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8-K - FORM 8-K - EMISPHERE TECHNOLOGIES INC | b85557e8vk.htm |
Exhibit 99.1
For further information contact:
Michael R. Garone, Interim CEO and CFO
973.532.8005 or mgarone@emisphere.com
973.532.8005 or mgarone@emisphere.com
Karen Kelsch, Assistant Manager Communications
973.532.8101 or kkelsch@emisphere.com
973.532.8101 or kkelsch@emisphere.com
EMISPHERE TECHNOLOGIES, INC. ANNOUNCES FINANCIAL RESULTS FOR
FOURTH QUARTER AND YEAR ENDED DECEMBER 31, 2010
FOURTH QUARTER AND YEAR ENDED DECEMBER 31, 2010
Conference
Call/Webcast to be held Today, Thursday, March 31, 2011 at 10:00 AM EDT
CEDAR KNOLLS, NJ, March 31, 2011 Emisphere Technologies, Inc. (OTCBB: EMIS) today announced its
financial results for the fourth quarter and year ended December 31, 2010. The Company will host a
conference call this morning at 10:00 AM EDT to discuss these results.
The live webcast of the conference call can be accessed through the companys web site at:
www.emisphere.com. The live conference call dial-in number is:
1-877-879-6207 (United States and
Canada) or 1-719-325-4903 (International). In addition, an archive of the webcast can be accessed
through the same link and an audio replay of the call will be available beginning at 1:00 PM EDT
through midnight on April 14, 2011 by calling 1-888-203-1112 (United
States and Canada) or 1-719-457-0820 (International). The conference
replay PIN is 1905099.
Restatement of Previously Issued Financial Statements
On March 28, 2011, Management of Emisphere Technologies, Inc. (the Company), after
consulting with the Audit Committee of the Board of Directors and with McGladrey and Pullen, LLP
(McGladrey), its independent registered public accounting firm, concluded that the Companys
previously issued financial statements included in its quarterly interim period reports previously
reported on Forms 10-Q for the periods ended March 31, June 30, and September 30, 2009 and 2010,
and its annual report on Form 10-K for the period ended December 31, 2009 (the Financial Statement
Periods) should no longer be relied upon due to errors in the application of accounting guidance
regarding the determination of whether a financial instrument is indexed to its own stock. At the
time these financial statements were originally issued, the Company had reviewed its accounting for
the adoption of Financial Accounting Standards Board Accounting Codification Topic 815-40-15-5,
Evaluating Whether an Instrument Is Considered Indexed to an Entitys Own Stock (FASB
815-40-15-5 or the Guidance) and concluded it was in accordance with GAAP. The Companys
adoption of the Guidance was not straightforward because GAAP specifies the application of a level
interest method to amortize interest and debt discounts in accordance with FASB 835-30-35-2, The
Interest Method (FASB 835-30-35-2). In adopting the guidance, the Company estimated the fair
value of the bifurcated conversion feature embedded in the Companys 11% senior secured convertible
notes in favor of MHR Institutional Partners IIA due September 26, 2012 (collectively, the MHR
Convertible Notes) as a derivative liability and developed an amortization schedule to recognize
non-cash interest expense and debt discounts over time. In accordance with the guidance, the
Company deducted the incremental value of the conversion feature from the book value of the
instrument at its inception. Because the fair value of the conversion feature was in excess of the
book value of the instrument, the Company believed it could not apply a level rate method to
determine the amortization schedule because the resulting book value would have been $0 and because
it is mathematically impossible to apply a level interest rate to amortize from a $0 balance.
Therefore, the Company developed an amortization schedule that it believed was consistent with the
adoption of the new accounting guidance and was still representative of the economic substance of
the financial instrument. This accounting treatment was reflected in the Companys financial
statements during the Financial Statement Periods.
McGladrey audited the Companys financial statements for 2009. The Companys Audit Committee and
Management discussed the results of the audit including a review of financial statements for 2009
with McGladrey.
On March 24, 2011, McGladrey notified the Company that the amortization schedule described above
was not in accordance with the level rate method required by GAAP and that it should be
recalculated accordingly. McGladrey further notified the Company that as a result of this error,
the financial statements did not reflect the proper amortization of non-cash interest expense and
debt discounts in connection with the bifurcated conversion feature embedded in the MHR Convertible
Notes as a derivative liability. McGladrey further notified the Company that it should make
disclosures and take appropriate actions to prevent future reliance on the financial statements
disclosed in the Financial Statement Periods.
After discussions between Management, the Audit Committee and McGladrey, the Company reevaluated
its accounting for the adoption of the Guidance and for its assessment of the debt modification
entered into during June 2010 and determined that its original accounting was incorrect.
Consequently, the Company determined to restate its financial statements for the Financial
Statement Periods. The Company
used the level rate method in accordance with FASB 835-30-35-2 to revise its amortization schedule
in accordance with GAAP. The Company assigned a beginning balance nominally close to $0 to develop
this amortization schedule. The restatements of financial statements previously reported on Forms
10-Q for the periods ended March 31, June 30, and September 30, 2009 and 2010, and on Form 10-K for
the period ended December 31, 2009 will reflect adjustments primarily to correct for the revised
amortization schedule and resulting overstatement of non-cash interest charges and the recorded
value of notes payable, which included the effects of the accretion of debt discount resulting from
the valuation of the embedded derivative associated with the MHR Convertible Note. Additionally,
after correcting the misapplication of guidance for determining whether a financial instrument is
indexed to its own stock, the Company reevaluated its accounting for debt modification in
connection with the Master Agreement and Amendment by and between the Company and Novartis Pharma
AG dated June 4, 2010 and the letter agreement entered into with MHR in connection therewith and
concluded that modifications to the MHR Convertible Notes should have been accounted for as
extinguishment of debt in accordance with FASB ASC 470-50, Modifications and Extinguishments,
which resulted in a $17.0 million non-cash adjustment to recognize the loss on extinguishment of
debt.
The Company emphasizes that all reclassifications and related charges to correct the misapplication
of the relevant accounting pronouncement and subsequent debt modification adjustment have no
impact on the Companys operating income, its cash position, its cash flows or its future cash
requirements.
For more detailed information on these restatements please refer to Note 19 to the Financial
Statements contained in the Companys Annual Report Filed on Form 10-K for the 12 months ended
December 31, 2010.
FOURTH QUARTER 2010 FINANCIAL RESULTS
Emisphere reported a net loss of $18.2 million, or $0.35 per basic and diluted share for the
quarter ended December 31, 2010, compared to a net loss of $6.4 million (restated), or $0.15 per
basic and diluted share for the quarter ended December 31, 2009.
The Company reported a fourth quarter 2010 operating loss of $1.5 million, compared to an operating
loss of $3.5 million for the same period in 2009.
Total operating expenses were $1.6 million for the fourth quarter 2010, a decrease of $2.0 million
or 56% compared to the same period in 2009. Total operating expenses include research and
development costs of $0.5 million (a decrease of $0.08 million or 14% compared to the same period
in 2009), general and administrative expenses of $1.0 million (a decrease of $0.7 million or 43%
compared to the same period in 2009) and depreciation and amortization expense of $0.1 million (an
increase of approximately $0.1 million compared to 2009 due to a one-time adjustment for the sale
of certain fixed assets during 2009). Other expense for the fourth quarter of 2010 was $16.6
million compared to other expense of $2.9 million (restated) for the fourth quarter of 2009, an
increase of $13.7 million, due primarily to an increase in fair value of derivative instruments of
$12.9 million and a $1.0 million increase in interest expense, offset partially by a $0.2 million
increase in other income.
YEAR ENDING DECEMBER 31, 2010 FINANCIAL RESULTS
Emisphere reported a net loss of $56.9 million or $1.23 per basic and diluted share, for the year
ended December 31, 2010, compared to a net loss of $16.8 million (restated), or $0.49 per basic and
diluted share for the year ended December 31, 2009. Revenue was $0.1 million, for the years ended
December 31, 2010 and 2009.
Total operating expenses were $11.6 million for the year ended December 31, 2010 compared to $14.6
million for the year ended December 31, 2009, a decrease of $3.0 million or 21%.
Total operating expenses include research and development costs of $2.5 million (a decrease of $1.5
million or 38% compared to 2009), general and administrative expenses of $8.0 million (a decrease
of $2.1 million or 21% compared to 2009), depreciation and amortization expense of $0.3 million (a
decrease of approximately $0.1 million compared to 2009) and contract termination, lawsuit and
restructuring charges of approximately $0.8 million (a decrease of approximately $0.1 million
compared to 2009).
Other expense for the year ended December 31, 2010 was $45.4 million, compared to other expense of
$2.3 million (restated) for the year ended December 31, 2009. The $43.1 million increase was due
primarily to a $21.2 million increase in the fair value of derivative instruments, a $17.0 million
loss on extinguishment of debt, a $1.9 million financing fee, a $2.9 million increase in interest
expense, a $0.1 million decrease in other income.
Weighted average basic and diluted shares outstanding for the year ended December 31, 2010 were
46,206,803 versus 34,679,321 for the year ended December 31, 2009.
LIQUIDITY
Cash, cash equivalents and restricted cash held as of December 31, 2010 were $5.6 million, a net
increase of $1.8 million from such amounts held on December 31, 2009.
During 2010, the Company continued to focus on efforts to apply the Eligen® Technology
and realize its value by developing profitable commercial applications. By expanding our
relationship with Novo Nordisk, and by settling the Novartis Note on non-dilutive terms, the
Company strengthened its balance sheet and enhanced the potential value of its Eligen®
Technology, said Michael R. Garone, Interim Chief Executive Officer and Chief Financial Officer.
The Company reduced its annual operating costs by approximately 45% and 21% for the years ended
December 31, 2009 and 2010, respectively. As a result, its annual cash burn rate to support
continuing operations is approximately $8 million per year. Consequently, the Company anticipates
that its existing capital resources, without implementing cost reductions, raising additional
capital, or obtaining substantial cash inflows, will enable us to continue operations through
approximately June 2011 or earlier if unforeseen events arise that negatively affect our liquidity.
PRODUCT DEVELOPMENTS
During December 2010, the Company entered into an exclusive Development and License Agreement with
Novo Nordisk to develop and commercialize oral formulations of Novo Nordisks insulins using
Emispheres Eligen® Technology. This was the second license agreement between the two
companies. The first agreement, for the development of oral formulations of GLP-1 receptor
agonists, was signed in June 2008, with a potential drug currently in a Phase I clinical trial. The
Insulin Agreement included $57.5 million in potential product development and sales milestone
payments to Emisphere, of which $5 million was paid upon signing, as well as royalties on sales.
This extended partnership with Novo Nordisk has the potential to offer significant new solutions to
millions of people with diabetes worldwide and it also serves to further validate our
Eligen® Technology.
Novartis is using our Eligen® drug delivery technology in combination with salmon
calcitonin, parathyroid hormone, and human growth hormone. Their most advanced program utilizing
the Companys Eligen® Technology is testing an oral formulation of calcitonin to treat
osteoarthritis and osteoporosis. For osteoarthritis, Novartis completed one Phase III clinical
trial and a second Phase III clinical study is continuing. Novartis is also conducting a Phase III
clinical study for osteoporosis. On June 4, 2010, Emisphere and Novartis entered into an agreement
pursuant to which the Company was released and discharged from its obligations under the Novartis
Note in exchange for (i) the reduction of future royalty and milestone payments up to an aggregate
amount of $11.0 million due the Company under the Research Collaboration and Option Agreement and
the Oral Salmon Calcitonin License Agreement; (ii) the right for Novartis to evaluate the
feasibility of using Emispheres Eligen® Technology with two new compounds to assess the
potential for new product development opportunities; and (iii) other amendments to the Research
Collaboration and Option Agreement and Oral Salmon Calcitonin License Agreement. If Novartis
chooses to develop oral formulations of these new compounds using the Eligen®
Technology, the parties will negotiate additional agreements. In that case, Emisphere could be
entitled to receive development milestone and royalty payments in connection with the development
and commercialization of these potential new products.
The Company is continuing to develop an oral formulation of Eligen® B12 (1000 mcg) for
use by B12 deficient individuals. During the fourth quarter 2010, the Company completed a clinical
trial which showed that oral Eligen® B12 (1000 mcg) can efficiently and quickly restore
Vitamin B12 levels in deficient individuals as effectively as the injectable formulation, which is
the current standard of care. The results from that clinical trial have been submitted for
publication. We also
conducted market research to help assess the potential commercial opportunity
for a potential Eligen® B12 product. Currently, we are evaluating the results of our
clinical trials and market
research and exploring alternative development pathways and commercialization options with the
purpose of optimizing the commercial and health benefits potential of our Eligen® B12
asset.
About Emisphere Technologies, Inc.
Emisphere is a biopharmaceutical company that focuses on a unique and improved delivery of
pharmaceutical compounds, medical foods and dietary supplements using its EligenÒ
Technology. These molecules and compounds could be currently available or in development. Such
molecules are usually delivered by injection; in many cases, their benefits are limited due to poor
bioavailability, slow on-set of action or variable absorption. The EligenÒ
Technology can be applied to the oral route of administration as well other delivery pathways, such
as buccal, rectal, inhalation, intra-vaginal or transdermal. The companys website is:
www.emisphere.com.
Safe Harbor Statement Regarding Forward-looking Statements
The
statements in this release and oral statements made by representatives of Emisphere relating to matters that are not historical facts (including without limitation those regarding the timing or
potential outcomes of research collaborations or clinical trials, any market that might develop for
any of Emispheres product candidates and the sufficiency of Emispheres cash and other capital
resources) are forward-looking statements that involve risks and uncertainties, including, but not
limited to, the likelihood that future research will prove successful, the likelihood that any
product in the research pipeline will receive regulatory approval in the United States or abroad,
the ability of Emisphere and/or its partners to develop, manufacture and commercialize products
using Emispheres drug delivery technology, Emispheres ability to fund such efforts with or
without partners, and other risks and uncertainties detailed in Emispheres filings with the
Securities and Exchange Commission, including those factors discussed under the caption Risk
Factors in Emispheres Annual Report on Form 10-K (file no. 000-17758) filed on March 25, 2010,
Emispheres Quarterly Report on Form 10-Q filed on May 17, 2010, Emispheres Quarterly Report on
Form 10-Q filed on August 16, 2010, and Emispheres Quarterly Report on Form 10-Q filed on November
12, 2010.
# # #
Presentation of Financial Information
To supplement its condensed financial statements presented in accordance with US GAAP, the company
is providing a comparison of operating results describing net income and operating expenses which
removed certain non-cash and one-time or nonrecurring charges and receipts. The Company believes
that this presentation of net income and operating expense provides useful information to both
management and investors concerning the approximate impact of the items above. The Company also
believes that considering the effect of these items allows management and investors to better
compare the Companys financial performance from period to period and to better compare the
Companys financial performance with that of its competitors. The presentation of this additional
information is not meant to be considered in isolation of, or as a substitute for, results prepared
in accordance with US GAAP.
EMISPHERE TECHNOLOGIES, INC.
CONDENSED STATEMENTS OF OPERATIONS
For the three months and twelve months ended December 31, 2010 and 2009
(in thousands, except share and per share data)
CONDENSED STATEMENTS OF OPERATIONS
For the three months and twelve months ended December 31, 2010 and 2009
(in thousands, except share and per share data)
For the three months ended | For the twelve months ended | |||||||||||||||
December 31, | December 31, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
(as restated) | (as restated) | |||||||||||||||
Revenue |
$ | 23 | $ | 92 | $ | 100 | $ | 92 | ||||||||
Cost of goods sold |
| 15 | 22 | 15 | ||||||||||||
Gross profit |
23 | 77 | 78 | 77 | ||||||||||||
Costs and expenses: |
||||||||||||||||
Research and development |
511 | 594 | 2,495 | 4,046 | ||||||||||||
General and administrative expenses |
984 | 1,721 | 7,963 | 10,068 | ||||||||||||
(Gain)/Loss on disposal of fixed assets |
| 34 | (1 | ) | (789 | ) | ||||||||||
Depreciation and amortization |
71 | (59 | ) | 294 | 367 | |||||||||||
Expenses from settlement of lawsuit |
| 1,293 | 278 | 1,293 | ||||||||||||
Total costs and expenses |
1,566 | 3,583 | 11,029 | 14,985 | ||||||||||||
Restructuring Charge (Income) |
| (3 | ) | 50 | (356 | ) | ||||||||||
Contract termination expense |
| | 542 | | ||||||||||||
Operating loss |
(1,543 | ) | (3,503 | ) | (11,543 | ) | (14,552 | ) | ||||||||
Other income and (expense): |
||||||||||||||||
Change in fair value of derivative
instruments |
(15,648 | ) | (2,759 | ) | (23,651 | ) | (2,473 | ) | ||||||||
Investment and other income |
246 | 40 | 252 | 363 | ||||||||||||
Sale of patents |
| | 500 | 500 | ||||||||||||
Interest expense, net |
(1,213 | ) | (207 | ) | (3,595 | ) | (659 | ) | ||||||||
Loss on extinguishment of debt |
| | (17,014 | ) | | |||||||||||
Financing fees |
| | (1,858 | ) | | |||||||||||
Total other income (expense) |
(16,615 | ) | (2,926 | ) | (45,366 | ) | (2,269 | ) | ||||||||
Net loss |
$ | (18,158 | ) | $ | (6,429 | ) | $ | (56,909 | ) | $ | (16,821 | ) | ||||
Net loss per share, basic and diluted |
$ | (0.35 | ) | $ | (0.15 | ) | $ | (1.23 | ) | $ | (0.49 | ) | ||||
Weighted
average shares outstanding, basic and diluted |
51,889,102 | 42,070,401 | 46,206,803 | 34,679,321 |
EMISPHERE TECHNOLOGIES, INC.
BALANCE SHEETS
December 31, | ||||||||
2010 | 2009 Restated | |||||||
(In thousands, | ||||||||
except share data) | ||||||||
ASSETS |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 5,326 | $ | 3,566 | ||||
Accounts receivable, net of allowance of $0 in 2010 and 2009 |
14 | 158 | ||||||
Inventories |
260 | 20 | ||||||
Prepaid expenses and other current assets |
496 | 369 | ||||||
Total current assets |
6,096 | 4,113 | ||||||
Equipment and leasehold improvements, net |
82 | 138 | ||||||
Restricted cash |
260 | 259 | ||||||
Purchased technology, net |
838 | 1,077 | ||||||
Deferred financing cost |
| | ||||||
Total assets |
$ | 7,276 | $ | 5,587 | ||||
LIABILITIES AND STOCKHOLDERS DEFICIT |
||||||||
Current liabilities: |
||||||||
Notes payable, including accrued interest and net of related discount |
$ | | $ | 12,588 | ||||
Accounts payable and accrued expenses |
2,954 | 4,975 | ||||||
Derivative instruments: |
||||||||
Related party |
17,293 | 3,205 | ||||||
Others |
5,647 | 2,984 | ||||||
Contract termination liability, current |
435 | | ||||||
Restructuring charge, current |
300 | 750 | ||||||
Other current liabilities |
35 | 52 | ||||||
Total current liabilities |
26,664 | 24,554 | ||||||
Notes payable, including accrued interest and net of related discount, related party |
20,385 | 93 | ||||||
Derivative instrument, related party |
11,166 | 4,591 | ||||||
Deferred revenue |
31,535 | 11,494 | ||||||
Deferred lease liability and other liabilities |
46 | 82 | ||||||
Total liabilities |
89,796 | 40,814 | ||||||
Commitments and contingencies |
| | ||||||
Stockholders deficit: |
||||||||
Preferred stock, $.01 par value; authorized 1,000,000 shares; issued and
outstanding-none |
| | ||||||
Common stock, $.01 par value; authorized 100,000,000 shares; issued 52,178,834
shares (51,889,102 outstanding) in 2010 and 42,360,133 shares (42,070,401
outstanding) in 2009 |
522 | 424 | ||||||
Additional paid-in capital |
401,853 | 392,335 | ||||||
Accumulated deficit |
(480,943 | ) | (424,034 | ) | ||||
Common stock held in treasury, at cost; 289,732 shares |
(3,952 | ) | (3,952 | ) | ||||
Total stockholders deficit |
(82,520 | ) | (35,227 | ) | ||||
Total liabilities and stockholders deficit |
$ | 7,276 | $ | 5,587 | ||||