR pursuant to which the Company and
BMR terminated the lease of space at 765 and 777 Old Saw Mill
River Road in Tarrytown, New York. Pursuant to the Agreement,
the Lease was terminated effective as of April 1, 2009. The
Agreement provided that the Company shall make the following
payments to BMR: (a) One Million Dollars, payable upon
execution of the Agreement, (b) Five Hundred Thousand
Dollars, payable six months after the execution date of the
Agreement, and (c) Seven Hundred Fifty Thousand Dollars,
payable twelve months after the execution date of the Agreement.
The final payment was originally due April 29, 2010.
Consequently, the restructuring liability was adjusted to
reflect the terms of the Lease Termination Agreement, resulting
in a $356 thousand reduction in the liability and restructuring
costs during the year ended December 31, 2009. We
classified the $750 thousand as short term as of
December 31, 2009. The final payment was originally due
April 29, 2010. However, on March 17, 2010 the Company
and BMR agreed to amend the Agreement (the
Amendment). According to the Amendment, the final
payment will be modified as follows: the Company will pay Eight
Hundred Thousand Dollars ($800,000), as follows: (i) Two
Hundred Thousand Dollars ($200,000) within five (5) days
after the Execution Date and (ii) One Hundred Thousand
Dollars ($100,000) on each of the following dates: July 15,
2010, August 15, 2010, September 15, 2010,
October 15, 2010, November 15, 2010, and
December 15, 2010.
The restructuring activity and related liability are as follows
($ thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts
|
|
|
Lease
|
|
|
|
|
|
|
|
|
Liability at
|
|
|
|
|
|
|
Previously
|
|
|
Termination
|
|
|
Cash
|
|
|
Non-Cash
|
|
|
December 31,
|
|
|
|
Charge
|
|
|
Accrued
|
|
|
Adjustment
|
|
|
Payments
|
|
|
Expense
|
|
|
2009
|
|
|
Lease restructuring expense
|
|
$
|
2,592
|
|
|
$
|
227
|
|
|
$
|
(353
|
)
|
|
$
|
(1,716
|
)
|
|
$
|
|
|
|
$
|
750
|
|
Employee severance and related costs
|
|
|
199
|
|
|
|
|
|
|
|
(3
|
)
|
|
|
(196
|
)
|
|
|
|
|
|
|
|
|
Leasehold improvements abandonment
|
|
|
1,040
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,040
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,831
|
|
|
$
|
227
|
|
|
$
|
(356
|
)
|
|
$
|
(1,912
|
)
|
|
$
|
(1,040
|
)
|
|
$
|
750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17.
|
Summarized
Quarterly Financial Data (Unaudited)
|
Following are summarized quarterly financial data (unaudited)
for the years ended December 31, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
March 31
|
|
June 30
|
|
September 30
|
|
December 31
|
|
|
(In thousands)
|
|
Total revenue
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
92
|
|
Operating (loss) income
|
|
|
(4,659
|
)
|
|
|
(2,998
|
)
|
|
|
(3,393
|
)
|
|
|
(3,503
|
)
|
Net (loss) income
|
|
|
(5,417
|
)
|
|
|
(4,187
|
)
|
|
|
(4,037
|
)
|
|
|
(7,602
|
)
|
Net (loss) income per share, basic
|
|
$
|
(0.18
|
)
|
|
$
|
(0.14
|
)
|
|
$
|
(0.11
|
)
|
|
$
|
(0.18
|
)
|
Net (loss) income per share, diluted
|
|
$
|
(0.18
|
)
|
|
$
|
(0.14
|
)
|
|
$
|
(0.11
|
)
|
|
$
|
(0.18
|
)
|
89
EMISPHERE
TECHNOLOGIES, INC.
NOTES TO
THE FINANCIAL STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
March 31
|
|
June 30
|
|
September 30
|
|
December 31
|
|
|
(In thousands)
|
|
Total revenue
|
|
$
|
154
|
|
|
$
|
14
|
|
|
$
|
77
|
|
|
$
|
5
|
|
Operating loss
|
|
|
(6,462
|
)
|
|
|
(5,895
|
)
|
|
|
(5,740
|
)
|
|
|
(8,224
|
)
|
Net income (loss)
|
|
|
(3,942
|
)
|
|
|
(7,643
|
)
|
|
|
(5,100
|
)
|
|
|
(7,704
|
)
|
Net income (loss) per share, basic
|
|
$
|
(0.13
|
)
|
|
$
|
(0.25
|
)
|
|
$
|
(0.17
|
)
|
|
$
|
(0.25
|
)
|
Net income (loss) per share, diluted
|
|
$
|
(0.13
|
)
|
|
$
|
(0.25
|
)
|
|
$
|
(0.17
|
)
|
|
$
|
(0.25
|
)
|
In accordance with FASB ASC 820, Fair Value Measurements
and Disclosures, the following table represents the
Companys fair value hierarchy for its financial
liabilities measured at fair value on a recurring basis as of
December 31, 2009:
|
|
|
|
|
|
|
Level 2
|
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Derivative instruments (short term)
|
|
$
|
6,189
|
|
Derivative instruments (long term)
|
|
|
4,591
|
|
|
|
|
|
|
Total
|
|
$
|
10,780
|
|
|
|
|
|
|
The derivative instruments were valued using the market
approach, which is considered Level 2 because it uses
inputs other than quoted prices in active markets that are
either directly or indirectly observable. Accordingly, the
derivatives were valued using the Black-Scholes model.
|
|
19.
|
Settlement
of Litigation
|
On September 25, 2007, Emisphere agreed to accept
$18 million from Eli Lilly to settle the pending litigation
between the two companies. Additional terms and conditions of
the settlement were confidential. Emisphere received
$11.9 million of the settlement, net of attorneys
fees and expenses.
On February 8, 2008, Emisphere reported that it had entered
into an agreement with MannKind Corporation to sell certain
Emisphere patents and a patent application relating to
diketopiperazine technology for a total purchase price of
$2.5 million. An initial payment of $1.5 million was
received in February 2008. An additional $0.5 million was
received in May 2009 with the remaining payment to be made no
later than October 5, 2010.
With the exception of the modification in payment terms of the
Lease Termination Agreement with BMR described in Note 16
(above), the Company has evaluated subsequent events through the
date on which financial statements were issued and has
determined that there are no additional subsequent events that
would require adjustments to the financial statements for the
year ended December 31, 2009.
90
|
|
ITEM 9.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
|
On January 6, 2010, the Company dismissed
PricewaterhouseCoopers LLP (PwC) as the
Companys independent registered public accountants. This
action was approved on January 6, 2010 by the Audit
Committee of the Board of Directors of the Company.
PwCs audit reports on the Companys financial
statements as of and for the years ended December 31, 2008
and 2007 did not contain an adverse opinion or a disclaimer of
opinion and were not qualified or modified as to uncertainty,
audit scope or accounting principles, except that for each of
the years ended December 31, 2008 and 2007 PwCs
reports contained an explanatory paragraph expressing
substantial doubt about the Companys ability to continue
as a going concern.
During the Companys two most recent fiscal years ended
December 31, 2007 and 2008 and the subsequent interim
periods through January 6, 2010, there were no
disagreements with PwC on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or
procedure, which disagreements, if not resolved to the
satisfaction of PwC, would have caused PwC to make reference to
the matter in their reports. As noted in Item 4 of the
Companys quarterly report on
Form 10-Q
for the quarter ended September 30, 2009, and quarterly
reports on
Forms 10-Q/A
for the quarters ended June 30, 2009 and March 31,
2009, the Company identified a material weakness in its internal
controls over financial reporting and disclosure controls and
procedures with respect to ineffective controls to ensure
completeness and accuracy with regard to the proper recognition,
presentation and disclosure of conversion features of certain
convertible debt instruments and warrants. The Audit Committee
discussed the material weakness with PwC, and the Company has
authorized PwC to respond fully to the inquiries of
McGladrey & Pullen, LLP (M&P), the
successor independent registered public accounting firm,
regarding the material weakness. Except as previously noted in
this paragraph, there were no other reportable
events as defined in Item 304(a)(1)(v) of
Regulation S-K
during the years ended December 31, 2007 and 2008 and
through January 6, 2010.
On January 6, 2010, with the approval of the Audit
Committee of the Company, the Company engaged M&P to act as
its independent registered public accounting firm. During the
years ended December 31, 2007, and 2008, respectively, and
in the subsequent interim periods through January 6, 2010,
neither the Company nor anyone acting on its behalf has
consulted with M&P on any of the matters or events set
forth in Item 304(a)(2) of
Regulation S-K.
|
|
ITEM 9A.
|
CONTROLS
AND PROCEDURES
|
Evaluation
of Disclosure Controls and Procedures
The Companys senior management is responsible for
establishing and maintaining a system of disclosure controls and
procedures (as defined in
Rules 13a-15(e)
and
15d-15(e)
under the Securities Exchange Act of 1934 (the Exchange
Act) designed to ensure that the information required to
be disclosed by the Company in the reports it files or submits
under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in the Securities and
Exchange Commissions rules and forms. Disclosure controls
and procedures include, without limitation, controls and
procedures designed to ensure that information required to be
disclosed by an issuer in the reports that it files or submits
under the Exchange Act is accumulated and communicated to the
issuers management, including its principal executive
officer or officers and principal financial officer or officers,
or persons performing similar functions, as appropriate to allow
timely decisions regarding required disclosure.
In light of the material weakness described in Item 9
above, management concluded that our disclosure controls and
procedures were not effective as of the end of the period ending
September 30, 2009. Since then, management has implemented
improvements in our internal control over financial reporting to
address the material weakness with regard to the proper
recognition, presentation and disclosure of conversion features
of certain convertible debt instruments and warrants. These
improvements include, among other things; improved access to and
evaluation of recent accounting pronouncements as it relates to
financing arrangements and
91
derivative instruments, including enhancing the documentation
around conclusions reached in the implementation of applicable
generally accepted accounting principles. In addition, we will
provide further training of those individuals involved in
technical accounting and reporting regarding financing
arrangements and derivative instruments. We also performed
additional analysis and other post closing procedures to ensure
that our financial statements were prepared in accordance with
generally accepted accounting principles. Accordingly, we
believe that the financial statements included in this report
fairly present in all material respects, our financial
condition, results of operations and cash flows for the periods
presented. Consequently, the Company has evaluated the
effectiveness of the design and operation of its disclosure
controls and procedures under the supervision of and with the
participation of management, including the Chief Executive
Officer and Chief Financial Officer, as of the end of the period
covered by this report. Based on that evaluation, our Chief
Executive Officer and Chief Financial Officer have concluded
that our disclosure controls and procedures are effective.
Managements
Report on Internal Control over Financial
Reporting
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting, as such term
is defined in
Rules 13a-15(f)
and
15d-15(f)
under the Exchange Act. Our management conducted an evaluation
of the effectiveness of our internal control over financial
reporting based on the framework established in Internal
Control Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway
Commission. Based on that evaluation, our management has
concluded that our internal control over financial reporting was
effective as of December 31, 2009.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Projections of any evaluation of effectiveness to future periods
are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
This annual report does not include an attestation report of the
Companys registered public accounting firm regarding
internal control over financial reporting. Managements
report was not subject to attestation by the companys
registered public accounting firm pursuant to temporary rules of
the Securities and Exchange Commission that permit the company
to provide only managements report in this annual report.
Changes
in Internal Control over Financial Reporting
During the quarter ended December 31, 2009 our system of
internal controls over financial reporting (as such term is
defined in
Rules 13a-15(f)
and
15d-15(f)
under the Exchange Act) was improved as described above. These
improvements were successfully implemented and tested. There
were no other changes in internal controls over financial
reporting that has materially affected, or is reasonably likely
to materially affect, our internal control over financial
reporting.
Our management, including our Chief Executive Officer and Chief
Financial Officer, does not expect that our disclosure controls
and procedures or internal controls over financial reporting
will prevent all errors and all fraud. A control system, no
matter how well conceived and operated, can provide only
reasonable, not absolute, assurance that the objectives of the
system are met and cannot detect all deviations. Because of the
inherent limitations in all control systems, no evaluation of
controls can provide absolute assurance that all control issues
and instances of fraud or deviations, if any, within the company
have been detected. Projections of any evaluation of
effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures
may deteriorate.
|
|
ITEM 9B.
|
OTHER
INFORMATION
|
None.
92
PART III
|
|
ITEM 10.
|
DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
|
Director
and Executive Officer Information
Information regarding those directors serving unexpired terms
and our current Executive Officers, all of who are currently
serving open-ended terms, including their respective ages, the
year in which each first joined the Company and their principal
occupations or employment during the past five years, is
provided below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
|
|
|
|
|
|
|
Joined
|
|
|
Name
|
|
Age
|
|
Emisphere
|
|
Position with the Company
|
|
Michael V. Novinski
|
|
|
53
|
|
|
|
2007
|
|
|
President and Chief Executive Officer, Class III Director
|
Michael R. Garone
|
|
|
51
|
|
|
|
2007
|
|
|
Vice President, Chief Financial Officer and Corporate Secretary
|
M. Gary I. Riley DVM, PhD
|
|
|
67
|
|
|
|
2007
|
|
|
Vice President of Non-Clinical Development and Applied Biology
|
Nicholas J. Hart
|
|
|
45
|
|
|
|
2008
|
|
|
Vice President Strategy and Development
|
John D. Harkey, Jr.
|
|
|
49
|
|
|
|
2006
|
|
|
Class I Director
|
Mark H. Rachesky, M.D.
|
|
|
51
|
|
|
|
2005
|
|
|
Class III Director
|
Timothy G. Rothwell
|
|
|
59
|
|
|
|
2009
|
|
|
Class I Director
|
Michael Weiser, M.D.
|
|
|
47
|
|
|
|
2005
|
|
|
Class III Director
|
Michael V. Novinski joined Emisphere in 2007 as President
and Chief Executive Officer. Immediately before joining the
Company, Mr. Novinski was President and a member of the
Board of Directors of Organon USA Inc., a business unit of
Organon BioSciences Inc. Mr. Novinski served as
Organons Director of Marketing beginning in 1992 and held
several senior executive positions within Organon BioSciences
prior to becoming President of Organon USA in 2003.
Mr. Novinski earned a Bachelors degree with a major
in Biology from Washington and Jefferson College in Washington,
PA. He also studied under fellowship at the University of
Pittsburgh Medical School, Department of Microbiology.
Mr. Novinskis broad business and leadership
experiences in the pharmaceutical and drug development
industries were the reasons he was selected to lead the Company
and participate as a member of our Board of Directors.
Michael R. Garone joined Emisphere in 2007 as Vice
President and Chief Financial Officer. Mr. Garone has also
served as the Companys Corporate Secretary since October
2009. Mr. Garone previously served as Interim Chief
Executive Officer and Chief Financial Officer of Astralis, Ltd.
(OTC BB: ASTR.OB). Prior to that, Mr. Garone spent
20 years with AT&T (NYSE: T), where he held several
positions, including Chief Financial Officer of AT&T
Alascom. Mr. Garone received a MBA from Columbia University
and a BA in Mathematics from Colgate University.
John D. Harkey, Jr. has been a Director of the
Company since April 2006. Mr. Harkey is Chairman and Chief
Executive Officer of Consolidated Restaurant Companies, Inc.
Mr. Harkey currently serves on the Board of Directors and
Audit Committees of Leap Wireless International, Inc. (NASDAQ:
LEAP), Loral Space & Communications, Inc. (NASDAQ:
LORL), Energy Transfer Partners, L.L.C. (NYSE: ETP) and Energy
Transfer Equity, LP (NYSE: ETE), and the Board of Directors for
the Baylor Health Care System Foundation. Mr. Harkey also
serves on the Presidents Development Council of Howard
Payne University, the Executive Board of Circle Ten Council of
the Boy Scouts of America and is a member of the Young
Presidents Organization. Mr. Harkey obtained a B.B.A.
in honors and a J.D. from the University of Texas at Austin and
an M.B.A. from Stanford University School of Business.
Mr. Harkeys entrepreneurial background, his
93
qualification as a financial expert, and his business and
leadership experiences in a range of different industries make
him an asset to our Board of Directors.
Mark H. Rachesky, M.D. has been a Director of the
Company since 2005. Dr. Rachesky is the co-founder and
President of MHR Fund Management LLC and affiliates,
investment managers of various private investment funds that
invest in inefficient market sectors, including special
situation equities and distressed investments. From 1990 through
June 1996, Dr. Rachesky was employed by Carl C. Icahn,
initially as a senior investment officer and for the last three
years as sole Managing Director of Icahn Holding Corporation,
and acting chief investment advisor. Dr. Rachesky is
currently the Non-Executive Chairman of the Board of Loral
Space & Communications, Inc. (NASDAQ:LORL) and Leap
Wireless International, Inc. (NASDAQ: LEAP) and is a member of
the Board of Directors of Lions Gate Entertainment Corp. (NYSE:
LGF) and Nationshealth, Inc. He formerly served on the Board of
Directors of Neose Technologies, Inc (NASDAQ: NTEC).
Dr. Rachesky is a graduate of Stanford University School of
Medicine and Stanford University School of Business.
Dr. Rachesky graduated from the University of Pennsylvania
with a major in Molecular Aspects of Cancer.
Dr. Racheskys extensive investing and financial
background, his thorough knowledge of capital markets and his
training as an M.D., make him an asset to our Board of Directors.
Timothy G. Rothwell, has been a director since November
2009. Mr. Rothwell is the former Chairman of Sanofi-aventis
U.S. From February 2007 to March 2009 Mr. Rothwell
served as Chairman of Sanofi-aventis U.S. From September
2004 to February 2007, Mr. Rothwell was President and Chief
Executive Officer of the company, overseeing all domestic
commercial operations as well as coordination of Industrial
Affairs and Research and Development activities. From May 2003
to September 2004, Mr. Rothwell was President and Chief
Executive Officer of Sanofi-Synthelabo, Inc. and was
instrumental in the formation of Sanofi-aventis U.S. in
2004. Prior to that, from June 1998 to May 2003, he served in
various capacities at Pharmacia, including as President of the
companys Global Prescription Business. From January 1995
to January 1998, Mr. Rothwell served as worldwide President
of Rhone-Poulenc Rorer Pharmaceuticals and President of the
companys Global Pharmaceutical Operations. In his long
career, Mr. Rothwell has also served as Chief Executive
Officer of Sandoz Pharmaceuticals, Vice President, Global
Marketing and Sales at Burroughs Wellcome, and Senior Vice
President of Marketing and Sales for the U.S. for Squibb
Corporation. Mr. Rothwell holds a Bachelor of Arts from
Drew University and earned his J.D. from Seton Hall University.
He formerly served on the PhRMA Board of Directors, as well as
the Institute of Medicines Evidence-Based Medicine
roundtable, the CEO Roundtable on Cancer, the Healthcare
Businesswomens Association Advisory Board, the Board of
Trustees for the Somerset Medical Center Foundation, the Board
of Trustees for the HealthCare Institute of New Jersey, and as a
Trustee of the Corporate Council for Americas Children at
the Childrens Health Fund. Presently, he serves on the
Board of Directors of Antigenics (NASDAQ: AGEN), the Board of
Directors of Akrimax Pharmaceuticals LLC, the Board of Visitors
for Seton Hall Law School, and the PheoPara Alliance, a
nonprofit 501(c) 3 organization. Mr. Rothwells broad
business and leadership experiences in the pharmaceutical
industry and his affiliations with industry, educational and
healthcare related organizations make him an asset to our Board
of Directors.
Michael Weiser, M.D., Ph.D has been a Director of
the Company since 2005. Dr. Weiser is the founder and
co-chairman at Actin Biomed, a healthcare investment firm.
Before joining Actin, Dr. Weiser was the Director of
Research of Paramount BioCapital, Inc. Dr. Weiser completed
his Ph.D. in Molecular Neurobiology at Cornell University
Medical College and received his M.D. from New York University
School of Medicine, where he also completed a Postdoctoral
Fellowship in the Department of Physiology and Neuroscience.
Dr. Weiser serves on the boards of Manhattan
Pharmaceuticals, Inc. (OTCBB: MHA), Hana Biosciences, Inc.
(AMEX: HNAB), Chelsea Therapeutics International Ltd. (OTCBB:
CHTP), Ziopharm Oncology, Inc. (NASD ZIOP), VioQuest
Pharmaceuticals, Inc. (OTCBB: VQPH) and several privately-held
biotechnology companies. Dr. Weisers background as an
M.D. Ph.D., his business and financial experiences, his
extensive knowledge of the healthcare industry and capital
markets make him an asset to on our Board of Directors.
94
Nicholas J. Hart, joined Emisphere in August 2009 as Vice
President, Strategy and Development. Immediately before joining
the Company, Mr. Hart was Leader of the Contraception
Therapy Area and a member of the Corporate Executive Leadership
Team at Organon, part of Schering Plough Corporation. While at
Organon, he served as Senior Director/Executive Director of
Marketing of the Womens Healthcare Franchise; Director of
CNS Marketing, and Associate Director of Specialty Products.
Prior to Organon, Mr. Hart held various marketing and sales
positions with Novartis, Sankyo Parke Davis Pharmaceuticals, and
Bristol-Myers Squibb Company. After graduating from the United
States Military Academy at West Point, Mr. Hart received an
MBA in Finance and International Business from New York
University, Stern School of Business. He also served as a Field
Artillery Officer in the United States Army.
M. Gary I. Riley DVM, PhD joined Emisphere in
November 2007 as Vice-President of Nonclinical Development and
Applied Biology. He was previously Vice President of Toxicology
and Applied Biology at Alkermes, Inc., Cambridge, MA, where he
spent 14 years working in the field of specialized drug
delivery systems. He holds board certifications in veterinary
pathology and toxicology. He was previously employed as Director
of Pathobiology at Lederle Laboratories and earlier in his
career held positions as a veterinary pathologist in academia
and industry.
Section 16(a)
Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 (the
Exchange Act), and the rules of the Securities and
Exchange Commission (the SEC) require our directors,
Executive Officers and persons who own more than 10% of Common
Stock to file reports of their ownership and changes in
ownership of Common Stock with the SEC. Our employees sometimes
prepare these reports on the basis of information obtained from
each director and Executive Officer. Based on written
representations of the Companys directors and Executive
Officers and on confirmation that no Form 5 was required to
be filed, we believe that all reports required by
Section 16(a) of the Exchange Act to be filed by its
directors, Executive Officers and greater than ten (10%) percent
owners during the last fiscal year were filed on time with the
exception of Form 4 filings made on behalf of Michael R.
Garone and M. Gary I. Riley on January 21, 2010.
Code of
Conduct for Officers and Employees and Code of Business Conduct
and Ethics for Directors
The Company has a Code of Conduct that applies to all of our
officers and employees as well as a Code of Business Conduct and
Ethics that applies specifically to the members of the Board of
Directors. The directors are surveyed annually regarding their
compliance with the policies as set forth in the Code of Conduct
for Directors. The Code of Conduct and the Code of Business
Conduct and Ethics for Directors are available on the Corporate
Governance section of our website at www.emisphere.com. The
contents of our website are not incorporated herein by reference
and the website address provided in this Proxy Statement is
intended to be an inactive textual reference only. The Company
intends to disclose on its website any amendment to, or waiver
of, a provision of the Code of Conduct that applies to the Chief
Executive Officer, Chief Financial Officer, or Controller. Our
Code of Conduct contains provisions that apply to our Chief
Executive Officer, Chief Financial Officer and all other finance
and accounting personnel. These provisions comply with the
requirements of a company code of ethics for financial officers
that were promulgated by the SEC pursuant to the Exchange Act.
Stockholder
Communications
We have an Investor Relations Office for all stockholder
inquiries and communications. The Investor Relations Office
facilitates the dissemination of accurate and timely information
to our stockholders. In addition, the Investor Relations Office
ensures that outgoing information is in compliance with
applicable securities laws and regulations. All investor queries
should be directed to our internal Director of Corporate
Communications or our Corporate Secretary.
95
Election
of Directors
The Governance and Nominating Committee identifies director
nominees by reviewing the desired experience, mix of skills and
other qualities to assure appropriate Board composition, taking
into consideration the current Board members and the specific
needs of the Company and the Board. Among the qualifications to
be considered in the selection of candidates, the Committee
considers the following attributes and criteria of candidates:
experience, knowledge, skills, expertise, diversity, personal
and professional integrity, character, business judgment and
independence. Although it has no formal policy our Board
recognizes that nominees for the Board should reflect a
reasonable diversity of backgrounds and perspectives, including
those backgrounds and perspectives with respect to business
experience, professional expertise, age, gender and ethnic
background.
Our Board is comprised of accomplished professionals who
represent diverse and key areas of expertise including national
and international business, operations, manufacturing, finance
and investing, management, entrepreneurship, higher education
and science, research and technology. We believe our
directors wide range of professional experiences and
backgrounds, education and skills has proven invaluable to the
Company and we intend to continue leveraging this strength.
Nominations for the election of directors may be made by the
Board of Directors or the Governance and Nominating Committee.
The committee did not reject any candidates recommended within
the preceding year by a beneficial owner of, or from a group of
security holders that beneficially owned, in the aggregate, more
than five percent (5%) of the Companys voting stock.
Although it has no formal policy regarding stockholder nominees,
the Governance and Nominating Committee believes that
stockholder nominees should be viewed in substantially the same
manner as other nominees. Stockholders may make a recommendation
for a nominee by complying with the notice procedures set forth
in our by-laws. The Governance and Nominating Committee will
give nominees recommended by stockholders in compliance with
these procedures the same consideration that it gives to any
board recommendations. To date, we have not received any
recommendation from stockholders requesting that the Governance
and Nominating Committee (or any predecessor) consider a
candidate for inclusion among the committees slate of
nominees in the Companys proxy statement, and the Director
Nominees have been nominated by the Governance and Nominating
Committee.
To be considered by the committee, a Director nominee must have
broad experience at the strategy/policy-making level in a
business, government, education, technology or public interest
environment, high-level managerial experience in a relatively
complex organization or experience dealing with complex
problems. In addition, the nominee must be able to exercise
sound business judgment and provide insights and practical
wisdom based on experience and expertise, possess proven ethical
character, be independent of any particular constituency, and be
able to represent all stockholders of the Company.
The committee will also evaluate whether the nominees
skills are complimentary to the existing board members
skills, and the boards needs for operational, management,
financial, technological or other expertise; and whether the
individual has sufficient time to devote to the interests of
Emisphere. The prospective board member cannot be a board member
or officer at a competing company nor have relationships with a
competing company. He/she must be clear of any investigation or
violations that would be perceived as affecting the duties and
performance of a director.
The Governance and Nominating Committee identifies nominees by
first evaluating the current members of the Board of Directors
willing to continue in service. Current members of the board
with skills and experience that are relevant to the business and
who are willing to continue in service are considered for
re-nomination, balancing the value of continuity of service by
existing members of the board with that of obtaining a new
perspective. If any member of the board does not wish to
continue in service, or if the Governance and Nominating
Committee or the board decides not to nominate a member for
re-election, the Governance and Nominating Committee identifies
the desired skills and experience of a new nominee and discusses
with the board suggestions as to individuals that meet the
criteria.
96
|
|
ITEM 11.
|
EXECUTIVE
COMPENSATION
|
Summary
Compensation Table 2009, 2008 and 2007
The following table sets forth information regarding the
aggregate compensation Emisphere paid during 2009, 2008 and 2007
to our Principal Executive Officer, our Principal Financial
Officer, and the two other highest paid Executive Officers:
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Option
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Name and Principal
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Salary
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Bonus
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Stock
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Awards
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All Other
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Position(1)
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Year
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($)
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($)
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Awards ($)
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($)(2)
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Compensation($)
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Total ($)
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Michael V. Novinski,
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2009
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550,000
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239,759
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18,000
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(4)
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807,759
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President and CEO
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2008
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554,231
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357,123
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(3)
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18,000
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(4)
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929,354
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2007
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359,615
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2,970,000
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11,077
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(4)
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3,340,692
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Michael R. Garone,
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2009
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234,313
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10,642
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244,955
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Officer and Corporate
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2008
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231,794
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231,794
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VP, Chief Financial
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2007
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78,731
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258,000
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336,731
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Secretary(5)
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M. Gary I. Riley DVM, PhD,
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2009
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269,969
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10,642
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8,000
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(7)
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279,011
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VP of Non-Clinical
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2008
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267,039
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40,000
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(6)
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14,000
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(7)
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321,039
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Development and
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2007
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40,769
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257,250
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45,060
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(7)
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343,079
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Applied Biology(7)
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Nicholas J. Hart, VP,
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2009
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242,880
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10,642
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253,522
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Strategy and Development(8)
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2008
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104,308
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16,872
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(9)
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173,550
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294,730
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|
|
(1) |
|
Only two individuals other than the Principal Executive Officer
and the Principal Financial Officer served as executive officers
at the end of fiscal year 2009. As a result, the named executive
officers, as defined in
Regulation S-K,
Item 402(a)(3), of the Company are as follows:
Mr. Novinski, Mr. Garone, Mr. Riley and
Mr. Hart. |
|
(2) |
|
Amounts shown in this column represent the aggregate grant date
fair value of stock option awards granted during the respective
year computed in accordance with Financial Accounting Standards
Board ASC Topic 718. This compares to prior years, during which
amounts in these columns have represented the expensed
accounting value of such awards. The amounts for 2008 and 2007
have been recomputed (along with amounts in the Total column for
such years) using the aggregate grant date fair value of stock
option awards granted during both of those years. For
assumptions used in the valuation of these awards please see
Note 12 to our Financial Statements for the fiscal year ended
December 31, 2009. |
|
(3) |
|
Mr. Novinski was paid a bonus in 2008 for performance in
2007 in accordance with the terms of his employment contract. |
|
(4) |
|
All other compensation for Mr. Novinski represents an
allowance for the use of a personal automobile in accordance
with the terms of his employment contract. |
|
(5) |
|
Mr. Garone was appointed Corporate Secretary effective
October 24, 2008. |
|
(6) |
|
In accordance with the terms of his employment contract,
Dr. Riley received a signing bonus, payable during 2008,
when he joined the Company. |
|
(7) |
|
All other compensation for Mr. Riley represents payments
for relocation expenses. |
|
(8) |
|
Mr. Hart accepted the position as Vice President, Strategy
and Development effective July 28, 2008. |
|
(9) |
|
Mr. Hart received a signing bonus when he joined the
Company. |
97
Compensation
Discussion And Analysis
Executive
Summary
The discussion that follows outlines the compensation awarded
to, earned by or paid to the named executive officers of the
Company including a review of the principal elements of
compensation, the objectives of the Companys compensation
program, what the program is designed to reward and why and how
each element of compensation is determined.
In general, the Company operates in a marketplace where
competition for talented executives is significant. The Company
is engaged in the long-term development of its technology and of
drug candidates, without the benefit of significant current
revenues, and therefore its operations require it to raise
capital in order to continue its activities. Our operations
entail special needs and risks and require that the Company
attempt to implement programs that promote strong individual and
group performance and retention of excellent employees. The
Companys compensation program for named executive officers
consists of cash compensation as base salary, medical, basic
life insurance, long term disability, flexible spending
accounts, paid time off, and defined contribution retirement
plans as well as long term equity incentives offered through
stock option plans. This program is developed in part by
benchmarking against other companies in the
biotechnology/pharmaceutical sectors, as well as by the judgment
and discretion of our Board.
Employee salaries are benchmarked against Radford survey
information. Radford is part of the Aon family brands. For more
than 30 years, Radford has been the leading provider of
compensation market intelligence to the high-tech and life
sciences industries. Radford emphasizes data integrity and
online access to data, tools and resources, as well as client
service geared towards life sciences. Radford includes more than
2,000 participating companies globally. Their services offer
full compensation consulting, reliable, current data analysis
and reporting, customized data for competitive insight, and web
access to data via the Radford Network.
Discussion
and Analysis
Objectives of the compensation and reward
program The biopharmaceutical marketplace is
highly competitive and includes companies with far greater
resources than ours. Our work involves the difficult,
unpredictable, and often slow development of our technology and
of drug candidates. Continuity of scientific knowledge,
management skills, and relationships are often critical success
factors to our business. The objectives of our compensation
program for named executive officers is to provide competitive
cash compensation, competitive health, welfare and defined
benefit retirement benefits as well as long-term equity
incentives that offer significant reward potential for the risks
assumed and for each individuals contribution to the
long-term performance of the Company. Individual performance is
measured against long-term strategic goals, short-term business
goals, scientific innovation, regulatory compliance, new
business development, development of employees, fostering of
teamwork and other Emisphere values designed to build a culture
of high performance. These policies and practices are based on
the principle that total compensation should serve to attract
and retain those executives critical to the overall success of
Emisphere and are designed to reward executives for their
contributions toward business performance that is designed to
build and enhance stockholder value.
Elements of compensation and how they are
determined The key elements of the executive
compensation package are base salary (as determined by the
competitive market and individual performance), the executive
long term disability plan and other health and welfare benefits
and long-term incentive compensation in the form of periodic
stock option grants. The base salary (excluding payment for
accrued but unused vacation) for the named executive officers
for 2009 ranged from $235,750 for its Vice President and Chief
Financial Officer to $550,000 for its President and Chief
Executive Officer. In determining the compensation for each
named executive officer, the Company generally considers
(i) data from outside studies and proxy materials regarding
compensation of executive officers at companies believed to be
comparable, (ii) the input of other directors and the
President and Chief Executive Officer (other than for his own
compensation) regarding individual performance of each named
executive officer and (iii) qualitative measures of
Emispheres performance, such as progress in the
development of the Companys technology, the engagement of
corporate
98
partners for the commercial development and marketing of
products, effective corporate governance, fiscal responsibility,
the success of Emisphere in raising funds necessary to conduct
research and development, and the pace at which the Company
continues to advance its technologies in various clinical
trials. Our board of directors and Compensation Committees
consideration of these factors is subjective and informal.
However, in general, it has determined that the compensation for
executive officers should be competitive with market data
reflected within the 50th-75th percentile of biotechnology
companies for corresponding senior executive positions. 2009
compensation levels were derived from the compensation plan set
in 2006 and were based in part by information received from
executive compensation consultants, Pearl Myer and Partners,
based in New York, N.Y. Compensable factors benchmarked include
market capitalization, head count and location. While the
Company has occasionally paid cash bonuses in the past, there is
no consistent annual cash bonus plan for named executive
officers. When considering the compensation of the
Companys President and Chief Executive Officer, the
Company receives information and analysis prepared or secured by
the Companys outside executive compensation experts and
survey data prepared by human resources management personnel as
well as any additional outside information it may have available.
The compensation program also includes periodic awards of stock
options. The stock option element is considered a long-term
incentive that further aligns the interests of executives with
those of our stockholders and rewards long-term performance and
the element of risk. Stock option awards are made at the
discretion of the Board of Directors based on its subjective
assessment of the individual contribution of the executive to
the attainment of short and long-term Company goals, such as
collaborations with partners, attainment of successful
milestones under such collaborations and other corporate
developments which advance the progress of our technology and
drug candidates. Option grants, including unvested grants, for
our named executive officers range from 115,000 for our current
Vice President, Chief Financial Officer and Corporate Secretary;
Vice President of Non-Clinical Development and Applied Biology;
and Vice President, Strategy and Development, to 1,300,000 for
President and Chief Executive Officer as indicated in the
accompanying tables. Stock option grants to named executive
officers in 2009 were made in connection with the annual
compensation review. With the exception of grants made to the
Companys President and Chief Executive Officer (described
in Transactions with Officers and Directors), the Companys
policy with respect to stock options granted to executives is
that grant prices should be equal to the fair market value of
the Common Stock on the date of grant, that employee stock
options should generally vest over a three to five-year period
and expire in ten years from date of grant, and that options
previously granted at exercise prices higher than the current
fair market value should not be re-priced. Once performance
bonuses or awards are issued, there are currently no policies in
place to reduce, restate or otherwise adjust awards if the
relevant performance measures on which they are based are
restated or adjusted. The Company has no policy to require its
named executive officers to hold any specific equity interest in
the Company. The Company does not offer its named executive
officers any nonqualified deferred compensation, a defined
benefit pension program or any post retirement medical or other
benefits.
Section 162(m) of the Internal Revenue Code of 1986, as
amended, provides that compensation in excess of $1,000,000 paid
to the Chief Executive Officer or to any of the other four most
highly compensated executive officers of a publicly held company
will not be deductible for federal income tax purposes, unless
such compensation is paid pursuant to one of the enumerated
exceptions set forth in Section 162(m). The Companys
primary objective in designing and administering its
compensation policies is to support and encourage the
achievement of the Companys long-term strategic goals and
to enhance stockholder value. In general, stock options granted
under the Companys 2000 and 2007 Stock Option Plans are
intended to qualify under and comply with the performance
based compensation exemption provided under
Section 162(m) thus excluding from the Section 162(m)
compensation limitation any income recognized by executives at
the time of exercise of such stock options. Because salary and
bonuses paid to our Chief Executive Officer and four most highly
compensated executive officers have been below the $1,000,000
threshold, the Compensation Committee has elected, at this time,
to retain discretion over bonus payments, rather than to ensure
that payments of salary and bonus in excess of $1,000,000 are
deductible. The Compensation Committee intends to
99
review periodically the potential impacts of Section 162(m)
in structuring and administering the Companys compensation
programs.
The Company has an employment contract with its current
President and Chief Executive Officer, Michael V. Novinski as
described under Transactions with Executive Officers and
Directors. Mr. Novinskis employment contract
called for compensation and specific benefits that were
negotiated at the time of execution, including expenses of an
automobile up to $1,500 per month and reimbursement for life
insurance up to $15,000 per year. These additional benefits are
not offered to the other named executive officers.
Mr. Novinskis contract also called for an annual cash
bonus up to $550,000 (based on a full calendar year). In view of
the Companys current liquidity constraints, the Committee
determined, and Mr. Novinski agreed, that he would be paid
a $150,000 cash bonus pursuant to his employment agreement with
the Corporation in connection with the Companys 2009
fiscal year; additionally Mr. Novinski will receive a one
time grant of options to purchase 300,000 shares in
connection with his compensation for 2009. However, given the
Companys current liquidity constraints, the Compensation
Committee, with the consent of Mr. Novinski, agreed to
defer the payment of the cash bonus until such time as the
Companys liquidity has stabilized and it has sufficient
funding to pay it. The Committee also determined that
Mr. Novinski would be paid a special one-time cash bonus of
$150,000 in connection with the successful completion of a
financing during 2009. However, in light of the Companys
current liquidity constraints, Mr. Novinski and the Company
also agreed to defer the payment of the $150,000 special cash
bonus until such time as the Companys liquidity has
stabilized and it has sufficient funding to pay it.
Mr. Novinskis Employment Contract allows for
severance payments to Mr. Novinski in the event of certain
terminations which call for payment of base salary plus bonus
(depending on the circumstances) plus the continuity of health
and life insurance benefits for specified time periods. In
addition, certain unvested options would vest immediately upon
such termination. The events which would trigger such payment by
the Company are defined in the agreement.
Grants of
Plan-Based Awards 2009
The following table sets forth information regarding grants of
plan-based awards in 2009:
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other
|
|
|
|
|
Option
|
|
|
|
|
|
|
|
|
Awards:
|
|
Exercise or
|
|
|
|
|
|
|
Number of
|
|
Base Price of
|
|
|
|
|
|
|
Securities
|
|
Option
|
|
Grant Date
|
|
|
|
|
Underlying
|
|
Awards
|
|
Fair Value of
|
Name
|
|
Grant Date
|
|
Options (#)
|
|
($/Sh)
|
|
Option Awards
|
|
Michael V. Novinski,
|
|
|
5/15/2009
|
|
|
|
300,000
|
|
|
$
|
0.93
|
|
|
$
|
239,759
|
|
President and CEO
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael R. Garone, VP,
|
|
|
3/12/2009
|
|
|
|
20,000
|
|
|
|
0.62
|
|
|
|
10,642
|
|
Chief Financial Officer and
Corporate Secretary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
M. Gary I. Riley DVM,
|
|
|
3/12/2009
|
|
|
|
20,000
|
|
|
|
0.62
|
|
|
|
10,642
|
|
PhD. VP of non-Clinical
Development and Applied Biology
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nicholas J. Hart,
|
|
|
3/12/2009
|
|
|
|
20,000
|
|
|
|
0.62
|
|
|
|
10,642
|
|
Vice President, Strategy
and Development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100
Outstanding
Equity Awards at Fiscal Year-End 2009
The following table sets forth information as to the number and
value of unexercised options held by the Executive Officers
named above as of December 31, 2009. There are no
outstanding stock awards with executive officers:
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|
|
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
Incentive
|
|
|
|
|
|
|
|
|
Number of
|
|
Plan Awards:
|
|
|
|
|
|
|
Number of
|
|
Securities
|
|
Number of
|
|
|
|
|
|
|
Shares
|
|
Underlying
|
|
Securities
|
|
|
|
|
|
|
Underlying
|
|
Unexercised
|
|
Underlying
|
|
|
|
|
|
|
Unexercised
|
|
Unearned
|
|
Unexercised
|
|
Option
|
|
Option
|
|
|
Options (#)
|
|
Options (#)
|
|
Unearned
|
|
Exercise
|
|
Expiration
|
Name
|
|
Exercisable
|
|
Unexercisable
|
|
Options (#)
|
|
Price ($)
|
|
Date
|
|
Michael V. Novinski,
|
|
|
375,000
|
|
|
|
125,000(1
|
)
|
|
|
|
|
|
$
|
3.19
|
|
|
|
4/6/2017
|
|
President and CEO
|
|
|
375,000
|
|
|
|
125,000(2
|
)
|
|
|
|
|
|
$
|
6.38
|
|
|
|
4/6/2017
|
|
|
|
|
200,000
|
|
|
|
100,000(3
|
)
|
|
|
|
|
|
$
|
0.93
|
|
|
|
5/15/2019
|
|
Michael R. Garone, VP,
|
|
|
30,000
|
|
|
|
45,000(4
|
)
|
|
|
|
|
|
$
|
4.03
|
|
|
|
8/29/2017
|
|
Chief Financial Officer
|
|
|
|
|
|
|
20,000(5
|
)
|
|
|
|
|
|
$
|
0.62
|
|
|
|
4/12/2019
|
|
and Corporate Secretary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
M. Gary I. Riley DVM,
|
|
|
50,000
|
|
|
|
25,000(6
|
)
|
|
|
|
|
|
$
|
4.02
|
|
|
|
11/6/2017
|
|
PhD. VP of non-Clinical
Development and Applied Biology
|
|
|
|
|
|
|
20,000(5
|
)
|
|
|
|
|
|
$
|
0.62
|
|
|
|
4/12/2019
|
|
Nicholas J. Hart,
|
|
|
15,000
|
|
|
|
60,000(7
|
)
|
|
|
|
|
|
$
|
2.71
|
|
|
|
7/14/2018
|
|
Vice President, Strategy
|
|
|
|
|
|
|
20,000(5
|
)
|
|
|
|
|
|
$
|
0.62
|
|
|
|
4/12/2019
|
|
and Development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
125,000 exercisable as of 4/6/2010 |
|
(2) |
|
125,000 exercisable as of 4/6/2010 |
|
(3) |
|
100,000 exercisable as of 12/31/2010 |
|
(4) |
|
15,000 exercisable as of 8/29/2010, 8/29/2011 and 8/29/2012,
respectively |
|
(5) |
|
5,000 exercisable as of 4/12/2010 and 4/12/2011; 10,000
exercisable as of 4/12/2012 |
|
(6) |
|
25,000 exercisable as of 11/6/2010 |
|
(7) |
|
15,000 exercisable as of 7/14/2010, 7/14/2011, 7/14/2012 and
7/14/2013, respectively |
Option
Exercises and Stock Vested 2009
There were no stock options exercised by Executive Officers
during 2009.
Compensation
Committee Report
The Compensation Committee operates under a written charter
adopted by the Board of Directors. The Compensation Committee
charter can be found on our website at www.emisphere.com. The
contents of our website are not incorporated herein by reference
and the website address provided in this Proxy Statement is
intended to be an inactive textual reference only.
The Compensation Committee is responsible for the consideration
of stock plans, performance goals and incentive awards, and the
overall coverage and composition of the compensation
arrangements related to executive officers. The Compensation
Committee may delegate any of the foregoing duties and
responsibilities to a subcommittee of the Compensation Committee
consisting of not less than two members of the committee. The
Compensation Committee has the authority to retain, at the
expense of the Company, such outside counsel, experts and other
advisors as deemed appropriate to assist it in the full
performance of its functions. The Companys Chief Executive
Officer is involved in making recommendations to the
Compensation Committee for compensation of executive officers
(except for himself) as well as recommending compensation levels
for directors.
101
Our executive compensation program is administered by the
Compensation Committee of the Board of Directors. The
Compensation Committee, which is composed of non-employee
independent directors, is responsible for reviewing with Company
management and approving compensation policy and all forms of
compensation for executive officers and directors in light of
the Companys current business environment and the
Companys strategic objectives. In addition, the
Compensation Committee acts as the administrator of the
Companys stock option plans. The Compensation
Committees practices include reviewing and establishing
executive officers compensation to ensure that base pay
and incentive compensation are competitive to attract and retain
qualified executive officers, and to provide incentive systems
reflecting both financial and operating performance, as well as
an alignment with stockholder interests. These policies are
based on the principle that total compensation should serve to
attract and retain those executives critical to the overall
success of Emisphere and should reward executives for their
contributions to the enhancement of stockholder value.
The Compensation Committee oversees risk management as it
relates to our compensation plans, policies and practices in
connection with structuring our executive compensation programs
and reviewing our incentive compensation programs for other
employees. The committee considered risk when developing our
compensation programs and believes that the design of our
current compensation programs do not encourage excessive or
inappropriate risk taking. Our base salaries provide competitive
fixed compensation, while annual cash bonuses and equity-based
awards encourage long-term consideration rather than short-term
risk taking.
The Compensation Committee has reviewed the Compensation
Discussion and Analysis presented herein under
Compensation Plans with the management of the
Company. Based on that review and discussion, the Compensation
Committee recommended to the Board of Directors that the
Compensation Discussion and Analysis be included in the
Form 10-K
and Proxy Statement of the Company.
The Members of the Compensation Committee
Michael Weiser, M.D., Ph.D. (Chairman)
Mark H. Rachesky, M.D.
Audit
Committee Report
The Audit Committee operates under a written charter adopted by
the Board of Directors. The Audit Committee has reviewed the
relevant standards of the Sarbanes-Oxley Act of 2002, the rules
of the SEC, and the corporate governance listing standards of
the Nasdaq regarding committee policies. The committee intends
to further amend its charter, if necessary, as the applicable
rules and standards evolve to reflect any additional
requirements or changes. The updated Audit Committee charter can
be found on our website at www.emisphere.com. The
contents of our website are not incorporated herein by reference
and the website address provided in this Proxy Statement is
intended to be an inactive textual reference only.
The Audit Committee is currently comprised of John D.
Harkey, Jr., (chairman), Timothy G. Rothwell, who was
appointed to the Committee on January 6, 2010, and Michael
Weiser, M.D. All of the members of the Audit Committee are
independent within the meaning of Rule 4200 of the Nasdaq.
The Board of Directors has determined that John D.
Harkey, Jr. is an Audit Committee financial
expert, within the meaning of Item 401(h) of
Regulation S-K.
On January 6, 2010, the Company dismissed
PricewaterhouseCoopers LLP (PwC) as the
Companys independent registered public accountants. This
action was approved on January 6, 2010 by the Audit
Committee of the Board of Directors of the Company. PwCs
audit reports on the Companys consolidated financial
statements as of and for the years ended December 31, 2008
and 2007 did not contain an adverse opinion or a disclaimer of
opinion and were not qualified or modified as to uncertainty,
audit scope or accounting principles, except that for each of
the years ended December 31, 2008 and 2007 PwCs
reports contained an explanatory paragraph expressing
substantial doubt about the Companys ability to continue
as a going concern. During the Companys two most recent
fiscal years ended December 31, 2007 and 2008, in
subsequent interim periods through January 6, 2010, there
were no disagreements with PwC on any matter of accounting
principles or practices, financial statement disclosure, or
auditing scope or procedure, which disagreements, if not
resolved to the satisfaction of PwC, would have caused PwC to
make reference to the matter in their reports, and there were no
reportable events (as defined in
Item 304(a)(1)(v) of
Regulation S-K).
102
On January 6, 2010, with the approval of the Audit
Committee of the Company, the Company engaged
McGladrey & Pullen, LLP (M&P) to act
as its independent registered public accounting firm. During the
years ended December 2007, and 2008, respectively, in the
subsequent interim periods through January 5, 2010, neither
the Company or anyone acting on its behalf had consulted with
M&P on any of the matters or events set forth in
Item 304(a)(2) of
Regulation S-K.
Management has primary responsibility for the Companys
financial statements and the overall reporting process,
including the Companys system of internal control over
financial reporting. M&P, the Companys independent
registered public accountants, audit the annual financial
statements prepared by management, express an opinion as to
whether those financial statements fairly present the
consolidated financial position, results of operations and cash
flows of the Company and its subsidiaries in conformity with
accounting principles generally accepted in the United States,
and report on internal control over financial reporting.
M&P reports to the Audit Committee as members of the Board
of Directors and as representatives of the Companys
stockholders.
The Audit Committee meets with management periodically to
consider the adequacy of the Companys internal control
over financial reporting and the objectivity of its financial
reporting. The Audit Committee discusses these matters with the
appropriate Company financial personnel. In addition, the Audit
Committee has discussions with management concerning the process
used to support certifications by the Companys Chief
Executive Officer and Chief Financial Officer that are required
by the SEC and the Sarbanes-Oxley Act to accompany the
Companys periodic filings with the SEC.
On an as needed basis, the Audit Committee meets privately with
M&P. The Audit Committee also appoints the independent
registered public accounting firm, approves in advance their
engagements to perform audit and any non-audit services and the
fee for such services, and periodically reviews their
performance and independence from management. In addition, when
appropriate, the Audit Committee discusses with M&P plans
for the audit partner rotation required by the Sarbanes-Oxley
Act.
Pursuant to its charter, the Audit Committee assists the board
in, among other things, monitoring and reviewing (i) our
financial statements, (ii) our compliance with legal and
regulatory requirements and (iii) the independence,
performance and oversight of our independent registered public
accounting firm. Under the Audit Committee charter, the Audit
Committee is required to make regular reports to the board.
During the 2009 Fiscal Year, the Audit Committee of the Board of
Directors reviewed and assessed:
|
|
|
|
|
the quality and integrity of the annual audited financial
statements with management, including issues relating to
accounting and auditing principles and practices, as well as the
adequacy of internal controls, and compliance with regulatory
and legal requirements;
|
|
|
|
the qualifications and independence of the independent
registered public accounting firm; and
|
|
|
|
managements, as well as the independent auditors,
analysis regarding financial reporting issues and judgments made
in connection with the preparation of our financial statements,
including those prepared quarterly and annually, prior to filing
our quarterly reports on
Form 10-Q
and annual report on
Form 10-K.
|
The Audit Committee has reviewed the audited financial
statements and has discussed them with both management and
M&P, the independent registered public accounting firm. The
Audit Committee has discussed with the independent auditors
matters required to be discussed by the applicable Auditing
Standards as periodically amended (including significant
accounting policies, alternative accounting treatments and
estimates, judgments and uncertainties). In addition, the
independent auditors provided to the Audit Committee the written
disclosures required by the applicable requirements of the
Public Company Accounting Oversight Board regarding the
independent auditors communications with the Audit
Committee concerning independence, and the Audit Committee and
the independent auditors have discussed the auditors
independence from the Company and its management, including the
matters in those written disclosures. The Audit Committee also
received reports from M&P regarding all critical accounting
policies and practices used by the Company, any alternative
treatments of financial information used, generally accepted
accounting principles that have
103
been discussed with management, ramifications of the use of
alternative treatments and the treatment preferred by M&P
and other material written communications between M&P and
management, including management letters and schedules of
adjusted differences.
In making its decision to select M&P as Emispheres
independent registered public accounting firm for 2010, the
Audit Committee considers whether the non-audit services
provided by M&P are compatible with maintaining the
independence of M&P.
Based upon the review and discussions referenced above, the
Audit Committee, as comprised at the time of the review and with
the assistance of the Companys Chief Financial Officer,
recommended to the Board of Directors that the audited financial
statements be included in our Annual Report on
Form 10-K
for the fiscal year ended December 31, 2009 and be filed
with the SEC.
The Members of the Audit Committee
John D. Harkey, Jr. (Chairman)
Timothy G. Rothwell
Michael Weiser, M.D.
Compensation
of Non-Employee Directors
A director who is a full-time employee of the Company receives
no additional compensation for services provided as a director.
It is the Companys policy to provide competitive
compensation and benefits necessary to attract and retain high
quality non-employee directors and to encourage ownership of
Company stock to further align their interests with those of
stockholders. The following represents the compensation of the
non-employee members of the Board of Directors:
|
|
|
|
|
Prior to June 24, 2009, each non-employee director
received, on the date of each regular annual stockholders
meeting, a stock option to purchase 7,000 shares of our
Common Stock under the 2007 Stock Award and Incentive Plan. The
stock options vest on the six month anniversary of the grant
date provided the director continuously serves as a director
from the grant date through such vesting date. Notwithstanding
the foregoing, any director who holds any stock options granted
before April 1, 2004 which remain unvested was ineligible
to receive the annual 7,000-share stock option grant described
in this paragraph unless and until all such prior options had
vested. Stock options granted in 2009 have a stated expiration
date of ten years after the date of grant, and are subject to
accelerated vesting upon a change in control of Emisphere. If
the holder of an option ceases to serve as a director, all
previously granted options may be exercised to the extent vested
within six months after termination of directorship (one year if
the termination is by reason of death), except that, after
April 1, 2004 (unless otherwise provided in an option
agreement), if a director becomes an emeritus
director of Emisphere immediately following his Board
service, the vested options may be exercised for six months
after termination of service as an emeritus
director. All unvested options expire upon termination of
Board service.
|
|
|
|
On May 15, 2009, in recognition of the roles and
responsibilities of the Board of Directors and current market
data, the non-employees members of the Board of Directors
compensation was revised to include a special one-time grant of
50,000 options to purchase shares of Common Stock granted on
May 15, 2009, an annual retainer of $35,000, payable
quarterly in cash, and an annual stock option grant of 40,000
options to purchase shares of Common Stock. The annual stock
option grants are granted each year on the date of the annual
meeting of stockholders of the Company. The director must be an
eligible director on the dates the retainers are paid and the
stock options are granted. The options subject to the special
one-time stock option grant and annual stock option grant would
vest over three years in equal amounts on each anniversary of
the grant date provided the director continuously serves as a
director from the grant date through such vesting date, subject
to accelerated vesting upon a change in control of Emisphere.
Such options, once vested, remain exercisable through the period
of the option term.
|
|
|
|
All newly appointed directors shall receive an initial stock
option grant on the date of appointment of 50,000 options to
purchase shares of Common Stock. The options subject to such
initial stock option grant vest over three years in equal
amounts on each anniversary of the grant date provided the
director
|
104
|
|
|
|
|
continuously serves as a director from the grant date through
such vesting date, subject to accelerated vesting upon a change
in control of Emisphere. Such options, once vested, remain
exercisable through the period of the option term.
|
|
|
|
|
|
On May 15, 2009, Messrs. Moch and Berger, who
comprised the Special Committee of the Board of Directors, each
received a one-time special stock option grant of
25,000 shares of Common Stock and a one-time fee of
$10,000. Also on May 15, 2009, Messrs. Weiser, Harkey
and Rachesky received a one-time special stock option grant of
25,000 shares of Common Stock and a one-time fee of $10,000
in recognition for their length of service on the Board of
Directors. The options subject to these one-time stock option
grants vest over three years in equal amounts on each
anniversary of the grant date provided the director continuously
serves as a director from the grant date through such vesting
date, subject to accelerated vesting upon a change in control of
Emisphere. Such options, once vested, remain exercisable through
the period of the option term.
|
|
|
|
Additional committee and chairperson fees are paid as follows:
|
|
|
|
|
|
$10,000 audit committee chairperson fee;
|
|
|
|
$2,500 audit committee member fee;
|
|
|
|
$5,000 compensation committee chairperson fee;
|
|
|
|
$1,000 compensation committee member fee;
|
|
|
|
$2,500 governance and nominating committee chairperson
fee; and
|
|
|
|
$500 governance and nominating committee member fee.
|
The director must be an eligible director on the dates such fees
are paid.
Director
Compensation Table 2009
The table below represents the compensation paid to our
non-employee directors during the year ended December 31,
2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees Earned
|
|
Stock
|
|
Option
|
|
All Other
|
|
|
|
|
or Paid
|
|
Awards
|
|
Awards
|
|
Compensation
|
|
Total
|
Name
|
|
in Cash ($)
|
|
($)(1)
|
|
($)(1)
|
|
($)
|
|
($)
|
|
Franklin M. Berger(2)
|
|
|
23,918
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,918
|
|
Stephen K. Carter, M.D.(3)
|
|
|
5,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,000
|
|
Kenneth I. Moch(4)
|
|
|
39,980
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39,980
|
|
John D. Harkey, Jr.
|
|
|
31,365
|
|
|
|
|
|
|
|
16,941
|
|
|
|
|
|
|
|
48,306
|
|
Mark H. Rachesky, M.D.
|
|
|
31,519
|
|
|
|
|
|
|
|
19,756
|
|
|
|
|
|
|
|
51,275
|
|
Timothy G. Rothwell
|
|
|
|
|
|
|
|
|
|
|
1,466
|
|
|
|
|
|
|
|
1,466
|
|
Michael Weiser, M.D.
|
|
|
39,250
|
|
|
|
|
|
|
|
16,941
|
|
|
|
|
|
|
|
56,191
|
|
|
|
|
(1) |
|
The value listed in the above table represents the fair value of
the options recognized as expense under FASB ASC Topic 718
during 2009, including unvested options granted before 2009 and
those granted in 2009. Fair value is calculated as of the grant
date using a Black-Scholes-Merton (Black-Scholes)
option-pricing model. The determination of the fair value of
share-based payment awards made on the date of grant is affected
by our stock price as well as assumptions regarding a number of
complex and subjective variables. Our assumptions in determining
fair value are described in note 12 to our audited
financial statements for the year ended December 31, 2009,
included in our Annual Report on
Form 10-K. |
|
(2) |
|
Mr. Berger resigned from the Board of Directors effective
October 23, 2009. |
|
(3) |
|
Dr. Carter resigned from the Board of Directors effective
April 30, 2009. |
|
(4) |
|
Mr. Moch resigned from the Board of Directors effective
November 10, 2009. |
105
The following table summarizes the aggregate number of option
awards and stock awards held by each non-employee director at
December 31, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
Stock Awards
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Awards:
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
Number of
|
|
|
|
|
|
Number of
|
|
Market
|
|
|
Number of
|
|
Securities
|
|
Securities
|
|
|
|
|
|
Shares of
|
|
Value of
|
|
|
Securities
|
|
Underlying
|
|
Underlying
|
|
|
|
|
|
Units of
|
|
Shares or
|
|
|
Underlying
|
|
Unexercised
|
|
Unexercised
|
|
|
|
|
|
Stock That
|
|
Units of
|
|
|
Unexercised
|
|
Unearned
|
|
Unearned
|
|
Option
|
|
Option
|
|
Have not
|
|
Stock That
|
|
|
Options (#)
|
|
Options (#)
|
|
Options
|
|
Exercise
|
|
Expiration
|
|
Vested
|
|
Have not
|
Name
|
|
Exercisable
|
|
Unexercisable
|
|
(#)
|
|
Price ($)
|
|
Date
|
|
(#)
|
|
Vested ($)
|
|
John D. Harkey, Jr.
|
|
|
7,000
|
|
|
|
|
|
|
|
|
|
|
|
8.97
|
|
|
|
5/26/2016
|
|
|
|
|
|
|
|
|
|
|
|
|
7,000
|
|
|
|
|
|
|
|
|
|
|
|
3.76
|
|
|
|
4/20/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
7,000
|
|
|
|
|
|
|
|
|
|
|
|
3.79
|
|
|
|
8/8/2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
75,000
|
|
|
|
|
|
|
|
0.93
|
|
|
|
5/15/2019
|
|
|
|
|
|
|
|
|
|
Mark H. Rachesky, M.D.
|
|
|
7,000
|
|
|
|
|
|
|
|
|
|
|
|
3.76
|
|
|
|
4/20/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
7,000
|
|
|
|
|
|
|
|
|
|
|
|
3.79
|
|
|
|
8/8/2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
75,000
|
|
|
|
|
|
|
|
0.93
|
|
|
|
5/15/2019
|
|
|
|
|
|
|
|
|
|
Michael Weiser, M.D.
|
|
|
7,000
|
|
|
|
|
|
|
|
|
|
|
|
8.97
|
|
|
|
5/26/2016
|
|
|
|
|
|
|
|
|
|
|
|
|
7,000
|
|
|
|
|
|
|
|
|
|
|
|
3.76
|
|
|
|
4/20/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
7,000
|
|
|
|
|
|
|
|
|
|
|
|
3.79
|
|
|
|
8/8/2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
75,000
|
|
|
|
|
|
|
|
0.93
|
|
|
|
5/15/2019
|
|
|
|
|
|
|
|
|
|
Timothy G. Rothwell
|
|
|
|
|
|
|
50,000
|
|
|
|
|
|
|
|
0.70
|
|
|
|
11/5/2019
|
|
|
|
|
|
|
|
|
|
|
|
ITEM 12.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
|
Securities
Available For Future Issuance Under Equity Plans
The following table provides information as of December 31,
2009 about the Common Stock that may be issued upon the exercise
of options granted to employees, consultants or members of our
Board of Directors under our existing equity compensation plans,
including the 1991 Stock Option Plan, 1995 Stock Option Plan,
2000 Stock Option Plan, the 2002 Broad Based Plan, the 2007
Stock Award and Incentive Plan (collectively the
Plans) the Stock Incentive Plan for Outside
Directors and the Directors Deferred Compensation Plan:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
|
|
|
|
(c)
|
|
|
|
Number of
|
|
|
|
|
|
Number of Securities
|
|
|
|
Securities to be
|
|
|
(b)
|
|
|
Remaining Available for
|
|
|
|
Issued Upon
|
|
|
Weighted Average
|
|
|
Future Issuance Under
|
|
|
|
Exercise of
|
|
|
Exercise Price
|
|
|
Equity Compensation Plans
|
|
|
|
Outstanding
|
|
|
of Outstanding
|
|
|
(Excluding Securities
|
|
Plan Category
|
|
Options
|
|
|
Options
|
|
|
Reflected in Column (a))
|
|
|
Equity Compensation Plans Approved by Security Holders
|
|
|
|
|
|
|
|
|
|
|
|
|
The Plans
|
|
|
2,734,736
|
|
|
$
|
6.29
|
|
|
|
2,055,977
|
|
Stock Incentive Plan for Outside Directors
|
|
|
121,000
|
|
|
|
15.59
|
|
|
|
|
|
Directors Deferred Compensation Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Compensation Plans not approved by Security
Holders(1)
|
|
|
10,000
|
|
|
|
3.64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
2,865,736
|
|
|
$
|
6.29
|
|
|
|
2,055, 977
|
|
|
|
|
(1) |
|
Our Board of Directors has granted options which are currently
outstanding for a former consultant. The Board of Directors
determines the number and terms of each grant (option exercise
price, vesting and expiration date). These grants were made on
7/12/2002 and 7/14/2003. |
106
Common
Stock Ownership by Directors and Executive Officers and
Principal Holders
Directors,
Executive Officers and Principal Holder of Common
Stock
The following table sets forth certain information, as of
March 1, 2010, regarding the beneficial ownership of the
Common Stock by (i) each director, including the Director
Nominees; (ii) each Executive Officer; (iii) all of
our directors and Executive Officers as a group; and
(iv) information regarding beneficial owners of more than
five (5%) percent of the outstanding shares of Common Stock as
of March 1, 2010. The number of shares beneficially owned
by each director or Executive Officer is determined under the
rules of the SEC, and the information is not necessarily
indicative of beneficial ownership for any other purpose. Under
these rules, beneficial ownership includes any shares as to
which the individual has the sole or shared voting power (which
includes power to vote, or direct the voting of, such security)
or investment power (which includes power to dispose of, or
direct the disposition of, such security). In computing the
number of shares beneficially owned by a person and the
percentage ownership of that person, shares of Common Stock
subject to options, warrants or convertible notes held by that
person that are currently exercisable or convertible into Common
Stock or will become exercisable or convertible into Common
Stock within 60 days after March 1, 2010 are deemed
outstanding, while such shares are not deemed outstanding for
purposes of computing percentage ownership of any other person.
Unless otherwise indicated, all persons named as beneficial
owners of Common Stock have sole voting power and sole
investment power with respect to the shares indicated as
beneficially owned:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Shares
|
|
|
|
|
|
|
Beneficially Owned
|
|
Common Shares
|
|
Percent
|
Name and Address(a)
|
|
(b)
|
|
Underlying Options
|
|
Of Class
|
|
Michael V. Novinski
|
|
|
1,340,000
|
|
|
|
1,300,000
|
|
|
|
3.1
|
%
|
Michael R. Garone
|
|
|
35,000
|
|
|
|
35,000
|
|
|
|
*
|
|
Gary Riley, DVM, Ph.D.
|
|
|
75,500
|
|
|
|
55,000
|
|
|
|
*
|
|
Nicholas Hart
|
|
|
20,000
|
|
|
|
20,000
|
|
|
|
*
|
|
Mark H. Rachesky, M.D.
|
|
|
21,730,242
|
(c)
|
|
|
11,044,545
|
(d)
|
|
|
40.9
|
%
|
Timothy Rothwell
|
|
|
|
|
|
|
|
|
|
|
*
|
|
Michael Weiser, M.D.
|
|
|
24,775
|
|
|
|
21,000
|
|
|
|
*
|
|
John D. Harkey, Jr.
|
|
|
24,775
|
|
|
|
21,000
|
|
|
|
*
|
|
All directors and executive officers as a group
|
|
|
23,250,292
|
|
|
|
12,496,545
|
|
|
|
44.4
|
%
|
|
|
|
* |
|
Less than 1% |
|
(a) |
|
Unless otherwise specified, the address of each beneficial owner
is
c/o Emisphere
Technologies, Inc., 240 Cedar Knolls Road, Suite 200,
Cedar Knolls, New Jersey 07927. |
|
(b) |
|
The number of shares set forth for each Director and Executive
Officer consists of direct and indirect ownership of shares,
including stock options, deferred common share units, restricted
stock and, in the case of Dr. Rachesky, shares of Common
Stock that can be obtained upon conversion of convertible notes
and exercise of warrants, as further described in footnotes
(c) and (d) below. |
|
(c) |
|
This number consists of: |
|
|
|
|
|
10,685,697 shares of Common Stock held for the accounts of
the following entities:
|
|
|
|
|
|
4,331,164 shares held for the account of MHR Capital
Partners Master Account LP (Master Account)
|
|
|
|
589,045 shares held for the account of MHR Capital Partners
(100) LP (Capital Partners (100))
|
|
|
|
1,636,741 shares held for the account of MHR Institutional
Partners II LP (Institutional Partners II)
|
107
|
|
|
|
|
4,123,449 shares held for the account of MHR Institutional
Partners IIA LP (Institutional Partners IIA)
|
|
|
|
5,298 shares held directly by Mark H. Rachesky, M.D.
|
|
|
|
|
|
6,205,564 shares of Common Stock that can be obtained by
the following entities upon conversion of the Convertible Notes,
including 222,418 shares of Common Stock issuable to the
following entities as payment for accrued but unpaid interest on
the Convertible Notes since the most recent interest payment
date (December 31, 2009) through the date that is
60 days after March 1, 2010:
|
|
|
|
|
|
1,249,599 shares held by Master Account
|
|
|
|
170,885 shares held by Capital Partners (100)
|
|
|
|
1,359,666 shares held by Institutional Partners II
|
|
|
|
3,425,414 shares held by Institutional Partners IIA
|
|
|
|
|
|
4,824,981 shares of Common Stock that can be obtained by
the following entities upon exercise of warrants:
|
|
|
|
|
|
1,585,569 shares held by Master Account
|
|
|
|
217,782 shares held by Capital Partners (100)
|
|
|
|
858,587 shares held by Institutional Partners II
|
|
|
|
2,163,043 shares held by Institutional Partners IIA
|
|
|
|
|
|
7,000 shares of Common Stock that can be obtained by
Dr. Rachesky upon the exercise of currently vested stock
options at a price of $3.76 per share
|
|
|
|
7,000 shares of Common Stock that can be obtained by
Dr. Rachesky upon the exercise of currently vested stock
options at a price of $3.79 per share
|
MHR Advisors LLC (Advisors) is the general partner
of each of Master Account and Capital Partners (100), and, in
such capacity, may be deemed to beneficially own the shares of
Common Stock held for the accounts of each of Master Account and
Capital Partners (100). MHR Institutional Advisors II LLC
(Institutional Advisors II) is the general partner
of each of Institutional Partners II and Institutional
Partners IIA, and, in such capacity, may be deemed to
beneficially own the shares of Common Stock held for the
accounts of each of Institutional Partners II and
Institutional Partners IIA. MHR Fund Management LLC
(Fund Management) is a Delaware limited
liability company that is an affiliate of and has an investment
management agreement with Master Account, Capital Partners
(100), Institutional Partners II and Institutional Partners
IIA, and other affiliated entities, pursuant to which it has the
power to vote or direct the vote and to dispose or to direct the
disposition of the shares of Common Stock held by such entities
and, accordingly, Fund Management may be deemed to beneficially
own the shares of Common Stock held for the account of each of
Master Account, Capital Partners (100), Institutional
Partners II and Institutional Partners IIA.
Dr. Rachesky is the managing member of Advisors,
Institutional Advisors II, and Fund Management, and, in
such capacity, may be deemed to beneficially own the shares of
Common Stock held for the accounts of each of Master Account,
Capital Partners (100), Institutional Partners II and
Institutional Partners IIA.
|
|
|
(d) |
|
This number consists of (i) 6,205,564 shares of Common
Stock that can be obtained by Master Account, Capital Partners
(100), Institutional Partners II and Institutional Partners
IIA upon conversion of the Convertible Notes,
(ii) 4,824,981 shares of Common Stock that can be
obtained by Master Account, Capital Partners (100),
Institutional Partners II and Institutional Partners IIA
upon exercise of warrants, (iii) 14,000 shares of
Common Stock that can be obtained by Dr. Rachesky upon the
exercise of currently vested stock options,. |
108
|
|
ITEM 13.
|
CERTAIN
RELATIONSHIPS, RELATED TRANSACTIONS AND DIRECTOR
INDEPENDENCE
|
Related
Party Transaction Approval Policy
In February 2007, our Board of Directors adopted a written
related party transaction approval policy, which sets forth our
Companys polices and procedures for the review, approval
or ratification of any transaction required to be reported in
our filings with the Securities and Exchange Commission. The
Companys policy with regard to related party transactions
is that all material transactions non-compensation related are
to be reviewed by the Audit Committee for any possible conflicts
of interest. The Compensation Committee will review all material
transactions that are related to compensation. All related party
transactions approved by either the Audit Committee or
Compensation Committee shall be disclosed to the Board of
Directors at the next meeting.
Employment
Agreement with Michael V. Novinski, President and Chief
Executive Officer
On April 6, 2007, the Company entered into an Employment
Agreement with Michael V. Novinski, setting forth the terms and
conditions of his employment as President and Chief Executive of
the Company. The Agreement is for a term of three years,
renewable annually thereafter. Under the Agreement,
Mr. Novinski will receive a base salary of $550,000 per
year, less applicable local, state and federal withholding
taxes. Mr. Novinski was also granted options to purchase
1,000,000 shares of the Companys Common Stock; the
exercise price for 500,000 of the shares was $3.19, the fair
market value of the Common Stock on the date of grant, and the
exercise price for the remaining 500,000 shares is equal to
two times the fair market value of the Common Stock on the date
of grant. At December 31, 2009, options to purchase
750,000 shares were vested; another twenty-five percent
(250,000 shares) will vest on the third anniversary of the
date of grant. In addition, he will be eligible for an annual
cash bonus up to $550,000 (based on a full calendar year). In
view of the Companys current liquidity constraints, the
Committee determined, and Mr. Novinski agreed, that he
would be paid a $150,000 cash bonus pursuant to his employment
agreement with the Corporation in respect of the Companys
2009 fiscal year; additionally Mr. Novinski will receive a
one time grant of options to purchase 300,000 shares in
connection with his compensation for 2009. However, given of the
Companys current liquidity constraints, the Compensation
Committee, with the consent of Mr. Novinski, agreed to
defer the payment of the cash bonus until such time as the
Companys liquidity has stabilized and it has sufficient
funding to pay it. The Committee also determined that
Mr. Novinski would be paid a special one-time cash bonus of
$150,000 in connection with the successful completion of a
financing during 2009. However, in light of the Companys
current liquidity constraints, Mr. Novinski and the Company
also agreed to defer the payment of the $150,000 special cash
bonus until such time as the Companys liquidity has
stabilized and it has sufficient funding to pay it.
Mr. Novinskis Employment Contract allows for
severance payments to Mr. Novinski in the event of certain
terminations which call for payment of base salary plus bonus
(depending on the circumstances) plus the continuity of health
and life insurance benefits for specified time periods. In
addition, certain unvested options would vest immediately upon
such termination. The events which would trigger such payment by
the Company are defined in the agreement.
In addition, Mr. Novinskis Employment Agreement
provides that he will be provided (a) four weeks paid
vacation, a car allowance of $18,000 per year (up to $1,500 per
month), and reimbursement of up to $15,000 of life insurance
payments per year. If Emisphere terminates Mr. Novinski
without Cause or if Mr. Novinski terminates his employment
for Good Reason (each capitalized term as defined in the
Employment Agreement), subject to certain conditions,
Mr. Novinski will be entitled to (a) payment of salary
through the termination date, (b) payment of pro-rata bonus
based on the target bonus for the year of termination,
(c) payment equal to nine months of salary,
(d) acceleration of the next two scheduled vesting dates of
the above option grants, (all options will be accelerated in the
event of a Change in Control as defined in the Employment
Agreement), (e) continued participation in Emispheres
health benefit plan for up to 12 months, and
(f) payment of benefits or other amounts earned, accrued,
or owning under Emispheres plans or programs.
If Emisphere terminates Mr. Novinskis employment due
to Death or Long-Term Disability (each capitalized term as
defined in the Employment Agreement), subject to certain
conditions, Mr. Novinski will be
109
entitled to (a) payment of salary through the termination
date, (b) payment of pro-rata bonus based on the target
bonus for the year of termination, (c) acceleration of the
scheduled vesting dates of the above option grants,
(d) continued participation in Emispheres health
benefit plan for up to 12 months, and (e) payment of
benefits or other amounts earned, accrued or owning under
Emispheres plans or programs.
Agreement
with M. Gary I. Riley, Vice President on Non-Clinical
Development and Applied Biology
The Company has an agreement with M. Gary I. Riley by which, in
the event that there is a Change in Control during
Mr. Rileys first twenty-four months of employment at
Emisphere resulting in termination of employment during such
twenty-four month period, a severance amount, equivalent to one
years base salary (excluding bonus and relocation
assistance), will be provided to the executive. In the event
there is a Change in Control after Mr. Rileys first
twenty-four months of employment, a severance amount, equivalent
to six months base salary, will be provided to him.
In addition, in the event that there is a Change in Control
during Mr. Rileys employment at Emisphere resulting
in termination of employment, he shall receive, in addition to
the options already vested and subject to approval by the Board
of Directors, immediate vesting of all remaining options as set
forth in the Plan.
Agreement
with Nicholas J. Hart, Vice President, Strategy and
Development
The Company has an agreement with Nicholas J. Hart by which, in
the event that there is a Change in Control during
Mr. Harts term of employment at Emisphere resulting
in termination of employment, a severance amount, equivalent to
six months base salary (excluding bonus) will be provided
to Mr. Hart.
In addition, in the event that there is a Change in Control
during his employment at Emisphere resulting in termination of
employment, he shall receive, in addition to the options already
vested and subject to approval by the Board of Directors,
immediate vesting of all remaining options as set forth in the
Plan.
Information
about Board of Directors
Our business is overseen by the Board of Directors. It is the
duty of the Board of Directors to oversee the Chief Executive
Officer and other senior management in the competent and ethical
operation of the Company on a
day-to-day
basis and to assure that the long-term interests of the
stockholders are being served. To satisfy this duty, our
directors take a proactive, focused approach to their position,
and set standards to ensure that the Company is committed to
business success through maintenance of the highest standards of
responsibility and ethics. The Board of Directors is kept
advised of our business through regular verbal or written
reports, Board of Directors meetings, and analysis and
discussions with the Chief Executive Officer and other officers
of the Company.
Members of the Board of Directors bring to us a wide range of
experience, knowledge and judgment. Our governance organization
is designed to be a working structure for principled actions,
effective decision-making and appropriate monitoring of both
compliance and performance.
The Board of Directors has affirmatively determined that
Dr. Stephen K. Carter, Mr. John D. Harkey, Jr.,
Dr. Mark H. Rachesky, Mr. Timothy G. Rothwell,
Dr. Michael Weiser, Mr. Kenneth I. Moch, and
Mr. Franklin M. Berger are independent directors within the
meaning of Rule 4200 of the Marketplace Rules of the Nasdaq
Stock Market, Inc. (Nasdaq). The independent
directors meet in separate sessions at the conclusion of board
meetings and at other times as deemed necessary by the
independent directors, in the absence of Mr. Michael V.
Novinski, the sole non-independent director. Dr. Carter
resigned from the Board of Directors effective April 30,
2009. Mr. Berger resigned the Board of Directors effective
October 23, 2009. Mr. Moch resigned from the Board of
Directors effective November10, 2009. None of the members of the
Board of Directors currently serve as Chairman; leadership of
the Board is provided through consensus of the Directors.
Matters are explored in Committee and brought to the full Board
for discussion or action.
110
Committees
of the Board of Directors
The Board of Directors has established an Audit Committee, a
Compensation Committee and a Governance and Nominating
Committee. Each of the committees of the Board of Directors acts
pursuant to a separate written charter adopted by the Board of
Directors. On March 31, 2009, the Board of Directors also
established a Special Committee consisting of Mr. Moch and
Mr. Berger. The Special Committee was disbanded on
September 22, 2009.
The Audit Committee is currently comprised of Mr. Harkey
(chairman), Mr. Rothwell and Dr. Weiser. Mr. Moch
served on the Audit Committee between December 23, 2008 and
November 10, 2009. Mr. Rothwell became a member of the
Audit Committee on January 6, 2010. All members of the
Audit Committee are independent within the meaning of
Rule 4200 of the Nasdaq. The Board of Directors has
determined that Mr. Harkey is an Audit Committee
financial expert, within the meaning of Item 401(h)
of
Regulation S-K.
The Audit Committees responsibilities and duties are
summarized in the report of the Audit Committee and in the Audit
Committee charter which is available on our website
(www.emisphere.com).
The Compensation Committee is currently comprised of
Dr. Weiser (chairman) and Dr. Rachesky.
Dr. Carter served on the Compensation Committee until
February 12, 2009. Mr. Moch served on the Compensation
Committee between February 12, 2009 and November 10,
2009. All members of the Compensation Committee are independent
within the meaning of Rule 4200 of the Nasdaq, non-employee
directors within the meaning of the rules of the Securities and
Exchange Commission and outside directors within the
meaning set forth under Internal Revenue Code
Section 162(m). The Compensation Committees
responsibilities and duties are summarized in the report of the
Compensation Committee and in the Compensation Committee charter
also available on our website.
The Governance and Nominating Committee is currently comprised
of Dr. Weiser (chairman) and Dr. Rachesky.
Dr. Carter served on the Governance and Nominating
Committee until February 12, 2009. Mr. Moch served on
the Governance and Nominating Committee between
February 12, 2009 and November 10, 2009. All members
of the Governance and Nominating Committee are independent
within the meaning of Rule 4200 of the Nasdaq. The
Governance and Nominating Committees responsibilities and
duties are set forth in the Governance and Nominating Committee
charter on our website. Among other things, the Governance and
Nominating Committee is responsible for recommending to the
board the nominees for election to our Board of Directors and
the identification and recommendation of candidates to fill
vacancies occurring between annual stockholder meetings.
The table below provides membership information for each
committee of the Board of Directors during 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Governance
|
|
|
Name
|
|
Board
|
|
Audit
|
|
Compensation
|
|
and Nominating
|
|
|
|
Kenneth I. Moch(1)
|
|
|
X
|
|
|
|
X
|
|
|
|
X
|
|
|
|
X
|
|
|
|
|
|
Michael V. Novinski(2)
|
|
|
X
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mark H. Rachesky, M.D.(2)
|
|
|
X
|
|
|
|
|
|
|
|
X
|
|
|
|
X
|
|
|
|
|
|
Michael Weiser, M.D.(2)(4)
|
|
|
X
|
|
|
|
X
|
|
|
|
X
|
*
|
|
|
X
|
*
|
|
|
|
|
Franklin M. Berger(3)(5)
|
|
|
X
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stephen K. Carter, M.D.(3)(6)
|
|
|
X
|
|
|
|
|
|
|
|
X
|
|
|
|
X
|
|
|
|
|
|
John D. Harkey, Jr.(3)
|
|
|
X
|
|
|
|
X
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
Timothy G. Rothwell(3)
|
|
|
X
|
|
|
|
X
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Chair |
|
(1) |
|
Class II directors: Term as director was expected to expire
in 2010. However, Mr. Moch resigned from the Board of
Directors effective November 10, 2009. |
|
(2) |
|
Class III directors: Term as director is expected to expire
in 2011. |
|
(3) |
|
Class I directors: Term as director is expected to expire
in 2012. |
111
|
|
|
(4) |
|
On February 12, 2009, Dr. Weiser was appointed to the
Compensation and Governance and Nominating committees and
assumed the role of chairman of both committees. |
|
(5) |
|
Mr. Berger resigned from the Board of Directors effective
October 23, 2009. |
|
(6) |
|
Dr. Carter resigned from the Board of Directors effective
April 30, 2009. |
Board
Involvement in Risk Oversight
Our Board of Directors is responsible for oversight of the
Companys risk assessment and management process. We
believe risk can arise in every decision and action taken by the
Company, whether strategic or operational. Our comprehensive
approach is reflected in the reporting processes by which our
management provides timely and fulsome information to the Board
of Directors to support its role in oversight, approval
and decision-making.
The Board of Directors closely monitors the information it
receives from management and provides oversight and guidance to
our management team concerning the assessment and management of
risk. The Board of Directors approves the Companys high
level goals, strategies and policies to set the tone and
direction for appropriate risk taking within the business.
The Board of Directors delegated to the Compensation Committee
basic responsibility for oversight of managements
compensation risk assessment, and that committee reports to the
board on its review. Our Board of Directors also delegated tasks
related to risk process oversight to our Audit Committee, which
reports the results of its review process to the Board of
Directors. The Audit Committees process includes a review,
at least annually, of our internal audit process, including the
organizational structure, as well as the scope and methodology
of the internal audit process. The Governance and Nominating
Committee oversees risks related to our corporate governance,
including director performance, director succession, director
education and governance documents.
In addition to the reports from the Board committees, our board
periodically discusses risk oversight.
Meetings
Attendance
During the 2009 fiscal year, our Board of Directors held 11
meetings. With the exception of Dr. Carter, who did not
attend meetings during 2009, each director attended
100 percent of the aggregate number of Board of Directors
meetings and committees of which he was a member that were held
during the period of his service as a director.
The Audit Committee met 5 times during the 2009 fiscal year.
The Compensation Committee met 1 time during the 2009 fiscal
year.
The Governance and Nominating Committee 1 time during the 2009
fiscal year.
The Company does not have a formal policy regarding attendance
by members of the Board of Directors at the Companys
annual meeting of stockholders, although it does encourage
attendance by the directors.
|
|
ITEM 14.
|
PRINCIPAL
ACCOUNTANT FEES AND SERVICES
|
The following table presents fees for professional audit
services rendered by M&P and PwC for the audit of our
annual financial statements for the years ended
December 31, 2009 and December 31, 2008, respectively,
and fees billed for other services rendered by M&P
and/or PwC
during the respective periods.
|
|
|
|
|
|
|
|
|
|
|
|
|
Types of Fees
|
|
2009
|
|
|
2008
|
|
|
|
|
|
Audit Fees(1)
|
|
$
|
284,296
|
|
|
$
|
787,000
|
|
|
|
|
|
Audit-Related Fees(2)
|
|
|
218,198
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total PwC Fees
|
|
|
502,494
|
|
|
|
787,000
|
|
|
|
|
|
M&P(3)
|
|
|
150,000
|
|
|
|
|
|
|
|
|
|
112
|
|
|
(1) |
|
Audit fees for 2009 and 2008 were for professional services
rendered for the audit of the Companys financial
statements for the fiscal year, including attestation services
required under Section 404 of the Sarbanes-Oxley Act of
2002, and reviews of the Companys quarterly financial
statements included in its
Form 10-Q
filings. |
|
(2) |
|
All other fees are for services related to our registration
statements on
Form S-3
financing transactions, and fees related to the restatement of
first and second quarter SEC
Form 10-Q
reports during 2009. |
|
(3) |
|
Audit fees for 2009 were for professional services rendered for
the audit of the Companys financial statements for the
fiscal year. |
The Audit Committee has determined that the neither M&P nor
PwC provided non-audit services in 2009 and that neither
M&P nor PwC were impaired. All decisions regarding
selection of independent registered public accounting firms and
approval of accounting services and fees are made by our Audit
Committee in accordance with the provisions of the
Sarbanes-Oxley Act of 2002 and related SEC rules.
The Audit Committee pre-approves all audit and permissible
non-audit services provided by the independent registered public
accounting firm; these services may include audit services,
audit related services, tax services and other services. The
committee has adopted a policy for the pre-approval of services
provided by the independent registered public accounting firm,
where pre-approval is generally provided for up to one year and
any pre-approval is detailed as to the particular service or
category of services and is subject to a specific budget. For
each proposed service, the independent auditor is required to
provide detailed communication at the time of approval. The
committee may delegate pre-approval authority to one or more of
its members, who must report same to the Committee members at
the next meeting. The Audit Committee, after discussion with
M&P, agreed that any additional audit or tax service fees
could be paid by us, subject to the pre-approval of the Audit
Committee chairman.
The Audit Committee intends to select M&P to serve as
independent registered public accounting firm for the fiscal
year ending December 31, 2010.
PART IV
|
|
ITEM 15.
|
EXHIBITS AND
FINANCIAL STATEMENT SCHEDULES
|
(a) (1) Financial Statements
A list of the financial statements filed as a part of this
report appears on page 58.
(2) Financial Statement Schedules
Schedules have been omitted because the information required is
not applicable or is shown in the Financial Statements or the
corresponding Notes to the Financial Statements.
(3) Exhibits
A list of the exhibits filed as a part of this report appears on
pages 115 thru 119.
(b) See Exhibits listed under the heading
Exhibit Index set forth on page 115.
(c) Schedules have been omitted because the information
required is not applicable or is shown in the Financial
Statements or the corresponding Notes to the Financial
Statements.
113
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Emisphere Technologies,
Inc.
|
|
|
|
By:
|
/s/ Michael
V. Novinski
|
Michael V. Novinski
President and Chief Executive Officer
Date: March 25, 2010
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the
dates indicated.
|
|
|
|
|
|
|
Name and Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ Michael
V. Novinski
Michael
V. Novinski
|
|
President and Chief Executive Officer (principal executive
officer)
|
|
March 25, 2010
|
|
|
|
|
|
/s/ John
D. Harkey, Jr.
John
D. Harkey, Jr.
|
|
Director
|
|
March 25, 2010
|
|
|
|
|
|
/s/ Mark
H. Rachesky, M.D.
Mark
H. Rachesky, M.D.
|
|
Director
|
|
March 25, 2010
|
|
|
|
|
|
/s/ Timothy
Rothwell
Timothy
Rothwell
|
|
Director
|
|
March 25, 2010
|
|
|
|
|
|
/s/ Michael
Weiser, M.D.
Michael
Weiser, M.D.
|
|
Director
|
|
March 25, 2010
|
|
|
|
|
|
/s/ Michael
R. Garone
Michael
R. Garone
|
|
Chief Financial Officer
(principal financial and accounting officer)
|
|
March 25, 2010
|
114
EXHIBIT INDEX
|
|
|
|
|
|
|
|
|
|
|
Incorporated
|
|
|
|
|
by Reference
|
Exhibit
|
|
|
|
(1)
|
|
3.1
|
|
Amended and restated Certificate of Incorporation of Emisphere
Technologies, Inc., as amended by the Certificate of Amendment
of Amended and Restated Certificate of Incorporation of
Emisphere Technologies, Inc., dated April 20, 2007
|
|
R
|
|
|
3.2(a)
|
|
By-Laws of Emisphere Technologies, Inc., as amended
December 7, 1998 and September 26, 2005
|
|
A, L
|
|
|
3.2(b)
|
|
Amendment to the By-Laws, as amended, of Emisphere Technologies,
Inc.
|
|
V
|
|
|
4.1
|
|
Restated Rights Agreement dated as of April 7, 2006 between
Emisphere Technologies, Inc. and Mellon Investor Services, LLC
|
|
P
|
|
|
10.1(a)
|
|
1991 Stock Option Plan, as amended
|
|
F
|
|
(2)
|
10.1(b)
|
|
Amendment to the 1991 Stock Option Plan
|
|
Q
|
|
(2)
|
10.2(a)
|
|
Stock Incentive Plan for Outside Directors, as amended
|
|
C
|
|
(2)
|
10.2(b)
|
|
Amendment to the Amended and Restated Stock Incentive Plan for
Outside Directors
|
|
Q
|
|
(2)
|
10.3(a)
|
|
Directors Deferred Compensation Stock Plan
|
|
E
|
|
(2)
|
10.3(b)
|
|
Amendment to the Directors Deferred Compensation Stock Plan
|
|
Q
|
|
(2)
|
10.4(a)
|
|
Employee Stock Purchase Plan, as amended
|
|
B
|
|
(2)
|
10.4(b)
|
|
Amendment to Emisphere Technologies, Inc. Employee Stock
Purchase Plan
|
|
H
|
|
(2)
|
10.5
|
|
Non-Qualified Employee Stock Purchase Plan
|
|
B
|
|
(2)
|
10.6(a)
|
|
1995 Non-Qualified Stock Option Plan, as amended
|
|
B
|
|
(2)
|
10.6(b)
|
|
Amendment to the 1995 Non-Qualified Stock Option Plan
|
|
Q
|
|
(2)
|
10.7(a)
|
|
Emisphere Technologies, Inc. 2000 Stock Option Plan
|
|
G
|
|
(2)
|
10.7(b)
|
|
Amendment to Emisphere Technologies, Inc. 2000 Stock Option Plan
|
|
Q
|
|
(2)
|
10.8(a)
|
|
Emisphere Technologies, Inc. 2002 Broadbased Stock Option Plan
|
|
H
|
|
(2)
|
10.8(b)
|
|
Amendment to Emisphere Technologies, Inc. 2002 Broadbased Stock
Option Plan
|
|
Q
|
|
(2)
|
10.9
|
|
Emisphere Technologies, Inc. 2007 Stock Award and Incentive Plan
|
|
R
|
|
(2)
|
10.10
|
|
Amended and Restated Employment Agreement, dated April 28,
2005, between Michael M. Goldberg and Emisphere Technologies,
Inc.
|
|
N
|
|
(2)
|
10.11
|
|
Stock Option Agreements, dated January 1, 1991,
February 15, 1991, December 1, 1991, August 1,
1992 and October 6, 1995 between Michael M. Goldberg and
Emisphere Technologies, Inc.
|
|
B
|
|
(2)(3)
|
10.12
|
|
Stock Option Agreement, dated July 31, 2000, between
Michael M. Goldberg and Emisphere Technologies, Inc.
|
|
G
|
|
(2)
|
10.13
|
|
Employment Agreement dated April 6, 2007 between Michael V.
Novinski and Emisphere Technologies, Inc.
|
|
S
|
|
(2)
|
10.14
|
|
Nonqualified Stock Option Agreement dated April 6, 2007
between Michael V. Novinski and Emisphere Technologies,
Inc.
|
|
R
|
|
(2)
|
10.15
|
|
Incentive Stock Option Agreement dated February 12, 2007
between Lewis H. Bender and Emisphere Technologies, Inc.
|
|
R
|
|
(2)
|
10.16
|
|
Form of Nonqualified Stock Option Agreement
|
|
R
|
|
(2)
|
10.17
|
|
Form of Incentive Stock Option Agreement
|
|
R
|
|
(2)
|
10.18
|
|
Form of Restricted Stock Option Agreement
|
|
R
|
|
(2)
|
10.19
|
|
Agreement and Release by and between Shepard Goldberg and
Emisphere Technologies, Inc., dated June 25, 2007
|
|
U
|
|
(2)
|
10.20
|
|
Agreement and Release by and between Steve Dinh and Emisphere
Technologies, Inc.
|
|
X
|
|
(2)
|
115
|
|
|
|
|
|
|
|
|
|
|
Incorporated
|
|
|
|
|
by Reference
|
Exhibit
|
|
|
|
(1)
|
|
10.21
|
|
Agreement and Release by and between Lewis Henry Bender and
Emisphere Technologies, Inc.
|
|
X
|
|
(2)
|
10.22(a)
|
|
Amendment to Lease Agreement, dated as of March 31, 2000,
between Emisphere Technologies, Inc. and Eastview Holdings, LLC
|
|
G
|
|
|
10.22(b)
|
|
Amendment to Lease Agreement, dated as of March 31, 2000,
between Emisphere Technologies, Inc. and Eastview Holdings, LLC
|
|
G
|
|
|
10.22(c)
|
|
Amendment to Lease Agreement, dated as of September 23,
2003, between Emisphere Technologies, Inc. and Eastview
Holdings, LLC
|
|
I
|
|
|
10.22(d)
|
|
Thirteenth Amendment to Lease
|
|
T
|
|
|
10.22(e)
|
|
Fourteenth Amendment to Lease
|
|
X
|
|
|
10.23
|
|
Lease Agreement, dated as of November 1, 2007 between The
Realty Associates Fund VI, L.P. and Emisphere Technologies,
Inc.
|
|
W
|
|
|
10.24
|
|
Research Collaboration and Option Agreement dated as of
December 3, 1997 between Emisphere Technologies, Inc. and
Novartis Pharma AG
|
|
D
|
|
(3)
|
10.25
|
|
Agreement, dated September 23, 2003, between Emisphere
Technologies, Inc. and Progenics Pharmaceuticals, Inc
|
|
I
|
|
|
10.26
|
|
License Agreement dated as of September 23, 2004 between
Emisphere Technologies, Inc. and Novartis Pharma AG, as amended
on November 4, 2005
|
|
J
|
|
(3)
|
10.27(a)
|
|
Research Collaboration Option and License Agreement dated
December 1, 2004 by and between Emisphere Technologies,
Inc. and Novartis Pharma AG
|
|
J
|
|
(3)
|
10.27(b)
|
|
Convertible Promissory Note due December 1, 2009 issued to
Novartis Pharma AG
|
|
J
|
|
(3)
|
10.27(c)
|
|
Registration Rights Agreement dated as of December 1, 2004
between Emisphere Technologies, Inc. and Novartis Pharma AG
|
|
J
|
|
|
10.28
|
|
Development and License Agreement between Genta Incorporated and
Emisphere Technologies, Inc., dated March 22, 2006
|
|
O
|
|
|
10.29(a)
|
|
Senior Secured Loan Agreement between Emisphere Technologies,
Inc. and MHR, dated September 26, 2005, as amended on
November 11, 2005
|
|
L
|
|
|
10.29(b)
|
|
Investment and Exchange Agreement between Emisphere
Technologies, Inc. and MHR, dated September 26, 2005
|
|
L
|
|
|
10.29(c)
|
|
Pledge and Security Agreement between Emisphere Technologies,
Inc. and MHR, dated September 26, 2005
|
|
L
|
|
|
10.29(d)
|
|
Registration Rights Agreement between Emisphere Technologies,
Inc. and MHR, dated September 26, 2005
|
|
L
|
|
|
10.29(e)
|
|
Amendment No. 1 to the Senior Secured Term Loan Agreement,
dated November 11, 2005
|
|
M
|
|
|
10.29(f)
|
|
Form of 11% Senior Secured Convertible Note
|
|
L
|
|
|
10.29(g)
|
|
Form of Amendment to 11% Senior Secured Convertible Note
|
|
R
|
|
|
10.30(a)
|
|
Warrant dated as of March 31, 2005 between Emisphere
Technologies, Inc. and NR Securities LTD
|
|
K
|
|
|
10.30(b)
|
|
Warrant adjustment notice between Emisphere Technologies, Inc.
and NR Securities LTD
|
|
W
|
|
|
10.31(a)
|
|
Warrant dated as of March 31, 2005 between Emisphere
Technologies, Inc. and Atticus European Fund LTD
|
|
K
|
|
|
10.31(b)
|
|
Warrant adjustment notice between Emisphere Technologies, Inc.
and Atticus European Fund, LTD
|
|
W
|
|
|
10.32(a)
|
|
Warrant dated as of March 31, 2005 between Emisphere
Technologies, Inc. and Elan International Services, Ltd.
|
|
K
|
|
|
116
|
|
|
|
|
|
|
|
|
|
|
Incorporated
|
|
|
|
|
by Reference
|
Exhibit
|
|
|
|
(1)
|
|
10.32(b)
|
|
Warrant adjustment notice between Emisphere Technologies, Inc.
and Elan International Services, Ltd.
|
|
W
|
|
|
10.33
|
|
Warrant dated as of September 23, 2005 between Emisphere
Technologies, Inc. and MHR Capital Partners (100) LP
|
|
Q
|
|
|
10.34
|
|
Warrant dated as of September 23, 2005 between Emisphere
Technologies, Inc. and MHR Capital Partners (500) LP
|
|
Q
|
|
|
10.35(a)
|
|
Warrant dated as of September 23, 2005 between Emisphere
Technologies, Inc. and Michael Targoff
|
|
Q
|
|
|
10.35(b)
|
|
Warrant adjustment notice between Emisphere Technologies, Inc.
and Michael B. Targoff
|
|
W
|
|
|
10.36
|
|
Warrant dated as of September 21, 2006 between Emisphere
Technologies, Inc. and MHR Institutional Partners IIA LP
|
|
Q
|
|
|
10.37
|
|
Warrant dated as of September 21, 2006 between Emisphere
Technologies, Inc. and MHR Institutional Partners II LP
|
|
Q
|
|
|
10.38
|
|
Warrant dated as of September 21, 2006 between Emisphere
Technologies, Inc. and MHR Capital Partners (100) LP
|
|
Q
|
|
|
10.39
|
|
Warrant dated as of September 21, 2006 between Emisphere
Technologies, Inc. and MHR Capital Partners Masters Account LP
|
|
Q
|
|
|
10.40
|
|
Warrant adjustment notice between Emisphere Technologies, Inc.
and MHR Capital Partners (100) LP, MHR Capital Partners
Master Account, LP (formerly MHR Capital Partners
(500) LP), MHR Institutional Partners IIA LP, MHR
Institutional Partners II LP, MHR Capital Partners
(100) LP and MHR Capital Partners Master Account LP
|
|
W
|
|
|
10.41
|
|
Warrant dated as of August 22, 2007 between Emisphere
Technologies, Inc. and SF Capital Partners, Ltd.
|
|
W
|
|
|
10.42
|
|
Warrant dated as of August 22, 2007 between Emisphere
Technologies, Inc. and Fort Mason Master, L.P.
|
|
W
|
|
|
10.43
|
|
Warrant dated as of August 22, 2007 between Emisphere
Technologies, Inc. and Fort Mason Partners, L.P.
|
|
W
|
|
|
10.44
|
|
Warrant dated as of August 22, 2007 between Emisphere
Technologies, Inc. and Montaur Capital/Platinum Life Montaur
Life Sciences Fund I LLC
|
|
W
|
|
|
10.45
|
|
Warrant dated as of August 22, 2007 between Emisphere
Technologies, Inc. and MHR Institutional Partners II LP
|
|
W
|
|
|
10.46
|
|
Warrant dated as of August 22, 2007 between Emisphere
Technologies, Inc. and MHR Institutional Partners IIA LP
|
|
W
|
|
|
10.47
|
|
Emisphere Technologies, Inc.- Mankind Corporation Patent
Purchase Agreement, dated February 8, 2008
|
|
X
|
|
|
10.48
|
|
Development and License Agreement, dated as of June 21,
2008, between Emisphere Technologies, Inc. and Novo Nordisk AS.
|
|
Y
|
|
(3)
|
10.49
|
|
Lease Termination Agreement, date April 29,2009, between
Emisphere Technologies, Inc. and
BMR-LANDMARK
AT EASTVIEW LLC
|
|
Z
|
|
|
10.50
|
|
Form of Non-Employee Director Non-Qualified Stock Option
Agreement
|
|
AA
|
|
(2)
|
10.51
|
|
Placement Agency Agreement dated as of August 19, 2009,
Between Emisphere Technologies, Inc. and Rodman &
Rensahw, LLC
|
|
BB
|
|
|
10.52
|
|
Securities Purchase Agreement dated as of August 19, 2009,
between Emisphere Technologies and the Purchasers named therein
|
|
BB
|
|
|
10.53
|
|
Securities Purchase Agreement dated as of August 19, 2009,
between Emisphere Technologies and MHR Fund Management, LLC
|
|
BB
|
|
|
117
|
|
|
|
|
|
|
|
|
|
|
Incorporated
|
|
|
|
|
by Reference
|
Exhibit
|
|
|
|
(1)
|
|
10.54
|
|
Warrant dated as of August 21, 2009 between Emisphere
Technologies, Inc. and BAM Opportunity Fund LP
|
|
CC
|
|
|
10.55
|
|
Warrant dated as of August 21, 2009 between Emisphere
Technologies, Inc. and MOG Capital, LLC
|
|
CC
|
|
|
10.56
|
|
Warrant dated as of August 21, 2009 between Emisphere
Technologies, Inc. and MHR Capital Partners Master Account LP
|
|
CC
|
|
|
10.57
|
|
Warrant dated as of August 21, 2009 between Emisphere
Technologies, Inc. and MHR Capital Partners (100) LP
|
|
CC
|
|
|
10.58
|
|
Warrant dated as of August 21, 2009 between Emisphere
Technologies, Inc. and MHR Institutional Partners II LP
|
|
CC
|
|
|
10.59
|
|
Warrant dated as of August 21, 2009 between Emisphere
Technologies, Inc. and MHR Institutional Partners IIA LP
|
|
CC
|
|
|
10.60
|
|
Warrant dated as of August 21, 2009 between Emisphere
Technologies, Inc. and Rodman & Renshaw, LLC
|
|
CC
|
|
|
10.61
|
|
Warrant dated as of August 21, 2009 between Emisphere
Technologies, Inc. and Benjamin Bowen
|
|
CC
|
|
|
10.62
|
|
Warrant dated as of August 21, 2009 between Emisphere
Technologies, Inc. and Noam Rubinstein
|
|
CC
|
|
|
10.63
|
|
Warrant adjustment notice between Emisphere Technologies, Inc.
and Elan International Services, Ltd. dated October 20, 2009
|
|
CC
|
|
|
10.64
|
|
Warrant adjustment notice between Emisphere Technologies, Inc.
and NR Securities LTD dated October 22, 2009
|
|
CC
|
|
|
10.65
|
|
Warrant adjustment notice between Emisphere Technologies, Inc.
and Atticus European Fund, LTD dated October 22, 2009
|
|
CC
|
|
|
10.66
|
|
Warrant adjustment notice between Emisphere Technologies, Inc.
and Michael B. Targoff dated October 22, 2009
|
|
CC
|
|
|
10.67
|
|
Agreement to Extend the Maturity Date of the Convertible
Promissory Note Due December 1, 2009, between Emisphere
Technologies and Novartis Pharma AG dated November 25, 2009
|
|
*
|
|
|
10.68
|
|
Agreement to Extend the Maturity Date of the Convertible
Promissory Note Due December 1, 2009, between Emisphere
Technologies and Novartis Pharma AG dated February 23, 2010
|
|
*
|
|
|
14.1
|
|
Emisphere Technologies, Inc. Code of Business Conduct and Ethics
|
|
I
|
|
|
16.1
|
|
Letter from PricewaterhouseCoopers LLP to the Securities
Exchange Commission dated January 11, 2010
|
|
DD
|
|
|
23.1
|
|
Consent of Independent Registered Public Accounting
Firm McGladrey & Pullen, LLP
|
|
*
|
|
|
23.2
|
|
Consent of Independent Registered Public Accounting
Firm PwC
|
|
*
|
|
|
31.1
|
|
Certification Pursuant to
Rule 13a-14(a)
and 15d-14(a), as adopted pursuant to section 302 of the
Sarbanes-Oxley Act of 2002
|
|
*
|
|
|
31.2
|
|
Certification Pursuant to
Rule 13a-14(a)
and 15d-14(a), as adopted pursuant to section 302 of the
Sarbanes-Oxley Act of 2002
|
|
*
|
|
|
32.1
|
|
Certification Pursuant to 18 U.S.C. Section 1350, As
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002
|
|
*
|
|
|
|
|
|
* |
|
Filed herewith |
|
(1) |
|
If not filed herewith, filed as an exhibit to the document
referred to by letter as follows: |
|
A. |
|
Quarterly Report on
Form 10-Q
for the quarterly period ended January 31, 1999 |
118
|
|
|
B. |
|
Annual Report on
Form 10-K
for the fiscal year ended July 31, 1995 |
|
C. |
|
Annual Report on
Form 10-K
for the fiscal year ended July 31, 1997 |
|
D. |
|
Quarterly Report on
Form 10-Q
for the quarterly period ended October 31, 1997 |
|
E. |
|
Annual Report on
Form 10-K
for the fiscal year ended July 31, 1998 |
|
F. |
|
Annual Report on
Form 10-K
for the fiscal year ended July 31, 1999 |
|
G. |
|
Annual Report on
Form 10-K
for the fiscal year ended July 31, 2000 |
|
H. |
|
Registration statement on
Form S-8
dated and filed on November 27, 2002 |
|
I. |
|
Annual Report on
Form 10-K
for the year ended December 31, 2003 |
|
J. |
|
Registration on
Form S-3/A
dated and filed February 1, 2005 |
|
K. |
|
Quarterly Report on
Form 10-Q
for the quarterly period ended March 31, 2005 |
|
L. |
|
Current Report on
Form 8-K,
filed September 30, 2005 |
|
M. |
|
Current Report on
Form 8-K,
filed November 14, 2005 |
|
N. |
|
Current Report on
Form 8-K
filed May 4, 2005 |
|
O. |
|
Quarterly Report on
Form 10-Q
for the quarterly period ended March 31, 2006 |
|
P. |
|
Current Report on
Form 8-K,
filed April 10, 2006 |
|
Q. |
|
Annual Report on
Form 10-K
for the fiscal year ended December 31, 2006 |
|
R. |
|
Quarterly Report on
Form 10-Q
for the quarterly period ended March 31, 2007 |
|
S. |
|
Current Report on
Form 8-K,
filed April 11, 2007 |
|
T. |
|
Quarterly Report on
Form 10-Q
for the quarterly period ended June 30, 2007 |
|
U. |
|
Current Report on
Form 8-K,
filed June 29, 2007 |
|
V. |
|
Current Report on
Form 8-K,
filed September 14, 2007 |
|
W. |
|
Quarterly Report on
Form 10-Q
for the quarterly period ended September 30, 2007 |
|
X. |
|
Annual Report on
Form 10-K
for the fiscal year ended December 31, 2007 |
|
Y. |
|
Current Report on
Form 8-K,
filed August 11, 2008 |
|
Z. |
|
Current Report on
Form 8-K,
filed May 5, 2009 |
|
AA. |
|
Current Report on
Form 8-K,
filed May 21, 2009 |
|
BB. |
|
Current Report on
Form 8-K,
filed August 20, 2009 |
|
CC. |
|
Quarterly Report on
Form 10-Q
for the quarterly period ended September 30, 2009 |
|
DD. |
|
Current Report on
Form 8-K,
filed January 12, 2010 |
|
(2) |
|
Management contract or compensatory plan or arrangement |
|
(3) |
|
Portions of this exhibit have been omitted based on a request
for confidential treatment filed separately with the Securities
and Exchange Commission. |
119