UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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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 March 31,
2010
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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
No. 0-12716
CLINICAL DATA, INC.
(Exact Name of Registrant as
Specified in its Charter)
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Delaware
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04-2573920
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(State or Other Jurisdiction
of
Incorporation or Organization)
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(I.R.S. Employer
Identification No.)
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One Gateway Center, Suite 702,
Newton, Massachusetts
(Address of Principal
Executive Offices)
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02458
(Zip
Code)
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Registrants telephone number, including area code:
(617) 527-9933
Securities registered pursuant to Section 12(b) of the
Act:
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Common Stock, $.01 par value
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The NASDAQ Stock Market LLC
(NASDAQ Global Market)
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Securities registered pursuant to Section 12(g) of the
Act:
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 Section 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 the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. YES þ NO o
Indicate by check mark whether the registrant 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
(§ 229.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant
was required to submit ad 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. þ
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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(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
The aggregate market value of the voting and non-voting common
equity held by non-affiliates computed by reference to the price
at which the common equity was last sold on the NASDAQ Global
Market as of the last business day of the registrants most
recently completed second fiscal quarter (September 30,
2009) was approximately $206,358,000.
The number of shares outstanding of the registrants common
stock as of June 14, 2010 was 29,682,386.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions of the registrants Definitive Proxy Statement for
the 2010 Annual Meeting of Shareholders to be held on or about
September 16, 2010, are incorporated by reference in
Part III hereof.
INDEX TO
FORM 10-K
FOR THE
FISCAL YEAR ENDED MARCH 31, 2010
PGxHealth®,
Stedivazetm
and
FAMILION®
are either trademarks or registered trademarks, as the case may
be, of Clinical Data, Inc. All other trademarks used herein, if
any, are the property of their respective owners.
NOTE REGARDING
FORWARD-LOOKING STATEMENTS
This Annual Report on
Form 10-K
contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as
amended. In particular, forward-looking statements regarding our
expected performance and financial results in future
periods which include words such as
expect(s), feel(s),
believe(s), would, may,
anticipate(s), and similar expressions
are based upon managements current expectations and
beliefs and are subject to a number of risks and uncertainties
that could cause actual results to differ materially from those
described in the preceding forward-looking statements. You are
cautioned not to place undue reliance on these forward-looking
statements which speak only as of the date of the filing of this
Annual Report on
Form 10-K.
The following factors known to management, including those set
forth in Item 1A of this report entitled, Risk
Factors, could cause actual results to differ materially
from those described in such forward-looking statements: our
ability to raise cash or to produce cash from operations
sufficient to fund our current level of activities, including
clinical trials; the effects of regulatory decisions and
approvals (or failure to obtain approvals) on our drug
candidates and other existing products; our ability to continue
to attract new customers and obtain new and expanded business
opportunities from existing customers; management of our growth
and successful integration of our operations with those of
acquired subsidiaries; continued growth in demand in the United
States and abroad for products such as those offered by us and
the effect of intensifying competition among a rising number of
companies offering products and services similar to those
offered by us. Unless required by law, we undertake no
obligation to update publicly any forward-looking statements,
whether as a result of new information, future events, or
otherwise. In addition, we encourage you to review the risk
factors contained in Item 1A of this Annual Report on
Form 10-K
and in our other reports, registration statements and other
documents filed from time to time with the United States
Securities and Exchange Commission (SEC) which
describe a number of additional risks and uncertainties that
could cause actual results to differ materially from those
expected in the forward-looking statements made in this Annual
Report on
Form 10-K.
WHERE YOU
CAN FIND MORE INFORMATION
We are subject to the reporting requirements of the Securities
Exchange Act of 1934, as amended, known as the Exchange Act, and
in accordance with such laws, we file annual, quarterly and
other reports, proxy statements and other information with the
SEC. You may read and copy any document we file at the public
reference facilities of the SEC at 100 F Street, N.E.,
Room 1580, Washington, DC 20549. Please call the SEC at
1-800-SEC-0330
for further information on the operation of the public reference
rooms. Our SEC filings are also available to the public at the
SECs website at
http://www.sec.gov
and at our website at
http://www.clda.com.
The content on any website referred to in this Annual Report on
Form 10-K
is expressly not included by reference, unless expressly noted
otherwise.
PART I
General
Clinical Data, Inc. is a Delaware corporation headquartered in
Newton, Massachusetts. Our main operating business is PGxHealth,
LLC, a wholly-owned Delaware limited liability company.
We are focused on the development and commercialization of novel
therapeutics, with two lead compounds in the areas of central
nervous system and cardiovascular disorders. Our first
late-stage drug candidate is vilazodone, a dual-acting selective
and potent serotonin reuptake inhibitor and serotonin receptor
1A
(5-HT1A)
partial agonist for the treatment of Major Depressive Disorder
(MDD) for which a New Drug Application
(NDA) was filed with the U.S. Food and Drug
Administration (FDA) on March 22, 2010. Our NDA
for vilazodone was accepted for review by the FDA on
May 21, 2010, with January 22, 2011 currently assigned
as the date for decision-making by the FDA under the
Prescription Drug User Fee Act (PDUFA). Our second
late-stage drug candidate is apadenoson, trademarked Stedivaze,
a selective adenosine receptor 2A
(AR2A)
agonist and potential
best-in-class
coronary vasodilator currently in Phase III of clinical
development for use in nuclear Single Photo Emission Computed
Topography (SPECT) myocardial perfusion imaging.
We also have a pipeline of preclinical compounds, with plans to
enter
first-in-human
trials. In May 2010, Santen Pharmaceutical Co., Ltd.
(Santen) exercised its option with respect to one of
these compounds by making a $2.0 million payment for
exclusive global rights to develop our second
AR2A
agonist, referred to as ATL313, as a topical medication for
glaucoma. Also, in August 2009, we entered into a license
agreement with CombinatoRx, Inc. (CombinatoRx) to
develop ATL313 for the treatment of B-cell cancers, including
multiple myeloma. An option agreement is also in place with
Novartis Bioventures, Ltd., an affiliate of Novartis AG, for
rights to develop our adenosine receptor 2B
(AR2B)
antagonist, referred to as ATL844, for the treatment of asthma
and diabetes.
We also provide the FAMILION family of genetic tests for
inherited cardiac syndromes, including cardiac channelopathies
and cardiomyopathies, and have continued to expand both the menu
of genetic tests for these inherited cardiac syndromes as well
as third-party payor coverage. Furthermore, we apply our
expertise to the development and commercialization of other
genetic and pharmacogenetic tests related to these inheritable
diseases and to drug response.
Our sources of liquidity as of March 31, 2010 include cash
and cash equivalents of $49.2 million. Our projected uses
of cash include: cash used to fund commercialization and further
development of vilazodone; clinical development activities for
Stedivaze, including a Phase III clinical development
program; continued development of our other drug candidates; and
working capital and other general corporate activities. We may
also use our cash for the acquisition of businesses,
technologies and products that will complement our existing
assets.
In June 2010, we sold to the public 2.2 million shares of
our common stock, par value $0.01 per share, at a price of
$14.30 per share. The net proceeds to us are expected to be
approximately $29.8 million after deducting underwriting
commissions and estimated expenses payable by us associated with
this transaction.
We believe that our cash, including the estimated net proceeds
from the financing transaction completed in June 2010, will be
sufficient to fund our operations through March 2011.
Therefore, we will need additional capital to commercialize
vilazodone and continue the development of Stedivaze beyond
March 2011.
Vilazodone
Our lead drug candidate, vilazodone, is a novel dual-acting
modulator of serotonin neurotransmission in development for the
treatment of MDD with the potential for follow-on indications
including Generalized Anxiety Disorder and other related mood
disorders. Vilazodone is a selective and potent inhibitor of
serotonin reuptake and a partial agonist at the
5-HT1A
receptor. MDD is a common mood disorder but, despite advances in
the understanding of pharmacotherapy and the ongoing development
of new agents, overall effectiveness of existing approved
therapies is unsatisfactory. For example, approximately
two-thirds of patients do not achieve remission with first-line
treatment with a selective serotonin reuptake inhibitor
(SSRI) [STAR*D Study, January, 2006 American
1
Journal of Psychiatry]. Common causes for noncompliance
or discontinuation of antidepressant therapy include lack of
effectiveness and safety and tolerability issues, including
antidepressant induced sexual dysfunction, weight gain, and
neurological and gastrointestinal effects [Ashton, et al.
Antidepressant-Related Adverse Effects Impacting Treatment
Compliance: Results of Patient Survey, March/April 2005,
Current Therapeutic Research].
We have completed two consecutive, randomized, double-blind,
placebo-controlled Phase III clinical trials in which
vilazodone achieved statistically significant results compared
to placebo on the primary efficacy endpoint and on secondary
endpoints related to symptoms of MDD and to global improvement.
Vilazodone was generally well-tolerated; the most common adverse
events considered to be drug-related were diarrhea, nausea and
insomnia. In addition, vilazodones impact on sexual
function was similar to placebo when measured by quantitative,
validated scales. Patient-reported adverse events related to
sexual function, although infrequent, were more common on
vilazodone than placebo. A statistically significant improvement
in symptoms of anxiety associated with MDD, as measured by the
Hamilton Anxiety Scale (HAM-A) a secondary endpoint
of the studies, was also observed. Based on the results of these
and additional activities, including the manufacture of
registration batches of the active pharmaceutical ingredient and
the drug product, we submitted an NDA for vilazodone with the
FDA on March 22, 2010, which was accepted for review by the
FDA on May 21, 2010, with an assigned PDFUA date of
January 22, 2011. Vilazodone is a New Chemical Entity and
is currently not approved by the FDA or marketed for sale in any
country.
The U.S. market for antidepressants in 2009, as defined by
IMS Healths National Prescription Audit, indicated that
more than 212 million prescriptions were written. This
represents a growth rate of 2% over 2008 prescriptions. SSRIs
and selective norepinephrine reuptake inhibitors lead the
category of products prescribed for depression, and, according
to IMS Healths National Sales Perspective, the
U.S. market for antidepressants was roughly
$12.0 billion in 2009.
We hold exclusive rights to develop and commercialize vilazodone
pursuant to a license agreement we entered into with Merck KGaA,
Darmstadt, Germany (Merck), in 2004. Under the terms
of our agreement with Merck, if we are successful in the
continuation of our development of vilazodone, we will be
obligated to pay Merck certain additional milestone payments,
all of which are payable in our common stock. Specifically, a
milestone payment of 12.5 million was payable to
Merck within 30 days of acceptance of an NDA filing in the
U.S. or a Marketing Authorization Application
(MAA) filing in the European Union for the first
indication of vilazodone. This payment was made on May 21,
2010, when the NDA, as filed on March 22, 2010, was
accepted for review by the FDA. We issued 921,000 shares of
our common stock as a result of achieving this milestone. In
addition, separate 9.5 million payments would be
payable to Merck within 30 days of receipt of
(a) approval of the NDA or MAA, and (b) on the first sale
of vilazodone in the U.S. or the European Union. Merck will
also be entitled to certain royalty payments if we are
successful in commercializing vilazodone, and to a certain share
of milestone payments from third parties if we sublicense
vilazodone.
Stedivaze
Our second late-stage drug candidate, Stedivaze, is a highly
selective
AR2A
agonist in development as a coronary vasodilator for
nuclear-SPECT myocardial perfusion imaging. We began enrollment
of our first Phase III clinical trial for Stedivaze in
November 2009, and expect to begin our second Phase III
clinical trial during the fiscal year ending March 31,
2011. Both of these Phase III studies will evaluate the
safety and efficacy of Stedivaze for use as a pharmacologic
stress agent in nuclear myocardial perfusion imaging, a method
for evaluating blood flow to the heart, and also compare the
tolerability of Stedivaze to adenosine, a standard pharmacologic
stress agent used in myocardial perfusion imaging scans, when
administered as an intravenous bolus injection.
Data from the clinical trials thus far completed for Stedivaze
shows its potential for
best-in-class
attributes related to its adverse event, tolerability,
pharmacokinetics and target binding affinity profiles and its
mode of administration as a fixed dose intravenous rapid bolus.
Results from our two recent Phase I studies of Stedivaze also
demonstrated that Stedivaze was safe and well tolerated in
patients with asthma and chronic obstructive pulmonary disease
(COPD). Currently available adenosine agonists must
be used with caution or are contraindicated in patients with
asthma and COPD. The high selectivity of Stedivaze offers a
potential advantage for the safe use in this population,
accounting for approximately
2
10% of the 7.6 million myocardial perfusion imaging tests
performed annually [Eliana Reyes, MD, et al. Adenosine
myocardial perfusion scintigraphy in obstructive airway
disease. Journal of Nuclear Cardiology, November/December
2007]. In 49 patients with mild to moderate asthma and
50 patients with moderate to severe COPD, Stedivaze had no
effect on pulmonary function tests. Results of both of these
trials support the continued study of Stedivaze in patients with
asthma and COPD.
More than 7 million myocardial perfusion imaging tests were
performed in the United States in 2009 to determine the extent
and location of cardiac ischemia, the effectiveness of
percutaneous coronary intervention or coronary artery bypass
grafting surgeries, or the prognosis after myocardial infarction
[AMR Monthly Monitor]. Over 3.5 million, or approximately
50%, of these tests required the use of a pharmacological agent
to generate maximum coronary blood flow in lieu of or in
addition to exercise [AMR Monthly Monitor] with an average
selling price for each agent per procedure of approximately $200
[MediSpan Price Rx database, accessed on January 25, 2010].
Based on these figures, we believe the value of the
U.S. branded market for vasodilators used in myocardial
perfusion imaging is approaching $800 million annually.
Other
Therapeutics in Development
ATL313 is a selective
AR2A
agonist in preclinical development as a topical treatment for
glaucoma that has shown significant effects on lowering
intra-ocular pressure in both small and large animal models.
Santen has exercised its option to further develop ATL313 for
the treatment of glaucoma and plans to file an Investigational
New Drug (IND) for the drug with the FDA for this
indication as soon as practicable, which is expected to be
within the next twelve months. ATL313 is also the subject of a
license agreement with CombinatoRx for the development of
treatments for B-cell cancers, including multiple myeloma. Under
this collaboration, CombinatoRx will be responsible for both
preclinical and clinical development. ATL313 and other
AR2A
agonists are also being evaluated by us in animal models of
chronic pain and multiple sclerosis.
We are developing ATL844 for the treatment of asthma
and/or
diabetes, both of which are growing, multi-billion dollar
markets. Acting as an
AR2B
antagonist, this compound has shown significant pharmacodynamic
effects in animal models for both asthma and diabetes. We are
proceeding with a toxicology and chemistry program and, with
success, we would expect to file an IND to continue the
development of this compound in human trials. ATL844 is also the
subject of an option agreement for an exclusive license by
Novartis for the treatment of asthma and diabetes.
ATL1222 is a highly selective
AR2A
agonist in development as an anti-inflammatory agent for the
treatment of acute inflammatory conditions based on effects
demonstrated in animal models. ATL1222 is being evaluated in
pharmacodynamic studies and, with success, we would expect to
file an IND to continue the development of this compound in
human trials.
AVN316 is small molecule that potently inhibits the beta-catenin
pathway in a variety of model systems. This compound and program
is under consideration for further development and potential
partnering.
Company
History
We were formed in 1972 and, through a series of acquisitions and
dispositions over the past several years, have emerged as a
company focused primarily on the development and
commercialization of novel therapeutics.
On October 6, 2005, we acquired Genaissance
Pharmaceuticals, Inc., or Genaissance, including its in-licensed
drug candidate, vilazodone. Since the acquisition of
Genaissance, vilazodone has advanced through two positive
Phase III clinical trials to an NDA filing with the FDA on
March 22, 2010, which was accepted for review by the FDA on
May 21, 2010 and assigned a PDFUA date of January 22,
2011. We also acquired the assets which we developed and
commercialized as the FAMILION family of tests for
inherited cardiac syndromes, including cardiac channelopathies
and cardiomyopathies, which are marketed to healthcare providers
to assist in the diagnosis and management of complex cardiac
diseases.
In calendar 2006, we changed the name of Genaissance to Cogenics
Inc., or Cogenics, and formed PGxHealth, LLC, or PGxHealth, to
centralize the development and commercialization of vilazodone
and the FAMILION tests.
3
On August 23, 2007, we acquired Epidauros Biotechnologie
A.G., or Epidauros. Included in this acquisition was an
intellectual property portfolio that included biomarkers in
genes relating to prominent drug transporters, such as MDR1,
MRP1 and OCT1, and important cytochrome P450 drug metabolizing
genes including CYP2B6 and CYP2D6. These genes and specific
markers of these genes play an important role in determining
response in individuals to drugs in a wide variety of
therapeutic classes, including response to clopidogrel, an
antiplatelet agent used to inhibit blood clots in coronary
artery disease, peripheral vascular disease and cerebrovascular
disease. These biomarkers contribute to our position with
respect to advancing our test development and potentially
supporting development and advancement of our therapeutics.
Following the Epidauros acquisition, we assigned this
intellectual property portfolio to PGxHealth.
On August 4, 2008, we acquired the assets of Adenosine
Therapeutics, LLC, or Adenosine Therapeutics, a developer of
drug products based on its extensive portfolio of selective
adenosine receptor modulators, including Stedivaze. This
acquisition provided our preclinical pipeline of adenosine
compounds targeted for use in therapeutic areas with large
market potential and unmet needs including asthma, diabetes,
coronary vasodilators and ophthalmic treatments. Stedivaze, a
highly selective
AR2A
agonist, is positioned to be a best-in class and
best-in-category
vasodilator for myocardial perfusion imaging.
On October 27, 2008, we entered into a definitive merger
agreement to acquire Avalon Pharmaceuticals, Inc., or Avalon.
Avalon is a biopharmaceutical company focused on the discovery,
development and commercialization of cancer therapeutics. This
acquisition was completed on May 28, 2009.
On September 30, 2009, we purchased at auction all the
assets of Epix Pharmaceuticals, Inc., or Epix, related to the
PRX-08066 drug program, which is a selective
5-HT2B
antagonist in Phase II development for pulmonary
hypertension.
As part of our decision to focus our efforts solely on the
development and commercialization of therapeutics, we sold the
Cogenics division in April 2009.
With the sale of Cogenics completed and with the acquisition of
the assets of Adenosine Therapeutics and Avalon, we have
transformed the company to one focused on the development of
late-stage novel compounds that have the potential to be
commercialized as
first-in-class,
best-in-category,
or both.
For a description of our revenue, loss from operations, and
total assets, please see the Consolidated Financial Statements
contained in Item 15.
OUR
INDUSTRIES
Therapeutic
Development
Drug development occurs in stages grouped into preclinical and
clinical, with the latter conducted in three not necessarily
discrete phases. Typically, chemical libraries are screened to
identify lead compounds that have been determined to bind to
specific targets, interrupt certain pathways, or for other
reasons are believed to be rational candidates for progression
into in vitro and in vivo studies to
determine their pharmacodynamic, pharmacokinetic and
toxicological profiles. These data are then compiled to support
the filing of an IND with the FDA or a similar application with
other national or regional regulatory agencies. Once the
compound is approved for dosing in humans, clinical studies are
conducted to establish the pharmacology, safety and efficacy of
the compound for the intended indication. Finally, an NDA is
filed with the FDA for marketing approval in the U.S. or a
similar application for marketing approval is filed in other
countries or regions. If approved by the FDA or equivalent
regulatory authority outside of the U.S., the drug can be
marketed although additional studies
and/or
surveillance may be required. Overall, the process of moving a
compound from identification through approval can take more than
10 years. The odds of failure are high, with only 1 of
every 5,000 to 10,000 compounds gaining marketing approval.
Genetic
Tests
Many health plans and employers view genetic and biomarker
testing as an important next step in managing healthcare costs.
We are working directly with thought leaders, leading academic
institutions, physicians, hospitals,
4
payors, professional associations, healthcare coalitions,
information technology companies and other healthcare
constituents to set the stage for market introduction and
adoption of these tests. We have continued to expand both the
menu of genetic tests we offer for inherited cardiac syndromes
as well as third-party payor coverage and to apply our expertise
to the development and commercialization of other genetic tests
related to these heritable diseases and to drug response.
OUR
COMPANY
Our
Strategy
We are focused on the acquisition, development and
commercialization of
best-in-class
and/or
first-in-class
therapeutics. We have been opportunistic in identifying
compounds that fit this strategy and that we were able to
acquire on favorable terms. Our first late-stage drug candidates
is vilazodone, a dual-acting selective and potent serotonin
reuptake inhibitor and
5-HT1A
partial agonist for which an NDA was filed with the FDA on
March 22, 2010. Our NDA for vilazodone was accepted for
review by the FDA on May 21, 2010, with an assigned PDUFA
date of January 22, 2011. Our second late-stage drug
candidate is apadenoson, trademarked Stedivaze, an
AR2A
agonist and potential
best-in-class
coronary vasodilator for use in nuclear-SPECT myocardial
perfusion imaging, currently in Phase III clinical
development. In addition, we have a pipeline of preclinical
compounds in development for disorders with large markets and
unmet needs. Some of these compounds are within reach of
first-in-human
studies in the coming fiscal year.
In support of our strategy, we
are: (i) advancing vilazodone through the NDA
process, marketing approval and commercialization phases;
(ii) continuing to advance Stedivaze through its
Phase III clinical programs toward the goal of an NDA
submission; (iii) advancing our preclinical pipeline of
therapeutics and potentially of related biomarkers consistent
with program objectives; (iv) developing, acquiring
and/or
in-licensing other therapeutics; and (v) leveraging our
know-how and expertise in drug and genetic biomarker development
to achieve all aspects of our business strategy.
Our
Pharmaceutical Pipeline
Vilazodone
About
Depression
Depression is a common mood disorder with significant morbidity
and mortality. The National Institute of Mental Health estimates
that MDD affects approximately 18.1 million adults in the
U.S. Further, approximately 60% of MDD patients have a
comorbid psychiatric condition, including anxiety-related
disorders and posttraumatic stress disorder [Rush A. et al.,
Comorbid psychiatric disorders in depressed outpatients:
Demographics and clinical features. J Affect Disord
2005 Jul 87 (1):43-55]. Despite advances in the
understanding of pharmacotherapy and the ongoing development of
new agents, overall effectiveness of existing approved therapies
is unsatisfactory. For example, approximately two-thirds of
patients do not achieve remission with first-line treatment with
an SSRI [STAR*D Study, January, 2006 American Journal of
Psychiatry].
Common causes for noncompliance or discontinuation of
antidepressant therapy include lack of effectiveness, and safety
and tolerability issues, including antidepressant induced sexual
dysfunction, weight gain, and neurological and gastrointestinal
effects [Ashton, et al., Antidepressant-Related Adverse Effects
Impacting Treatment Compliance: Results of Patient Survey,
March/April 2005, Current Therapeutic Research].
Market
Opportunity and Competition
Today, no single drug holds more than a 25% share of the
antidepressant market. If approved by the FDA for marketing,
vilazodones potential competitors would include:
Pfizers Zoloft (sertraline); Wyeths Effexor IR and
XR (venlafaxine); Forests Lexapro (escitalopram); Eli
Lillys Cymbalta (duloxetine) and Prozac (fluoxetine);
GlaxoSmithKlines Paxil (paroxetine); and Labopharms
Oleptro (trazodone).
5
More than 212 million prescriptions were written for
antidepressants in 2009, with commonly prescribed agents
accounting for approximately $12 billion [IMS Healths
National Prescription Audit and National Sales Perspective].
About
Vilazodone
We are proceeding with the development of vilazodone for the
treatment of depression under the terms of an exclusive
worldwide license agreement with Merck entered in 2004.
Vilazodone is a dual-acting modulator of serotonin
neurotransmission, as it is both a selective and potent
serotonin reuptake inhibitor, a mechanism of action proven
successful as a first-line therapy for MDD, and a partial
agonist of the
5-HT1A
receptor, a mechanism of action shown to be effective in
treating mood disorders, including anxiety and depression. These
mechanisms combine to increase serotonin levels in synapses in
the brain, by inhibiting serotonin reuptake and by interfering
with an innate signal to reduce serotonin production.
In February 2006, we initiated the first of two randomized,
double-blind, placebo-controlled Phase III studies of
vilazodone for the treatment of MDD; this study enrolled
410 patients and was completed in March 2007. This trial
met its primary endpoint of superiority of vilazodone compared
to placebo in the improvement of symptoms of depression as
measured by mean change from baseline to the end-of-treatment in
the Montgomery-Asberg Depression Rating Scale
(MADRS), with a p-value of 0.001. Secondary
endpoints including the Hamilton Depression Rating Scale
(HAM-D) (p = 0.022) and the Clinical Global
Improvement and Clinical Global Severity Scores, which were also
statistically significant in favor of vilazodone-treated
patients compared to placebo-treated patients. There was also a
statistically significant improvement in symptoms of anxiety
associated with depression, as measured by HAM-A (p=0.031). The
most common adverse events associated with vilazodone treatment
in this study were nausea, diarrhea and somnolence. In this
study, effects on sexual function for vilazodone-treated
patients were similar to that of placebo-treated patients as
measured by change in the Arizona Sexual Experience Scale.
Results from the first Phase III study of vilazodone were
published in March 2009 in the Journal of Clinical
Psychiatry [Rickels K, et al., J Clin Psych 2009 Mar
70(3):326-33].
As a result of the completion of this first Phase III study
and under the terms of our agreement with Merck, we issued
135,000 shares of our common stock as a milestone payment
to Merck in December 2007. All of the shares issued to Merck are
unregistered but carry certain demand and incidental
registration rights, as provided under the agreement.
In March 2008, we initiated our second Phase III study
which was completed in March 2009. This study was a randomized,
double-blind, placebo-controlled trial of 481 patients with
MDD conducted in the U.S. The study achieved its primary
endpoint of demonstrating a reduction in the symptoms of
depression, as measured by a statistical separation from placebo
in the MADRS, with a p-value of 0.009, after up to 8 weeks
of treatment. Vilazodone also met a key secondary endpoint as
demonstrated by a statistically significant reduction in
depression symptoms, compared to placebo, measured by mean
change from baseline on the HAM-D, with a p-value of 0.026.
These two rating scales are the most common psychometric
measures of response to antidepressants used in clinical trials
for regulatory approval. There was also a statistically
significant improvement in symptoms of anxiety associated with
depression, as measured by the HAM-A, with a p-value of 0.037.
The effects of vilazodone on sexual function were comparable to
placebo, as measured by a validated sexual function scale, the
Changes in Sexual Function Questionnaire. In addition,
vilazodone was generally well tolerated. The discontinuation
rate due to adverse events for patients on vilazodone was 4.3%
vs. 1.7% for who received placebo. In this study, the most
common adverse events associated with vilazodone included
diarrhea, nausea and insomnia.
A long-term safety study of vilazodone was initiated in December
2007 and completed in June 2009. The findings of this open-label
study related to adverse events and other measures of safety
were consistent with those of the two 8-week placebo-controlled
studies. The most common adverse events were diarrhea, nausea
and headache. Exposure of patients to vilazodone in the
development program meets the minimum requirements as
recommended by the FDA and International Conference on
Harmonisation of Technical Requirements for Registration of
Pharmaceuticals for Human Use, or ICH, for chronic diseases.
Based on the results of these and additional activities,
including the manufacture of registration batches of the active
pharmaceutical ingredient and the drug product, we filed an NDA
for vilazodone with the FDA on March 22,
6
2010. On May 21, 2010, the FDA accepted the NDA filing. As
a result of the achievement of this milestone, under the terms
of our agreement with Merck, we issued 921,000 shares of
our common stock as a milestone payment to Merck. All of the
shares issuable to Merck are unregistered but carry certain
demand and incidental registration rights, as provided under the
agreement. The assigned PDUFA date for marketing approval of
vilazodone is January 22, 2011. Vilazodone is currently not
approved for marketing by the FDA.
We continue to prepare for the earliest possible
commercialization of vilazodone. Over the last year, we have
engaged a medical education firm to develop and continue to
execute a fully integrated publication and education plan. This
publication plan will provide the medical community the
opportunity to review pharmacodynamic and clinical information
on vilazodone.
In calendar 2009, we formed a relationship with an award
winning, full service advertising and marketing agency in order
to assist with market research, branding and promotions to be
initiated after FDA approval. The vilazodone branding and
promotional preparation continue to progress, on target for the
earliest possible FDA approval.
In addition, we have begun to increase our marketing and sales
related personnel in an efficient and fiscally responsible
manner.
Stedivaze
Overview
Stedivaze is a selective
AR2A
agonist in development as a coronary vasodilator for
nuclear-SPECT myocardial perfusion imaging. Data from the
clinical development program have demonstrated Stedivazes
potential for
best-in-class
attributes related to its adverse event, tolerability,
pharmacokinetic and target binding profiles and its mode of
administration as an intravenous rapid bolus fixed dose. We
began enrollment in our first Phase III clinical trial for
Stedivaze, the ASPECT 1 trial (Apadenoson Single Photo Emission
Computed Tomography), in November 2009 and expect to begin our
second Phase III clinical trial (ASPECT 2) during our
fiscal year ending March 31, 2011. Both of these
Phase III studies will evaluate the safety and efficacy of
Stedivaze for use as a pharmacologic stress agent in
nuclear-SPECT myocardial perfusion imaging, a method for
evaluating blood flow to the heart, and also compare the
tolerability of Stedivaze to adenosine, a standard pharmacologic
stress agent used in myocardial perfusion imaging scans, when
administered as an intravenous bolus injection.
About
Myocardial Perfusion Imaging
Myocardial perfusion imaging is used as a primary screen to
identify the presence of coronary artery disease as evidenced by
detection of areas of poor blood flow in the heart that can be
caused by plaques or constrictions that reduce or block the
normal flow of blood. A pharmacologic stress agent is used to
temporarily increase blood flow in order to define areas of the
heart that may be receiving reduced blood flow under rest and
stress conditions. The
A2A
receptor is the adenosine receptor subtype that mediates
coronary artery vasodilation, or the widening of blood vessels
that supply the heart muscle [Shryock, J.C., Snowdy, S.,
Baraldi, P.G., et al., Circulation, 1998, pp
711-718].
Market
Opportunity and Competition
More than 7 million myocardial perfusion imaging tests were
performed in the United States in 2009 to determine the extent
and location of cardiac ischemia, the effectiveness of
percutaneous coronary intervention or coronary artery bypass
grafting surgeries, or the prognosis after myocardial infarction
[AMR Monthly Monitor]. Over 3.5 million, or approximately
50%, of these tests required the use of a pharmacological agent
to generate maximum coronary blood flow in lieu of exercise [AMR
Monthly Monitor]. For the past 13 years, the myocardial
perfusion imaging market has grown at a compound annual growth
rate of almost 11% per year [AMR Monthly Monitor]. For the
twelve-month period ending June 2009, the leading vasodilator
for myocardial perfusion imaging studies is Adenoscan, or
adenosine, which had sales of about $300 million [The
Myocardial Perfusion Study Market Guide, Jul-Dec 2008 &
Jan-Jun 2009, USA. Produced by AMR Inc., Malvern PA]. CV
Therapeutics, Inc. has developed Lexiscan, which has been
approved by the FDA. Labeling for Lexiscan shows that it is
administered as a single-bolus intravenous injection but that it
has a comparatively un-differentiated incidence of adverse
effects
7
when compared to adenosine. Although the coronary vasodilation
evoked by these agents results from activation of the adenosine
A2A
receptor, their activity on the other 3 adenosine receptor
subtypes
(A1,
A2B,
A3),
as well as a prolonged duration of action, may produce unwanted
side effects. The current U.S. market opportunity value
approaching $800 million has been limited somewhat by the
adverse event profile of these compounds; we believe the market
opportunity is substantially greater for a compound that fully
meets the clinical need [Broadpoint Capital, Inc.,
April 11, 2008; Morgan Stanley, January 27, 2009]. As
validation for the potential of this class, Lexiscan, which was
first sold in June 2007, generated roughly $120 million in
sales for the twelve months ended June 2009 [The Myocardial
Perfusion Study Market Guide, supra. p.7]. Lexiscan
is forecasted to achieve worldwide sales of $410.8 million
by 2012 [Morgan Stanley, January 27, 2009].
About
PRX-08066
We purchased all the assets related to PRX-08066 from Epix in
September 2009. PRX-08066 is a
5-HT2B
receptor antagonist in Phase II of development for
pulmonary hypertension and related disorders, including
pulmonary arterial hypertension. PRX-08066 has shown positive
pharmacodynamic effects in animal models of pulmonary
hypertension, as well as in hypoxia-induced pulmonary
hypertension in healthy subjects, and in patients with pulmonary
hypertension associated with COPD. We are evaluating our options
for the continued development of this compound in pulmonary
arterial hypertension and related disorders. This may include
additional preclinical studies of pharmacodynamics or new
clinical trials.
Preclinical
Therapeutic Development Programs
ATL313
ATL313 is a selective
AR2A
agonist in preclinical development as a topical treatment for
glaucoma that has shown significant effects on lowering
intra-ocular pressure in both small and large animal models.
Santen has exercised its option to further develop ATL313 for
the treatment of glaucoma and plans to file an IND for the drug
for this indication as soon as practicable, which is expected to
be within the next twelve months. ATL313 is also the subject of
a license agreement with CombinatoRx for the development for the
treatment of B-cell cancers, including multiple myeloma. Under
this collaboration, CombinatoRx will be responsible for both
preclinical and clinical development. ATL313 and other
AR2A
agonists are also being evaluated by us in animal models of
chronic pain and multiple sclerosis.
ATL844
We are developing ATL844 for the treatment of asthma
and/or
diabetes, both of which are growing, multi-billion dollar
markets. Acting as an
AR2B
antagonist, this compound has shown significant pharmacodynamic
effects in animal models for both asthma and diabetes. We are
proceeding with a toxicology and chemistry program and, with
success, we expect to file an IND to continue the development of
this compound in human trials. ATL844 is also the subject of an
option agreement for an exclusive license with Novartis for the
treatment of asthma and diabetes.
ATL1222
ATL1222 is a highly selective
AR2A
agonist in development as an anti-inflammatory agent for the
treatment of acute inflammatory conditions based on effects
demonstrated in animal models. ATL1222 is being evaluated in
pharmacodynamic studies and, with success, we would expect to
file an IND filing to continue the development of this compound
in human trials.
AVN316
AVN316 is a small molecule that potently inhibits the
beta-catenin pathway in a variety of model systems. This
compound and program is under consideration for further
development and potential partnering.
8
Strategic
Acquisitions
We continually evaluate opportunities that may provide us with,
among other things, new compounds in clinical development,
promising biomarkers preferably with intellectual property
protection, new technologies and key personnel or capabilities
that could augment these efforts. From time to time, we may
pursue acquisitions which we believe will meet these or other
preclinical and clinical program goals.
Our
Genetic Tests
The FAMILION family of tests identifies mutations in
genes associated with inherited cardiac syndromes including
cardiac channelopathies such as Long-QT Syndrome
(LQTS), Brugada Syndrome (BrS),
Catecholaminergic Polymorphic Ventricular Tachycardia
(CPVT) and Short QT Syndrome (SQTS), and
in genes associated with cardiomyopathies including Hypertrophic
Cardiomyopathy (HCM), Arrhythmogenic Right
Ventricular Cardiomyopathy (ARVC), Dilated
Cardiomyopathy (DCM) and Conduction Disease
associated with DC (CD-DCM).
We are continuing to develop and commercialize genetic and
related biomarker tests that will assist providers and payors in
determining the most appropriate therapeutic intervention for a
particular patient. These tests are developed based on our
know-how and expertise, in partnership with thought leaders and
leading healthcare institutions, and intellectual property that
we have developed on our own, licensed from others, or acquired
from other parties.
The
FAMILION Family of Tests
According to the Centers for Disease Control and Prevention each
year 400,000 Americans die suddenly and unexpectedly due to
cardiac arrhythmias, with about 4,000 of these deaths occurring
in people under the age of 35 [Sudden Arrhythmia Death
Syndromes Foundation (SADS) citing CDC 2002].
Some of these deaths, especially those of young seemingly
healthy people, are due to cardiac channelopathies, such as
LQTS, BrS, and CPVT and to cardiomyopathies, such as HCM, ARVC
and DCM. These conditions may predispose affected individuals to
abnormal heart rhythms, known as arrhythmia, which can cause
symptoms ranging from syncope, or fainting, to sudden cardiac
arrest if left undiagnosed and untreated. Once detected,
treatment options may include life-style modification, the
prescription or avoidance of specific classes of drugs, and the
insertion of an implantable cardioverter/defibrillator.
Launched in 2004, the LQTS and BrS tests were the first test
offerings. LQTS is a genetic disorder that is three times more
common than childhood leukemia [SADS Foundation]. The
clinical presentation of LQTS and the subtype as indicated by
the results of genetic testing are associated with both the
probability and lethality of cardiac events. The onset of BrS is
primarily during adulthood and, if untreated, the mean age of
death is approximately 40 years of age.
In October 2007, a test for CPVT was added to the test menu.
CPVT is considered to be highly lethal with the overall
mortality of untreated disease estimated to be
30-50%
[Mohamed U, et al., J Cardiovasc Electrophysiol. 2007;
18(7):791-7].
In May 2008, we began offering a genetic test for HCM, an
autosomal dominant disease that affects 1 in 500 people
[Keren A, et al., Nature, 2008; 5(3):158-68]. As the most
prevalent cardiomyopathy, it is the major cause of sudden death
in people under 30 years of age.
In November 2008, we began offering a genetic test for ARVC, a
progressive cardiomyopathy characterized by loss of heart muscle
cells and replacement with fatty and fibrous tissue. Prevalence
estimates for ARVC range from 1 in 5,000 to 1 in 1,250
[Muthappan P, Calkins H, Prog Cardiovasc Dis. 2008;51:31-43;
Peters S., Int J Cardiol. 2006;113:4-11].
In November 2009, we began offering a genetic test for DCM, an
inherited progressive heart disease with no known cure. Early
diagnosis enables the patient to receive treatments to slow the
progression of the disease.
In March 2009, the Heart Failure Society of America issued
Practice Guidelines on Genetic Evaluation of Cardiomyopathy
[Hershberger et al., Journal of Cardiac Failure
2009;15:83-97]. The guidelines indicated substantial
9
progress in understanding the genetic basis of cardiomyopathy.
The guidelines also stated that genetic testing should be
considered for the one most clearly affected person in a family
and that the primary value, and the primary reason to seek
genetic testing for the genetic cardiomyopathies, is to more
accurately predict the risk of a family member developing
cardiomyopathy who at the present has little or no clinical
evidence of cardiovascular disease.
A joint guideline issued by the American College of Cardiology,
the American Heart Association, and the European Society of
Cardiology, titled ACC/AHA/ESC 2006 Guidelines for Management
of Patients With Ventricular Arrhythmias and the Prevention of
Sudden Cardiac Death, emphasizes the importance of the
medical profession in critically evaluating the use of
diagnostic procedures and therapies. The guidelines, as
published in Circulation [2006;114:1088-1132], recommend
genetic testing for LQTS, CPVT, and BrS for the management of
patients with ventricular arrhythmias and prevention of sudden
cardiac death.
In May 2010 we expanded the FAMILION BrS test to include
seven BrS genes. We also began offering genetic tests for SQTS
and familial CD-DCM.
40-50% of
patients with a high suspicion for familial Conduction Disease
will have a mutation in the genes shown to cause CD-DCM. [Fatkin
D, et al., New England Journal of Medicine,1999;341:1715-24.
Hersberger RE, et al., supra., p. 9]
Challenges
in Reimbursement
Some of the greatest challenges associated with genetic testing
are the complicated pricing and reimbursement structures of the
major payors and the out-dated Clinical Laboratory Fee Schedule
codes often used by private and public payors. We have made
significant progress in our efforts to contract with private and
government health insurers for test coverage and reimbursement.
The FAMILION LQTS, BrS, and FAMILION family tests
and the FAMILION HCM and FAMILION HCM Family tests
received S-codes in October 2008 and April 2009, respectively.
S-codes should speed the adoption of these tests by private
insurers. In October 2008, we became an
in-network
provider with Aetna for healthcare coverage of our FAMILION
LQTS and Family tests. We are utilizing our national
contract with the Blue Cross Blue Shield Association signed in
December 2008 to work with individual BCBS companies to provide
their customers with access to our FAMILION Family of
Tests. In June 2009, we became an
in-network
provider for Humana for our FAMILION LQTS and associated
family test. In addition, we are an approved Medicare provider
for our genetic testing services, and a Medicaid provider in
41 states and the District of Columbia. These providers and
other private payers with positive coverage policies offer
access to genetic testing for nearly 280 million patients.
OTHER
BUSINESS MATTERS
Government
Regulation
Regulation by governmental entities in the U.S. and other
countries are and will continue to be a significant factor in
the development, manufacture and marketing of our products.
Federal and state laws in the U.S. closely regulate the
manufacture, safety, labeling, storage, record keeping,
performance and marketing of human therapeutic and diagnostic
products or services. The extent to which these regulations may
apply to us varies depending on the nature of the product or
service.
Protected patient health information and the information
technology systems that store and manage this information in
association with our commercial testing business are regulated
by the Health Information Privacy and Portability Act known as
HIPPA.
The Centers for Medicare & Medicaid Services regulates
all non-research laboratory testing performed on humans in the
U.S. under the Clinical Laboratory Improvement Amendments
of 1988 (CLIA). The Division of Laboratory Services,
within the Survey and Certification Group, under the Center for
Medicaid and State Operations, has the responsibility for
implementing and enforcing CLIA. So-called
laboratory-developed tests, such as our
FAMILION tests, are currently regulated under CLIA.
Our lead therapeutic compounds, vilazodone and Stedivaze, as
well as our earlier stage products, will require approval by the
FDA in the U.S. and by equivalent regulatory bodies in
other countries in order to be marketed. Gaining marketing
approval requires the completion of both non-clinical and
clinical studies and post-marketing safety surveillance, in
addition to manufacture of the active pharmaceutical ingredient
and the drug product(s), all in accordance with applicable
regulations. This process can take many years and requires the
expenditure of
10
substantial resources. Delays in obtaining marketing approval or
clearance could delay the commercialization of any therapeutic
or diagnostic products developed by us or our collaborators,
impose costly processes and procedures, diminish competitive
advantages and reduce our potential revenues or royalties. Any
products we or our collaborators develop may not receive
regulatory approval in a timely fashion or at all. The
development of vilazodone and Stedivaze, as well as our earlier
stage products, are subject to applicable Good Laboratory
Practices (GLP), Good Clinical Practice
(GCP) and current Good Manufacturing Practices
(cGMP), as promulgated by the FDA and other
regulatory agencies and provided to the industry in guidance and
other regulatory documents. We believe we are in compliance with
applicable regulations and employ consultants as needed to
advise us throughout our development programs. We conduct audits
of laboratory and manufacturing sites and monitor and audit
clinical investigators to assure their compliance.
Patents
and Proprietary Technology
We rely on patents, trade secrets, and
non-disclosure/confidentiality agreements to develop and
maintain our competitive position. All employees are required to
execute agreements providing that all inventions conceived by
them while employed by us are our exclusive property.
As of March 31, 2010, we have a patent estate consisting of:
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One pending U.S patent application, four pending
U.S. provisional patent applications, and one pending
international patent application under the Patent Cooperation
Treaty relating to genetic markers associated with response to
antidepressants, namely vilazodone, composition of vilazodone
and methods of use;
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One issued U.S. patent (expiry date of June 2024) and
one pending U.S. patent application relating to Stedivaze
formulation and process of preparation;
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Two pending U.S. provisional patents relating to LQTS;
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Two issued U.S. patents (expiry dates of May 2024
(compound) and December 2025 (method of treatment)), three
pending U.S. patent applications, three issued foreign
patents in India, Mexico and New Zealand, forty-two pending
foreign patent applications in Europe, Canada, Japan, Australia,
and eighteen other countries, and one pending international
patent application under the Patent Cooperation Treaty relating
to substituted pyrimidine compounds and methods of use;
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Three pending U.S. patent applications, sixteen pending
foreign patents in Europe, Canada, Japan, Australia and twelve
other countries, one pending international patent application
under the Patent Cooperation Treaty relating to ATL313;
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Two issued U.S. patents (expiry dates of November 2025
(composition of matter) and May 2027 (process of
manufacturing)), three pending U.S. patent applications,
four issued foreign patents in Mexico, New Zealand, Russia and
Singapore, thirty-two pending foreign patent applications in
Europe, Canada, Japan, Australia and seventeen other countries
relating to ATL844;
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Three pending U.S. patent applications and two pending
international patent applications under the Patent Cooperation
Treaty relating to ATL1222;
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One issued U.S. patent (expiry date of October 2027), one
pending U.S. patent application, and thirteen pending
foreign patent applications in Europe, Canada, Japan, Australia
and nine other countries relating to ATL359;
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Five issued U.S. patents (expiry dates of April 2025 (A2A
antagonists), April 2027 (pyridyl substituted xanthines and
derivatives of 8-substituted xanthines), May 2027 (pyrazolyl
substituted xanthines) and August 2027 (A2B antagonists)), five
pending U.S. patent applications, two pending
U.S. provisional patent applications, and nineteen pending
foreign patent applications in Europe, Canada, Japan, Australia
and eight other countries relating to our adenosine-related
product pipeline;
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One pending U.S. patent application, thirteen pending
foreign patent applications in Europe, Canada, Japan, Australia
and nine other countries, and two pending international patent
applications under the Patent Cooperation Treaty relating to
beta catenin;
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Two pending U.S. patent applications and five pending
foreign patent applications in Europe, Canada and Japan relating
to PLK3;
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One pending U.S. patent application, one pending foreign
patent application in Europe relating to compounds and methods
for treating or preventing autoimmune diseases;
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Three issued U.S. patents (expiry dates of March 2022
(colon cancer gene expression), July 2023 (pyrrole compounds for
colon cancer) and February 2025 (compound centric signatures)),
five pending U.S. patent applications and two pending
foreign patent applications in Europe relating to cancer gene
expression, therapeutic targets, AVN944 biomarkers, and
identification of therapeutic agents;
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One pending U.S. patent application, twenty issued foreign
patents in Europe, Canada, Mexico, India, Korea, Singapore and
South Africa, and seven pending foreign patent applications in
Europe, Canada and Japan relating to MDR-1;
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One issued U.S. patent (expiry date of May
2020) relating to CYP3AX;
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One issued U.S. patent (expiry date of August 2021), and
three pending foreign patent applications in Europe, Canada and
Japan relating to CYP3A4 and CYP3A7;
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Two pending U.S. patent applications, eleven issued foreign
patents in Europe, and two pending foreign patent applications
in Canada and Japan relating to the CYP2D6;
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One pending U.S. patent application and nineteen issued
foreign patents in Europe relating to CYP2B6;
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One pending U.S. patent application and one pending foreign
patent application in Europe relating to CYP2C8;
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One pending U.S. patent application relating to MRP-1;
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One pending U.S. patent application and two pending foreign
patent applications in Europe and Canada relating to TPMT;
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Three pending U.S. patent applications and one pending
foreign patent application in Europe relating to OCT1;
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Eleven issued foreign patents in Europe relating to CYP3A5;
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One issued U.S. patent (expiry date of January 2021), nine
issued foreign patents in Europe, and two pending foreign patent
applications in Canada and Japan relating to hPXR;
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One issued U.S. patent (expiry date of May
2021) relating to GSTT1;
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One issued U.S. patent (expiry date of December
2024) relating to CDK5 genetic markers associated with
galantamine response;
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One issued U.S. patent (expiry date of April
2024) relating to methods of obtaining and using haplotype
data;
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One issued U.S. patent (expiry date of August
2018) relating to the method to evaluate the ability to
metabolize pharmaceuticals and the compositions thereof; and
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One issued U.S. patent (expiry date of May
2019) relating to UGT1.
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In addition to the patents that we own, we have exclusively
in-licensed rights under a variety of issued patents and pending
patent applications as follows:
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Eleven issued U.S. patents (expiry dates of September 2014
(composition of matter), April 2016 (intermediates), December
2019 (process), January 2020 (intermediates), May 2020 (novel
uses), November 2020 (intermediates), May 2021 (novel uses),
September 2022 (second medical use) and September 2023
(polymorphic forms)); three pending U.S. patent
applications, three-hundred-thirty-nine issued foreign patents,
fifty-four pending foreign patent applications and one pending
international patent application under the Patent Cooperation
Treaty owned by Merck relating to vilazodone, intermediates and
polymorphic
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forms thereof, methods for manufacturing vilazodone, and methods
of using vilazodone to treat depression, other anxiety disorders
and other medical uses;
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Four issued U.S. patents (expiry dates of June 2019), one
pending U.S. patent application, seventy-two issued foreign
patents, thirteen pending foreign patent applications, and one
pending international patent application under the Patent
Cooperation Treaty owned by the University of Virginia Patent
Foundation relating to Stedivaze compositions, methods of using
Stedivaze for myocardial perfusion imaging and other imaging
modalities and a unit dose;
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One issued U.S. patent (expiry date of May 2015) owned
by the University of Massachusetts relating to a use for
Stedivaze;
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One issued U.S. patent (expiry date of May
2018) co-owned by the University of Virginia Patent
Foundation and Penn State Research Foundation relating to
methods for improving insulin sensitivity or stimulating glucose
uptake;
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One pending U.S. patent application, one issued foreign
patent, and two pending foreign patent applications owned by the
National Institutes of Health relating to methods for treating
cancer;
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Thirteen issued U.S. patents (expiry dates of July 2014
(method for treating restenosis with A2A agonists and treating
inflammatory response with A2A agonists), March 2016 (method for
treating inflammatory diseases with A2A agonists), February 2018
(use of A2B antagonists in treating respiratory diseases),
February 2020 (A2B antagonists), January 2022 (treating
inflammatory response), October 2022 (2-propynyl adenosine
analogs having A2A agonist activity), July 2025 (allosteric
enhancers of A1 adenosine receptors), March 2026 (agonist
allosteric enhancers at human A1 adenosine receptors), May 2026
(ATL313 and other A2A agonists), October 2026 (2-polycyclic
propynyl adenosine analogs having A2A activity) and May 2027
(ATL313 and other A2A agonists and 2-propynyl adenosine analogs
having A2A agonist activity)), eleven pending U.S. patent
applications, one pending U.S. provisional patent
application, nine issued foreign patents, and fifteen pending
foreign patent applications owned by the University of Virginia
Patent Foundation relating to our substantial adenosine-related
product pipeline;
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Five issued U.S. patents (expiry dates of October 2016
(LQT1/KCNQ1), December 2016 (LQT1/KCNQ1), August 2017
(LQT1/KCNQ1), July 2018 (LQT2/KCNH2) and August 2019
(LQT2/KCNH2)), six issued foreign patents in Europe, Canada,
Japan, Australia and one other country, and five pending foreign
patent applications in Europe, Canada and Japan owned by the
University of Utah relating to the diagnosis of inherited LQTS;
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Five issued U.S. patents (expiry dates of October 2016
(LQT1/KCNQ1), December 2016 (LQT1/KCNQ1) and August 2017
(LQT1/KCNQ1)), six issued foreign patents in Europe, Canada,
Japan, Australia and one other country, and two pending foreign
patent applications in Europe and Canada owned by Genzyme
Corporation relating to the diagnosis of inherited LQTS;
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One pending U.S. patent application and three pending
foreign patent applications in Europe, Canada and one other
country and one pending international patent application under
the Patent Cooperation Treaty owned by Newfound Genomics
relating to the diagnosis of inherited ARVC;
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Three pending U.S. patent applications, sixteen issued
foreign patents in Europe, Japan, Australia and two other
countries, and four pending foreign patent applications in
Europe, Canada and Japan owned by CHU Tours relating to the use
of the FCGR3A V158F variant to predict certain phenotypes,
including rituximab efficacy;
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One issued U.S. patent (expiry date of June
2017) controlled by Innate Pharma relating to genotyping
the FCGR3A V158F variant;
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One pending U.S. patent application owned by the University
of Alabama-Birmingham relating to the use of certain FCGR2B
variants to predict certain phenotypes;
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One issued U.S. patent (expiry date of August
2015) owned by St. Jude Childrens Research Hospital
(exclusively sublicensed to Prometheus Laboratories Inc. and
Specialty Laboratories, Inc.) relating to genetic markers
predictive of thiopurine toxicity;
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One pending U.S. patent application owned by St. Jude
Childrens Research Hospital (exclusively licensed to
Specialty Laboratories, Inc.) relating to gamma glutamyl
hydrolase activity;
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One issued U.S. patent (expiry date of June
2012) owned by Yale University (exclusively sublicensed to
Siemens Medical Solutions Diagnostics) relating to the coupled
amplification and sequencing of DNA; and
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One issued U.S. patent (expiry date of October
2020) owned by Vanderbilt University relating to a genetic
marker predictive of drug-induced cardiac arrhythmia.
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Backlog
Backlog is not meaningful to our business.
Employees
We had 160 full-time and 17 part-time employees as of
March 31, 2010, all of whom are employed in the
U.S. and Canada.
Environmental
Matters
We do not believe that compliance with federal, state or local
regulations relating to the protection of the environment has
any material effect on our financial or competitive position.
Significant
Customers and Geographical Information
No customer comprises 10% or more of our consolidated revenues.
All of our revenue is derived from sales within North America.
Discontinued
Operations
As part of our decision to focus on the development and
commercialization of therapeutics and genetic tests from our
growing portfolio of proprietary genetic biomarkers, we sold
Vital Diagnostics in November 2006, Clinical Data
Sales & Service in June 2007, Vital Scientific in
October 2007, Electa Lab in November 2007, and our Cogenics
segment in April 2009. Accordingly, we classified these
businesses as discontinued operations and their results of
operations, financial position and cash flows are separately
reported for all periods presented.
Investor
Information
Financial and other information about us is available on our
website
(http://www.clda.com).
We make available on our website, free of charge, copies of our
annual report on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K,
and amendments to these reports filed or furnished pursuant to
Section 13(a) or 15(d) of the Securities and Exchange Act
of 1934 as soon as reasonable practicable after we file such
material electronically or otherwise furnish it to the SEC.
Investment in our securities involves a high degree of risk.
Investors should carefully consider the following factors, among
others, relating to Clinical Data:
Risk
Factors Relating to Our Business and Operations
If we
are unable to raise additional capital when needed in the
future, we might be unable to execute our operating and
development plans, and if we succeed in raising capital, we
might dilute your percentage ownership of the common stock or
might subject our company to fixed payment obligations and
restrictive covenants.
Our projected uses of cash include cash to fund operations,
including continued research and product development, sales and
marketing, capital expenditures and existing debt service costs.
We believe that our cash
14
resources will be sufficient to fund our operations through
March 2011. We will need additional funds to continue
operations and for the development (including approval) of
vilazodone and Stedivaze and other potential products.
Management is always evaluating and prioritizing additional
sources of financing, and would consider any of the following
options:
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partnering opportunities for the marketing of vilazodone;
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partnering opportunities for the development and marketing of
Stedivaze;
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sales of non-core assets; and/or
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sales of equity and debt securities.
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If we raise additional capital through the sale of equity
securities, our existing stockholders will be diluted and
earnings per share could decrease. Capital raised through debt
financing would require us to make periodic payments of interest
and principal and might impose restrictive covenants on the
conduct of our business. Furthermore, additional financings
might not be available on terms favorable to us, or at all.
Moreover, the terms of our outstanding convertible notes
restrict our ability to finance our operations through the
issuance of additional debt or shares of common stock.
We cannot be certain that additional financing will be available
in amounts or terms acceptable to us, if at all. A failure to
obtain additional funding could prevent us from making
expenditures that might be required to grow or maintain our
operations. If we are unable to obtain financing or partnering
opportunities, we may be required to implement cost reduction
strategies, including decreasing our expenditures on research
and development expenses and sales and marketing expenses in
anticipation of development and commercial launch of our
products. The postponement or cancellation of any of these
development and commercialization efforts could have a material
adverse impact on our planned operations and future operating
results.
Given
our current product development efforts, which have resulted in
significant net losses, we expect to incur further net losses
for the foreseeable future.
We have incurred operating losses since the fiscal year ended
March 31, 2006. At March 31, 2010, we had an
accumulated deficit of $339.7 million. We expect to incur
substantial additional operating losses over the next several
years as our research, development, preclinical testing and
clinical trial activities increase, particularly with respect to
Stedivaze.
Moreover, to become profitable, we, either alone or with
collaborators, must successfully develop, manufacture and market
vilazodone, as well as our future product candidates, including
Stedivaze, and other products and continue to leverage our
existing technologies to generate revenue. This process of
commercialization, especially as it relates to building a sales
force and establishing distributions channels for vilazodone,
for instance, will be time consuming and costly. It is possible
that we will never have significant enough revenue to become
profitable or sustain profitability.
If we
are unable to obtain marketing approval of vilazodone, our
results of operations will suffer.
In order to market our lead therapeutic candidate, vilazodone
(as well as any other of our therapeutic products that
successfully complete the clinical trial process), in the U.S.,
we will need to obtain marketing approval from the FDA. Our NDA
for vilazodone was submitted on March 22, 2010, accepted
for review by the FDA on May 21, 2010, and assigned a PDUFA
date of January 22, 2011. While we have not yet submitted
any application for marketing approval of vilazodone in any
other jurisdiction, we would need the approval of equivalent
regulatory authorities in any other country or territory in
which we sought such approval.
If we are unable to obtain marketing approval for vilazodone, or
if it is delayed, our business and results of operations would
be adversely affected. A regulatory authority may deny or delay
an approval because it was not satisfied with the structure or
conduct of clinical trials or due to its assessment of the data
we supply. A regulatory authority, for instance, may not believe
that we have adequately established a products
risk-benefit profile or
15
adequately addressed negative safety signals. In addition, the
FDA may convene an advisory committee concerning the vilazodone
NDA that may not vote in support of approval of the NDA. While
such a vote would not be binding on the FDA, it could harm the
prospects for approval of our NDA. Clinical data are subject to
varied interpretations, and regulatory authorities may disagree
with our assessments of our data. In any such case, a regulatory
authority could insist that we provide additional data, which
could substantially delay or even prevent commercialization
efforts, particularly if we are required to conduct additional
pre-approval clinical studies.
We may
not successfully develop or derive revenues from any
products.
Any pharmaceutical product that we or our collaborators are able
to develop will fail to produce revenues unless we:
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establish that they are safe and effective;
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establish that they are clinically valid and useful;
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successfully compete with other technologies and products;
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ensure that they do not infringe on the proprietary rights of
others;
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establish that they can be safely manufactured in sufficient
quantities at reasonable costs;
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obtain and maintain regulatory approvals for them; and
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market them successfully.
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We may not be able to meet some or all of these conditions. We
expect that it will be at least a year, if ever, before we will
recognize significant revenue from the commercialization of
vilazodone. For our other therapeutic and diagnostic products
still in clinical trials, such as Stedivaze, we expect that it
will be years before we will recognize revenue, if any, from the
sales of such products.
We
have never marketed a drug before, and if we are unable to
establish an effective sales force and marketing infrastructure
either directly or in collaboration with a third party, we may
not be able to commercialize our product candidates
successfully.
We plan to market or co-promote our products in the
U.S. markets. We currently do not have any internal sales,
distribution or marketing capabilities for pharmaceutical
products. The development of a sales and marketing
infrastructure for U.S. markets will require substantial
resources, will be expensive and time consuming and could
negatively impact our commercialization efforts, including delay
of any product launch. These costs may be incurred in advance of
any marketing approval. In addition, we may not be able to hire
a sales force in the U.S. that is sufficient in size or has
adequate expertise in the medical markets that we intend to
target. If we are unable to establish our sales force and
marketing capability, our operating results would be adversely
affected.
If
physicians and patients do not accept and use our drugs, we will
not achieve sufficient product revenues and our business will
suffer.
Even if we gain marketing approval of our drug candidates,
physicians and patients may not accept and use them. Acceptance
and use of these products may depend on a number of factors
including:
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perceptions by members of the healthcare community, including
physicians, about the safety and effectiveness of our drugs;
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published studies demonstrating the safety and effectiveness of
our drugs;
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adequate reimbursement for our products from payors; and
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effectiveness of marketing and distribution efforts by us and
our licensees and distributors, if any.
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The failure of our drugs, if approved for marketing, to gain
acceptance in the market would harm our business and could
require us to seek additional financing.
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If our
products are not granted adequate reimbursement from third-party
payors, we may be unable to successfully commercialize them and
we may never achieve widespread market acceptance of our
products.
Our ability to successfully sell our drugs and other products in
the U.S. and other countries depends on the availability of
adequate reimbursement from third-party payors such as private
insurance plans, managed care organizations and Medicare and
Medicaid. Most of our revenues for such products are and will be
dependent on customers who rely on third party reimbursement.
Third-party payors may influence the pricing or perceived
attractiveness of our products by regulating the maximum amount
of reimbursement they provide or by not providing any
reimbursement. Medical community or third-party healthcare
payors may deny or delay acceptance of our products or may
provide reimbursement at levels that are inadequate to support
adoption of our products.
If these payors do not reimburse for our drugs, or only provide
reimbursement significantly below the costs of such products,
our potential market and revenues will be materially limited.
Use of our products may never become widely reimbursed and the
level of reimbursement we obtain may never be sufficient to
permit us to generate substantial revenue.
If we
are unable to develop and/or in-license or otherwise acquire new
products and technologies, we may not be able to grow our
company successfully.
To date, we have relied significantly on acquisitions and
in-licensing of intellectual property for our growth. For
example, since 2005 we have acquired seven companies, including
Genaissance, which provided us with our lead drug candidate,
vilazodone, and many of the assets at PGxHealth. If we are
unable to develop products and services internally, or to
acquire companies or other technologies, we may not be able to
continue our growth or to establish a leadership position in our
industry. Additionally, even if such companies
and/or other
assets are available, we may not be able to acquire them on
reasonable terms and therefore be required to pay a premium for
their acquisition.
Because
a significant portion of our total assets are represented by
goodwill and indefinite-lived intangible assets that are subject
to mandatory annual and potentially interim impairment
evaluations and definite-lived intangible assets that are
reviewed for impairment if certain conditions exist, we could be
required to write-off some or all of this goodwill and
intangible assets, which may adversely affect our financial
condition and results of operations.
Approximately 35.4%, or $35.0 million, of our total assets
at March 31, 2010 are comprised of goodwill and
indefinite-lived intangible assets, of which approximately
$31.8 million is goodwill. Under U.S. generally
accepted accounting principles, goodwill and indefinite-lived
intangible assets are not amortized but are reviewed annually or
more frequently if impairment indicators arise. The unamortized
values of definite-lived intangibles are reviewed if certain
conditions exist. There was no impairment charge during fiscal
2010. When we perform future impairment tests, it is possible
that the carrying value of goodwill or intangible assets could
exceed their implied fair value and therefore would require
adjustment. Such adjustment would result in a charge to earnings
in that period. Once adjusted, there can be no assurance that
there will not be further adjustments for impairment in future
periods.
We
might enter into new acquisitions that are difficult to
integrate, disrupt our business, dilute stockholder value or
divert management attention.
Our success will depend in part on our ability to continually
enhance and broaden our product offerings in response to
changing technologies, customer demands and competitive
pressures. We expect to seek to acquire businesses, technologies
or products that will complement or expand our existing
business, including acquisitions that could be material in size
and scope. Any acquisition we might make in the future might not
provide us with the benefits we anticipated in entering into the
transaction. Any future acquisitions involve various risks,
including:
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difficulties in integrating the operations, technologies,
products and personnel of the acquired companies;
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the risk of diverting managements attention from normal
daily operations of the business;
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potential difficulties in completing projects associated with
in-process research and development;
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risks of entering markets in which we have no or limited direct
prior experience and where competitors in such markets have
stronger market positions;
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initial dependence on unfamiliar supply chains or relatively
small supply partners;
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unexpected expenses resulting from the acquisition;
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potential unknown liabilities associated with acquired
businesses;
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insufficient revenues to offset increased expenses associated
with the acquisition; and
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the potential loss of key employees of the acquired companies.
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An acquisition could result in the incurrence of debt,
restructuring charges and large one-time write-offs.
Acquisitions also could result in goodwill and other intangible
assets that are subject to impairment tests, which might result
in future impairment charges. Furthermore, if we finance
acquisitions by issuing convertible debt or equity securities,
our existing stockholders will be diluted.
From time to time, we might enter into negotiations for
acquisitions that are not ultimately consummated. Those
negotiations could result in diversion of management time and
significant out-of-pocket costs. If we fail to evaluate and
execute acquisitions properly, we could fail to achieve our
anticipated level of growth and our business and operating
results could be adversely affected.
We are
dependent upon certain key personnel.
We are highly dependent upon the principal members of our
management, legal and scientific staff, including Andrew J.
Fromkin, our President and Chief Executive Officer, C. Evan
Ballantyne, our Chief Financial Officer, Caesar J. Belbel, our
Chief Legal Officer, Carol R. Reed, M.D., our Chief Medical
Officer, and James P. Shaffer, our Chief Commercial Officer. The
loss of the service of any of these persons or other senior
managers and key scientific and other personnel could seriously
harm our business operations, product development and
commercialization efforts.
In
order to conduct clinical trials and to market our drugs, we
will have to develop approved methods to produce these drugs
using appropriate quality controls and at commercially viable
rates.
In order to conduct clinical trials and ultimately to market any
drugs we may develop, we or our third party contractors will
need to obtain chemicals and components and, in some cases,
licenses for proprietary formulation technology necessary for
the manufacture of the products from third parties. We or our
contractors will then need to implement the necessary technology
in order to produce the drugs to exacting standards set by us
and regulatory authorities. This is an uncertain and
time-consuming process; any disruption in it may delay or harm
our ability to continue clinical development or
commercialization of our products. For drugs which have reached
the last stage of clinical trials, we or our contractors will
have to develop methods to scale up the production of the drug
at commercially viable rates. If we are not able to scale the
process in a timely manner or do not have the ability to produce
the drug economically, we may not be able to enter the market
with a viable product. This would harm our financial and
commercial prospects.
If we
cannot successfully form and maintain suitable arrangements with
third parties for the manufacturing of the products we may
develop, our ability to develop or deliver products may be
impaired.
We have little experience in manufacturing products for
commercial purposes and do not have manufacturing facilities.
Accordingly, we must either develop such facilities, which will
require substantial additional funds, or rely on contract
manufacturers for the production of products for development and
commercial purposes. We have signed contracts with suppliers for
the production of vilazodone material and tablets for our
clinical trials and for commercial drug and drug product and
have contracted for sufficient materials, so we are therefore
completely reliant on these contract manufacturers to fulfill
these requirements. In some cases, these third party
manufacturers and suppliers are our sole source of drug product
and/or
tablets for vilazodone. Failure of those contract manufacturers
would seriously harm our ability to successfully commercialize
vilazodone and our ability to complete our clinical trial
programs for any of our compounds in development and to have
suitable product to commercialize.
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New
drug development is a lengthy and complex process, and we may be
unable to commercialize any of the products we
develop.
Before we can develop drugs and gain marketing approval, we need
to accomplish some or all of the following:
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identify compounds with chemical, pharmacokinetic, and
pharmacodynamic properties appropriate for human development;
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complete nonclinical studies related to the pharmacologic and
toxicologic properties of the compound;
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submit an IND to the FDA or equivalent application to other
regulatory agencies to begin
first-in-human
studies;
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undertake clinical trials to establish the efficacy, safety, and
other aspects of our drug candidates;
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successfully manufacture drug substance and drug product for
clinical trial and commercial uses;
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expend significant resources;
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maintain and expand our intellectual property rights;
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obtain, where necessary, marketing approvals from the FDA and
other regulatory agencies for the intended indication; and
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find collaborative partners with manufacturing and commercial
capabilities for our current and future drug candidates.
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The process of developing new drugs takes years. Our product
development efforts may fail for many reasons, including:
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the failure of products in the research and development stage;
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the high cost of clinical trials and our lack of financial and
other resources;
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the inability to acquire sufficient resources to assist in
conducting clinical trials; and
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the inability to establish the safety and efficacy or clinical
utility of our products.
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Success in early clinical trials is not replicated often in
later studies; few research and development projects result in
commercial products. At any point, we may abandon development of
a product candidate or we may be required to expend considerable
resources repeating clinical trials, which would adversely
impact the timing for revenues from those product candidates. In
addition, as we develop products, we may partner with third
parties or be required to make significant investments in
product development, marketing and selling resources. If a
clinical study fails to demonstrate the prospectively defined
endpoints of the study, we may abandon the development of the
product or product feature that was the subject of the clinical
trial, which could harm our business.
Our
operations may be affected by unexpected problems frequently
encountered in connection with the development and transition to
other technologies and by the competitive environment in which
we operate.
Even if we are successful in establishing genetic associations
or in demonstrating safety and efficacy of a drug candidate in
clinical trials, there is no guarantee that we will be
successful in our product development efforts. Even if we
develop products for commercial use, these products may not be
accepted by the research, diagnostic, medical and pharmaceutical
marketplaces or be capable of being offered at prices that will
enable us to become profitable. Our products may not ultimately
prove to be useful for commercial markets, meet applicable
regulatory standards or be successfully marketed.
Covenants
in our convertible notes restrict our financial and operational
flexibility.
We are subject to certain covenants under the convertible notes
we issued in 2009 that restrict our financial and operational
flexibility. For example, we are restricted from incurring
additional indebtedness, redeeming or declaring or paying any
cash dividend or cash distribution on our common stock, or
issuing or selling any rights,
19
warrants or options to subscribe for or purchase our common
stock or securities convertible into or exercisable for our
common stock at a price which is less than the then market price
of the common stock, other than in connection with an
underwritten public offering. As a result of these covenants,
our ability to finance our operations through the incurrence of
additional debt or the issuance of shares of our common stock is
limited.
Risk
Factors Relating to Our Intellectual Property
If we
are unable to protect effectively our intellectual property, we
may not be able to operate our business and third parties may
use our technology, both of which would impair our ability to
compete in our markets.
Our success will depend in significant part on our ability to
obtain and maintain meaningful patent protection for certain of
our technologies and products throughout the world. Patent law
relating to the scope of claims in the technology fields in
which we will operate is still evolving. The degree of future
protection for our proprietary rights is uncertain. We will rely
on patents to protect a significant part of our intellectual
property and to enhance our competitive position. However, our
presently pending or future patent applications may not issue as
patents, and any patent previously issued to us or our
subsidiaries may be challenged, invalidated, held unenforceable
or circumvented. Furthermore, the claims in patents that have
been issued to us or our subsidiaries or that may be issued to
us in the future may not be sufficiently broad to prevent third
parties from producing competing products similar to our
products. In addition, the laws of various foreign countries in
which we plan to compete may not protect our intellectual
property to the same extent as do the laws of the U.S. If
we fail to obtain adequate patent protection for our proprietary
technology, our ability to be commercially competitive will be
materially impaired.
The patent positions of life science companies are generally
uncertain and involve complex legal and factual questions. Our
business could be hurt by any of the following:
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pending patent applications may not result in issued patents;
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the claims of any issued patents may not provide meaningful
protection;
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the claims of any issued patents may be invalidated or held
unenforceable under current law or upon changes in patent law;
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we may be unsuccessful in developing additional proprietary
technologies that are patentable;
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our patents may not provide a basis for commercially viable
products or provide us with any competitive advantages and may
be challenged by third parties; and
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others may have patents that relate to our technology or
business.
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Third parties have filed, and in the future are likely to file,
patent applications covering biomarkers and related methods that
we have developed or may develop technology upon which our
technology platform depends. If patent offices issue patents on
these patent applications and we wish to use those biomarkers or
technology, we would need to obtain licenses from third parties.
However, we might not be able to obtain any such license on
commercially favorable terms, if at all, and if we do not obtain
these licenses, we might be prevented from using certain
technologies or taking certain products to market.
In addition to patent protection, we also rely on protection of
trade secrets, know-how and confidential and proprietary
information. To maintain the confidentiality of trade-secrets
and proprietary information, we generally seek to enter into
confidentiality agreements with our employees, consultants and
strategic partners upon the commencement of a relationship.
However, we may not obtain these agreements in all
circumstances. In the event of unauthorized use or disclosure of
this information, these agreements, even if obtained, may not
provide meaningful protection for our trade secrets or other
confidential information. In addition, adequate remedies may not
exist in the event of unauthorized use or disclosure of this
information. The loss or exposure of our trade secrets and other
proprietary information would impair its competitive advantages
and could have a material adverse effect on our operating
results, financial condition and future growth prospects.
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If
third parties make or file claims of intellectual property
infringement against us, or otherwise seek to establish their
intellectual property rights, we may have to spend time and
money in response and cease some of our
operations.
Third parties may claim that we are employing their proprietary
technology without authorization or that we are infringing on
their patents. We could incur substantial costs and diversion of
management and technical personnel in defending against any of
these claims. Furthermore, parties making claims against us may
be able to obtain injunctive or other equitable relief which
could effectively block our ability to further develop,
commercialize and sell products. In the event of a successful
claim of infringement, courts may order us to pay damages and
obtain one or more licenses from third parties. We may not be
able to obtain these licenses at a reasonable cost, if at all.
Defense of any lawsuit or failure to obtain any of these
licenses could prevent us from commercializing available
products.
Any
patent protection we obtain for our products may not prevent
marketing of similar competing products.
Patents on our products may not prevent our competitors from
designing around and developing similar compounds or compounds
with similar modes of action that may compete successfully with
our products. Such third party compounds may prove to be
superior to our products or gain wider market acceptance and
thus adversely affect any revenue stream that we could otherwise
expect from sales of our products.
Patents on our testing products may not prevent our competitors
from designing around and developing similar tests that may
compete successfully with our products. Such third party tests
may prove to be superior to our products or gain wider market
acceptance and thus adversely affect any revenue stream that we
could otherwise expect from sales of our products.
Any
patents we obtain may be challenged by producers of generic
drugs.
Patents covering innovative drugs, which are also commonly
referred to as branded drugs or pioneer
drugs, face increased scrutiny and challenges in the
courts from manufacturers of generic drugs who may receive
benefits such as limited marketing co-exclusivity if the
challenge is successful. Such patent challenges typically occur
when the generic manufacturer files an Abbreviated NDA with the
FDA and asserts that the patent or patents covering the branded
drug are invalid or unenforceable, forcing the owner or licensee
of the branded drug to file suit for patent infringement. If any
patents we obtain covering our pharmaceutical products are
subject to such successful patent challenges, our marketing
exclusivity may be eliminated or reduced in time, which would
thus adversely affect any revenue stream that we could otherwise
expect from sales of our products.
Patents
pending may not issue.
A number of our products are covered by patent applications that
have not yet had their claims approved. Though we only submit
patent applications that we believe have a reasonable
probability of issuing, there is significant risk the patent
applications may not be granted, or, if they are granted, may be
granted with claims significantly less desirable than for which
were originally applied.
We may
be unable to achieve milestones contained in our licensing
agreements and have our license revoked by our
licensors.
Obtaining the milestones set forth in some of our licensing
agreements requires performance on the part of us and may also
depend on the successful work of suppliers, contractors, and
sub-licensees. We cannot assure that there will be scientific,
operational, or other success that will enable us to achieve the
milestones to which we have agreed. Nor can we guarantee that we
will be able to successfully renegotiate milestones with our
licensors in the event that we desire or need to do so. In such
instances, revocation of its license to the intellectual
property upon which our business is built is a possibility and
would significantly decrease our opportunities for success.
Alternatively, licensors may impose additional goals or
requirements on us in order to agree to extend the time of
performance of our existing goals. Any termination of license
agreements could significantly decrease our opportunities for
success.
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Risk
Factors Relating to Regulatory Matters
Preclinical
and clinical trials are time consuming, expensive, and uncertain
processes.
Before the FDA approves a drug candidate for marketing, it is
tested for safety and efficacy in preclinical testing and human
clinical trials. The preclinical phase involves the discovery,
characterization, product formulation and animal testing
necessary to prepare an IND for submission to the FDA. The IND
must be accepted by the FDA before the drug can be tested in
humans in the U.S. The clinical phase of development
follows a successful IND submission and involves the activities
necessary to demonstrate the safety, tolerability, efficacy,
dose and dose schedule of the product candidate in humans, as
well as the ability to produce the drug substance and drug
product in accordance with cGMP requirements. Preclinical
testing and clinical development are long, expensive and
uncertain processes. During the process, we expect to incur
significant expenses to conduct trials and follow required
regulatory processes.
Positive results from preclinical studies and clinical trials do
not ensure positive results in late stage clinical trials
designed to permit application for regulatory approval. We do
not know when, or if, our current clinical trials will be
completed. Many factors affect patient enrollment including:
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the size of the patient population;
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the proximity of patients to clinical sites;
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the eligibility criteria for the trial and the demands of
completing the trial;
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alternative therapies or technologies; and
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competing clinical trials and new drugs approved for the
conditions or indications we are investigating.
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As a result of all of these factors, our trials may take longer
to enroll patients than we anticipate. Such delays may increase
our costs and slow down our product development and the
regulatory approval process. Our product development costs will
also increase if we need to perform more or larger clinical
trials than planned. The occurrence of any of these events will
delay our ability to generate revenue from product sales and
impair our ability to become profitable, which may cause us to
have insufficient capital resources to support our operations.
Additionally, we cannot be certain that the necessary types of
patients can be enrolled in the required time frame, if ever.
The clinical program for Stedivaze, for instance, may require
the enrollment of patients with severe cardiac disease and these
patients may be difficult or impossible to enroll. We may have
to rely upon significant enrollment of patients at sites outside
of the U.S., which may produce results that lack comparability
to the U.S. population. It may also be necessary to utilize
marketed products in our clinical trials, for example, as active
comparators. We cannot be certain that supplies of other agents
will be available for our trials.
Our clinical trials may be suspended or terminated at any time
by the FDA, other regulatory agencies or by us if it is believed
that the patients participating in trials are being exposed to
unacceptable risks or if deficiencies are found in the clinical
trial procedures. In addition, our or our collaborators
failure to comply with applicable regulatory requirements may
result in failure to gain marketing approval, criminal
prosecution, civil penalties and other actions that could impair
our ability to conduct our business.
Regulatory
approval of vilazodone or other products may be delayed, may
require additional studies to be conducted or may not be
obtained.
Due to the risks and uncertainties in drug development,
products, such as vilazodone, that we or our collaborators
develop could take a significantly longer time to gain
regulatory approval than we expect, may require additional
resources to gain FDA approval or may never gain FDA approval.
If we or our collaborators do not receive these necessary
approvals, we will not be able to generate substantial product
or royalty revenues and may not become profitable. We and our
collaborators may encounter significant delays or excessive
costs in our
22
efforts to secure regulatory approvals. Factors that raise
uncertainty in obtaining these regulatory approvals include the
following:
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we must demonstrate through clinical trials that the proposed
drug product is safe and effective for its intended use;
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data obtained from preclinical and clinical activities are
susceptible to varying interpretations which could delay, limit
or prevent regulatory approvals; and
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we have limited experience in manufacturing and supply of the
drug substance and drug product, which is necessary to gain
regulatory approval and to commercialize the drug product.
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Even
if our drug candidates obtain regulatory approval, we will be
subject to on-going government regulation.
Even if our drug candidates obtain regulatory approval, our
products will be subject to continuing regulation by the FDA,
including record keeping requirements, submitting periodic
reports to the FDA, reporting of any adverse experiences with
the product, and complying with Risk Evaluation and Mitigation
Strategies and drug sampling and distribution requirements. In
addition, updated safety and efficacy information must be
maintained and provided to the FDA. We or our collaborative
partners, if any, must comply with requirements concerning
advertising and promotional labeling, including the prohibition
against promoting and non-FDA approved or off-label
indications or products. Failure to comply with these
requirements could result in significant enforcement action by
the FDA, including warning letters, orders to pull the
promotional materials, and substantial fines.
Quality control and manufacturing procedures must continue to
conform to cGMP after approval. Drug and biologics manufacturers
and their subcontractors are required to register their
facilities and products manufactured annually with the FDA and
certain state agencies and are subject to periodic unannounced
inspections by the FDA to assess compliance with cGMP
regulations. Accordingly, manufacturers must continue to expend
time, money, and effort in the area of production and quality
control to maintain compliance with cGMPs and other aspects of
regulatory compliance. Further FDA inspections may identify
compliance issues at our contract manufacturers that may disrupt
production or distribution or require substantial resources to
correct.
After FDA approval of a product, the discovery of problems with
a product or its class, or the failure to comply with
requirements may result in restrictions on a product,
manufacturer, or holder of an approved marketing application.
These include withdrawal or recall of the product from the
market or other voluntary or FDA-initiated action that could
delay or prevent further marketing. Newly discovered or
developed safety or effectiveness data, including from other
products in a therapeutic class, may require changes to a
products approved labeling, including the addition of new
warnings and contraindications. Also, the FDA may require
post-market testing and surveillance to monitor the
products safety or efficacy, including additional clinical
studies, known as Phase IV trials, to evaluate long-term
effects. It is also possible that rare but serious adverse
events not seen in our clinical development program of
vilazodone or other drug candidates may be identified after
marketing approval. This could result in withdrawal of our
product from the market.
Compliance with post-marketing regulations may be time-consuming
and costly and could delay or prevent us from generating revenue
from the commercialization of our drug candidates.
Risks
Related to Our Dependence on Third Parties
We
rely on third-party manufacturers and we or such third parties
may encounter failures or difficulties that could delay the
clinical development or regulatory approval of our drug
candidates, or their ultimate commercial production if
approved.
We utilize third parties to manufacture all of our drug products
and certain of those third parties are our sole source of drug
product for vilazodone. We do not own manufacturing facilities
that can produce sufficient quantities of drug product for
large-scale clinical trials. Accordingly, we must either develop
such facilities, which will require substantial additional
capital resources, or rely, at least to some extent, on
third-party manufacturers for the production of these
substances. Furthermore, should we obtain FDA approval for any
of our drug products, we
23
expect to rely on third-party manufacturers for commercial
production. Our dependence on others for manufacturing needs may
adversely affect our ability to develop and deliver drug
products on a timely and competitive basis.
Any performance failure on the part of us or a third-party
manufacturer could delay clinical development, regulatory
approval or, ultimately, sales of our drug candidates. We or
third-party manufacturers may encounter difficulties involving
production yields, regulatory compliance, lot release, quality
control and quality assurance, as well as shortages of qualified
personnel. Approval of our drug candidates could be delayed,
limited or denied if the FDA does not approve our or a
third-party manufacturers processes or facilities.
Moreover, the ability to adequately and timely manufacture and
supply drug candidates is dependent on the uninterrupted and
efficient operation of the manufacturing facilities, which is
impacted by many manufacturing variables including:
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availability or contamination of raw materials and components
used in the manufacturing process, particularly those for which
we have no other source or supplier;
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capacity of our facilities or those of our contract
manufacturers;
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facility contamination by microorganisms or viruses or cross
contamination;
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compliance with regulatory requirements, including Form 483
notices and Warning Letters;
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changes in forecasts of future demand;
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timing and actual number of production runs;
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production success rates and bulk drug yields; and
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timing and outcome of product quality testing.
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In addition, we or our third-party manufacturers may encounter
delays and problems in manufacturing our drug candidates or
drugs for a variety of reasons, including accidents during
operation, failure of equipment, delays in receiving materials,
natural or other disasters, political or governmental changes,
or other factors inherent in operating complex manufacturing
facilities. Supply chain management is complex, and may involve
sourcing from a foreign country or countries. Commercially
available starting materials, reagents and excipients may become
scarce or more expensive to procure, and we may not be able to
obtain favorable terms in agreements with subcontractors. We or
our third-party manufacturers may not be able to operate our
respective manufacturing facilities in a cost-effective manner
or in a time frame that is consistent with our expected future
manufacturing needs. If we or our third-party manufacturers
cease or interrupt production or if our third-party
manufacturers and other service providers fail to supply
materials, products or services to us for any reason, such
interruption could delay progress on our programs, or interrupt
the commercial supply, with the potential for additional costs
and lost revenues. If this were to occur, we may also need to
seek alternative means to fulfill our manufacturing needs.
We
rely on third parties to conduct our clinical trials and many of
our preclinical studies. If those parties do not successfully
carry out their contractual duties or meet expected deadlines,
our drug candidates may not advance in a timely manner or at
all.
In the course of our discovery, preclinical testing and clinical
trials, we rely on third parties, including laboratories,
investigators, clinical research organizations and
manufacturers, to perform critical services for us. For example,
we rely on third parties to conduct our clinical trials and many
of our preclinical studies. Clinical research organizations are
responsible for many aspects of the trials, including the
recruitment and enrollment of patients. Although we rely on
these third parties to conduct our clinical trials, we are
responsible for ensuring that each of our clinical trials is
conducted in accordance with its investigational plan and
protocol. Moreover, the FDA and foreign regulatory authorities
require us to comply with regulations and standards, commonly
referred to as GCPs, for conducting, monitoring, recording and
reporting the results of clinical trials to ensure that the data
and results are scientifically credible and accurate and that
the trial subjects are adequately informed of the potential
risks of participating in clinical trials. Our reliance on third
parties does not relieve us of these responsibilities and
requirements. These third parties may not be available when we
need them or, if they are available, may not comply with all
regulatory and contractual requirements or may not otherwise
perform their services in a timely or acceptable manner, and we
may need to enter into new arrangements with alternative third
parties and our clinical
24
trials may be extended, delayed or terminated. These independent
third parties may also have relationships with other commercial
entities, some of which may compete with us. In addition, if
such third parties fail to perform their obligations in
compliance with our clinical trial protocols or GCPs, our
clinical trials may not meet regulatory requirements or may need
to be repeated. As a result of our dependence on third parties,
we may face delays or failures outside of our direct control.
These risks also apply to the development activities of
collaborators, and we do not control collaborators
research and development, clinical trials or regulatory
activities.
Our
operations involve hazardous materials and medical waste and are
subject to environmental, health and safety controls and
regulations. Any claim relating to our improper handling,
storage or disposal of biological and hazardous materials could
be time-consuming and costly, and may exceed our
resources.
We are subject to environmental, health and safety laws and
regulation, including those governing the use of biological and
hazardous materials as well as medical waste. The cost of
compliance with environmental, health and safety regulations is
substantial.
Our business activities involve the controlled use of hazardous
materials, and we cannot eliminate the risk of accidental
contamination or injury from these materials. While we believe
that we are currently in compliance with all material rules and
regulations governing the use of hazardous materials and, to
date, we have not had any adverse experiences, in the event of
accident or environmental discharge. We may be held liable for
any resulting damages, which may exceed our financial resources
and may materially harm our business, financial condition and
results of operations.
Our
business involves animal testing and changes in laws,
regulations or accepted clinical procedures or social pressures
could restrict our use of animals in testing and adversely
affect our research and development efforts.
Many of the research and development programs we sponsor involve
the use of laboratory animals. Changes in laws, regulations or
accepted clinical procedures may adversely affect these research
and development efforts. Social pressures that would restrict
the use of animals in testing or actions against us or our
partners by groups or individuals opposed to testing using
animals could also adversely affect these research and
development efforts.
In addition, preclinical animal studies conducted by us or third
parties on our behalf may be subject to the U.S. Department
of Agriculture regulations for certain animal species. Failure
to comply with applicable regulations could extend or delay
clinical trials conducted for our drug candidates.
Risk
Factors Relating to Our Industry
If we
were sued for product liability, we could face substantial
liabilities that may exceed our resources.
We may be held liable if any product we develop, or any product
which is made using our technologies, causes injury or is found
unsuitable during product testing, manufacturing, marketing,
sale or use. These risks are inherent in the development of
pharmaceutical and related methodologies. If we choose to obtain
product liability insurance but cannot obtain sufficient
insurance coverage at an acceptable cost or otherwise protect
against potential product liability claims, the
commercialization of products that we or our commercial partners
develop may be prevented or inhibited. Product liability claims,
whether or not they have merit, could decrease demand for our
products, divert the attention of our management and key
personnel from our core business, require us to spend
significant time and money in litigation or pay significant
damages, all of which could prevent or interfere with the
commercialization and development of products and adversely
affect our business. Claims of this nature could also subject us
to product recalls or harm our reputation, which could damage
our position in the market.
We may
not be able to compete successfully with other companies and
government-sponsored entities in the development and marketing
of products and services.
Drug discovery and development and in other areas of business
including genetic testing, is intense and is expected to
increase. We have numerous competitors, including major
pharmaceutical and diagnostic companies, specialized
biotechnology firms, universities and other research
institutions, and other government-sponsored
25
entities and companies. Our collaborators may compete with us.
Many of our competitors, either alone or with collaborators,
have considerably greater capital resources, research and
development staff, facilities and technical and other resources
than we have, which may allow them to discover important genes
or develop drugs based on such discoveries before we do. We
believe that a number of our competitors are developing
competing products and services that may be commercially
successful and that are further advanced in development than our
potential products and services. Even if we are successful in
developing effective products or services, our products and
services may not successfully compete with those of our
competitors, including cases where the competing drugs use the
same mechanism of action as our products. Our competitors may
succeed in developing and marketing products and services that
are more effective than ours or that are marketed before ours.
Competitors have established, and in the future may establish,
patent positions with respect to gene sequences related to our
research projects. Such patent positions or the public
availability of gene sequences comprising substantial portions
of the human genome could decrease the potential value of our
research projects and commercial products and make it more
difficult for us to compete. We may also face competition from
other entities in gaining access to DNA samples used for
research and development purposes. Our competitors may also
obtain patent protection or other intellectual property rights
that could limit our rights, or our customers ability, to
use our technologies or databases or commercialize therapeutic
or diagnostics products. In addition, we face, and will continue
to face, intense competition from other companies for
collaborative arrangements with pharmaceutical and biotechnology
companies, for establishing relationships with academic and
research institutions and for licenses to proprietary technology.
We expect competition to intensify as technical advances are
made and become more widely known. Our future success will
depend in large part on maintaining a competitive position in
the genomic field. Rapid technological development may result in
products or technologies becoming obsolete before we recover the
expenses we incur in developing them.
Our ability to compete successfully will depend, in part, on our
ability and that of our collaborators to:
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develop proprietary products;
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develop and maintain products that reach the market first, and
are technologically superior to and more cost effective than,
other products on the market;
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obtain patent or other proprietary protection for our products
and technologies;
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attract and retain scientific and product development personnel;
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obtain required regulatory approvals; and
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manufacture, market and sell products that we develop.
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In the
U.S. there have been, and we expect there will continue to be, a
number of federal and state proposals to reform the health care
system in ways that could adversely impact the available
reimbursement for, and therefore our ability to sell our
products profitably.
In the U.S., federal and state agencies continue to promote
efforts to reduce healthcare costs. As a result of reimbursement
and legislative proposals, and the trend toward managed health
care in the U.S., third-party payors, including government and
private payors, are also increasingly attempting to contain
health care costs by limiting the coverage and the level of
reimbursement of new drugs. These cost-containment methods may
include, but are not limited to, using formularies, which are
lists of approved or preferred drugs, requiring prior
authorization or step therapy, which is a program to encourage
using lower cost alternative treatments, basing payment amounts
on the least costly alternative treatment, or refusing to
provide coverage of approved products for medical indications
other than those for which the FDA has granted marketing
approval. Cost control initiatives could adversely affect the
commercial opportunity or decrease the price of our products and
may impede the ability of potential users of our products to
obtain reimbursement, any of which could have a material adverse
effect on our profitability and future business prospects.
26
We
operate in a very competitive environment.
We expect to encounter intense competition from a number of
companies that offer products in our targeted application areas.
We anticipate that our competitors in these areas will include:
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diagnostic and pharmaceutical companies;
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companies developing drug discovery technologies;
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companies developing molecular diagnostic and genetic
tests; and
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companies developing point-of-care diagnostic and genetic tests.
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If we are successful in developing products in these areas, we
will face competition from established companies and numerous
development-stage companies that continually enter these
markets. In many instances, competitors have substantially
greater financial, technical, research and other resources and
larger, more established marketing, sales, distribution and
service organizations than us. Moreover, these competitors may
offer broader product lines and have greater name recognition
than us and may offer discounts as a competitive tactic.
In addition, several development-stage companies are currently
making or developing products that compete with or will compete
with our potential products. Competitors may succeed in
developing, obtaining approval from the FDA, or marketing
technologies or products that are more effective or commercially
attractive than our current or potential products or that render
our technologies and current or potential products obsolete.
Competitors may also develop proprietary positions that may
prevent us from successfully commercializing products.
Risk
Factors Relating to Our Common Stock
Conversion
of outstanding convertible notes and exercise of outstanding
warrants could significantly dilute the ownership interests of
existing stockholders.
The conversion or exercise of some or all of our outstanding
convertible notes and warrants could significantly dilute the
ownership interests of existing stockholders. As of
March 31, 2010, there were 6,110,600 shares of our
common stock issuable upon conversion of the convertible notes,
which have a conversion price of $8.18 per share, and
4,262,354 shares of our common stock issuable upon the
exercise of the warrants, which have a weighted average exercise
price of $11.88 per share. Any sales in the public market of the
common stock issuable upon such conversion or exercise could
adversely affect prevailing market prices of our common stock.
Moreover, the existence of the convertible notes may encourage
short selling by market participants because the conversion of
such convertible notes could be used to satisfy short positions,
or the anticipated conversion of such convertible notes into
shares of our common stock could depress the price of our common
stock.
If the
investors in our private placements sell their shares, which
have been registered under the Securities Act, the market price
of our common stock may decline significantly.
As of March 31, 2010, an aggregate of
15,955,761 shares of common stock have been registered
under the Securities Act for sale by stockholders in connection
with certain transactions completed by us. The registered shares
consist of shares issued to investors in private placements in
September 2008, June 2006 and November 2005, shares issuable
upon conversion of outstanding convertible notes, and shares
issuable upon exercises of outstanding warrants assumed in
connection with various acquisitions. The registrations of those
shares currently are effective, and therefore the registered
shares are freely transferable. If a large number of shares are
sold into the public market, the market price of our common
stock may decline significantly. Moreover, the perception in the
public market that the stockholders might sell shares of common
stock could also depress the market price of our common stock.
27
Our
directors, executive officers and their affiliated entities have
substantial control over us and could limit the ability of other
stockholders to influence the outcome of key transactions,
including changes of control.
As of March 31, 2010, our executive officers, directors and
their affiliated entities, in the aggregate, beneficially owned
61.7% of our outstanding common stock (which percentage reflects
the shares of common stock issuable upon conversion of certain
convertible notes and exercise of certain warrants issued to
Randal J. Kirk and his affiliates). In particular, Randal J.
Kirk, our Chairman, and his affiliated entities, in the
aggregate, beneficially owned 57.4% of our outstanding common
stock. Mr. Kirk and his affiliated entities are able to
control or significantly influence all matters requiring
approval by our stockholders, including the election of
directors and the approval of mergers or other significant
corporate transactions. These stockholders might have interests
that differ from yours, and they might vote in a way with which
you disagree and that could be adverse to your interests. The
concentration of common stock ownership could have the effect of
delaying, preventing, or deterring a change of control of our
company, could deprive our stockholders of an opportunity to
receive a premium for their common stock as part of a sale of
our company, and could negatively affect the market price of our
common stock.
The
price of our common stock is volatile and could cause investors
to lose a substantial part of their investment.
The stock market in general and the stock prices of technology
companies in particular, experience volatility which has often
been unrelated to the operating performance of any particular
company or companies. Our common stock is thinly traded and its
price could decline regardless of our companys actual
operating performance. Investors also could lose a substantial
part of their investment as a result of industry or market-based
fluctuations. If a more active public market for our common
stock is not created, it may be difficult for stockholders to
resell their shares. A number of additional factors also could
cause the prevailing market prices of our common stock to
fluctuate significantly and could adversely impact such prices
and the ability of our company to raise additional equity
capital. Such factors include but are not limited to the
following:
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the timing of our announcements or of our competitors
announcements regarding significant products, contracts or
acquisitions;
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variations in results of operations;
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changes in earnings estimates by securities analysts;
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general economic and market conditions; and
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sales of substantial amounts of our common stock into the public
market, or the perception that such sales might occur.
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We
could be subject to class action litigation due to stock price
volatility, which, if it occurs, will distract our management
and could result in substantial costs or large judgments against
us.
The stock market in general has recently experienced extreme
price and volume fluctuations. In addition, the market prices of
securities of companies in the biopharmaceutical industry have
been extremely volatile and have experienced fluctuations that
have often been unrelated or disproportionate to the operating
performance of these companies. These fluctuations could
adversely affect the market price of our common stock. In the
past, securities class action litigation has often been brought
against companies following periods of volatility in the market
prices of their securities. We may be the target of similar
litigation in the future. Securities litigation could result in
substantial costs and divert our managements attention and
resources, which could cause serious harm to our business,
operating results and financial condition.
Our
corporate documents and Delaware Law make a takeover of our
company more difficult, which could prevent certain changes in
control and limit the market price of the common
stock.
Our charter and by-laws and Section 203 of the Delaware
General Corporation Law contain provisions that could enable our
management to resist a takeover of our company. For example, our
board of directors has the
28
authority, without further approval of our stockholders, to fix
the rights and preferences, and to cause our company to issue,
up to 1.5 million shares of preferred stock. These
provisions could discourage, delay, or prevent a change in the
control of our company or a change in our management. They could
also discourage proxy contests and make it more difficult for
you and other stockholders to elect directors and take other
corporate actions. The existence of these provisions could limit
the price that investors are willing to pay in the future for
shares of the common stock. Some provisions in our charter and
by-laws could deter third parties from acquiring us, which could
limit the market price of the common stock.
We
currently do not intend to pay dividends on our common stock and
consequently, investors only opportunity to achieve a
return on their investment is if the price of our common stock
appreciates.
We currently do not plan to pay dividends on shares of our
common stock in the near future. Consequently, your only
opportunity to achieve a return on your investment in us will be
if the market price of our common stock appreciates.
Future
equity issuances or a sale of a substantial number of shares of
our common stock may cause the price of our common stock to
decline.
Because we may need to raise additional capital in the future to
continue to expand our business and our research and development
activities, among other things, we may conduct additional equity
offerings. If we or our stockholders sell substantial amounts of
our common stock (including shares issued upon the exercise of
options and warrants) in the public market, the market price of
our common stock could fall. A decline in the market price of
our common stock could make it more difficult for us to sell
equity or equity-related securities in the future at a time and
price that we deem appropriate.
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ITEM 1B.
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UNRESOLVED
STAFF COMMENTS
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None.
As of March 31, 2010, we leased or subleased a total of
approximately 61,200 square feet of office and laboratory
space. The leased and subleased properties are described below:
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Approximate
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Expiration
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Location
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Square Footage
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Use
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Date
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One Gateway Center, Suite 702
Newton, Massachusetts
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6,700
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Corporate office
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08/31/11
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5 Science Park
New Haven, Connecticut
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37,400
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Office and laboratory
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01/31/11
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310
4th Street,
NE
Charlottesville, Virginia
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5,000
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Office
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04/30/11
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1180 Seminole Trail, Route 29 North
Charlottesville, Virginia
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6,400
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Laboratory
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07/31/11
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1630-1670
Discovery Drive
Charlottesville, Virginia
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3,700
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Laboratory
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10/31/10
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94B Industrial Road
Troy, Virginia
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1,000
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Laboratory
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05/31/10
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9121 Anson Way, Suite 100
Raleigh, North Carolina
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1,000
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Office
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Tenant-at-Will
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We believe that these facilities are adequate to meet our
current and planned needs. We believe that if additional space
is needed in the future, such space will be available on
commercially reasonable terms as needed.
29
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ITEM 3.
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LEGAL
PROCEEDINGS
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We are, from time to time, subject to disputes arising in the
normal course of our business. While the ultimate results of any
such disputes cannot be predicted with certainty, at
March 31, 2010 there were no asserted claims against us
which, in the opinion of management, if adversely decided, would
have a material adverse effect on our consolidated financial
statements.
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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Market
Information
Our common stock trades on the NASDAQ Global Market under the
symbol CLDA.
The following table sets forth the range of high and low sale
prices per share of our common stock for each quarter in fiscal
2010 and 2009 as reported by the NASDAQ.
|
|
|
|
|
|
|
|
|
|
|
Sales Prices
|
|
|
|
High
|
|
|
Low
|
|
|
Fiscal Year Ended March 31, 2010
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
15.94
|
|
|
$
|
10.39
|
|
Second Quarter
|
|
$
|
17.00
|
|
|
$
|
9.00
|
|
Third Quarter
|
|
$
|
21.94
|
|
|
$
|
14.62
|
|
Fourth Quarter
|
|
$
|
22.39
|
|
|
$
|
14.65
|
|
Fiscal Year Ended March 31, 2009
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
19.68
|
|
|
$
|
14.25
|
|
Second Quarter
|
|
$
|
19.59
|
|
|
$
|
12.74
|
|
Third Quarter
|
|
$
|
16.46
|
|
|
$
|
7.15
|
|
Fourth Quarter
|
|
$
|
11.93
|
|
|
$
|
6.38
|
|
Holders
of Common Stock
As of June 4, 2010, there were approximately 467 holders of
record of our common stock.
Dividends
We have not declared any cash dividends during either of the
past two fiscal years. We currently do not plan to pay dividends
on shares of our common stock in the near future. We are
restricted from paying any cash dividend or making any cash
distribution on our common stock under the terms of our
outstanding convertible notes. Consequently, your only
opportunity to achieve a return on your investment in us will be
if the market price of our common stock appreciates.
30
Price
Performance
The following performance graph compares the performance of our
cumulative stockholder return with that of one broad market
index, the NASDAQ U.S. and Foreign Index, and a published
industry or line of business index, the NASDAQ Biotechnology
Index.
Comparison
of 5 Year Cumulative Total Return
Assumes Initial Investment of $100
March 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company/NASDAQ Stock Market/NASDAQ Biotechnology
Index
|
|
|
3/31/2005
|
|
|
3/31/2006
|
|
|
3/31/2007
|
|
|
3/31/2008
|
|
|
3/31/2009
|
|
|
3/31/2010
|
CLINICAL DATA
|
|
|
$
|
100
|
|
|
|
$
|
125
|
|
|
|
$
|
127
|
|
|
|
$
|
170
|
|
|
|
$
|
99
|
|
|
|
$
|
178
|
|
NASDAQ Stock Market (US and Foreign securities)
|
|
|
$
|
100
|
|
|
|
$
|
118
|
|
|
|
$
|
123
|
|
|
|
$
|
117
|
|
|
|
$
|
63
|
|
|
|
$
|
100
|
|
NASDAQ Biotechnology Index
|
|
|
$
|
100
|
|
|
|
$
|
129
|
|
|
|
$
|
119
|
|
|
|
$
|
120
|
|
|
|
$
|
105
|
|
|
|
$
|
145
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ITEM 6.
|
SELECTED
CONSOLIDATED FINANCIAL DATA
|
The following selected consolidated financial data have been
derived from our audited historical consolidated financial
statements, certain of which are included elsewhere in this
Annual Report on
Form 10-K.
This data should be read in conjunction with our audited
consolidated financial statements and related notes which are
included elsewhere in this Annual Report on
Form 10-K,
and Managements Discussion and Analysis of Financial
Condition and Results of Operations included in
Item 7 below. Historical results are not necessarily
indicative of operating results to be expected in the future.
Recent Acquisitions Affecting the Comparability of the
Selected Consolidated Financial Data
As described above in Item 1, we acquired the following
four businesses:
|
|
|
Acquiree
|
|
Date of Acquisition
|
|
Genaissance Pharmaceuticals, Inc.
|
|
October 6, 2005
|
Epidauros Biotechnologie A.G.
|
|
August 23, 2007
|
Adenosine Therapeutics
|
|
August 4, 2008
|
Avalon Pharmaceuticals, Inc.
|
|
May 28, 2009
|
All of the acquisitions were accounted for under the purchase
method or acquisition method of accounting and, accordingly,
their results of operations and balance sheet data have been
included in our consolidated financial statements from the date
of acquisition only. The Adenosine Therapeutics and Avalon
Pharmaceuticals transactions are described in further detail in
Note 4 to consolidated financial statements.
31
Further, we have discontinued certain operations that are now
classified as discontinued operations. These transactions are
described in further detail in Note 3 to consolidated
financial statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands, except per share amounts)
|
|
|
Consolidated Statements of Operations Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
13,085
|
|
|
$
|
10,442
|
|
|
$
|
5,107
|
|
|
$
|
3,828
|
|
|
$
|
1,660
|
|
Cost of revenues
|
|
|
6,244
|
|
|
|
6,489
|
|
|
|
2,627
|
|
|
|
2,240
|
|
|
|
3,045
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
6,841
|
|
|
|
3,953
|
|
|
|
2,480
|
|
|
|
1,588
|
|
|
|
(1,385
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
56,785
|
|
|
|
44,134
|
|
|
|
16,889
|
|
|
|
9,265
|
|
|
|
2,797
|
|
Sales and marketing
|
|
|
8,155
|
|
|
|
7,764
|
|
|
|
3,612
|
|
|
|
1,210
|
|
|
|
408
|
|
General and administrative
|
|
|
23,699
|
|
|
|
19,730
|
|
|
|
16,806
|
|
|
|
14,959
|
|
|
|
6,919
|
|
Restructuring and lease exiting costs
|
|
|
2,447
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased in-process research and development
|
|
|
|
|
|
|
55,100
|
|
|
|
|
|
|
|
|
|
|
|
36,300
|
|
Transaction costs incurred in connection with the Avalon
acquisition
|
|
|
1,978
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
93,064
|
|
|
|
126,728
|
|
|
|
37,307
|
|
|
|
25,434
|
|
|
|
46,424
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(86,223
|
)
|
|
|
(122,775
|
)
|
|
|
(34,827
|
)
|
|
|
(23,846
|
)
|
|
|
(47,809
|
)
|
Interest expense
|
|
|
(9,128
|
)
|
|
|
(1,802
|
)
|
|
|
(76
|
)
|
|
|
(220
|
)
|
|
|
(228
|
)
|
Interest income
|
|
|
80
|
|
|
|
716
|
|
|
|
2,020
|
|
|
|
323
|
|
|
|
61
|
|
Other income (expense), net
|
|
|
1,771
|
|
|
|
179
|
|
|
|
305
|
|
|
|
210
|
|
|
|
(59
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before taxes
|
|
|
(93,500
|
)
|
|
|
(123,682
|
)
|
|
|
(32,578
|
)
|
|
|
(23,533
|
)
|
|
|
(48,035
|
)
|
Benefit from (provision for) income taxes
|
|
|
|
|
|
|
|
|
|
|
230
|
|
|
|
(233
|
)
|
|
|
(102
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
|
(93,500
|
)
|
|
|
(123,682
|
)
|
|
|
(32,348
|
)
|
|
|
(23,766
|
)
|
|
|
(48,137
|
)
|
Income (loss) from discontinued operations, net of taxes
|
|
|
4,987
|
|
|
|
(8,756
|
)
|
|
|
(2,982
|
)
|
|
|
(13,756
|
)
|
|
|
(2,744
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(88,513
|
)
|
|
|
(132,438
|
)
|
|
|
(35,330
|
)
|
|
|
(37,522
|
)
|
|
|
(50,881
|
)
|
Preferred stock dividend
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(104
|
)
|
|
|
(97
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss applicable to common stockholders
|
|
$
|
(88,513
|
)
|
|
$
|
(132,438
|
)
|
|
$
|
(35,330
|
)
|
|
$
|
(37,626
|
)
|
|
$
|
(50,978
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income per basic and diluted share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
(3.77
|
)
|
|
$
|
(5.63
|
)
|
|
$
|
(1.69
|
)
|
|
$
|
(1.68
|
)
|
|
$
|
(5.39
|
)
|
Discontinued operations
|
|
|
0.20
|
|
|
|
(0.40
|
)
|
|
|
(0.16
|
)
|
|
|
(0.97
|
)
|
|
|
(0.30
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(3.57
|
)
|
|
$
|
(6.03
|
)
|
|
$
|
(1.85
|
)
|
|
$
|
(2.65
|
)
|
|
$
|
(5.69
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends paid per common share
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
0.04
|
|
Weighted average shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
24,769
|
|
|
|
21,962
|
|
|
|
19,081
|
|
|
|
14,186
|
|
|
|
8,953
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Consolidated Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and marketable securities
|
|
$
|
49,245
|
|
|
$
|
56,355
|
|
|
$
|
67,480
|
|
|
$
|
14,071
|
|
|
$
|
7,225
|
|
Total assets
|
|
|
98,955
|
|
|
|
120,197
|
|
|
|
129,448
|
|
|
|
87,490
|
|
|
|
109,789
|
|
Long-term obligations
|
|
|
57,674
|
|
|
|
63,123
|
|
|
|
5,122
|
|
|
|
3,236
|
|
|
|
7,345
|
|
Stockholders equity
|
|
|
3,893
|
|
|
|
29,412
|
|
|
|
106,075
|
|
|
|
50,720
|
|
|
|
59,789
|
|
32
|
|
ITEM 7.
|
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
You should read the following discussion and analysis of
financial condition and results of operations together with the
Selected Consolidated Financial Data included in
Item 6 above and our consolidated financial statements and
related notes appearing elsewhere in this Annual Report on
Form 10-K.
In addition to historical financial information, the following
discussion contains forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995,
as amended, and within the meaning of Section 27A of the
Securities Act of 1933, as amended, that reflect our plans,
estimates and beliefs. Our actual results could differ
materially from those discussed in the forward-looking
statements. Factors that could cause or contribute to these
differences include those discussed below and elsewhere in this
document, particularly in the section entitled Risk
Factors.
Readers are cautioned that any forward-looking statements
involve known and unknown risks, uncertainties and other factors
which may cause our actual results, performance or achievements
to be materially different from any future results, performance
or achievements expressed or implied by such forward-looking
statements. The forward-looking statements in this Annual Report
on
Form 10-K
are subject to risks, uncertainties and assumptions including,
among other things:
|
|
|
|
|
our ability to raise the necessary capital to fund our
operations and to develop and commercialize our products
including vilazodone;
|
|
|
|
our ability to successfully design and conduct our planned
clinical trials for Stedivaze and other potential products;
|
|
|
|
our ability to achieve expected synergies and operating
efficiencies in our acquisitions, and to successfully integrate
the operations, business and technology obtained in our
acquisitions;
|
|
|
|
general economic and business conditions in our markets;
|
|
|
|
the impact of current, pending or future legislation and
regulation of our businesses in the U.S. and abroad;
|
|
|
|
our expectations and estimates concerning future financial
performance, financing plans and the impact of competition;
and
|
|
|
|
the impact of technological developments and competition.
|
In light of these risks and uncertainties, the
forward-looking events and circumstances discussed in this
Annual Report on
Form 10-K
might not occur. We undertake no obligation to publicly update
or revise any forward-looking statements made herein because of
new information, future events or otherwise.
Overview
We are focused on the development and commercialization of novel
therapeutics, with two lead compounds in the areas of central
nervous system and cardiovascular disorders. Our first
late-stage drug candidate is vilazodone, a dual-acting selective
and potent serotonin reuptake inhibitor and serotonin receptor
1A
(5-HT1A)
partial agonist for the treatment of Major Depressive Disorder
(MDD), for which a New Drug Application
(NDA) was filed with the U.S. Food and Drug
Administration (FDA) on March 22, 2010. Our NDA
for vilazodone was accepted for review by the FDA on
May 21, 2010, with January 22, 2011 currently assigned
for decision-making by the FDA under the prescription Drug User
Fee Act (PDUFA). Our second late-stage drug
candidate is apadenoson, trademarked Stedivaze, a selective
adenosine receptor 2A
(AR2A)
and potential
best-in-class
coronary vasodilator currently in its first Phase III
clinical trial for use in nuclear Single Photo Emission Computed
Topography (SPECT) myocardial perfusion imaging.
Our sources of liquidity as of March 31, 2010 include cash
and cash equivalents of $49.2 million. Our projected uses
of cash include cash used to fund commercialization and further
development of vilazodone; clinical development activities of
Stedivaze, including a Phase III development program;
continued development of our other drug candidates; and working
capital and other general corporate activities. We may also use
our cash for the acquisition of businesses, technologies and
products that will complement our existing assets.
33
In June 2010, we sold to the public 2.2 million shares of
our common stock, par value $0.01 per share, at a price of
$14.30 per share. The net proceeds to us are expected to be
approximately $29.8 million after deducting underwriting
commissions and estimated expenses payable by us associated with
this transaction.
We believe that our cash, including estimated net proceeds from
the public offering we completed in June 2010, will be
sufficient to fund our operations through March 2011. Therefore,
we will need additional capital to commercialize vilazodone and
continue the development of Stedivaze and our other products and
programs beyond March 2011. The sale of any equity or debt
securities may result in additional dilution to our
stockholders, and we cannot be certain that additional financing
will be available in amounts or on terms acceptable to us, if at
all. If we are unable to obtain financing, we may be required to
reduce the scope and timing of the planned clinical and
preclinical programs, which could harm our financial condition
and operating results.
Therapeutics:
Vilazodone
Our lead drug candidate, vilazodone, is a novel dual-acting
modulator of serotonin neurotransmission in development for the
treatment of MDD with the potential for follow-on indications
including Generalized Anxiety Disorder and other related mood
disorders. Vilazodone is a selective and potent inhibitor of
serotonin reuptake and partial agonist at the
5-HT1A
receptor. MDD is a common mood disorder but, despite advances in
the understanding of pharmacotherapy and the ongoing development
of new agents, overall effectiveness from existing approved
therapies is unsatisfactory. For example, approximately
two-thirds of patients do not achieve remission with first-line
treatment with a selective serotonin reuptake inhibitor
(SSRI) [STAR*D Study, January 2006 American Journal
of Psychiatry]. Common causes for noncompliance or
discontinuation of antidepressant therapy include both lack of
effectiveness and safety and tolerability, including
antidepressant-induced sexual dysfunction, weight gain, and
neurological and gastrointestinal effects [Ashton, et al.,
Antidepressant-Related Adverse Effects Impacting Treatment
Compliance: Results of Patient Survey, March/April 2005,
Current Therapeutic Research].
We have completed two randomized, double-blind,
placebo-controlled Phase III clinical trials, in which
vilazodone achieved statistically significant results compared
to placebo on the primary efficacy endpoint and on secondary
endpoints related to symptoms of MDD and to global improvement.
Vilazodone was generally well-tolerated; the most common adverse
events considered to be drug-related were diarrhea, nausea and
insomnia. In addition, vilazodones impact on sexual
function was similar to placebo when measured by quantitative,
validated scales. Patient-reported adverse events related to
sexual function, although infrequent, were more common on
vilazodone than placebo. A statistically significant improvement
in symptoms of anxiety associated with MDD, as measured by the
Hamilton Anxiety Scale (HAM-A), a secondary endpoint
of the studies, was also observed. Based on the results of these
and additional activities, including the manufacture of
registration batches of the active pharmaceutical ingredient and
the drug product, we submitted an NDA for vilazodone with the
FDA on March 22, 2010, which was accepted for review by the
FDA on May 21, 2010 with an assigned PDUFA date of
January 22, 2011. Vilazodone is a New Chemical Entity and
is currently not approved by the FDA or marketed for sale in any
country.
We hold exclusive rights to develop and commercialize vilazodone
pursuant to a license agreement we entered into with Merck KGaA,
Darmstadt, Germany (Merck), in 2004. Under the terms
of our agreement with Merck, if we are successful in the
continuation of our development of vilazodone, we will be
obligated to pay Merck certain additional milestone payments,
all of which are payable in our common stock. Specifically, a
milestone payment of 12.5 million was payable to
Merck within 30 days of acceptance of an NDA filing in the
U.S. or a Marketing Authorization Application
(MAA) filing in the European Union for the first
indication of vilazodone. This payment was made on May 21,
2010, when the NDA, as filed on March 22, 2010, was
accepted for review by the FDA. On May 21, 2010, we issued
921,000 shares of our common stock as a result of achieving
this milestone. In addition, separate 9.5 million
payments would be payable to Merck within 30 days of
receipt of (a) approval of the NDA or MAA, and (b) on
the first sale of vilazodone in the U.S. or the European
Union. Merck will also be entitled to certain royalty payments
if we are successful in commercializing vilazodone, and to a
certain share of milestone payments from third parties if we
sublicense vilazodone.
34
Stedivaze
Our second late-stage drug candidate, Stedivaze, is a highly
selective
AR2A
agonist in development as a coronary vasodilator for
nuclear-SPECT myocardial perfusion imaging. We began enrollment
of our first Phase III clinical trial for Stedivaze in
November 2009, and expect to begin our second Phase III
clinical trial during the fiscal year ending March 31,
2011. Both of these Phase III studies will evaluate the
safety and efficacy of Stedivaze for use as a pharmacologic
stress agent in nuclear myocardial perfusion imaging, a method
for evaluating blood flow to the heart, and also compare the
tolerability of Stedivaze to adenosine, a standard pharmacologic
stress agent used in myocardial perfusion imaging scans, when
administered as an intravenous bolus injection.
Data from the clinical trials thus far completed for Stedivaze
shows its potential for
best-in-class
attributes related to its adverse event, tolerability,
pharmacokinetic and target binding affinity profiles, and its
mode of administration as a fixed dose intravenous rapid bolus.
Results from our two recent Phase I studies of Stedivaze also
demonstrated that Stedivaze was safe and well tolerated in
patients with asthma and chronic obstructive pulmonary disease
(COPD). Currently available adenosine agonists must
be used with caution or are contraindicated in patients with
asthma and COPD. The high selectivity of Stedivaze offers a
potential advantage for the safe use in this population,
accounting for approximately 10% of the 7.6 million
myocardial perfusion imaging tests performed annually [Eliana
Reyes, MD, et al., Adenosine myocardial perfusion scintigraphy
in obstructive airway disease. Journal of Nuclear Cardiology,
November/December 2007]. In 49 patients with mild to
moderate asthma and 50 patients with moderate to severe
COPD, Stedivaze had no effect on pulmonary function tests.
Results of both of these trials support the continued study of
Stedivaze in patients with asthma and COPD. We hold exclusive
rights to develop and commercialize Stedivaze, as well as
ATL313, ATL844 and ATL1222, pursuant to a license agreement we
entered into with the University of Virginia Patent Foundation
(UVAPF) in 1999. Under the terms of our license
agreement with UVAPF, we will be obligated to pay UVAPF certain
milestone payments and royalties if we are successful in
commercializing these products.
Other
Therapeutic Products
ATL313 is a selective
AR2A
agonist in preclinical development as a topical treatment for
glaucoma that has shown significant effects on lowering
intra-ocular pressure in both small and large animal models.
Santen has exercised its option to further develop ATL313 for
the treatment of glaucoma and plans to file an Investigational
New Drug (IND) for the drug with the FDA for this
indication as soon as practicable, which is expected to be
within the next twelve months. ATL313 is also the subject of a
license agreement with CombinatoRx, Inc. for the development of
treatments for B-cell cancers, including multiple myeloma. Under
this collaboration, CombinatoRx, Inc. will be responsible for
both preclinical and clinical development. ATL313 and other
AR2A
agonists are also being evaluated by us in animal models of
chronic pain and multiple sclerosis.
We are developing ATL844 for the treatment of asthma
and/or
diabetes, both of which are growing, multi-billion dollar
markets. Acting as an
AR2B
antagonist, this compound has shown significant pharmacodynamic
effects in animal models of both asthma and diabetes. We are
proceeding with a toxicology and chemistry program and, with
success, we would expect to file an IND to continue the
development of this compound in human trials. ATL844 is also the
subject of an option agreement for an exclusive license with
Novartis for the treatment of asthma and diabetes.
ATL1222 is a highly selective
AR2A
agonist in development as an anti-inflammatory agent for the
treatment of acute inflammatory conditions based on effects
demonstrated in animal models. ATL1222 is being evaluated in
pharmacodynamic studies and, with success, we would expect to
file an IND to continue the development of this compound in
human trials.
AVN316 is a small molecule that potently inhibits the
beta-catenin pathway in a variety of model systems. This
compound and program is under consideration for further
development and potential partnering.
35
Genetic
Tests
The FAMILION family of tests identifies mutations in
genes associated with inherited cardiac syndromes including
cardiac channelopathies such as Long-QT Syndrome
(LQTS), Brugada Syndrome
(BrS),Catecholaminergic Polymorphic Ventricular
Tachycardia (CPVT) and Short QT Syndrome
(SQTS), and in genes associated with
cardiomyopathies including Hypertrophic Cardiomyopathy
(HCM), Arrhythmogenic Right Ventricular
Cardiomyopathy (ARVC), Dilated Cardiomyopathy
(DCM) and Conduction Disease associated with DCM
(CD-DCM).
We continue to enhance our existing tests and are developing new
tests for inherited cardiac diseases and syndromes that will add
to our FAMILION family of tests. We believe these
activities will improve the utility and marketability of our
tests and, together with sales and marketing efforts, drive
further adoption and increased reimbursement.
We have also made significant progress in our efforts to
contract with private and government health insurers for test
coverage and reimbursement. The FAMILION LQTS, BrS, and
FAMILION Family tests and the FAMILION HCM and
FAMILION HCM Family tests received S-codes in October
2008 and April 2009, respectively. S-codes should speed the
adoption of these tests by private insurers. In October 2008, we
became an
in-network
provider with Aetna for healthcare coverage of our FAMILION
LQTS and Family tests. We are utilizing our national
contract with the BCBS Association signed in December 2008 to
work with individual BCBS companies to provide their customers
with access to our FAMILION Family of Tests. In June
2009, we became an
in-network
provider for Humana for our FAMILION LQTS and associated
family test. In addition, we are an approved Medicare provider
for our genetic testing services, and a Medicaid provider in
41 states and the District of Columbia. These providers and
other private payors with positive coverage policies offer
access to genetic testing for nearly 280 million patients.
Financial
Operations Overview
Revenue. The majority of our current revenue
is from services related to genetic tests. Service fee revenue
from genetic tests is recognized when the testing process is
complete and the test results are reported to the ordering
physician. We maintain relationships with certain healthcare
providers as well as healthcare insurance companies; revenue
from these arrangements is recognized net of contractual
allowances.
Cost of Revenue. Cost of revenue consists
primarily of salaries and related expenses for personnel,
including stock-based compensation expense, laboratory expenses,
depreciation, and facility costs.
Sales and Marketing Expense. Sales and
marketing expense consists primarily of salaries, commissions
and other related personnel costs, including stock-based
compensation expense. Other costs primarily include advertising
and promotion expenses, direct mailings, trade shows, and travel
and related expenses.
Research and Development Expense. Research and
development expense consists primarily of fees paid to
professional service providers in conjunction with independent
monitoring of our clinical trials and acquiring and evaluating
data in conjunction with our clinical trials, fees paid to
independent researchers, costs of contract manufacturing,
services expenses incurred in developing and testing products
and product candidates, salaries and related expenses for
personnel, including stock-based compensation expense, costs of
materials, depreciation, rent, utilities and other facilities
costs. In addition, research and development expenses include
the cost to in-license technologies to support current
development efforts, including any related milestone payments.
We expense research and development costs as incurred.
General and Administrative Expense. General
and administrative expense consists primarily of salaries and
other related costs for personnel, including stock-based
compensation expense, in our executive, finance, accounting,
information technology and human resource functions. Other costs
primarily include facility costs and professional fees for
accounting, consulting and legal services, including
patent-related expenses.
Interest and Other Income (Expense),
Net. Interest expense consists of interest
incurred under notes payable and other debt financings and
capital lease obligations, and in fiscal 2010, liquidated
damages including interest in connection with our failure to
register certain securities for resale in a timely manner.
Interest income consists of
36
interest earned on our cash, cash equivalents and marketable
securities. Other income (expense), net consists primarily of
the re-measurement of the fair value of the shares of Avalon
stock held by us immediately prior to the merger.
Critical
Accounting Policies and Significant Judgments and
Estimates
Our discussion and analysis of our financial condition and
results of operations is based on our consolidated financial
statements and notes, which have been prepared in accordance
with accounting principles generally accepted in the
U.S. The preparation of these financial statements requires
us to make estimates and judgments that affect the reported
amounts of assets, liabilities, revenue and expenses. On an
ongoing basis, we evaluate our estimates and judgments,
including those related to revenue, allowances for doubtful
accounts, intangibles, goodwill and income taxes. We base our
estimates on historical experience and on various other
assumptions that we believe to be reasonable under the
circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results
may differ from these estimates under different assumptions or
conditions. A summary of our significant accounting policies is
contained in Note 2 to our consolidated financial
statements included elsewhere in this Annual Report on
Form 10-K.
We believe the following critical accounting policies affect our
more significant judgments and estimates used in the preparation
of our consolidated financial statements.
Revenue Recognition The majority of our
current revenue is from services related to genetic tests. We
maintain relationships with certain healthcare providers as well
as healthcare insurance companies; revenue from these
arrangements is recognized net of contractual allowances.
Revenue is also derived from fees for licenses of intellectual
property.
Allowance for Doubtful Accounts and Contractual
Allowances Allowances for doubtful accounts are
maintained for estimated losses resulting from the inability of
our customers to make required payments. These estimated
allowances of $2.5 million, $1.3 million and $500,000
at March 31, 2010, 2009 and 2008, respectively, are
periodically reviewed, analyzing the customers payment
history and information known to us regarding customers
credit worthiness as well as the contract terms and history of
collections with third-party payors. We believe that most of our
bad debt expense is primarily the result of missing or incorrect
billing information on requisitions and Advance Beneficiary
Notices received from healthcare providers and the failure of
patients to pay the portion of the receivable that is their
responsibility, rather than credit related issues. Deteriorating
economic conditions may adversely impact our bad debt expense.
In general, we perform the requested tests and report test
results regardless of whether the billing information is correct
or complete. We subsequently attempt to contact the healthcare
provider or patient to obtain any missing information and to
rectify incorrect billing information. Missing or incorrect
information on requisitions complicates and slows down the
billing process, creates backlogs of unbilled requisitions and
generally increases the aging of accounts receivable and bad
debt expense. The increased use of electronic billing reduces
the incidence of missing or incorrect information. The increase
in 2010 reflects the increase in gross revenue. If the financial
condition of our customers were to deteriorate additional
allowances may be required. Actual losses incurred and
contractual write-offs have not been significantly different
than managements estimates in recent history.
Valuation of Intangibles and Goodwill We
completed one business combination during each of fiscal 2006,
2008, 2009 and 2010. The transactions have been accounted for
based on fair value. As a result of the purchase price
allocations, we recorded purchased intangibles totaling
$14.0 million and goodwill totaling $31.8 million. The
fair value of the purchased intangibles was determined based on
either discounted probable cash flows or replacement costs. The
interest rates used to discount the net cash flows to their
present value were based on our weighted-average cost of capital
ranging between 16% and 27%.
We perform an annual impairment test of the carrying value of
goodwill and indefinite-lived intangible assets using December
31 as our selected annual evaluation date. The fair value of our
recorded intangibles can be impacted by economic conditions,
market risks, and the volatility in the markets in which we and
our customers operate. Changes in fair value could result in
future impairment charges if the fair value of the reporting
units or asset groups to which these long-lived assets are
associated are determined to be less than the carrying value of
such assets. As of December 31, 2009, the most recent
evaluation date, there was no impairment of goodwill and
indefinite-lived intangible assets. Our fair value will be
measured using our market capitalization, however, given
37
our significant accumulated deficit, our carrying value is
significantly lower than our market capitalization as of
March 31, 2010.
When facts and circumstances suggest that there may be
impairment, we will assess the carrying value of amortizing
intangibles, including purchased intangibles. When a potential
impairment has been identified, forecasted undiscounted net cash
flows of the operations to which the asset relates are compared
to the current carrying value of the assets present in that
operations. If such cash flows are less than such carrying
amounts, such intangibles are written down to their respective
fair values. The results of these periodic impairment tests can
be impacted by our future expected operating results and cash
flows, economic conditions, market risks, and the volatility in
the markets in which we and our customers operate.
Income Taxes As part of the process of
preparing our consolidated financial statements, we are required
to estimate our income taxes in each of the jurisdictions in
which we operate. This process involves estimating our actual
current tax exposure together with assessing temporary
differences resulting from differing treatments of items for tax
and accounting purposes. These differences result in deferred
tax assets and liabilities. As of March 31, 2010, we had
federal tax net operating loss carryforwards, after limitation
for changes in ownership of acquired entities, of
$320.9 million, which expire starting in 2011, federal tax
credit carryforwards of $3.6 million and net deferred tax
assets of $170.4 million. We have recorded a valuation
allowance of $170.4 million as an offset against these
otherwise recognizable net deferred tax assets due to the
uncertainty surrounding the timing of the realization of the tax
benefit. In the event that we determine in the future that we
will be able to realize all or a portion of our net deferred tax
asset, an adjustment to the deferred tax valuation allowance
would increase net income in the period in which such a
determination is made.
Recent
Accounting Pronouncements
In September 2009, the FASB ratified the final EITF consensus
and issued
EITF 08-1,
Revenue Arrangements with Multiple Deliverables,
primarily codified into ASU
No. 2009-13.
ASU
No. 2009-13
modifies the requirements for determining whether deliverables
meet the separate unit of accounting criteria and requires
allocation of arrangement consideration based on relative
selling price. We must adopt ASU
No. 2009-13
no later than in the first fiscal year beginning after
June 15, 2010, but earlier adoption is permitted. Companies
may adopt prospectively or retrospectively. We are currently
evaluating the impact that the adoption of ASU
No. 2009-13
will have on our consolidated financial position and results of
operations.
Results
of Operations
Fiscal
Year Ended March 31, 2010 Compared to Fiscal Year Ended
March 31, 2009
Revenue. Revenue increased $2.6 million,
or 25%, from $10.4 million for the year ended
March 31, 2009 to $13.1 million for the year ended
March 31, 2010. This increase was due to the increase in
gross sales of our genetic tests of $3.8 million, or 36%,
from the same period a year ago. The continued expansion of our
commercial sales and marketing team in fiscal 2009 and increased
coverage from third-party payors, such as Blue Cross and Blue
Shield, Aetna and Humana, have had a significant impact on our
revenue. As of March 31, 2010, we are an approved Medicare
provider for our genetic testing services and a Medicaid
provider in 41 states and the District of Columbia,
compared with seven states in January 2008. These increases were
partially offset by in an increase in our contractual allowances
of $1.3 million from $841,000, or 8% of gross genetic
testing revenue, to $2.1 million, or 15% of gross genetic
testing revenue. This increase in contractual allowances as a
percentage of gross revenue is due to increased coverage from
third-party payors as well as the mix of revenue from
third-party payors. In addition, we have expanded our service
offerings by adding new genetic tests in fiscal 2009 and 2010:
HCM was launched in May 2008, ARVC was launched in November 2008
and DCM was launched in November 2009. We continue to expand our
third-party payor base and our product offerings with two more
tests launched in May 2010.
Gross Profit. Gross profit margins increased
from 38% for the year ended March 31, 2009 to 52% for the
year ended March 31, 2010. The improvement in gross profit
from fiscal 2009 to 2010 was due to the increase in revenue as
well as the realization of the infrastructure improvements and
lab efficiencies that were implemented in fiscal 2009. Gross
profit margins are expected to continue to improve as
infrastructure improvements continue to drive
38
efficiencies. Our cost structure, which includes personnel,
equipment and facilities, is largely fixed in nature; thus, as
revenue increases our gross margin should increase.
Research and Development Expense. Research and
development expenses increased $12.7 million, or 29%, to
$56.8 million for the year ended March 31, 2010 from
$44.1 million for the year ended March 31, 2009. This
increase is primarily attributable to the milestone paid to
Merck as a result of the acceptance of the vilazodone NDA filing
by the FDA. Under the terms of a license agreement with Merck,
the FDAs acceptance of the NDA for filing gave rise to a
milestone payment to Merck of 12.5 million, valued at
$15.7 million as of March 31, 2010, and payable
through the issuance of 921,000 shares of our common stock.
Research and development expenses include internal and external
costs incurred for our drug candidates, including vilazodone and
Stedivaze. We do not assign our internal costs, such as salary
and benefits, stock-based compensation expense, laboratory
supplies and infrastructure costs, to individual drug
candidates, because the employees within our research and
development groups typically are deployed across multiple
research and development programs. These internal costs are not
as significant as our external costs, such as the costs of
services provided to us by clinical research organizations and
other outsourced research, which we do allocate to individual
drug development programs. All research and development costs
are expensed as incurred. During the fiscal year ended
March 31, 2010, vilazodone completed its safety and
Phase III confirmatory trials and on March 22, 2010,
we filed an NDA with the FDA for vilazodone, which was accepted
for review by the FDA on May 21, 2010. External research
and development expenses, including costs associated with the
NDA filing, related to vilazodone were $30.9 million for
the year ended March 31, 2010 and $33.6 million for
the year ended March 31, 2009. During the fiscal year ended
March 31, 2010, we initiated our first Stedivaze
Phase III clinical trial. External research and development
expenses related to Stedivaze were $5.8 million for the
year ended March 31, 2010 and $219,000 for the year ended
March 31, 2009. We expect our ongoing research and
development costs to continue to be substantial as we advance
our Stedivaze Phase III clinical trials and prepare for the
commercialization of vilazodone. The successful development of
our drug candidates is highly uncertain and subject to a number
of risks. In addition, the duration of clinical trials may vary
substantially according to the type, complexity and novelty of
the drug candidate and the disease indication being targeted.
The FDA and comparable agencies in foreign countries impose
substantial requirements on the introduction of therapeutic
pharmaceutical products, typically requiring lengthy and
detailed laboratory and clinical testing procedures, sampling
activities and other costly and time-consuming procedures. Data
obtained from nonclinical and clinical activities at any step in
the testing process may be adverse and lead to discontinuation
or redirection of development activity. Data obtained from these
activities are susceptible to varying interpretations, which
could delay, limit or prevent regulatory approval. The duration
and cost of discovery, nonclinical studies and clinical trials
may vary significantly over the life of a project and are
difficult to predict. Therefore, accurate and meaningful
estimates of the ultimate costs to bring our drug candidates to
market are not available. If we are able to successfully
commercialize vilazodone in accordance with current development
timelines, we anticipate revenues and cash flows from the sales
of vilazodone to commence in calendar 2011. Stedivaze is less
advanced and, as a result, any estimate regarding development
timelines for this drug candidate is highly subjective and
subject to change, and we cannot at this time make a meaningful
estimate when, if ever, Stedivaze will generate revenues and
cash flows.
Sales and Marketing Expense. Sales and
marketing expenses increased $391,000, or 5%, to
$8.2 million for the year ended March 31, 2010 from
$7.8 million for the year ended March 31, 2009. The
increase was principally due to a full year of expense relating
to our expanded sales force and marketing team in fiscal 2010
compared to approximately three and one-half quarters in fiscal
2009. We expect our sales and marketing expense to remain
relatively flat over the next several quarters as we leverage
our established sales organization.
General and Administrative Expense. General
and administrative expenses increased $4.0 million, or 20%,
to $23.7 million for the year ended March 31, 2010
compared to $19.7 million for the year ended March 31,
2009. The increase was, in part, the result of an increase in
senior management compensation, including year-end bonuses of
$2.5 million. For the year ended March 31, 2009, based
exclusively on Clinical Datas stock price performance
during the fiscal year, the Company did not pay any cash bonuses
to executive management. The increase was also attributable to
an increase in our provision for uncollectible accounts of
$734,000 for the year ended March 31, 2010 to
$1.7 million, or 13% of net revenue, from
$1.0 million, or 10% of net revenue, for the same period in
fiscal 2009, which was attributable to the increase in revenue
during the same period as well as the current economic
conditions, and $717,000 of additional amortization on newly
acquired intangible assets. These increases were partially
offset by reductions in stock-based compensation of $925,000.
39
Restructuring and Lease Exiting Costs. In an
effort to reduce overhead expenses, on August 31, 2009, we
exited our Germantown, Maryland lease and moved the operations
to our Charlottesville, Virginia facility. As a result of
exiting the lease, we recorded a loss of $1.8 million
related to writing off the unamortized acquired leasehold
improvements and $664,000 in severance related costs during the
year ended March 31, 2010.
Purchased In-Process Research and Development
Expense. Prior to April 1, 2009, in-process
research and development (IPRD) acquired through a
business combination was expensed on the acquisition date in our
consolidated financial statements. Effective April 1, 2009,
all IPRD we acquire through business combinations on or after
April 1, 2009 are capitalized as an intangible asset on our
consolidated balance sheets and periodically tested for
impairment. At the time of our acquisition of Adenosine
Therapeutics in August 2008, ATL844, ATL313 and ATL1222 had
neither reached technological feasibility nor had an alternative
future use and were therefore considered to be IPRD. We recorded
the fair value of the purchase price attributable to IPRD. At
the time of our acquisition of Avalon Pharmaceuticals in May
2009, AVN316 neither had reached technological feasibility nor
had an alternative future use and was therefore considered to be
IPRD. Because of a change in accounting principle (as described
in Critical Accounting Policies), we recorded the fair value of
the purchase price attributable to IPRD as an indefinite-lived
intangible asset on our consolidated balance sheet. We will test
this asset annually for impairment, or earlier if conditions
warrant. Amortization of this asset will begin upon regulatory
approval based on the then estimated useful life of the asset.
Transaction Costs Incurred in Connection with the Avalon
Acquisition. Prior to April 1, 2009, we
capitalized the transaction costs of $719,000 incurred in
connection with the Avalon acquisition. On April 1, 2009,
these capitalized transaction costs were expensed as well as the
costs incurred on or after April 1, 2009 of
$1.3 million in connection with the Avalon acquisition.
Interest and Other Income (Expense),
Net. Interest expense increased $7.3 million
from $1.8 million for the year ended March 31, 2009 to
$9.1 million for the year ended March 31, 2010. This
increase was primarily due to the interest on the convertible
notes issued in February 2009 of $7.8 million, of which
$4.9 million is coupon interest, $1.3 million is
accretion of the discount on the notes and $1.6 million is
the liquidated damages resulting from our failure to register
for resale the underlying securities with the SEC before
June 25, 2009, and to a lesser extent, additional interest
on the notes issued in connection with the Adenosine
Therapeutics acquisition in August 2008, as a result of having a
full year of interest expense for the year ended March 31,
2010. Interest income decreased $636,000 from $716,000 for the
year ended March 31, 2009 to $80,000 for the year ended
March 31, 2010. Other income, net increased to
$1.8 million for the year ended March 31, 2010 from
$179,000 for the year ended March 31, 2009. The change is
due to the re-measurement of the fair value of the Avalon stock
held by us immediately prior to the merger resulting in a
$1.8 million gain.
Fiscal
Year Ended March 31, 2009 Compared to Fiscal Year Ended
March 31, 2008
Revenue. Revenue increased $5.3 million,
or 104%, from $5.1 million in fiscal 2008 to
$10.4 million in fiscal 2009. This increase was due to the
increase in gross sales of our genetic tests of
$5.8 million, or 117%, from the same period a year ago. The
introduction of our new commercial sales and marketing team in
September 2007 and increased coverage from third-party payors,
such as Medicare, Medicaid and Aetna, has had a significant
impact on revenue. As of March 31, 2009, we were an
approved Medicare provider for our genetic testing services, and
a Medicaid provider in 39 states and the District of
Columbia, up from just seven states in January 2008. These
increases were partially offset by in an increase in our
contractual allowances of $482,000 from $359,000, or 7% of gross
genetic testing revenue, to $841,000, or 8% of gross genetic
testing revenue. This increase in contractual allowances as a
percentage of gross revenue is due to increased coverage from
third-party payors as well as the mix of revenue from
third-party payors. In an effort to continue the acceleration of
revenue growth, we continued to expand and invest in the
development of our sales force and have expanded our service
offerings by adding two new genetic tests in fiscal 2009: HCM
was launched in May 2008 and ARVC was launched in November 2008.
Gross Profit. Gross profit margins decreased
from 49% in fiscal 2008 to 38% in fiscal 2009. However, in
fiscal 2009, our gross margins increased from 28% in the first
fiscal quarter to 49% in the fourth fiscal quarter. The decline
from fiscal 2008 to 2009 was primarily due to the exclusion of
shared infrastructure cost which were borne by the Cogenics
segment in early fiscal 2008 and planned investment in our
infrastructure, equipment and a new
40
laboratory information system, which were designed to increase
productivity and lab efficiencies. Our cost structure, which
includes personnel, equipment and facilities, is largely fixed
in nature; thus, as revenue increases our gross margin should
increase.
Research and Development Expense. Research and
development expenses increased $27.2 million, or 161%, to
$44.1 million for fiscal 2009 from $16.9 million for
the year ended March 31, 2008. Research and development
expenses include internal and external costs incurred for our
drug candidates, including vilazodone and Stedivaze. We do not
assign our internal costs, such as salary and benefits,
stock-based compensation expense, laboratory supplies and
infrastructure costs, to individual drug candidates, because the
employees within our research and development groups typically
are deployed across multiple research and development programs.
These internal costs are not as significant as our external
costs, such as the costs of services provided to us by clinical
research organizations and other outsourced research, which we
do allocate to individual drug development programs. All
research and development costs for our drug candidates are
expensed as incurred. During the fiscal year ended
March 31, 2009, vilazodone initiated its safety and
Phase III confirmatory trials. External research and
development expenses related to vilazodone were
$33.6 million for the year ended March 31, 2009 and
$13.7 million for the year ended March 31, 2008.
During the fiscal year ended March 31, 2009, we acquired
Stedivaze and developed our Phase III clinical trial
program. External research and development expenses related to
Stedivaze were $219,000 for the year ended March 31, 2009.
Stock-based compensation expense charged to research and
development expense increased $775,000 for the year ended
March 31, 2009 to $1.3 million from $523,000 for the
same period in fiscal 2008.
Sales and Marketing Expense. Sales and
marketing expenses increased $4.2 million, or 115%, to
$7.8 million for fiscal 2009 from $3.6 million for the
year ended March 31, 2008. The increase was principally due
to a full year of expense relating to our sales force and
marketing team. In fiscal 2008 and 2009, we implemented plans to
aggressively expand our sales force. Stock-based compensation
expense charged to sales and marketing increased $507,000 for
the year ended March 31, 2009 to $1.1 million from
$564,000 for the same period in fiscal 2008.
General and Administrative Expense. General
and administrative expenses increased $2.9 million, or 17%,
to $19.7 million for fiscal 2009 from $16.8 million
for the year ended March 31, 2008. The increase was, in
part, the result of an increase in stock-based compensation
charged to general and administrative expense of
$1.0 million for the year ended March 31, 2009 to
$5.5 million from $4.5 million for the same period in
fiscal 2008 and an increase in our provision for uncollectible
accounts of $826,000 for the year ended March 31, 2009 to
$1.0 million, or 10% of net revenue, from $189,000, or 4%
of net revenue, for the same period in fiscal 2008, which was
attributable to the increase in revenue during the same period
as well as the economic conditions.
Purchased In-Process Research and Development
Expense. Purchased IPRD expense of
$55.1 million for the year ended March 31, 2009
includes $3.0 million related to the acquisition of Avalon
and $52.1 million related to the acquisition of Adenosine
Therapeutics. Because the nature and economics of the term loan
were to fund the losses of Avalon, we have recognized in our
financial statements a portion of the losses incurred by Avalon
during the period from October 27, 2008 to March 31,
2009 as purchased IPRD. The amount recognized was determined
based upon a ratable allocation of the net loss of Avalon during
the period from October 27, 2008 to March 31, 2009 and
the consideration of the proceeds of the term loan relative to
the total cash available to Avalon prior to receipt of the
proceeds of the term loan. The $52.1 million related to the
acquisition of Adenosine Therapeutics represents the fair value
of the IPRD projects at Adenosine Therapeutics at the date of
its acquisition, in particular Stedivaze. Stedivaze was valued
based on discounted future cash flows. We prepared revenue and
expense projections as well as technology assumptions through
2025 for Stedivaze. The revenue for Stedivaze was based on
estimates of the relevant market sizes and growth factors,
expected trends in technology and the nature and expected timing
of the introduction of the new products. The estimated expenses
were based upon the expected remaining costs to complete
Stedivaze. We discounted the projected cash flows using a risk
adjusted discount rate and considered the probability of
success, where appropriate. The rate utilized to discount the
net cash flows to their present values was the internal rate of
return, or IRR, based on the purchase price paid. Management
believed that the IRR reflected the difficulties and
uncertainties in completing the project and thereby achieving
technological feasibility, the stage of completion of the
project, anticipated market acceptance and penetration, market
growth rates and risks related to the impact of potential
changes in future target markets. Based on these considerations,
the IRR of 24% was deemed an appropriate discount for valuing
the IPRD. Since the cost relates to a project that had not yet
reached
41
technological feasibility, defined as being equivalent to FDA
approval, and which had no alternative use at the date of
acquisition, the costs were expensed during fiscal 2009. There
were no such costs in fiscal 2008.
Interest and Other Income (Expense),
Net. Interest expense increased $1.7 million
from $76,000 in fiscal 2008 to $1.8 million in fiscal 2009.
This increase was primarily due to the interest on the notes
issued in connection with the Adenosine Therapeutics acquisition
and to a lesser extent the interest on the convertible notes
issued in February 2009. Interest income decreased
$1.3 million from $2.0 million in fiscal 2008 to
$716,000 in fiscal 2009. Other income, net decreased to $179,000
in fiscal 2009 from $305,000 in fiscal 2008.
Liquidity
and Capital Resources
We had cash and cash equivalents of $49.2 million at
March 31, 2010. Our cash flows from operating, investing
and financing activities, as reflected in the consolidated
statements of cash flows, are summarized in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Cash (used in) provided by continuing operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
(63,698
|
)
|
|
$
|
(56,589
|
)
|
|
$
|
(18,491
|
)
|
Investing activities
|
|
|
5,747
|
|
|
|
(6,041
|
)
|
|
|
(25,649
|
)
|
Financing activities
|
|
|
39,658
|
|
|
|
71,470
|
|
|
|
75,267
|
|
Cash provided by (used in) discontinued operations
|
|
|
12,358
|
|
|
|
(6,279
|
)
|
|
|
9,135
|
|
Effect of exchange rate
|
|
|
|
|
|
|
(2,136
|
)
|
|
|
422
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Decrease) increase in cash and cash equivalents
|
|
$
|
(5,935
|
)
|
|
$
|
425
|
|
|
$
|
40,684
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our total debt obligations were $68.0 million at
March 31, 2010.
The following table summarizes our contractual obligations at
March 31, 2010 and the effects such obligations are
expected to have on our liquidity and cash flows in future
periods:
Payments
Due by Period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2012
|
|
|
Fiscal 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
through
|
|
|
through
|
|
|
After
|
|
|
|
Total
|
|
|
Fiscal 2011
|
|
|
Fiscal 2013
|
|
|
Fiscal 2015
|
|
|
Fiscal 2015
|
|
|
|
(In thousands)
|
|
|
Contractual Obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short and long-term
debt(1)
|
|
$
|
103,851
|
|
|
$
|
12,450
|
|
|
$
|
19,712
|
|
|
$
|
11,969
|
|
|
$
|
59,720
|
|
Capital lease
obligations(1)
|
|
|
323
|
|
|
|
156
|
|
|
|
167
|
|
|
|
|
|
|
|
|
|
Operating lease obligations
|
|
|
1,182
|
|
|
|
948
|
|
|
|
221
|
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual cash obligations
|
|
$
|
105,356
|
|
|
$
|
13,554
|
|
|
$
|
20,100
|
|
|
$
|
11,982
|
|
|
$
|
59,720
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes interest expense |
Currently, we do not enter into financial instruments for
trading or speculative purposes.
During fiscal 2010, we made capital expenditures of $859,000
primarily to introduce new products, improve production
processing of existing and planned product offerings and to
upgrade our laboratory information systems.
Our sources of liquidity as of March 31, 2010 include our
cash and cash equivalents of $49.2 million. Our projected
uses of cash include cash used to fund operations, capital
expenditures, existing debt service costs and continued research
and product development.
42
In June 2010, we sold to the public 2.2 million shares of
our common stock, par value $0.01 per share, at a price of
$14.30 per share. The net proceeds to us are expected to be
approximately $29.8 million after deducting underwriting
commissions and estimated expenses payable by us associated with
this transaction.
We believe that our cash, including the estimated net proceeds
from the financing transaction completed in June 2010 of
$29.8 million, will be sufficient to fund our operations
through March 2011. We will need additional funds to
commercialize vilazodone and continue the development of
Stedivaze beyond March 2011. The sale of any equity or debt
securities may result in additional dilution to our
stockholders, and we cannot be certain that additional financing
will be available in amounts or on terms acceptable to us, if at
all. If we are unable to obtain financing, we may be required to
reduce the scope and timing of the planned clinical and
preclinical programs, which could harm our financial condition
and operating results.
Off-Balance
Sheet Arrangements
We do not have any special purpose entities or other off-balance
sheet arrangements.
|
|
ITEM 7A.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
We are exposed to market risks, which include changes in
interest rates, changes in credit worthiness and liquidity of
our marketable securities.
Interest
Rate Risk
We use a combination of fixed rate term loans and fixed rate
leases to partially finance our activities. Our long-term debt
and capital leases are all at fixed rates over their lives and
carry no interest rate risk.
|
|
ITEM 8.
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
|
The information required by this item is attached to this Annual
Report on
Form 10-K
beginning on
Page F-1.
|
|
ITEM 9.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
|
None.
|
|
ITEM 9A.
|
CONTROLS
AND PROCEDURES
|
|
|
(a)
|
Evaluation
of Disclosure Controls and Procedures.
|
As required by
Rule 13a-15
under the Securities Exchange Act of 1934, as of the end of the
period covered by this report, we carried out an evaluation
under the supervision and with the participation of our
management, including our Chief Executive Officer and Chief
Financial Officer, of the effectiveness of our disclosure
controls and procedures as of March 31, 2010. Based upon
that evaluation, our Chief Executive Officer and Chief Financial
Officer concluded that our disclosure controls and procedures
are effective as of March 31, 2010 to ensure that
information required to be disclosed by us in the reports we
file or submit under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the
Securities and Exchange Commissions rules and forms,
and that such information is accumulated and communicated to
our management, including our Chief Executive Officer and Chief
Financial Officer, as appropriate, to allow timely decisions
regarding required disclosure.
|
|
(b)
|
Managements
Annual Report on Internal Control Over Financial
Reporting
|
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting as defined in
Rule 13a-15(f)
under the Securities Exchange Act of 1934, as amended. Our
companys internal control over financial reporting is a
process designed under the supervision of our Chief Executive
Officer and Chief Financial Officer to provide reasonable
assurance regarding the reliability of financial reporting and
the
43
preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. Our
internal control over financial reporting includes those
policies and procedures that:
(i) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the
transactions and dispositions of our assets;
(ii) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of our company
are being made only in accordance with authorizations of our
management and directors; and
(iii) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use or disposition
of assets that could have a material effect on the financial
statements.
There are inherent limitations in the effectiveness of any
internal control, including the possibility of human error and
the circumvention or overriding of controls. Accordingly, even
effective internal controls can provide only reasonable
assurances with respect to financial statement preparation.
Also, 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.
Management assessed the effectiveness of our companys
internal control over financial reporting as of March 31,
2010. In making this assessment, management used the criteria
established in Internal Control Integrated
Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). Based on
managements assessment and those criteria, management
determined that we maintained effective internal control over
financial reporting as of March 31, 2010.
Deloitte & Touche LLP, our independent registered
public accounting firm, has issued their report on the
effectiveness of our internal control over financial reporting,
which appears below.
Changes
in Internal Controls
There have been no changes in our internal controls over
financial reporting (as defined in
Rules 13a-15(f)
and
15d-15(f)
under the Securities and Exchange Act) during the quarter ended
March 31, 2010 that have materially affected, or are
reasonably likely to materially affect, our internal controls
over financial reporting.
44
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Clinical Data, Inc.
Newton, Massachusetts
We have audited the internal control over financial reporting of
Clinical Data, Inc. and subsidiaries (the Company) as of
March 31, 2010, based on criteria established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission. The Companys management is responsible for
maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control
over financial reporting, included in the accompanying
Managements Annual Report on Internal Control over
Financial Reporting. Our responsibility is to express an
opinion on the Companys internal control over financial
reporting 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 effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on
that risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit
provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a
process designed by, or under the supervision of, the
companys principal executive and principal financial
officers, or persons performing similar functions, and effected
by the companys board of directors, management, and other
personnel to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of the inherent limitations of internal control over
financial reporting, including the possibility of collusion or
improper management override of controls, material misstatements
due to error or fraud may not be prevented or detected on a
timely basis. Also, projections of any evaluation of the
effectiveness of the internal control over financial reporting
to future periods are subject to the risk that the controls may
become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may
deteriorate.
In our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as
of March 31, 2010, based on the criteria established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission.
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated financial statements as of and for the year ended
March 31, 2010, of the Company and our report dated
June 14, 2010, which report expressed an unqualified
opinion on those financial statements and included an
explanatory paragraph concerning substantial doubt about the
Companys ability to continue as a going concern.
/s/ Deloitte &
Touche LLP
Boston, Massachusetts
June 14, 2010
45
|
|
ITEM 9B.
|
OTHER
INFORMATION
|
None.
PART III
|
|
ITEM 10.
|
DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
|
The information required in this item will be contained in our
definitive Proxy Statement to be filed with the SEC in
connection with our 2010 Annual Meeting of Stockholders (the
Proxy Statement) under the headings Election of
Directors, Board of Directors and Committees
of the Board and Executive Officers and Corporate
Governance and is incorporated herein by reference.
|
|
ITEM 11.
|
EXECUTIVE
COMPENSATION
|
The information required in this item is incorporated by
reference to the Proxy Statement under the heading
Executive Compensation.
|
|
ITEM 12.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
|
The information required in this item is incorporated by
reference to the Proxy Statement under the heading
Security Ownership of Management and Security
Ownership of Certain Beneficial Holders.
|
|
ITEM 13.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTORS
INDEPENDENCE
|
The information required in this item is incorporated by
reference to the Proxy Statement under the heading Certain
Transactions and Business Relationships.
|
|
ITEM 14.
|
PRINCIPAL
ACCOUNTING FEES AND SERVICES
|
The information in required in this item is incorporated by
reference to the Proxy Statement under the heading
Principal Accounting Fees and Services.
PART IV
|
|
ITEM 15.
|
EXHIBITS,
FINANCIAL STATEMENT SCHEDULES
|
(a) 1. Consolidated Financial Statements
The Consolidated Financial Statements are filed as part of this
report.
2. Consolidated Financial Statement
Schedules
All schedules are omitted because of the absence of conditions
under which they are required or because the required
information is included in the Consolidated Financial Statements
or notes thereto.
3. Exhibits
The exhibits listed in the Exhibit Index immediately
preceding the exhibits are filed as part of the Annual Report on
Form 10-K.
46
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, on June 14, 2010.
CLINICAL DATA, INC.
Andrew J. Fromkin
President and Chief Executive Officer
(Principal Executive Officer)
Dated: June 14, 2010
C. Evan Ballantyne
Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
Dated: June 14, 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 in the capacities and on the dates
indicated.
Randal J. Kirk
Chairman of the Board
Dated: June 14, 2010
Andrew J. Fromkin
President and Chief Executive Officer, Director
Dated: June 14, 2010
Larry D. Horner
Director
Dated: June 14, 2010
47
Arthur B. Malman
Director
Dated: June 14, 2010
Burton E. Sobel
Director
Dated: June 14, 2010
Scott J. Tarriff
Director
Dated: June 14, 2010
Richard J. Wallace
Director
Dated: June 14, 2010
48
CLINICAL
DATA, INC. AND SUBSIDIARIES
INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
Consolidated Financial Statements
|
|
Page
|
|
|
|
|
F-2
|
|
|
|
|
F-3
|
|
|
|
|
F-4
|
|
|
|
|
F-5
|
|
|
|
|
F-6
|
|
|
|
|
F-8
|
|
F-1
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Clinical Data, Inc.
Newton, Massachusetts
We have audited the accompanying consolidated balance sheets of
Clinical Data, Inc. and subsidiaries (the Company)
as of March 31, 2010 and 2009, and the related consolidated
statements of operations, stockholders equity, and cash
flows for each of the three years in the period ended
March 31, 2010. 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 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 audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present
fairly, in all material respects, the financial position of the
Company as of March 31, 2010 and 2009, and the results of
its operations and its cash flows for each of the three years in
the period ended March 31, 2010, in conformity with
accounting principles generally accepted in the United States of
America.
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
Companys accumulated deficit, recurring losses and cash
used in operations and the expectation that the Company will
continue to incur operating losses in the future raise
substantial doubt about its ability to continue as a going
concern. Managements plans concerning these matters are
also discussed in Note 1 to the financial statements. The
financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
Companys internal control over financial reporting as of
March 31, 2010, based on the criteria established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission and our report dated June 14, 2010 expressed an
unqualified opinion on the Companys internal control over
financial reporting.
/s/ Deloitte &
Touche LLP
Boston, Massachusetts
June 14, 2010
F-2
CLINICAL
DATA, INC. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands, except share and per share amounts)
|
|
|
ASSETS
|
Current Assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
49,245
|
|
|
$
|
55,180
|
|
Marketable securities, at fair value
|
|
|
|
|
|
|
1,175
|
|
Accounts receivable, net
|
|
|
2,851
|
|
|
|
2,471
|
|
Prepaid expenses and other current assets
|
|
|
1,488
|
|
|
|
1,240
|
|
Assets of discontinued operations
|
|
|
|
|
|
|
18,541
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
53,584
|
|
|
|
78,607
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
|
2,795
|
|
|
|
2,942
|
|
Goodwill
|
|
|
31,849
|
|
|
|
29,496
|
|
Intangible assets, net
|
|
|
10,665
|
|
|
|
4,747
|
|
Other assets, net
|
|
|
62
|
|
|
|
4,405
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
$
|
98,955
|
|
|
$
|
120,197
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
Current portion of long-term debt
|
|
$
|
6,635
|
|
|
$
|
6,337
|
|
Current portion of capital leases
|
|
|
138
|
|
|
|
730
|
|
Accounts payable
|
|
|
5,550
|
|
|
|
5,562
|
|
Accrued expenses
|
|
|
25,065
|
|
|
|
6,131
|
|
Liabilities of discontinued operations
|
|
|
|
|
|
|
8,902
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
37,388
|
|
|
|
27,662
|
|
|
|
|
|
|
|
|
|
|
Long-Term Liabilities:
|
|
|
|
|
|
|
|
|
Long-term debt, net of current portion
|
|
|
11,329
|
|
|
|
17,964
|
|
Convertible note payable (related-party), net of unamortized
discount
|
|
|
30,129
|
|
|
|
28,868
|
|
Capital lease obligations, net of current portion
|
|
|
157
|
|
|
|
226
|
|
Other long-term liabilities
|
|
|
20
|
|
|
|
26
|
|
Contingent acquisition costs (Note 4)
|
|
|
16,039
|
|
|
|
16,039
|
|
|
|
|
|
|
|
|
|
|
Total long-term liabilities
|
|
|
57,674
|
|
|
|
63,123
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 9)
|
|
|
|
|
|
|
|
|
Stockholders Equity:
|
|
|
|
|
|
|
|
|
Preferred Stock, $.01 par value, 1,500,000 shares
authorized; none issued and outstanding
|
|
|
|
|
|
|
|
|
Common stock, $.01 par value, 60,000,000 shares
authorized; 26,519,000 and 22,742,000 shares issued and
outstanding at March 31, 2010 and 2009, respectively
|
|
|
265
|
|
|
|
227
|
|
Additional paid-in capital
|
|
|
343,345
|
|
|
|
276,788
|
|
Accumulated deficit
|
|
|
(339,717
|
)
|
|
|
(251,204
|
)
|
Accumulated other comprehensive income
|
|
|
|
|
|
|
3,601
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
3,893
|
|
|
|
29,412
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
|
|
$
|
98,955
|
|
|
$
|
120,197
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
F-3
CLINICAL
DATA, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands, except share and per
|
|
|
|
share amounts)
|
|
|
Revenues
|
|
$
|
13,085
|
|
|
$
|
10,442
|
|
|
$
|
5,107
|
|
Cost of revenues
|
|
|
6,244
|
|
|
|
6,489
|
|
|
|
2,627
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
6,841
|
|
|
|
3,953
|
|
|
|
2,480
|
|
OPERATING EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
56,785
|
|
|
|
44,134
|
|
|
|
16,889
|
|
Sales and marketing
|
|
|
8,155
|
|
|
|
7,764
|
|
|
|
3,612
|
|
General and administrative
|
|
|
23,699
|
|
|
|
19,730
|
|
|
|
16,806
|
|
Restructuring and lease exiting costs
|
|
|
2,447
|
|
|
|
|
|
|
|
|
|
Purchased in-process research and development
|
|
|
|
|
|
|
55,100
|
|
|
|
|
|
Transaction costs incurred in connection with the Avalon
acquisition
|
|
|
1,978
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
93,064
|
|
|
|
126,728
|
|
|
|
37,307
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(86,223
|
)
|
|
|
(122,775
|
)
|
|
|
(34,827
|
)
|
Interest expense
|
|
|
(1,367
|
)
|
|
|
(1,257
|
)
|
|
|
(76
|
)
|
Interest expense (related-party)
|
|
|
(7,761
|
)
|
|
|
(545
|
)
|
|
|
|
|
Interest income
|
|
|
80
|
|
|
|
716
|
|
|
|
2,020
|
|
Other income, net
|
|
|
1,771
|
|
|
|
179
|
|
|
|
305
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before taxes
|
|
|
(93,500
|
)
|
|
|
(123,682
|
)
|
|
|
(32,578
|
)
|
Benefit from income taxes
|
|
|
|
|
|
|
|
|
|
|
230
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
|
(93,500
|
)
|
|
|
(123,682
|
)
|
|
|
(32,348
|
)
|
Income (loss) from discontinued operations, net of taxes
|
|
|
4,987
|
|
|
|
(8,756
|
)
|
|
|
(2,982
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(88,513
|
)
|
|
$
|
(132,438
|
)
|
|
$
|
(35,330
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income per basic and diluted share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
(3.77
|
)
|
|
$
|
(5.63
|
)
|
|
$
|
(1.69
|
)
|
Discontinued operations
|
|
|
0.20
|
|
|
|
(0.40
|
)
|
|
|
(0.16
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(3.57
|
)
|
|
$
|
(6.03
|
)
|
|
$
|
(1.85
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
24,769
|
|
|
|
21,962
|
|
|
|
19,081
|
|
See notes to consolidated financial statements.
F-4
CLINICAL
DATA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS
EQUITY
FOR THE YEARS ENDED MARCH 31, 2010, 2009 AND 2008
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
Preferred
|
|
|
Preferred
|
|
|
Common
|
|
|
Stock
|
|
|
Additional
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
Stock
|
|
|
Stock Par
|
|
|
Stock
|
|
|
Par
|
|
|
Paid-in
|
|
|
Accumulated
|
|
|
Treasury
|
|
|
Comprehensive
|
|
|
|
|
|
Comprehensive
|
|
|
|
Shares
|
|
|
Value
|
|
|
Shares
|
|
|
Value
|
|
|
Capital
|
|
|
Deficit
|
|
|
Stock
|
|
|
Income
|
|
|
Total
|
|
|
Loss
|
|
|
|
(In thousands)
|
|
|
BALANCE at April 1, 2007
|
|
|
184
|
|
|
$
|
2
|
|
|
|
15,033
|
|
|
$
|
150
|
|
|
$
|
132,385
|
|
|
$
|
(83,436
|
)
|
|
$
|
(47
|
)
|
|
$
|
1,666
|
|
|
$
|
50,720
|
|
|
|
|
|
Conversion of Series A preferred stock into common stock
|
|
|
(184
|
)
|
|
|
(2
|
)
|
|
|
276
|
|
|
|
3
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock options
|
|
|
|
|
|
|
|
|
|
|
199
|
|
|
|
2
|
|
|
|
1,751
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,753
|
|
|
|
|
|
Exercise of stock warrants
|
|
|
|
|
|
|
|
|
|
|
162
|
|
|
|
2
|
|
|
|
2,561
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,563
|
|
|
|
|
|
Issuance of common stock, net of transaction costs of $4,536
|
|
|
|
|
|
|
|
|
|
|
5,175
|
|
|
|
52
|
|
|
|
71,312
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
71,364
|
|
|
|
|
|
Common stock issued for Merck license
|
|
|
|
|
|
|
|
|
|
|
135
|
|
|
|
1
|
|
|
|
3,618
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,619
|
|
|
|
|
|
Conversion of convertible debt
|
|
|
|
|
|
|
|
|
|
|
140
|
|
|
|
2
|
|
|
|
2,335
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,337
|
|
|
|
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
31
|
|
|
|
|
|
|
|
6,985
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,985
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
113
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
113
|
|
|
|
|
|
Translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,451
|
|
|
|
2,451
|
|
|
$
|
2,451
|
|
Unrealized loss on marketable securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(500
|
)
|
|
|
(500
|
)
|
|
|
(500
|
)
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(35,330
|
)
|
|
|
|
|
|
|
|
|
|
|
(35,330
|
)
|
|
|
(35,330
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(33,379
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE at March 31, 2008
|
|
|
|
|
|
|
|
|
|
|
21,151
|
|
|
|
212
|
|
|
|
221,059
|
|
|
|
(118,766
|
)
|
|
|
(47
|
)
|
|
|
3,617
|
|
|
|
106,075
|
|
|
|
|
|
Exercise of stock options
|
|
|
|
|
|
|
|
|
|
|
38
|
|
|
|
|
|
|
|
209
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
209
|
|
|
|
|
|
Exercise of stock warrants
|
|
|
|
|
|
|
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock and warrants, net of transaction costs
of $36
|
|
|
|
|
|
|
|
|
|
|
1,515
|
|
|
|
15
|
|
|
|
24,949
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,964
|
|
|
|
|
|
Warrants issued in connection with the convertible notes to a
related party
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,767
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,767
|
|
|
|
|
|
Beneficial conversion feature of the convertible notes with a
related party
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,428
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,428
|
|
|
|
|
|
Retirement of treasury stock
|
|
|
|
|
|
|
|
|
|
|
(15
|
)
|
|
|
|
|
|
|
(47
|
)
|
|
|
|
|
|
|
47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
36
|
|
|
|
|
|
|
|
9,423
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,423
|
|
|
|
|
|
Translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,838
|
)
|
|
|
(1,838
|
)
|
|
$
|
(1,838
|
)
|
Unrealized gain on marketable securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,822
|
|
|
|
1,822
|
|
|
|
1,822
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(132,438
|
)
|
|
|
|
|
|
|
|
|
|
|
(132,438
|
)
|
|
|
(132,438
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(132,454
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE at March 31, 2009
|
|
|
|
|
|
|
|
|
|
|
22,742
|
|
|
|
227
|
|
|
|
276,788
|
|
|
|
(251,204
|
)
|
|
|
|
|
|
|
3,601
|
|
|
|
29,412
|
|
|
|
|
|
Equity issued in connection with the Avalon acquisition
|
|
|
|
|
|
|
|
|
|
|
801
|
|
|
|
8
|
|
|
|
11,556
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,564
|
|
|
|
|
|
Public offering, net of transaction costs of $3,262
|
|
|
|
|
|
|
|
|
|
|
2,750
|
|
|
|
28
|
|
|
|
44,148
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44,176
|
|
|
|
|
|
Exercise of stock options, net of shares surrendered
|
|
|
|
|
|
|
|
|
|
|
149
|
|
|
|
1
|
|
|
|
1,649
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,650
|
|
|
|
|
|
Exercise of stock warrants
|
|
|
|
|
|
|
|
|
|
|
41
|
|
|
|
1
|
|
|
|
899
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
900
|
|
|
|
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
36
|
|
|
|
|
|
|
|
8,305
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,305
|
|
|
|
|
|
Translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,279
|
)
|
|
|
(2,279
|
)
|
|
$
|
(2,279
|
)
|
Change in unrealized gain on marketable securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,322
|
)
|
|
|
(1,322
|
)
|
|
|
(1,322
|
)
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(88,513
|
)
|
|
|
|
|
|
|
|
|
|
|
(88,513
|
)
|
|
|
(88,513
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(92,114
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE at March 31, 2010
|
|
|
|
|
|
$
|
|
|
|
|
26,519
|
|
|
$
|
265
|
|
|
$
|
343,345
|
|
|
$
|
(339,717
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
3,893
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
F-5
CLINICAL
DATA, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(88,513
|
)
|
|
$
|
(132,438
|
)
|
|
$
|
(35,330
|
)
|
(Income) loss from discontinued operations
|
|
|
(4,987
|
)
|
|
|
8,756
|
|
|
|
2,982
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
|
(93,500
|
)
|
|
|
(123,682
|
)
|
|
|
(32,348
|
)
|
Adjustments to reconcile loss from continuing operations to net
cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
2,949
|
|
|
|
1,670
|
|
|
|
673
|
|
Stock-based compensation
|
|
|
8,305
|
|
|
|
8,130
|
|
|
|
5,904
|
|
Non-cash milestones paid (or payable) to Merck under license
agreement
|
|
|
15,718
|
|
|
|
|
|
|
|
3,619
|
|
Provision for doubtful accounts
|
|
|
1,749
|
|
|
|
1,015
|
|
|
|
189
|
|
Purchased in-process research and development
|
|
|
|
|
|
|
55,100
|
|
|
|
|
|
Accretion of discount on convertible note with related party
|
|
|
1,261
|
|
|
|
106
|
|
|
|
|
|
Gain on Avalon stock held by Clinical Data prior to the merger
|
|
|
(1,773
|
)
|
|
|
|
|
|
|
|
|
Non-cash restructuring and lease exiting costs
|
|
|
1,783
|
|
|
|
|
|
|
|
|
|
Loss on sales of equipment
|
|
|
|
|
|
|
51
|
|
|
|
10
|
|
Changes in current assets and liabilities, net of acquired
assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(2,087
|
)
|
|
|
(2,243
|
)
|
|
|
(512
|
)
|
Prepaid expenses and other current assets
|
|
|
81
|
|
|
|
(553
|
)
|
|
|
(319
|
)
|
Other assets
|
|
|
1,784
|
|
|
|
155
|
|
|
|
(229
|
)
|
Accounts payable and other liabilities
|
|
|
32
|
|
|
|
3,662
|
|
|
|
4,522
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash used in continuing operations
|
|
|
(63,698
|
)
|
|
|
(56,589
|
)
|
|
|
(18,491
|
)
|
Cash used in discontinued operations
|
|
|
(885
|
)
|
|
|
(3,661
|
)
|
|
|
(6,041
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(64,583
|
)
|
|
|
(60,250
|
)
|
|
|
(24,532
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of equipment
|
|
|
(859
|
)
|
|
|
(1,241
|
)
|
|
|
(511
|
)
|
Purchases of marketable securities
|
|
|
|
|
|
|
|
|
|
|
(15,275
|
)
|
Proceeds from sales of equipment, net of transaction costs
|
|
|
1,244
|
|
|
|
|
|
|
|
84
|
|
Proceeds from sales of marketable securities
|
|
|
1,175
|
|
|
|
12,050
|
|
|
|
2,050
|
|
Cash provided by (used in) business combinations, net of cash
acquired
|
|
|
4,187
|
|
|
|
(16,850
|
)
|
|
|
(11,997
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided by (used in) investing activities
continuing operations
|
|
|
5,747
|
|
|
|
(6,041
|
)
|
|
|
(25,649
|
)
|
Cash provided by (used in) investing activities
discontinued operations
|
|
|
13,243
|
|
|
|
(1,033
|
)
|
|
|
20,459
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
18,990
|
|
|
|
(7,074
|
)
|
|
|
(5,190
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(continued)
See notes to consolidated financial statements.
F-6
CLINICAL
DATA, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings under other debt arrangements
|
|
|
|
|
|
|
50,000
|
|
|
|
|
|
Payment on debt and capital leases
|
|
|
(7,068
|
)
|
|
|
(3,703
|
)
|
|
|
(413
|
)
|
Proceeds from the sale of common stock and warrants, net of
transaction costs
|
|
|
44,176
|
|
|
|
24,964
|
|
|
|
71,364
|
|
Exercise of stock options and warrants
|
|
|
2,550
|
|
|
|
209
|
|
|
|
4,316
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided by financing activities continuing
operations
|
|
|
39,658
|
|
|
|
71,470
|
|
|
|
75,267
|
|
Cash used in financing activities discontinued
operations
|
|
|
|
|
|
|
(1,585
|
)
|
|
|
(5,283
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
39,658
|
|
|
|
69,885
|
|
|
|
69,984
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS
|
|
|
|
|
|
|
(2,136
|
)
|
|
|
422
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
|
|
|
(5,935
|
)
|
|
|
425
|
|
|
|
40,684
|
|
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
|
|
|
55,180
|
|
|
|
54,755
|
|
|
|
14,071
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS, END OF PERIOD
|
|
$
|
49,245
|
|
|
$
|
55,180
|
|
|
$
|
54,755
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the year for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
9,208
|
|
|
$
|
930
|
|
|
$
|
76
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash transactions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment acquired through capital leases
|
|
$
|
68
|
|
|
$
|
307
|
|
|
$
|
567
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity issued in business acquisitions
|
|
$
|
11,564
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued acquisition costs
|
|
$
|
|
|
|
$
|
207
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt issued in business acquisitions
|
|
$
|
|
|
|
$
|
25,200
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity issued to acquire technology rights
|
|
$
|
|
|
|
$
|
|
|
|
$
|
3,619
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock upon note conversion
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2,337
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(concluded)
See notes to consolidated financial statements.
F-7
CLINICAL
DATA, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE
YEARS ENDED MARCH 31, 2010, 2009 AND 2008
|
|
(1)
|
Nature of
Business and Basis of Presentation
|
Nature
of Business
Clinical Data, Inc. (the Company) is a Delaware
corporation headquartered in Newton, Massachusetts. The
Companys main operating business is PGxHealth, LLC, a
wholly-owned Delaware limited liability company.
The Company is focused on the development and commercialization
of novel therapeutics, with two lead compounds in the areas of
central nervous system and cardiovascular disorders. The
Companys first late-stage drug candidate is vilazodone, a
dual-acting selective and potent serotonin reuptake inhibitor
and serotonin receptor 1A partial agonist for the treatment of
Major Depressive Disorder for which a New Drug Application
(NDA) was filed with the U.S. Food and Drug
Administration (FDA) on March 22, 2010. The
Companys NDA for vilazodone was accepted for review by the
FDA on May 21, 2010, with January 22, 2011 currently
assigned for decision-making by the FDA under the Prescription
Drug User Fee Act (PDUFA). The Companys second
late-stage drug candidate is apadenoson, trademarked Stedivaze,
a selective adenosine receptor 2A
(AR2A)
agonist and potential
best-in-class
coronary vasodilator currently in Phase III of clinical
development for use in nuclear Single Photo Emission Computed
Topography myocardial perfusion imaging.
The Company also has a pipeline of preclinical compounds, with
plans to enter
first-in-human
trials. On May 10, 2010, Santen Pharmaceutical Co., Ltd.
(Santen) exercised its option with respect to one of
these preclinical compounds by making a $2.0 million
payment for exclusive global rights to develop the
Companys second
AR2A
agonist, referred to as ATL313, as a topical medication for
glaucoma. Also, in August 2009, the Company also entered into a
license agreement with CombinatoRx, Inc. to develop ATL313 for
the treatment of
B-cell
cancers, including multiple myeloma. An option agreement is also
in place with Novartis Bioventures, Ltd., an affiliate of
Novartis AG, for the rights to develop the Companys
adenosine receptor 2B agonist, referred to as ATL844, for the
treatment of asthma and diabetes.
In addition, the Company provides a family of genetic tests for
inherited cardiac syndromes.
As part of its decision to focus on therapeutics, the Company
sold Vital Scientific BV (Vital Scientific) in
October 2007, Electa Lab s.r.l. (Electa Lab), in
November 2007, and Cogenics, Inc., Epidauros Biotechnologie AG
and Cogenics Genome Express S.A. (collectively
Cogenics) in April 2009. Accordingly, these
operating units have been presented in the consolidated
financial statements as discontinued operations. These
transactions are described in more detail in
Note 3 Discontinued Operations.
Basis
of Presentation
The accompanying consolidated financial statements of the
Company and subsidiaries have been prepared on a basis which
assumes that the Company will continue as a going concern, which
contemplates the realization of assets and the satisfaction of
liabilities and commitments in the normal course of business.
At March 31, 2010, the Company had cash and cash
equivalents of $49.2 million. In June 2010, the Company
sold to the public 2.2 million shares of the Companys
common stock, par value $0.01 per share, at a price of $14.30
per share. The net proceeds to the Company are expected to be
approximately $29.8 million after deducting underwriting
commissions and estimated expenses payable by the Company
associated with this transaction.
Based on its projected uses of cash, the Company believes its
cash, including the estimated net proceeds from the June 2010
financing, will be sufficient to fund its operations, including
commercialization of vilazodone, clinical development activities
of Stedivaze, including a Phase III clinical development
program, continued development of the Companys other
products and drug candidates and its working capital and other
general corporate activities, through March 2011. This is based
on managements current operational plans and
F-8
CLINICAL
DATA, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
activities at normal levels and does not assume any cash inflows
from partnerships, disposition of additional non-core assets or
other dilutive or non-dilutive financings.
The Company will need additional funds to continue operations,
including the commercialization of vilazodone, the development
of Stedivaze and its other products and programs beyond
March 2011. Management is always evaluating and
prioritizing additional sources of financing and would consider
any of the following options:
|
|
|
|
|
partnering opportunities for the marketing of vilazodone;
|
|
|
|
partnering opportunities for the development and marketing of
Stedivaze;
|
|
|
|
license, sublicense, or other relationships with third parties
relating to the development programs of its preclinical
compounds
and/or
patents;
|
|
|
|
sale of non-core assets; and/or
|
|
|
|
sale of equity or debt securities.
|
If the Company is unable to obtain financing, or enter into
licensing, divestiture, or partnering arrangements on acceptable
terms, the Company will be required to implement aggressive cost
reduction strategies. The most significant portion of the
research and development expenses, as well as some portion of
sales and marketing expenses, are discretionary and are in
anticipation of development and commercial launch of vilazodone
and the development of Stedivaze and other drug candidates.
These cost reduction strategies could reduce the scope of the
activities related to these development and commercialization
programs, planned clinical and preclinical programs, development
of other compounds and commercialization and development of
other marker and test programs, which could harm the
Companys long-term financial condition and operating
results. The Company is prioritizing the various development
projects to focus its critical resources on the most valuable
assets. Similar to the vilazodone development, these projects
are discretionary. However, the postponement or cancellation of
any of these development efforts could have a material impact on
the future value of these assets for the Company and its
shareholders and on the Companys financial condition and
operating results.
|
|
(2)
|
Significant
Accounting Policies
|
Principles
of Consolidation
The consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries. All intercompany
accounts and transactions have been eliminated in consolidation.
Use
of Estimates
The preparation of the Companys consolidated financial
statements in conformity with accounting principles generally
accepted in the United States of America requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities, disclosure of contingent assets and
liabilities at the date of the financial statements, and the
reported amounts of revenues and expenses during the reporting
period. Accounting estimates are based on historical experience
and other factors that are considered reasonable under the
circumstances. Actual results could differ from those estimates.
Cash
and Cash Equivalents
Cash and cash equivalents consist of cash and highly liquid
instruments with remaining maturities of 90 days or less
when purchased and consist of operating and money market
accounts.
F-9
CLINICAL
DATA, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Accounts
Receivable
The Company carries its accounts receivable net of an allowance
for doubtful accounts. Accounts receivable balances are
evaluated on a regular basis and allowances are provided for
potentially uncollectible accounts based on managements
estimate of the collectability of customer accounts. Allowance
adjustments are charged to operations in the period in which the
facts that give rise to the adjustments become known.
A summary of the activity in the allowance for uncollectible
accounts for the years ended March 31 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Allowance for uncollectible accounts beginning of
year
|
|
$
|
1,292
|
|
|
$
|
500
|
|
|
$
|
346
|
|
Provisions
|
|
|
1,749
|
|
|
|
1,015
|
|
|
|
189
|
|
Less: deductions
|
|
|
(518
|
)
|
|
|
(223
|
)
|
|
|
(35
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for uncollectible accounts end of year
|
|
$
|
2,523
|
|
|
$
|
1,292
|
|
|
$
|
500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and Amortization
The Company provides for depreciation and amortization using the
straight-line method by charges to operations in amounts that
depreciate the cost of the fixed asset over their estimated
useful lives. The estimated useful lives, by asset
classification, are as follows:
|
|
|
Asset Classification
|
|
Useful Lives
|
|
Laboratory equipment
|
|
2-7 years
|
Leasehold improvements
|
|
Lesser of useful life or lease term
|
Computer equipment
|
|
3-7 years
|
Furniture and fixtures
|
|
2-7 years
|
The Company reviews its long-lived assets for impairment
whenever events or changes in circumstances indicate that the
carrying amount of such assets may not be recoverable.
Recoverability of these assets is determined by comparing the
forecasted undiscounted net cash flows of the operation to which
the assets relate to their carrying amount. If an impairment is
indicated, the assets are written down to fair value. Fair value
is determined based on discounted cash flows or appraised
values, depending on the nature of the assets.
Goodwill
and Intangibles
The Companys goodwill and indefinite-lived intangibles are
not being amortized and definite-lived intangibles, which
primarily consist of completed technology and customer
relationships, are being amortized over their useful lives.
The Company completed its annual impairment test of goodwill as
of December 31, 2009 and concluded that there was no
impairment of goodwill. In performing the most recent annual
goodwill assessment, the Company continued to conclude that the
Company was comprised of a single reporting unit. The Company
continues to reevaluate its internal reporting and management
structure. Management expects that future impairment tests will
be performed based upon the current segment reporting structure
and related identification of reporting units. The impairment
test will be performed at other times during the course of the
year should an event occur which suggests that the goodwill
should be evaluated.
Recoverability of intangible assets is assessed only when events
have occurred that may give rise to an impairment. When a
potential impairment has been identified, forecasted
undiscounted net cash flows of the operations to which the asset
relates are compared to the current carrying value of the
long-lived assets present in
F-10
CLINICAL
DATA, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
that operation. If such cash flows are less than such carrying
amounts, long-lived assets, including such intangibles are
written down to their respective fair values.
Revenue
Recognition
The majority of the Companys current revenue is from
services related to genetic tests. Revenue is recognized for
services rendered when the testing process is complete and test
results are reported to the ordering physician. The Company
maintains relationships with certain healthcare providers as
well as healthcare insurance companies; revenue from these
arrangements is recognized net of contractual allowances.
Revenue is also derived from fees for licenses of intellectual
property. For those arrangements where royalties are reasonably
estimable, the Company recognizes revenue based on estimates of
royalties earned during the applicable period and adjusts for
differences between the estimated and actual royalties in the
following quarter. Historically, these adjustments have not been
material. For those arrangements where royalties are not
reasonably estimable, the Company recognizes revenue upon
receipt of royalty statements from the licensee.
Research
and Development Costs
The Company charges research and development costs to operations
as incurred. Research and development expenses are comprised of
costs incurred by the Company in performing research and
development activities, including salary and benefits;
stock-based compensation expense; laboratory supplies and other
direct expenses; contractual services, including clinical trial
and pharmaceutical development costs; commercial supply
investment in its drug candidates; and infrastructure costs,
including facilities costs and depreciation expense. The Company
evaluates periodically whether a portion of its commercial
supply investment may be capitalized as inventory. Generally,
inventory may be capitalized if it is probable that future
revenue will be generated from the sale of the inventory and
that these revenues will exceed the cost of the inventory. The
Company is continuing to expense all of its commercial supply
investment due to the high risk inherent in drug development.
Income
Taxes
Deferred tax assets and liabilities are recognized for the
future tax consequences of differences between the carrying
amounts and tax bases of assets and liabilities and operating
loss carryforwards using enacted rates expected to be in effect
when those differences reverse. Valuation allowances are
provided against deferred tax assets that are not expected to be
realized.
The Company provides reserves or does not recognize tax benefits
for potential payments of tax to various tax authorities related
to uncertain tax positions and other issues. Tax benefits for
uncertain tax positions are based on a determination of whether
and how much of a tax benefit taken by the Company in its tax
filings or positions is more likely than not to be
realized following resolution of any potential contingencies
present related to the tax benefit, assuming that the matter in
question will be raised by the tax authorities. The
Companys policy is to record penalties with respect to
income tax assessments as general and administrative expenses
whereas interest associated with such uncertain tax positions is
recorded as interest expense.
Comprehensive
Income (Loss)
Comprehensive income (loss) includes charges and credits to
equity that are not the result of transactions with
stockholders. Included in other comprehensive income (loss) for
the Company are the cumulative translation adjustments related
to the net assets of the foreign operations and changes in
unrealized gains and losses on marketable securities. These
adjustments are accumulated within the consolidated statements
of stockholders equity under the caption accumulated other
comprehensive income (loss).
F-11
CLINICAL
DATA, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The components of accumulated other comprehensive income were as
follows:
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Foreign currency translation adjustment
|
|
$
|
|
|
|
$
|
2,279
|
|
Unrealized gain on investment in Avalon
|
|
|
|
|
|
|
1,322
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
|
|
|
$
|
3,601
|
|
|
|
|
|
|
|
|
|
|
During the fiscal year ended March 31, 2010, the Company
disposed of its foreign subsidiaries and realized any
adjustments as a result of foreign currency translation. During
the fiscal year ended March 31, 2010, the Company completed
the acquisition of Avalon and surrendered the shares of Avalon
common stock it held immediately prior to the acquisition and
realized the gain.
Loss
per Share
Basic net loss per share is determined by dividing net loss by
the weighted average shares of common stock outstanding during
the period. Diluted net loss per share is determined by dividing
net loss by diluted weighted average shares outstanding. Diluted
weighted average shares reflects the dilutive effect, if any, of
potentially dilutive common shares, such as common stock options
and warrants calculated using the treasury stock method and
convertible notes using the if-converted method. The
weighted average number of shares of common stock outstanding
during the year ended March 31, 2010 includes
164,000 shares of common stock to be issued as
consideration for the acquisition of Avalon Pharmaceuticals as
if they had been issued on May 28, 2009.
The following dilutive securities were not included in the
diluted earnings per share calculations as at March 31,
2010, 2009 and 2008 because the inclusion of these amounts would
have been antidilutive because the Company has a net loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Common stock options
|
|
|
3,911
|
|
|
|
3,630
|
|
|
|
2,539
|
|
Common stock warrants
|
|
|
4,262
|
|
|
|
4,567
|
|
|
|
1,011
|
|
Convertible note payable
|
|
|
6,111
|
|
|
|
6,111
|
|
|
|
|
|
Contingent value rights
|
|
|
41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
14,325
|
|
|
|
14,308
|
|
|
|
3,550
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity-Based
Compensation
Stock-based compensation cost is measured at the grant date,
based on the fair value of the award, and is recognized as
compensation cost over the requisite service period.
Concentration
of Credit Risk
Financial instruments that potentially subject the Company to
credit risk consist primarily of cash, cash equivalents and
accounts receivable. The Company maintains substantially all of
its cash and cash equivalents in financial institutions,
believed to be of high-credit quality. The Company grants credit
to customers in the ordinary course of business and provides a
reserve for potential credit losses. During fiscal 2010, 2009
and 2008, there were no individually significant customers.
F-12
CLINICAL
DATA, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Fair
Value of Financial Instruments
The Companys financial instruments consist of cash
equivalents, accounts receivable, accounts payable and long-term
debt. Accounting principles generally accepted in the United
States of America, establishes a fair value hierarchy, which
classifies fair value measurements based on the inputs used in
measuring fair value. These inputs include: Level 1,
defined as observable inputs such as quoted prices for identical
instruments in active markets; Level 2, defined as inputs
other than quoted prices in active markets that are either
directly or indirectly observable; and Level 3, defined as
unobservable inputs for which little or no market data exists,
therefore requiring an entity to develop its own assumptions.
The carrying amounts of accounts receivable and accounts payable
are considered reasonable estimates of their fair value, due to
the short maturity of these instruments. Based on the borrowing
rates currently available to the Company for long-term debt with
similar terms and average maturities as the Companys
instruments, the fair value of long-term debt was not
significantly different than the carrying value at
March 31, 2010.
The following table presents information about the assets and
liabilities measured at fair value on a recurring basis as of
March 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
|
(In thousands)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents
|
|
$
|
38,193
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
38,193
|
|
The following table presents information about the assets and
liabilities measured at fair value on a recurring basis as of
March 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
|
(In thousands)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents
|
|
$
|
37,659
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
37,659
|
|
Marketable securities Auction rate preferred
securities
|
|
|
|
|
|
|
|
|
|
|
1,175
|
|
|
|
1,175
|
|
Marketable securities Avalon common stock
|
|
|
1,560
|
|
|
|
|
|
|
|
|
|
|
|
1,560
|
|
Assets measured at fair value on a recurring basis using
significant unobservable inputs (Level 3) are as
follows:
|
|
|
|
|
|
|
Auction Rate
|
|
|
|
Securities
|
|
|
|
(In thousands)
|
|
|
Balance at March 31, 2009
|
|
$
|
1,175
|
|
Auction rate preferred securities redeemed at par
|
|
|
(1,175
|
)
|
|
|
|
|
|
Balance at March 31, 2010
|
|
$
|
|
|
|
|
|
|
|
Segment
and Geographical Information
For the years ended March 31, 2010, 2009 and 2008, the
Company has reported its business as a single reporting segment
as there is limited discrete financial information for any of
the Companys individual products or service offerings as
well as the fact that the Companys chief decision maker,
who is the Chief Executive Officer, regularly evaluates the
Company on a consolidated basis.
For the years ended March 31, 2010, 2009 and 2008, the
Company operated its business exclusively in North America and
no one customer accounted for more than 10% of the
Companys revenue.
F-13
CLINICAL
DATA, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Recent
Accounting Pronouncements
In September 2009, the FASB ratified the final EITF consensus
and issued
EITF 08-1,
Revenue Arrangements with Multiple Deliverables,
primarily codified into ASU
No. 2009-13.
ASU
No. 2009-13
modifies the requirements for determining whether deliverables
meet the separate unit of accounting criteria and requires
allocation of arrangement consideration based on relative
selling price. The Company must adopt ASU
No. 2009-13
no later than in the first fiscal year beginning after
June 15, 2010, but earlier adoption is permitted. Companies
may adopt prospectively or retrospectively. The Company is
currently evaluating the impact that the adoption of ASU
No. 2009-13
will have on the Companys consolidated financial position
and results of operations.
|
|
(3)
|
Discontinued
Operations
|
During fiscal 2009 and 2008, the Company determined that the
Cogenics segment and Vital Scientific and Electa Lab,
respectively, did not fit with the Companys strategic
direction. Management believed that the Companys capital
resources and the cash derived from the sale of these businesses
could be better allocated to investments and growth
opportunities to increase the Companys presence in the
therapeutics and genetics testing markets. Accordingly, the
Company has classified these businesses as discontinued
operations and their results of operations, financial position
and cash flows are separately reported for all periods presented.
Vital
Scientific
On October 25, 2007, the Company sold Vital Scientific, a
manufacturer and distributor of clinical laboratory
instrumentation and related assays, to the ELITech Group, an
unrelated third-party, for total proceeds of $15.0 million.
A gain of $8.6 million was recorded in fiscal 2008.
On April 9, 2008, the ELITech Group paid 200,000 as
additional consideration based on the final closing balance
sheet resulting in a total gain on the sale of Vital Scientific
of $8.9 million. The additional gain of $315,000 was
recognized in the first quarter of fiscal 2009.
Electa
Lab
On November 14, 2007, the Company sold Electa Lab, a
manufacturer and distributor of clinical laboratory
instrumentation and related assays, to Vital Diagnostics B.V.
(VDBV), which is funded and controlled by New River
Management IV, LP (NRM), an affiliate of Third
Security LLC which is controlled by Randal J. Kirk, the Chairman
of the Companys Board of Directors, for $2.5 million.
A loss of $38,000 from the sale was recorded in the year ended
March 31, 2008.
Cogenics
In March 2009, the Company entered into a letter of intent to
sell its Cogenics segment, which was comprised of Cogenics,
Inc., Epidauros Biotechnologie AG, and Cogenics Genome Express
S.A., a provider of genomic services. Cogenics was sold on
April 14, 2009 for net proceeds of $13.2 million, as
adjusted, excluding $2.2 million, as adjusted, held in
escrow for a period of up to eighteen months. Accordingly the
Company has classified this business as discontinued operations
and their results of operations, financial position and cash
flows are separately reported for all periods presented.
F-14
CLINICAL
DATA, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Summarized statement of operations data for Vital Scientific,
Electa Lab and the Cogenics segment for the years ended
March 31, 2010, 2009 and 2008 is set forth below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Revenue
|
|
$
|
499
|
|
|
$
|
27,018
|
|
|
$
|
50,381
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from Operations Before Disposal:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before taxes
|
|
$
|
(485
|
)
|
|
$
|
(8,288
|
)
|
|
$
|
(9,518
|
)
|
Income taxes
|
|
|
(14
|
)
|
|
|
(216
|
)
|
|
|
(1,365
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations, net of taxes
|
|
|
(499
|
)
|
|
|
(8,504
|
)
|
|
|
(10,883
|
)
|
Disposal:
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain/(loss) on disposal, net of taxes
|
|
|
5,486
|
|
|
|
(252
|
)
|
|
|
7,901
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain/(loss) from discontinued operations, net of tax
|
|
$
|
4,987
|
|
|
$
|
(8,756
|
)
|
|
$
|
(2,982
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4)
|
Business
Combinations
|
Adenosine
Therapeutics, LLC
On August 4, 2008, the Company acquired the assets of
Adenosine Therapeutics, a developer of drug products, based on
its extensive portfolio of composition of matter and method of
use patents relating to selective adenosine receptor modulators.
The Company paid $11 million in cash and entered into a
$22 million five-year promissory note and a separate
$3.2 million
32-month
promissory note with the members of Adenosine Therapeutics, LLC
(the Sellers). Contingent consideration of up to
$30 million in cash may be paid upon the achievement of
certain regulatory and commercial milestones. At the time of the
acquisition, two compounds in the Adenosine Therapeutics
pipeline were the subject of licensing option agreements.
Novartis held and continues to hold an option to partner on the
development of ATL844, in preclinical study for the treatment of
diabetes and asthma, and Santen held an option on another
compound in preclinical development as a topical medication for
glaucoma. On May 10, 2010, Santen exercised its option by
making a $2.0 million payment.
The acquisition of Adenosine Therapeutics significantly expanded
the Companys therapeutics offerings by adding a late-stage
drug candidate, Stedivaze, for use as a cardiac perfusion agent
and other early stage drug candidates in cardiology, diabetes,
asthma, inflammatory diseases, and sickle cell anemia. Stedivaze
began Phase III clinical trials in calendar 2009.
The purchase price was allocated to the tangible and intangible
assets acquired and liabilities assumed based on their estimated
fair values at the date of acquisition. The estimated fair value
of the assets acquired and liabilities assumed exceeded the
initial payments by $15.7 million. The Company recorded
contingent consideration totaling $15.7 million as a
liability. When the contingency is resolved and the
consideration is issued or becomes issuable, any excess of the
cost over the $15.7 million that was initially recognized
as a liability shall be recognized as an additional cost of the
acquired entity. If the fair value of the consideration issued
or issuable is less than $15.7 million, that amount shall
be allocated as a pro rata reduction of the amounts assigned to
non-current assets. Any amount that remains after reducing those
assets to zero shall be recognized as an extraordinary gain. The
allocation of the purchase price remains subject to potential
adjustments, including contingent consideration.
The purchase price provided for an adjustment to the cash
purchase price; in January 2009, the Sellers refunded $301,000
to the Company. This adjustment was recorded during the quarter
ended March 31, 2009 as a reduction to cash consideration
with a corresponding increase to contingent acquisition costs,
therefore having no effect on the purchase price.
F-15
CLINICAL
DATA, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The components of the purchase price allocation were as follows:
|
|
|
|
|
|
|
(In thousands)
|
|
|
Cash
|
|
$
|
10,699
|
|
Debt
|
|
|
25,200
|
|
Contingent acquisition costs
|
|
|
16,039
|
|
Transaction costs
|
|
|
400
|
|
|
|
|
|
|
|
|
$
|
52,338
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
Purchase Price Allocation
|
|
|
|
|
Prepaid expenses and other current assests
|
|
$
|
9
|
|
Property and equipment
|
|
|
351
|
|
Other assets
|
|
|
23
|
|
Purchased in-process research and development costs
|
|
|
52,100
|
|
Accrued vacation
|
|
|
(47
|
)
|
Capital lease obligations
|
|
|
(96
|
)
|
Deferred rent
|
|
|
(2
|
)
|
|
|
|
|
|
Total purchase price
|
|
$
|
52,338
|
|
|
|
|
|
|
Of the total purchase price, $52.1 million was allocated to
purchased in-process research and development (IPRD)
projects and was charged to operations at the date of
acquisition. Projects that qualify as IPRD represent those that
have not yet reached technological feasibility and have no
alternative use. Technological feasibility is defined as being
equivalent to the FDAs approval.
The IPRD charge relates to Stedivaze, a highly selective
AR2A
agonist in development as a coronary vasodilator for myocardial
perfusion imaging. Phase II data showed the potential for
best-in-class
attributes related to its adverse event and tolerability
profile, favorable pharmacokinetic and target binding affinity
profiles and mode of administration as a fixed dose intravenous
bolus. The Company began enrollment of its first Phase III
clinical trials in November 2009.
Stedivaze was valued based on discounted future cash flows. The
Company prepared revenue and expense projections as well as
technology assumptions through 2025 for Stedivaze. The revenue
for Stedivaze was based on estimates of the relevant market
sizes and growth factors, expected trends in technology and the
nature and expected timing of the introduction of the new
products. The estimated expenses were based upon the expected
remaining costs to complete Stedivaze.
The Company discounted the projected cash flows using a risk
adjusted discount rate and considered the probability of
success, where appropriate. The rate utilized to discount the
net cash flows to their present values was the internal rate of
return (IRR) based on the purchase price paid.
Management believed that the IRR reflected the difficulties and
uncertainties in completing the project and thereby achieving
technological feasibility, the stage of completion of the
project, anticipated market acceptance and penetration, market
growth rates and risks related to the impact of potential
changes in future target markets. Based on these considerations,
the IRR of 24% was deemed an appropriate discount for valuing
the IPRD.
The estimates used in valuing IPRD were based upon assumptions
believed to be reasonable but which are inherently uncertain and
unpredictable. Assumptions may be incomplete or inaccurate, and
unanticipated events and circumstances may occur. Accordingly,
actual results may differ from the projected results. The
failure of Stedivaze to reach commercial success could have a
material impact on the Companys expected results.
F-16
CLINICAL
DATA, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The results of operations of Adenosine Therapeutics have been
included in the accompanying financial statements since
August 4, 2008, the date of acquisition.
Avalon
Pharmaceuticals, Inc.
On May 28, 2009, the Company acquired Avalon by issuing
801,000 shares of the Companys common stock in
exchange for all of the issued and outstanding common stock of
Avalon. Additionally, as part of the merger, the Company issued
Contingent Value Rights (CVRs) to Avalon
stockholders, payable for up to 205,000 additional shares of the
Companys common stock, upon the receipt of certain
milestone payments that Avalon may receive under its
collaboration agreements with Merck & Co., Inc. and
Novartis Institute for Biomedical Research, Inc. prior to
June 30, 2010. As of May 28, 2009, Avalon had received
$4.0 million of these milestones and accordingly, Clinical
Data will be obligated to issue 164,000 additional shares of the
Companys common stock on June 30, 2010. The common
stock and CVRs issued in connection with the merger were valued
at fair value, or $11.99 per share, the last reported sale price
of the Companys common stock as reported on the NASDAQ
Global Market on May 28, 2009. The Company does not expect
the remaining milestones to be achieved prior to June 30,
2010; accordingly, no value has been assigned to the remaining
CVRs. The Company has also included as consideration for the
merger: (i) the fair value of the Avalon common stock,
which the Company acquired on October 27, 2008 and
(ii) the $1.0 million paid by the Company to Avalon on
October 27, 2008 for an exclusive license to Avalons
drug and biomarker discovery platform (AvalonRx). As
a result of re-measuring the fair value of the Avalon stock
immediately prior to the completion of the merger, the Company
recorded a gain of $1.8 million which is included as other
income in the accompanying statement of operations. The combined
company has an expanded oncology business with a pipeline of
what it believes to be promising oncology biomarkers and
compounds, and a biomarker discovery platform to identify
additional therapeutic and diagnostic candidates, which resulted
in goodwill from this transaction.
The purchase price was allocated to the tangible and intangible
assets acquired and liabilities assumed based on their estimated
fair values at the date of acquisition. The fair values assigned
to contingent consideration, tangible and intangible assets
acquired and liabilities assumed are based on managements
estimates and assumptions, as well as other information compiled
by management. The excess purchase price over those assigned
values was recorded as goodwill. As of March 31, 2010, the
purchase price and related allocation for the Avalon acquisition
was finalized.
The components of the purchase price and allocation are as
follows:
|
|
|
|
|
|
|
(In thousands)
|
|
|
Clinical Data common stock issued
|
|
$
|
9,602
|
|
Contingent value rights
|
|
|
1,961
|
|
Acquisition date fair value of Avalon common stock held by
Clinical Data
|
|
|
2,010
|
|
Cash paid in October 2008 for license to Avalon technology
|
|
|
1,000
|
|
|
|
|
|
|
|
|
$
|
14,573
|
|
|
|
|
|
|
F-17
CLINICAL
DATA, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
(In thousands)
|
|
|
Purchase Price Allocation
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
4,187
|
|
Prepaid expenses and other current assests
|
|
|
419
|
|
Property and equipment
|
|
|
3,292
|
|
Purchased in-process research and development costs
|
|
|
3,200
|
|
Intangible asset Completed technology (5 years)
|
|
|
3,700
|
|
Intangible asset Tradename (5 years)
|
|
|
600
|
|
Goodwill
|
|
|
2,353
|
|
Accounts payable
|
|
|
(1,851
|
)
|
Accrued expenses and other current liabilities
|
|
|
(1,327
|
)
|
|
|
|
|
|
Total purchase price
|
|
$
|
14,573
|
|
|
|
|
|
|
Goodwill arising from this acquisition is not deductible for tax
purposes.
Of the total purchase price, $3.2 million was allocated to
purchased IPRD projects. Projects that qualify as IPRD represent
those that have not yet reached technological feasibility and
have no alternative use. Technological feasibility is defined as
being equivalent to the approval by the FDA. IPRD is measured at
fair value at acquisition date and capitalized; it is
subsequently accounted for as an indefinite-lived asset until
completion or abandonment of the associated research and
development efforts.
IPRD relates to a structurally distinct chemical compound
(internally referred to as AVN316) that appears to
affect the beta-catenin pathway. Avalon identified this compound
using its AvalonRx platform.
AVN316 was valued based on discounted future cash flows. The
Company prepared revenue and expense projections through 2031
for AVN316. The revenue for AVN316 was based on estimates of the
relevant market sizes and growth factors, expected trends in
technology and the nature and expected timing of the
introduction of the new products. Projected revenues were
adjusted for a probability of 12% to reflect the probability of
getting from Phase I to market. The estimated expenses were
based upon the expected remaining costs to complete AVN316.
The Company discounted the projected cash flows using a risk
adjusted discount rate and considered the probability of
success, where appropriate. The rate utilized to discount the
net cash flows to their present values was the IRR based on the
purchase price paid. Management believed that the IRR reflected
the difficulties and uncertainties in completing the project and
thereby achieving technological feasibility, the stage of
completion of the project, anticipated market acceptance and
penetration, market growth rates and risks related to the impact
of potential changes in future target markets. Based on these
considerations, the IRR of 19% was deemed an appropriate
discount for valuing the IPRD.
The estimates used in valuing IPRD were based upon assumptions
believed to be reasonable. The failure of AVN316 to reach
commercial success could have an adverse impact on the
Companys expected results.
Upon the adoption of ASC 805 Business
Combinations (formerly SFAS No. 141 (revised
2007), Business Combinations), on April 1, 2009, the
capitalized transaction costs of $719,000 that had been incurred
through March 31, 2009 have been expensed and are included
in transaction costs incurred in connection with the Avalon
acquisition on the accompanying statement of operations.
Transaction costs incurred after March 31, 2009 of
$1.3 million have been recognized as an expense as incurred
and are also included in transaction costs incurred in
connection with the Avalon acquisition on the accompanying
statements of operations.
F-18
CLINICAL
DATA, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The results of operations of Avalon have been included in the
accompanying financial statements since the date of acquisition.
Pro forma information related to this acquisition is not
presented, as the effect of the acquisition is not material.
Restructuring
of Avalon Operations
On August 31, 2009, the Company sold to Intrexon
Corporation (Intrexon) substantially all of the
equipment (the Assets) located at Avalons
facility in Germantown, Maryland (the Facility).
Intrexon is majority-owned by certain affiliates of
Mr. Kirk. In exchange for the Assets, the Company received
$1.5 million (the Purchase Price) in cash and
Intrexon assumed certain liabilities associated with the Assets.
The carrying value of the assets at the time of the sale was
$1.3 million. After deducting transaction fees, including
banker and legal fees, no gain or loss was recognized in
connection with the sale. In an effort to reduce the
Companys fixed overhead expenses, the Company assigned the
lease for the Facility to Intrexon. As a result of exiting the
lease, the Company recorded a loss of $1.8 million related
to writing off the unamortized acquired leasehold improvements.
This loss is included in restructuring and lease exiting costs
on the statements of operations for the year ended
March 31, 2010.
In connection with the assignment of the lease, the Company
terminated and Intrexon hired 11 of the Companys employees
located at the Facility. No termination costs or benefit
payments were made and none will be made in future periods in
connection with these employee terminations.
Subsequent to the assignment of the lease and the sale of the
Assets, the Company retained all of the intellectual property
rights of Avalon, which it acquired in May 2009, and employees
necessary to support the Companys AVN316 program.
As part of the Companys ongoing prioritization of its
early stage therapeutic assets and cost containment strategies,
on January 4, 2010, the Company consolidated certain of its
research and development activities from its Maryland facility
to its laboratories in Virginia, where ongoing development of
AVN316 and other preclinical programs acquired from Avalon in
May 2009 will continue. As a result of these actions, the
Company terminated the employment of its remaining personnel in
Maryland, which has obligated the Company to pay $664,000 in
severance benefits and other termination costs that is included
in the results of operations for the quarter ended
March 31, 2010. The Company has engaged certain former
senior employees from the Maryland facility under consulting
arrangements to ensure continuity of research and development
activities and to pursue certain business development
opportunities.
F-19
CLINICAL
DATA, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
(5)
|
Property,
Plant and Equipment
|
Property, plant and equipment consist of the following at March
31:
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Laboratory equipment
|
|
$
|
1,511
|
|
|
$
|
1,197
|
|
Leasehold improvements
|
|
|
1,625
|
|
|
|
1,527
|
|
Computer equipment and software
|
|
|
2,460
|
|
|
|
2,022
|
|
Furniture and fixtures
|
|
|
292
|
|
|
|
187
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,888
|
|
|
|
4,933
|
|
Less: accumulated depreciation and amortization
|
|
|
(3,093
|
)
|
|
|
(1,991
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,795
|
|
|
$
|
2,942
|
|
|
|
|
|
|
|
|
|
|
The gross amount of the Company assets under capital leases as
of March 31, 2010 was $1.1 million of laboratory
equipment and $68,000 of computer equipment. The gross amount of
the Company assets under capital leases as of March 31,
2009 was $1.1 million of laboratory equipment.
The intangible asset balances are as follows at March 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
Useful
|
|
|
|
|
|
|
|
|
Life
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Completed technology
|
|
6.7 years
|
|
$
|
9,655
|
|
|
$
|
5,955
|
|
In-process technology
|
|
N/A
|
|
|
3,200
|
|
|
|
|
|
Customer relationships
|
|
5.0 years
|
|
|
400
|
|
|
|
400
|
|
Other
|
|
5.3 years
|
|
|
700
|
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,955
|
|
|
|
6,455
|
|
Less: accumulated amortization
|
|
|
|
|
(3,290
|
)
|
|
|
(1,708
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets, net
|
|
|
|
$
|
10,665
|
|
|
$
|
4,747
|
|
|
|
|
|
|
|
|
|
|
|
|
During fiscal 2010, 2009 and 2008, amortization of intangible
assets totaled $1.6 million, $606,000 and $446,000,
respectively.
Amortization with regard to the intangible assets at
March 31, 2010 is expected to total $1.7 million in
2011, $1.7 million in 2012, $1.6 million in 2013,
$1.5 million in 2014, $754,000 in 2015 and $276,000 in 2016
and beyond.
F-20
CLINICAL
DATA, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Accrued expenses consist of the following at March 31:
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Payroll and payroll-related expenses
|
|
$
|
4,679
|
|
|
$
|
2,020
|
|
External research and development expenses
|
|
|
992
|
|
|
|
1,147
|
|
Commissions, royalties and license fees
|
|
|
1,121
|
|
|
|
1,063
|
|
Milestone payable to Merck
|
|
|
15,718
|
|
|
|
|
|
Other
|
|
|
2,555
|
|
|
|
1,901
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
25,065
|
|
|
$
|
6,131
|
|
|
|
|
|
|
|
|
|
|
The Companys long-term debt obligations are as follows at
March 31:
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Notes payable, bearing interest at 6.5%, with monthly principal
payments due through June 2011 and secured by certain of
PGxHealths leasehold improvements
|
|
$
|
1,264
|
|
|
$
|
2,001
|
|
Note payable, bearing interest at 11% with monthly principal
payments of $100 through April 1, 2011, secured by
substantially all of the assets of the Company
|
|
|
1,300
|
|
|
|
2,500
|
|
Note payable, bearing interest at 6% with quarterly principal
payments of $1,100 through July 13, 2013, secured by
substantially all of the assets of the Company
|
|
|
15,400
|
|
|
|
19,800
|
|
Convertible notes payable (related party), maturing
February 25, 2017
|
|
|
50,000
|
|
|
|
50,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
67,964
|
|
|
|
74,301
|
|
Less: current portion
|
|
|
(6,635
|
)
|
|
|
(6,337
|
)
|
unamortized discount
|
|
|
(19,871
|
)
|
|
|
(21,132
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
41,458
|
|
|
$
|
46,832
|
|
|
|
|
|
|
|
|
|
|
Interest on the convertible notes is payable annually at a rate
of 9.72% due on February 25th. After February 25, 2011, the
principal on the notes is prepayable at the option of the
Company at no cost or penalty. Further, the holders of the notes
may elect to convert the notes in part or in whole at any time
into the Companys common stock at a fixed price of $8.18
per share. The notes are unsecured.
A portion of the proceeds from the convertible notes totaling
$50.0 million was allocated to detachable warrants issued
in connection with the convertible notes and a beneficial
conversion feature, which resulted in an aggregate debt discount
of $21.2 million, which is being amortized over the term of
the notes using the effective interest method. The principal on
the convertibles notes is convertible at any time into the
Companys common stock at a conversion price of $8.18 per
share. The difference between the effective conversion price and
the fair value of the securities into which the debt is
convertible at the commitment date resulted in a beneficial
conversion feature on the convertible notes aggregating to
$10.4 million. The beneficial conversion feature was
recognized as a discount to the debt and which will be amortized
over the term of the note. The relative fair value assigned to
the warrants totaling $10.8 million was recognized as
additional paid-in capital. Amortization of the debt discount
totaled $1.3 million and $106,000 in fiscal 2010 and 2009,
respectively, and is included in interest expense on the
accompanying statement of operations.
F-21
CLINICAL
DATA, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In accordance with the term of the convertible notes, the
Company is restricted from incurring additional indebtedness,
redeeming or declaring or paying any cash dividend or cash
distribution on its common stock, or issuing or selling any
rights, warrants or options to subscribe for or purchase its
common stock or securities convertible into or exercisable for
common stock at a price which is less than the then market price
of the Companys common stock, other than in connection
with an underwritten public offering.
The maturities of the long-term debt as of March 31, 2010
are as follows:
|
|
|
|
|
2011
|
|
$
|
6,635
|
|
2012
|
|
|
4,729
|
|
2013
|
|
|
4,400
|
|
2014
|
|
|
2,200
|
|
2015
|
|
|
|
|
After
|
|
|
50,000
|
|
|
|
|
|
|
Total
|
|
$
|
67,964
|
|
|
|
|
|
|
|
|
(9)
|
Commitments
and Contingencies
|
Litigation
The Company is, from time to time, subject to disputes arising
in the normal course of business. While ultimate results of any
such disputes cannot be predicted with certainty, at
March 31, 2010, there were no asserted claims against the
Company which in the opinion of management, if adversely decided
would have a material adverse effect on the consolidated
financial statements.
Contractual
Commitments and Commercial Obligations
The Company leases facilities, vehicles and computer equipment
under operating and capital leases. Future minimum lease
payments under these leases as of March 31, 2010 are as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Operating
|
|
|
Capital
|
|
Year Ending March 31,
|
|
Leases
|
|
|
Leases
|
|
|
2011
|
|
$
|
948
|
|
|
$
|
156
|
|
2012
|
|
|
190
|
|
|
|
125
|
|
2013
|
|
|
31
|
|
|
|
42
|
|
2014
|
|
|
13
|
|
|
|
|
|
Thereafter
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,182
|
|
|
|
323
|
|
|
|
|
|
|
|
|
|
|
Less: amount representing interest
|
|
|
|
|
|
|
(28
|
)
|
|
|
|
|
|
|
|
|
|
Total principal obligations
|
|
|
|
|
|
|
295
|
|
Less: current portion
|
|
|
|
|
|
|
(138
|
)
|
|
|
|
|
|
|
|
|
|
Long-term capital lease
|
|
|
|
|
|
$
|
157
|
|
|
|
|
|
|
|
|
|
|
Rent expense was $1.6 million, $984,000 and $356,000 during
fiscal 2010, 2009 and 2008, respectively.
During fiscal 2010, 2009 and 2008, the Company financed
equipment purchased under capitalized leases with a principal
value of $68,000, $307,000 and $567,000, respectively.
F-22
CLINICAL
DATA, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Vilazodone
Commitments
Under the terms of the Companys license agreement with
Merck, if the Company is successful in the continuation of its
development of vilazodone, the Company will be obligated to pay
Merck certain additional milestone payments, all of which are
payable in the Companys common stock. Specifically, a
milestone payment of 12.5 million was payable to
Merck within 30 days of acceptance of an NDA filing in the
U.S. or a Marketing Authorization Application
(MAA) filing in the European Union for the first
indication of vilazodone. This payment was made on May 21,
2010, when the NDA the Company filed on March 22, 2010 was
accepted for review by the FDA. The Company issued
921,000 shares of its common stock as a result of achieving
this milestone. The Company recognizes the obligation to make
milestone payments when they are incurred. Upon filing the NDA,
the Company believed that the issuance of shares was probable
and recorded the $15.7 million obligation as calculated
based on the number of shares due as of March 31, 2010
under the terms of the agreement. The Company is obligated to
issue a variable number of shares at a fixed Euro amount.
In addition, separate 9.5 million ($12.8 million
at March 31, 2010) payments would be payable to Merck
within 30 days of (a) receipt of approval of the NDA
or MAA, and (b) on the first sale of vilazodone in the
U.S. or the European Union. Merck will also be entitled to
certain royalty payments if the Company is successful in
commercializing vilazodone, and to a certain share of milestone
payments from third parties if the Company sublicenses
vilazodone.
Adenosine
Therapeutics Acquisition Commitments
In connection with the acquisition of Adenosine Therapeutics,
for a period of ten years following the closing, contingent
consideration of up to $30 million (of which
$16.0 million is recorded in long-term liabilities as of
March 31, 2010) in cash may be paid by the Company to
the sellers upon the achievement of certain regulatory and
commercial milestones as follows: (i) $5 million upon
the approval by the FDA for sale in the U.S. of any product
covered by any of Adenosine Therapeutics patents (a
Seller Compound); (ii) $10 million upon
the initial achievement of $100 million in aggregate gross
sales of any Seller Compound in any fiscal year;
(iii) $15 million upon the initial achievement of
$250 million in aggregate gross sales of any Seller
Compound; and (iv) one-third of all licensing
and/or
sublicensing revenue received by the Company with respect to
license
and/or
sublicense of any Seller Compound or any of Adenosine
Therapeutics patents, up to a maximum aggregate of
$15 million payable to the Sellers; provided, however,
(a) that all amounts up to the first $5 million paid
to the Sellers under section (iv) shall offset on a
dollar-for-dollar
basis the payment required by section (i) above and
(b) all amounts paid to the Sellers in excess of
$5 million pursuant to section (iv) shall offset on a
dollar-for-dollar
basis the payment required by section (ii) above. On
May 10, 2010, the Company received a $2.0 million
milestone payment under its license agreement with Santen, of
which one-third, or $667,000 is due to the sellers. Along with
these acquisition costs, the Company has assumed all of
Adenosine Therapeutics rights and obligations under licensing
agreements with the University of Virginia Patent Foundation
(UVAPF), the Public Health Service of the National
Institutes of Health, the University of Massachusetts and the
Penn State Research Foundation. The Company holds exclusive
rights to develop and commercialize Stedivaze, ATL313, ATL844
and ATL1222 pursuant to a license agreement it entered into with
UVAPF in 1999. Under the terms of its license agreement with
UVAPF, the Company will be obligated to pay UVAPF certain
milestone payments and royalties if it is successful in
commercializing these products.
Avalon
Acquisition Commitments
In connection with the merger of Avalon, the Company issued CVRs
as part of the merger consideration. The CVRs provide each
holder entitled to receive them the right to receive a
proportionate share of an aggregate of up to 205,000 shares
of Clinical Data common stock based on milestone payments
received on or prior to June 30, 2010. In particular, any
payment received by Avalon or its affiliates (including Clinical
Data following the closing of the merger) under either
Avalons License and Research Collaboration Agreement with
Merck & Co., Inc. or Avalons Amended Pilot Study
Agreement with Novartis Institutes for Biomedical Research, Inc.
at any time during the
F-23
CLINICAL
DATA, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
period commencing on October 27, 2008 through and including
June 30, 2010 (up to a maximum amount of $5 million)
constitutes a milestone payment. On May 7,
2009, Avalon received a $4 million milestone payment and,
as a result, Clinical Data is obligated to issue
164,000 shares of its common stock on or after
June 30, 2010 as additional consideration (of which
$2.0 million is recorded in equity as of March 31,
2010). The Company does not expect the remaining milestones to
be achieved prior to June 30, 2010. However, the number of
additional shares to be issued will be dependent on the
achievement of the remaining milestone.
Preferred
Stock
In connection with the acquisition of Genaissance
Pharmaceuticals, Inc. in October 2005, the Company authorized
and issued 484,000 shares of Series A Preferred Stock.
The Series A Preferred Stock had a par value of $0.01 per
share. The Series A Preferred Stock was senior in right of
payment of dividends and on liquidation to the common stock.
During the year ended March 31, 2008, all remaining
outstanding shares were converted to common stock. On
June 10, 2008, the Board of Directors approved the
elimination of the designation of the Series A Preferred
Stock.
Common
Stock
On June 5, 2007, the holder of the Companys
Series A Preferred Stock converted 60,000 of the 184,000
preferred shares then outstanding into 90,000 shares of the
Companys common stock. On July 17, 2007, the holder
of the Series A Preferred Stock converted the remaining
124,000 shares of preferred stock into 186,000 shares
of the Companys common stock.
On June 18, 2007, the Company increased the authorized
common stock from 14 million shares to 60 million
shares.
On July 23, 2007, the Company sold 4.5 million shares
of its common stock in an underwritten public offering for net
proceeds of $62.1 million. On July 26, 2007, the
underwriters exercised their over-allotment option to purchase
an additional 675,000 shares of the Companys common
stock for net proceeds of $9.2 million.
On September 12, 2007, the Board of Directors of the
Company authorized a
3-for-2
split of the Companys common stock. All share and per
share data have been retroactively adjusted for all periods
presented to reflect this change in capital structure.
On September 25, 2007, the Company granted
31,000 shares of restricted common stock to certain members
of the Board of Directors; one-half vested immediately with the
remainder to vest one year after grant. The restricted shares
were issued on October 1, 2007.
On December 7, 2007, the Company issued 135,000 shares
of its common stock to Merck, the licensor of vilazodone. The
value of the shares issued to Merck of $3.6 million was
recorded as research and development expense in fiscal 2008.
On June 10, 2008, the Board of Directors of the Company
approved the restoration of the 15,000 shares of the
Companys common stock held as treasury to the status of
authorized but unissued shares of common stock.
On September 26, 2008, the Company closed a private
placement of common stock in which it sold 1.5 million
shares of common stock and warrants to purchase an additional
757,000 shares of common stock for net proceeds of
$25.0 million, after transaction costs of $36,000, to
certain institutional investors, including the Chairman of the
Companys Board of Directors. The unit price was $16.50 per
share. The exercise price of the warrants is $16.44. The
warrants are exercisable any time between March 26, 2009
and March 26, 2014.
On February 25, 2009, the Company closed a private
placement in which it sold $50 million convertible notes
convertible into 6.1 million shares of common stock and
warrants to purchase 3.1 million shares of common stock
F-24
CLINICAL
DATA, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
for proceeds of $50.0 million to certain institutional
investors, including the Chairman of the Companys Board of
Directors. One half of the warrants have an exercise price of
$8.12, equaling the closing bid price of the Companys
common stock on the NASDAQ Global Market on February 25,
2009, and the other half of the warrants have an exercise price
of $9.74. The warrants are exercisable any time between
August 25, 2009 and August 25, 2014.
In connection with the merger with Avalon, the Company issued
801,000 shares of its common stock on May 28, 2009.
The stock was valued at $11.99 per share, which equaled the last
reported sale price of the Companys common stock on the
NASDAQ Global Market. Additionally, as part of the merger, the
Company issued CVRs to Avalon stockholders, payable for up to
205,000 additional shares of the Companys common stock,
upon the receipt of certain milestone payments that Avalon may
receive under its collaboration agreements with
Merck & Co., Inc. and Novartis Institute for
Biomedical Research, Inc. prior to June 30, 2010. As of the
Acquisition Date, Avalon had received $4.0 million of these
milestones and accordingly, the Company will be obligated to
issue 164,000 additional shares of the Companys common
stock on June 30, 2010. The CVRs issuable at the
Acquisition Date were recorded at fair value, or $11.99 per
share.
In November 2009, the Company sold to the public
2.8 million shares of the Companys common stock, par
value $0.01 per share, at a price of $17.25 per share. The net
proceeds to the Company were $44.2 million after deducting
underwriting commissions and expenses payable by the Company
associated with this offering.
As of March 31, 2010, the Company has warrants to purchase
4.3 million shares of the Companys common stock
outstanding at an average exercise price of $11.88 per share.
The warrants have an average remaining contractual term of
4.03 years.
On May 21, 2010, the Company issued 921,000 shares of
its common stock to Merck, the licensor of vilazodone.
In June 2010, the Company sold to the public 2.2 million
shares of the Companys common stock, par value $0.01 per
share at a price of $14.30 per share. The net proceeds to the
Company are expected to be approximately $29.8 million
after deducting underwriting commissions and estimated expenses
payable by the Company associated with this transaction.
As of March 31, 2010, the Company has not recognized any
interest and penalties related to any uncertain tax positions.
The Company will recognize interest and penalties related to
uncertain tax positions in income tax expense should such costs
be assessed. The total amount of unrecognized tax benefits that
would affect the Companys effective tax rate if recognized
is $640,000 as of March 31, 2010, assuming there was no
valuation allowance. The Companys U.S. federal income
tax returns remain subject to examination, and its state income
tax returns for all years through 2010 remain subject to
examination.
The following is a reconciliation of the total amounts of
unrecognized tax benefits for the years ended March 31,
2010, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Beginning uncertain tax benefits
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Current year increases
|
|
|
640
|
|
|
|
|
|
|
|
|
|
Current year decreases
|
|
|
|
|
|
|
|
|
|
|
|
|
Settlements
|
|
|
|
|
|
|
|
|
|
|
|
|
Expire statutes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending uncertain tax benefits
|
|
$
|
640
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-25
CLINICAL
DATA, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Company files income tax returns in the U.S. and United
Kingdom. The Company remains subject to tax examinations in the
following jurisdictions at March 31, 2010:
|
|
|
|
|
Jurisdiction
|
|
Tax Years
|
|
United States
|
|
|
2007-2010
|
|
United Kingdom
|
|
|
2007-2009
|
|
The components for loss before income taxes were as follows at
March 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
United States
|
|
$
|
(82,208
|
)
|
|
$
|
(124,410
|
)
|
|
$
|
(31,272
|
)
|
Foreign
|
|
|
(11,292
|
)
|
|
|
728
|
|
|
|
(1,306
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(93,500
|
)
|
|
$
|
(123,682
|
)
|
|
$
|
(32,578
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The benefit from income taxes shown in the accompanying
consolidated statements of operations consists of the following
for fiscal 2010, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(16
|
)
|
Foreign
|
|
|
|
|
|
|
|
|
|
|
(214
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Current
|
|
|
|
|
|
|
|
|
|
|
(230
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in valuation allowance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Deferred
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(230
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The benefit from income taxes differs from the amount computed
by applying the statutory federal income tax rate to income
before taxes due to the following for fiscal 2010, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Benefits from taxes at statutory rate
|
|
$
|
(31,790
|
)
|
|
$
|
(42,052
|
)
|
|
$
|
(11,076
|
)
|
Stock-based compensation
|
|
|
2,243
|
|
|
|
2,606
|
|
|
|
1,072
|
|
Change in valuation reserves
|
|
|
54,921
|
|
|
|
36,228
|
|
|
|
9,575
|
|
Other
|
|
|
(25,374
|
)
|
|
|
3,218
|
|
|
|
199
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(230
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In fiscal 2010, other includes $16.0 million from the
deferred tax assets assumed from the acquisition of Avalon for
which a full valuation is provided, and $3.5 million from
the adoption of the unitary method of taxation by Massachusetts.
F-26
CLINICAL
DATA, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The income tax effect of each type of temporary difference
comprising the net deferred tax asset at March 31 is as follows:
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Net operating losses
|
|
$
|
124,007
|
|
|
$
|
81,695
|
|
Capitalized research costs
|
|
|
12,013
|
|
|
|
6,730
|
|
Purchased intangibles
|
|
|
16,449
|
|
|
|
17,766
|
|
Capital losses
|
|
|
5,977
|
|
|
|
4,545
|
|
Tax credits
|
|
|
3,605
|
|
|
|
2,752
|
|
Technology license fee
|
|
|
5,737
|
|
|
|
|
|
Other reserves and accrued liabilities
|
|
|
2,640
|
|
|
|
2,019
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset
|
|
|
170,428
|
|
|
|
115,507
|
|
Less: valuation allowance
|
|
|
(170,428
|
)
|
|
|
(115,507
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
The Company assesses whether it is more likely than not that the
Company will realize its deferred tax assets. The Company
determined that it was more likely than not that the net
operating losses and the deferred tax assets would not be
realized in future periods and a full valuation allowance has
been provided for all periods.
The Company has U.S. federal net operating loss
carryforwards, after limitation for a change in ownership, of
$320.9 million; these carryforwards will expire from 2011
through 2030. In addition, the Company has available
U.S. federal tax credit carryforwards of $3.6 million.
These carryforwards which will expire between 2028 and
2030 may be used to offset future taxable income, if any.
The Company has net operating loss carryforwards of
$376.7 million for state purposes which expire from 2011
through 2030. Changes in the Companys ownership of, as
defined in the U.S. Internal Revenue Code, as well as
changes in ownership of acquired entities, may limit the
Companys ability to utilize the tax credits and net
operating loss carryforwards.
|
|
(12)
|
Stock
Incentive Plans and Equity Based Compensation
|
In September 2002, the stockholders approved the establishment
of the 2002 Incentive and Stock Option Plan (the 2002
Plan) under which an aggregate of 375,000 shares of
common stock were reserved.
In October 2005, the stockholders approved the establishment of
the 2005 Equity Incentive Plan (the 2005 Plan) under
which an aggregate of 1.5 million shares of common stock
were reserved. On September 21, 2006, the stockholders
approved an amendment to the 2005 Plan which (a) increased
the aggregate number of shares issuable from 1.5 million to
3.0 million and (b) increased the maximum number of
shares that may be awarded to any participant in any tax year
from 225,000 to 750,000 shares. On September 23, 2008,
the stockholders approved an amendment to the 2005 Plan to
increase the aggregate number of shares issuable from
3.0 million to 4.6 million. All options are granted at
not less than the fair market value of the stock on the date of
grant. Substantially all awards are expected to vest.
Under the terms of the 2002 Plan and 2005 Plan, options are
exercisable at various periods and expire as set forth in the
grant document. In the case where an incentive stock option is
granted, the maximum expiration date is not later than
10 years from the date of grant unless made to a more than
10% stockholder; those incentive stock options expire no later
than 5 years from the date of grant.
F-27
CLINICAL
DATA, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table summarizes stock option activity.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
Number of
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
Shares
|
|
|
Price
|
|
|
Term
|
|
|
Value
|
|
|
|
(In thousands, except for per share amounts)
|
|
|
Outstanding April 1, 2009
|
|
|
3,630
|
|
|
$
|
13.61
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
925
|
|
|
|
16.42
|
|
|
|
|
|
|
|
|
|
Cancelled/Expired
|
|
|
(491
|
)
|
|
|
15.20
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(153
|
)
|
|
|
11.23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding March 31, 2010
|
|
|
3,911
|
|
|
$
|
14.17
|
|
|
|
7.7 years
|
|
|
$
|
21,712
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable March 31, 2010
|
|
|
2,144
|
|
|
$
|
13.57
|
|
|
|
6.8 years
|
|
|
$
|
13,619
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable March 31, 2009
|
|
|
1,625
|
|
|
$
|
13.56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for future grants March 31, 2010
|
|
|
444
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The intrinsic value of options exercised during fiscal 2010,
2009 and 2008 was $1.0 million, $377,000 and
$2.6 million, respectively. Cash received from stock option
exercises during the years ended March 31, 2010, 2009 and
2008 was $1.7 million, $209,000 and $1.8 million,
respectively.
During fiscal 2010, 2009 and 2008, the Company granted 36,000,
38,000 and 31,000 shares of restricted common stock,
respectively, to certain members of the Board of Directors;
one-half vested immediately and the remainder vest one year
after grant. The fair value of these shares totaled $555,000, or
$15.41 per share, in fiscal 2010, $587,000, or $16.00 per share,
in fiscal 2009 and $707,000, or $23.03 per share, in fiscal
2008. As of March 31, 2010, there were 18,000 shares
of restricted common stock not yet vested.
The following table presents the stock-based compensation
expense for the period ended March 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Cost of revenues
|
|
$
|
253
|
|
|
$
|
258
|
|
|
$
|
301
|
|
Sales and marketing
|
|
|
1,043
|
|
|
|
1,071
|
|
|
|
564
|
|
Research and development
|
|
|
2,431
|
|
|
|
1,298
|
|
|
|
523
|
|
General and administrative
|
|
|
4,578
|
|
|
|
5,503
|
|
|
|
4,516
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock based compensation expense, net
|
|
$
|
8,305
|
|
|
$
|
8,130
|
|
|
$
|
5,904
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In addition, the Company expensed $1.3 million and
$1.1 million in net income (loss) from discontinued
operations in fiscal 2009 and 2008, respectively.
As of March 31, 2010, there was $12.2 million of total
unrecognized compensation cost related to unvested stock-based
compensation arrangements granted under the stock plans. That
cost is expected to be recognized over a weighted average
remaining period of 1.47 years.
The fair value of options on the date of grant was estimated
using the Black-Scholes option pricing model. Use of a valuation
model requires management to make certain assumptions with
respect to selected model inputs. Expected stock price
volatility was calculated based on the historical volatility of
the Companys common stock over the expected life of the
option. The average expected life was based on an average of the
vesting period and the contractual term of the option in
accordance with the simplified method described in SEC Staff
Accounting Bulletins 107 and 110 due to lack of history of
employee exercises. The risk-free interest rate is based on zero-
F-28
CLINICAL
DATA, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
coupon U.S. Treasury securities with a maturity term
approximating the expected life of the option at the date of
grant. No dividend yield has been assumed as the Company does
not currently pay dividends on its common stock.
For 2010, 2009 and 2008, the Company used the following
assumptions to estimate the fair value of share-based payment
awards:
|
|
|
|
|
|
|
|
|
2010
|
|
2009
|
|
2008
|
|
Weighted-average interest rate
|
|
1.25 - 2.63%
|
|
1.50 - 3.50%
|
|
2.75 - 4.75%
|
Expected dividend yield
|
|
0.00%
|
|
0.00%
|
|
0.00%
|
Expected lives
|
|
6 years
|
|
6 years
|
|
6 years
|
Expected volatility
|
|
57 - 66%
|
|
65 - 69%
|
|
71 - 79%
|
Weighted average grant date fair value
|
|
$9.64
|
|
$7.96
|
|
$12.30
|
|
|
(13)
|
Defined
Contribution Plans
|
The Company sponsors defined contribution plans for its
employees. Contributions and expenses incurred by the Company
amounted to $341,000, $220,000 and $102,000 during fiscal 2010,
2009 and 2008, respectively.
|
|
(14)
|
Related
Party Transactions
|
On July 23, 2007, the Company sold 3.4 million shares
of its common stock to an affiliate of Mr. Kirk, as part of
a public offering.
On November 14, 2007, the Company sold Electa Lab to VDBV,
which is funded and controlled by NRM, for $2.5 million. A
loss of $38,000 from the sale was recorded in the year ended
March 31, 2008.
On September 26, 2008, the Company sold an aggregate of
1.5 million shares of the Companys common stock and
warrants to purchase an additional 757,000 shares of common
stock, for an aggregate purchase price of $25.0 million to
Mr. Kirk. The unit price was $16.50, which equaled the
closing bid price of the common stock on the NASDAQ Global
Market on September 26, 2008, plus $0.06 per share. The
exercise price of the Warrants is $16.44. The Warrants are
exercisable at any time between March 26, 2009 and
March 26, 2014.
On February 25, 2009, the Company sold to investors
affiliated with Mr. Kirk (i) notes in an aggregate
principal amount of $50.0 million, bearing interest at a
rate of 9.72% per year and maturing on February 25, 2017,
and (ii) warrants to purchase an aggregate of
3.1 million shares of the Companys common stock. The
principal on the notes convert, at the investors
discretion, into the Companys common stock at a fixed
price of $8.18 per share, which equaled the closing bid price of
the Companys common stock on the NASDAQ Global Market on
February 26, 2009 plus $0.06 per share. Interest on the
notes is payable annually, with the first interest payment paid
on February 25, 2010. One-half of the warrants has an
exercise price of $8.12 and the other half of the warrants has
an exercise price of $9.74. The warrants are exercisable at any
time between August 25, 2009 and August 25, 2014.
In connection with the February 2009 financing transaction, the
Company also entered into a registration rights agreement (the
Registration Rights Agreement) to register the
resale of the shares of common stock issuable upon conversion of
the unsecured convertible notes of the Company and exercise of
the warrants to purchase an aggregate of 3.1 million shares
of the Companys common stock. Subject to the terms of the
Registration Rights Agreement, the Company was required to meet,
among other things, certain deadlines and requirements related
to the registration of shares of common stock underlying the
notes and the warrants. As a result of not having the shares
registered for resale until July 30, 2009, the Company was
obligated to and paid $1.6 million for liquidating damages,
including interest of $15,000. This amount was recorded as
interest expense during the fiscal year ended March 31,
2010.
F-29
CLINICAL
DATA, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
On August 31, 2009, the Company sold to Intrexon
Corporation, majority-owned by certain affiliates of
Mr. Kirk, substantially all of the equipment located at the
Facility and assigned to Intrexon the Assets. The Company
received $1.5 million in cash and Intrexon assumed certain
liabilities associated with the Assets, including the
Companys lease for the Facility. In connection with the
lease assignment, the Company contributed $300,000 of the
proceeds received to a new security deposit for the Facility.
The Company also terminated and Intrexon hired 11 of the
Companys employees located at the Facility. The Company
retained all of the intellectual property rights of Avalon,
which it acquired in May 2009, and all of the employees who
support the Companys AVN316 program. As a result of
exiting the lease, the Company recorded a loss of
$1.8 million largely related to writing off the unamortized
acquired leasehold improvements. This loss is included in
restructuring and lease exiting costs on the statement of
operations for the year ended March 31, 2010.
|
|
(15)
|
Quarterly
Summarized Financial Information (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal year ended March 31, 2010
|
|
|
|
1st Quarter
|
|
|
2nd Quarter
|
|
|
3rd Quarter
|
|
|
4th
Quarter(2)
|
|
|
|
(In thousands, except per share amounts)
|
|
|
Net revenue
|
|
$
|
3,695
|
|
|
$
|
3,042
|
|
|
$
|
3,128
|
|
|
$
|
3,220
|
|
Gross profit
|
|
|
2,026
|
|
|
|
1,433
|
|
|
|
1,650
|
|
|
|
1,732
|
|
Operating loss
|
|
|
(18,710
|
)
|
|
|
(16,643
|
)
|
|
|
(14,330
|
)
|
|
|
(36,540
|
)
|
Loss from continuing operations
|
|
|
(20,246
|
)
|
|
|
(18,662
|
)
|
|
|
(16,184
|
)
|
|
|
(38,408
|
)
|
Income from discontinued operations
|
|
|
4,837
|
|
|
|
|
|
|
|
150
|
|
|
|
|
|
Net loss
|
|
|
(15,409
|
)
|
|
|
(18,662
|
)
|
|
|
(16,034
|
)
|
|
|
(38,408
|
)
|
Net (loss) income per basic and diluted share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
(0.88
|
)
|
|
$
|
(0.79
|
)
|
|
$
|
(0.63
|
)
|
|
$
|
(1.44
|
)
|
Discontinued operations
|
|
$
|
0.21
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal year ended March 31, 2009
|
|
|
|
1st Quarter
|
|
|
2nd
Quarter(1)
|
|
|
3rd Quarter
|
|
|
4th Quarter
|
|
|
|
(In thousands, except per share amounts)
|
|
|
Net revenue
|
|
$
|
2,037
|
|
|
$
|
2,400
|
|
|
$
|
2,781
|
|
|
$
|
3,224
|
|
Gross profit
|
|
|
564
|
|
|
|
856
|
|
|
|
964
|
|
|
|
1,569
|
|
Operating loss
|
|
|
(12,806
|
)
|
|
|
(67,438
|
)
|
|
|
(22,203
|
)
|
|
|
(20,328
|
)
|
Loss from continuing operations
|
|
|
(12,526
|
)
|
|
|
(67,276
|
)
|
|
|
(22,403
|
)
|
|
|
(21,477
|
)
|
Loss from discontinued operations
|
|
|
(2,338
|
)
|
|
|
(2,734
|
)
|
|
|
(1,275
|
)
|
|
|
(2,409
|
)
|
Net loss
|
|
|
(14,864
|
)
|
|
|
(70,010
|
)
|
|
|
(23,678
|
)
|
|
|
(23,886
|
)
|
Net loss per basic and diluted share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
(0.59
|
)
|
|
$
|
(3.17
|
)
|
|
$
|
(0.98
|
)
|
|
$
|
(0.94
|
)
|
Discontinued operations
|
|
$
|
(0.11
|
)
|
|
$
|
(0.13
|
)
|
|
$
|
(0.06
|
)
|
|
$
|
(0.11
|
)
|
|
|
|
(1) |
|
The operating loss for the quarter ended September 30, 2008
includes $52.1 million related to in-process research and
development expense arising from the acquisition of Adenosine
Therapeutics. |
|
(2) |
|
The operating loss for the quarter ended March 31, 2010
includes $15.7 million of research and development expense
arising from the milestone payment due to Merck as a result of
filing the NDA for vilazodone with the FDA. |
F-30
EXHIBIT INDEX
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
1
|
.1
|
|
Purchase Agreement, dated October 28, 2009, among Clinical
Data, Inc., Piper Jaffray & Co., Wedbush Morgan
Securities, Inc., BMO Capital Markets Corp. and Roth Capital
Partners LLC. Filed as Exhibit 1.1 to the Companys
Current Report on
Form 8-K
filed with the Commission on October 28, 2009, and
incorporated herein by reference.
|
|
2
|
.1
|
|
Agreement and Plan of Merger, dated as of June 20, 2005,
among Clinical Data, Safari Acquisition Corporation and
Genaissance Pharmaceuticals, Inc. Filed as Exhibit 2.1 to
the Companys Current Report on
Form 8-K,
as filed with the Commission on June 28, 2005, and
incorporated herein by reference.
|
|
2
|
.2
|
|
First Amendment to Agreement and Plan of Merger, dated as of
July 28, 2005, among Clinical Data, Safari Acquisition
Corporation and Genaissance Pharmaceuticals, Inc. Filed as
Exhibit 2.1 to the Companys Current Report on
Form 8-K,
as filed with the Commission on August 2, 2005, and
incorporated herein by reference.
|
|
2
|
.3
|
|
Agreement and Plan of Merger and Reorganization, dated as of
October 27, 2008, by and among Clinical Data, Inc., API
Acquisition Sub II, LLC and Avalon Pharmaceuticals, Inc. Filed
as Exhibit 99.1 to Clinical Datas Current Report on
Form 8-K,
filed with the Commission on October 31, 2008, and
incorporated herein by reference.
|
|
2
|
.4
|
|
First Amendment to the Agreement and Plan of Merger and
Reorganization, dated January 12, 2009, between Clinical
Data, Inc., API Acquisition Sub II, LLC and Avalon
Pharmaceuticals, Inc. Filed as Exhibit 2.2 to the
Companys Registration Statement on
Form S-4/A
(File
No. 333-156011),
filed with the Commission on January 13, 2009, and
incorporated herein by reference.
|
|
2
|
.5
|
|
Second Amendment to the Agreement and Plan of Merger and
Reorganization, dated March 30, 2009, between Clinical
Data, Inc., API Acquisition Sub II, LLC and Avalon
Pharmaceuticals, Inc. Filed as Exhibit 10.9 to the
Companys Registration Statement on
Form S-4/A
(File
No. 333-156011),
filed with the Commission on April 2, 2009, and
incorporated herein by reference.
|
|
2
|
.6
|
|
Stock Purchase Agreement, dated April 1, 2009, among
Clinical Data, Inc., Clinical Data B.V., Beckman Coulter, Inc.,
Beckman Coulter GmbH, and Beckman Coulter Holdings GmbH. Filed
as Exhibit 2.1 to the Companys Current Report on
Form 8-K/A,
filed with the Commission on April 27, 2009, and
incorporated herein by reference.
|
|
2
|
.7
|
|
Stock Purchase Agreement, dated August 31, 2009, by and
among Clinical Data, Inc., Avalon Pharmaceuticals, Inc.,
PGxHealth, LLC and Intextron Corporation. Filed as
exhibit 2.1 to the Companys Current Report on
Form 8-K,
as filed with the Commission on September 4, 2009, and
incorporated herein by reference.
|
|
3
|
.1
|
|
Restated Certificate of Incorporation filed with the Secretary
of State of the State of Delaware on June 11, 2008. Filed
as Exhibit 3.2 to the Companys Annual Report on
Form 10-K,
filed with the Commission on June 16, 2008, and
incorporated herein by reference.
|
|
3
|
.2
|
|
Amended and Restated By-laws of the Company, as of June 20,
2005. Filed as Exhibit 3.1 to the Companys Current
Report on
Form 8-K,
filed with the Commission on June 24, 2005, and
incorporated herein by reference.
|
|
4
|
.1
|
|
Specimen Common Stock Certificate. Filed as Exhibit 4.1 to
the Companys Registration Statement on
Form S-1
(File
No. 2-82494),
as filed with the Commission on March 17, 1983, and
incorporated herein by reference.
|
|
4
|
.2
|
|
Specimen Certificate of Contingent Value Rights to receive
common stock. Filed as Exhibit 4.2 to the Companys
Annual Report on
Form 10-K,
as filed with the Commission on June 15, 2009, and
incorporated herein by reference.
|
|
10
|
.1*
|
|
2002 Incentive and Stock Plan. Filed as Exhibit A to the
Companys Proxy Statement on Schedule 14A filed with
the Commission on July 29, 2002, and incorporated herein by
reference.
|
|
10
|
.2*
|
|
Form of Incentive Stock Option Certificate under the 2002 Equity
Incentive and Stock Plan for all U.S. employees, including
executive officers. Filed as Exhibit 10.5 to the
Companys Quarterly Report on
Form 10-Q,
filed with the Commission on November 14, 2005, and
incorporated herein by reference.
|
|
10
|
.3*
|
|
Form of Non-Statutory Stock Option Certificate under the 2002
Incentive and Stock Plan for all U.S. employees, including
executive officers. Filed as Exhibit 10.6 to the
Companys Quarterly Report on
Form 10-Q,
filed with the Commission on November 14, 2005, and
incorporated herein by reference.
|
|
10
|
.4*
|
|
Amended and Restated 2005 Equity Incentive Plan. Filed as
Exhibit 10.1 to the Companys Quarterly Report on
Form 10-Q,
filed with the Commission on November 14, 2007, and
incorporated herein by reference.
|
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
10
|
.5*
|
|
Form of Stock Option Grant Notice and Stock Option Agreement
under the Companys 2005 Equity Incentive Plan for all U.S.
employees, including executive officers, and directors. Filed as
Exhibit 10.6 to the Companys Annual Report on
Form 10-K,
filed with the Commission on June 29, 2006, and
incorporated herein by reference.
|
|
10
|
.6*
|
|
Amended and Restated Executive Employment Agreement of Andrew J.
Fromkin effective as of September 14, 2009. Filed as
Exhibit 99.1 to the Companys Current Report on
Form 8-K,
as filed with the Commission on September 18, 2009, and
incorporated herein by reference.
|
|
10
|
.7*
|
|
Amended and Restated Executive Employment Agreement of Caesar J.
Belbel effective as of September 14, 2009. Filed as
Exhibit 99.2 to the Companys Current Report on
Form 8-K,
as filed with the Commission on September 18, 2009, and
incorporated herein by reference.
|
|
10
|
.8*
|
|
Amended and Restated Executive Employment Agreement of C. Evan
Ballantyne effective as of September 14, 2009. Filed as
Exhibit 99.3 to the Companys Current Report on
Form 8-K,
as filed with the Commission on September 18, 2009, and
incorporated herein by reference.
|
|
10
|
.9*
|
|
Form of Amended and Restated Indemnification Agreement between
the Company and Arthur Malman. Filed as Exhibit 99.1 to the
Companys Current Report on
Form 8-K,
filed with the Commission on July 11, 2005, and
incorporated herein by reference.
|
|
10
|
.10*
|
|
Form of Indemnification Agreement between the Company and
certain executive officers and directors of the Company. Filed
as Exhibit 99.2 to the Companys Current Report on
Form 8-K,
filed with the Commission on July 11, 2005, and
incorporated herein by reference.
|
|
10
|
.11*
|
|
Amended and Restated Executive Employment Agreement of Carol R.
Reed, M.D. effective as of September 14, 2009. Filed
as Exhibit 99.4 to the Companys Current Report on
Form 8-K,
as filed with the Commission on September 18, 2009, and
incorporated herein by reference.
|
|
10
|
.12
|
|
Form of Common Stock Purchase Warrant issued in connection with
the Securities Purchase Agreement, dated as of November 17,
2005. Filed as Exhibit 99.2 to the Companys Current
Report on
Form 8-K,
filed with the Commission on November 21, 2005, and
incorporated herein by reference.
|
|
10
|
.13
|
|
Form of Registration Rights Agreement among the Company and the
Investors listed therein, dated as of November 17, 2005.
Filed as Exhibit 99.3 to the Companys Current Report
on
Form 8-K,
filed with the Commission on November 21, 2005, and
incorporated herein by reference.
|
|
10
|
.14
|
|
Form of Common Stock Purchase Warrant issued in connection with
the Securities Purchase Agreement, dated as of June 13,
2006. Filed as Exhibit 99.2 to the Companys Current
Report on
Form 8-K,
filed with the Commission on June 15, 2006, and
incorporated herein by reference.
|
|
10
|
.15
|
|
Form of Registration Rights Agreement among the Company and the
Investors, dated as of June 13, 2006. Filed as
Exhibit 99.3 to the Companys Current Report on
Form 8-K,
filed with the Commission on June 15, 2006, and
incorporated herein by reference.
|
|
10
|
.16
|
|
Asset Purchase Agreement, dated August 4, 2008, by and
among PGxHealth, LLC and Adenosine Therapeutics, L.L.C. Filed as
Exhibit 99.1 to the Companys Current Report on
Form 8-K,
filed with the Commission on August 8, 2008, and
incorporated herein by reference.
|
|
10
|
.17
|
|
Secured Promissory Note (Principal Amount $22,000,000), dated
August 4, 2008, among PGxHealth, LLC and Adenosine
Therapeutics, LLC. Filed as Exhibit 99.2 to the
Companys Current Report on
Form 8-K,
filed with the Commission on August 8, 2008, and
incorporated herein by reference.
|
|
10
|
.18
|
|
Secured Promissory Note (Principal Amount $3,200,000), dated
August 4, 2008, among PGxHealth, LLC and Adenosine
Therapeutics, LLC. Filed as Exhibit 99.3 to the
Companys Current Report on
Form 8-K,
filed with the Commission on August 8, 2008, and
incorporated herein by reference.
|
|
10
|
.19
|
|
Security Agreement, dated as of August 4, 2008, among
PGxHealth, LLC and Adenosine Therapeutics, LLC. Filed as
Exhibit 99.4 to the Companys Current Report on
Form 8-K,
filed with the Commission on August 8, 2008, and
incorporated herein by reference.
|
|
10
|
.20
|
|
Guaranty, dated as of August 4, 2008, among the Company and
Adenosine Therapeutics, LLC. Filed as Exhibit 99.5 to the
Companys Current Report on
Form 8-K,
filed with the Commission on August 8, 2008, and
incorporated herein by reference.
|
|
10
|
.21
|
|
Form of Registration Rights Agreement, dated September 26,
2008, among Clinical Data, Inc. and Purchasers as listed
therein. Filed as Exhibit 99.2 to the Companys
Current Report on
Form 8-K,
filed with the Commission on September 30, 2008, and
incorporated herein by reference.
|
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
10
|
.22
|
|
Form of Common Stock Purchase Warrant, dated September 26,
2008. Filed as Exhibit 99.3 to the Companys Current
Report on
Form 8-K,
filed with the Commission on September 30, 2008, and
incorporated herein by reference.
|
|
10
|
.23
|
|
Contingent Value Rights Agreement, dated May 28, 2009,
among Clinical Data, Inc. and American Stock Transfer and
Trust Co. Filed as Exhibit 99.2 to Clinical
Datas Current Report on
Form 8-K,
filed with the Commission on June 3, 2009, and incorporated
herein by reference.
|
|
10
|
.24
|
|
License, Development and Cooperation Agreement by and between
Merck KGaA and Genaissance Pharmaceuticals, Inc., dated
September 22, 2004. Filed as Exhibit 99.1 to
Genaissances Current Report on
Form 8-K/A,
filed with the Commission on October 13, 2004, and
incorporated herein by reference.
|
|
10
|
.25
|
|
Form of Registration Rights Agreement, dated February 25,
2009, among Clinical Data, Inc. and Buyers listed therein. Filed
as Exhibit 99.2 to the Companys Current Report on
Form 8-K,
filed with the Commission on February 26, 2009, and
incorporated herein by reference.
|
|
10
|
.26
|
|
Form of Note, dated February 25, 2009. Filed as
Exhibit 99.3 to the Companys Current Report on
Form 8-K,
filed with the Commission on February 26, 2009, and
incorporated herein by reference.
|
|
10
|
.27
|
|
Form of Common Stock Purchase Warrant (Series A), dated
February 25, 2009. Filed as Exhibit 99.4 to the
Companys Current Report on
Form 8-K,
filed with the Commission on February 26, 2009, and
incorporated herein by reference.
|
|
10
|
.28
|
|
Form of Common Stock Purchase Warrant (Series B), dated
February 25, 2009. Filed as Exhibit 99.5 to the
Companys Current Report on
Form 8-K,
filed with the Commission on February 26, 2009, and
incorporated herein by reference.
|
|
10
|
.29
|
|
Escrow Agreement, dated April 14, 2009, among Clinical
Data, Inc., Beckman Coulter, Inc. and Wells Fargo, N.A. Filed as
Exhibit 99.2 to the Companys Current Report on
Form 8-K/A,
filed with the Commission on April 27, 2009, and
incorporated herein by reference.
|
|
10
|
.30
|
|
Transition Services Agreement, dated April 14, 2009, by and
among Clinical Data, Inc., Cogenics, Inc., Epidauros
Biotechnologie, Aktiengesellschaft, and Cogenics Genome Express,
S.A. Filed as Exhibit 99.3 to the Companys Current
Report on
Form 8-K/A,
filed with the Commission on April 27, 2009, and
incorporated herein by reference.
|
|
10
|
.31
|
|
Patent License Agreement, dated April 14, 2009, by and
between PGxHealth, LLC and Beckman Coulter, Inc. Filed as
Exhibit 99.4 to the Companys Current Report on
Form 8-K/A,
filed with the Commission on April 27, 2009, and
incorporated herein by reference.
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10
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.32
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Amended and Restated UVAPF License Agreement, dated as of
June 4, 2010 to be effective April 22, 1999, by and
between the University of Virginia Patent Foundation and
PGxHealth, LLC, as successor in interest to Adenosine
Therapeutics, LLC. Filed as Exhibit 99.1 to the
Companys Current Report on
Form 8-K,
filed with the Commission on June 7, 2010, and incorporated
herein by reference.
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14
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.1
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Code of Business Conduct and Ethics. Filed as Exhibit 14.1
to the Companys Annual Report on
Form 10-K,
filed with the Commission on June 29, 2006, and
incorporated herein by reference.
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21
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.1
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Subsidiaries of the Company. Filed herewith.
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23
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.1
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Consent of Deloitte & Touche LLP, an independent
registered public accounting firm. Filed herewith.
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31
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.1
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Certification of Chief Executive Officer Pursuant to
§240.13a-14 or §240.15d-14 of the Securities Exchange
Act of 1934, as amended. Filed herewith.
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31
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.2
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Certification of Chief Financial Officer Pursuant to
§240.13a-14 or §240.15d-14 of the Securities Exchange
Act of 1934, as amended. Filed herewith.
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32
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.1
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Certification of Chief Executive Officer and Chief Financial
Officer pursuant to 18 U.S.C. Section 1350. Filed
herewith.
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* |
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Indicates a contract with management. |
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Confidential treatment has been granted with respect to portions
of this exhibit. A complete copy of the agreement, including the
redacted terms, has been separately filed with the Commission. |
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Confidential treatment has been requested with respect to
portions of this exhibit. A complete copy of the agreement,
including redacted terms, has been separately filed with the
Commission. |