Attached files
file | filename |
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EXCEL - IDEA: XBRL DOCUMENT - IDENIX PHARMACEUTICALS INC | Financial_Report.xls |
EX-32.2 - EXHIBIT 32.2 - IDENIX PHARMACEUTICALS INC | c23861exv32w2.htm |
EX-31.2 - EXHIBIT 31.2 - IDENIX PHARMACEUTICALS INC | c23861exv31w2.htm |
EX-31.1 - EXHIBIT 31.1 - IDENIX PHARMACEUTICALS INC | c23861exv31w1.htm |
EX-32.1 - EXHIBIT 32.1 - IDENIX PHARMACEUTICALS INC | c23861exv32w1.htm |
Table of Contents
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended September 30, 2011
Or
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 000-49839
Idenix Pharmaceuticals, Inc.
(Exact name of registrant as specified in its charter)
Delaware | 45-0478605 | |
(State or Other Jurisdiction of | (IRS Employer Identification No.) | |
Incorporation or Organization) | ||
60 Hampshire Street | ||
Cambridge, MA | 02139 | |
(Address of Principal Executive Offices) | (Zip Code) |
Registrants telephone number, including area code: (617) 995-9800
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports) and (2) has been
subject to such filing requirements for the past 90 days. Yes þ
No o
Indicate by check mark whether the registrant 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 (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files).
Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check one):
Large accelerated filer: o | Accelerated filer: þ | Non-accelerated filer: o | Smaller reporting company: o | |||
(Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of
the Exchange Act). Yes o No þ
As of October 24, 2011, the number of shares of the registrants common stock, par value
$0.001 per share, outstanding was 96,153,387 shares.
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Exhibit 31.1 | ||||||||
Exhibit 31.2 | ||||||||
Exhibit 32.1 | ||||||||
Exhibit 32.2 | ||||||||
EX-101 INSTANCE DOCUMENT | ||||||||
EX-101 SCHEMA DOCUMENT | ||||||||
EX-101 CALCULATION LINKBASE DOCUMENT | ||||||||
EX-101 LABELS LINKBASE DOCUMENT | ||||||||
EX-101 PRESENTATION LINKBASE DOCUMENT |
2
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IDENIX PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
September 30, | December 31, | |||||||
2011 | 2010 | |||||||
ASSETS |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 64,693 | $ | 46,115 | ||||
Restricted cash |
411 | 411 | ||||||
Receivables from related party |
1,161 | 840 | ||||||
Other current assets |
3,434 | 2,124 | ||||||
Total current assets |
69,699 | 49,490 | ||||||
Intangible asset, net |
8,992 | 9,843 | ||||||
Property and equipment, net |
5,647 | 7,179 | ||||||
Restricted cash |
750 | 750 | ||||||
Other assets |
3,701 | 2,622 | ||||||
Total assets |
$ | 88,789 | $ | 69,884 | ||||
LIABILITIES AND STOCKHOLDERS DEFICIT |
||||||||
Current liabilities: |
||||||||
Accounts payable |
$ | 1,680 | $ | 2,558 | ||||
Accrued expenses |
7,272 | 11,472 | ||||||
Deferred revenue |
2,623 | 2,623 | ||||||
Deferred revenue, related party |
3,040 | 3,036 | ||||||
Other current liabilities |
481 | 305 | ||||||
Total current liabilities |
15,096 | 19,994 | ||||||
Other long-term liabilities |
11,286 | 12,058 | ||||||
Deferred revenue, net of current portion |
38,373 | 40,340 | ||||||
Deferred revenue, related party, net of current portion |
26,343 | 28,588 | ||||||
Total liabilities |
91,098 | 100,980 | ||||||
Commitments and contingencies (Note 10) |
||||||||
Stockholders deficit: |
||||||||
Common stock, $0.001 par value; 200,000,000 and 125,000,000 shares authorized at
September 30, 2011 and December 31, 2010, respectively; 96,153,387 and 73,091,514
shares issued and outstanding at September 30, 2011 and December 31, 2010, respectively |
96 | 73 | ||||||
Additional paid-in capital |
654,495 | 591,884 | ||||||
Accumulated other comprehensive income |
690 | 683 | ||||||
Accumulated deficit |
(657,590 | ) | (623,736 | ) | ||||
Total stockholders deficit |
(2,309 | ) | (31,096 | ) | ||||
Total liabilities and stockholders deficit |
$ | 88,789 | $ | 69,884 | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
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IDENIX PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
Three Months Ended September 30, | ||||||||
2011 | 2010 | |||||||
Revenues: |
||||||||
Collaboration revenue related party |
$ | 1,982 | $ | 3,424 | ||||
Other revenue |
656 | 364 | ||||||
Total revenues |
2,638 | 3,788 | ||||||
Operating expenses: |
||||||||
Cost of revenues |
595 | 566 | ||||||
Research and development |
10,190 | 11,637 | ||||||
General and administrative |
3,900 | 4,440 | ||||||
Total operating expenses |
14,685 | 16,643 | ||||||
Loss from operations |
(12,047 | ) | (12,855 | ) | ||||
Other income (expense), net |
338 | (76 | ) | |||||
Loss before income taxes |
(11,709 | ) | (12,931 | ) | ||||
Income tax benefit |
| 1 | ||||||
Net loss |
$ | (11,709 | ) | $ | (12,930 | ) | ||
Basic and diluted net loss per common share |
$ | (0.12 | ) | $ | (0.18 | ) | ||
Shares used in computing basic and diluted net loss per common share |
96,133 | 72,934 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
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IDENIX PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
Nine Months Ended September 30, | ||||||||
2011 | 2010 | |||||||
Revenues: |
||||||||
Collaboration revenue related party |
$ | 5,715 | $ | 6,366 | ||||
Other revenue |
1,967 | 1,421 | ||||||
Total revenues |
7,682 | 7,787 | ||||||
Operating expenses: |
||||||||
Cost of revenues |
1,731 | 1,800 | ||||||
Research and development |
28,530 | 35,548 | ||||||
General and administrative |
12,293 | 14,308 | ||||||
Restructuring charges |
| 2,238 | ||||||
Total operating expenses |
42,554 | 53,894 | ||||||
Loss from operations |
(34,872 | ) | (46,107 | ) | ||||
Other income, net |
1,019 | 712 | ||||||
Loss before income taxes |
(33,853 | ) | (45,395 | ) | ||||
Income tax expense |
(1 | ) | (3 | ) | ||||
Net loss |
$ | (33,854 | ) | $ | (45,398 | ) | ||
Basic and diluted net loss per common share |
$ | (0.39 | ) | $ | (0.65 | ) | ||
Shares used in computing basic and diluted net loss per common share |
87,414 | 69,941 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
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IDENIX PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
Nine Months Ended September 30, | ||||||||
2011 | 2010 | |||||||
Cash flows from operating activities: |
||||||||
Net loss |
$ | (33,854 | ) | $ | (45,398 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: |
||||||||
Depreciation and amortization |
3,036 | 3,688 | ||||||
Share-based compensation expense |
1,843 | 2,892 | ||||||
Revenue adjustment for contingently issuable shares |
(17 | ) | 199 | |||||
Other |
164 | 118 | ||||||
Changes in operating assets and liabilities: |
||||||||
Receivables from related party |
(321 | ) | (20 | ) | ||||
Other assets |
(2,354 | ) | (986 | ) | ||||
Accounts payable |
(882 | ) | 113 | |||||
Accrued expenses and other current liabilities |
(4,130 | ) | 2,249 | |||||
Deferred revenue |
(1,967 | ) | 5,111 | |||||
Deferred revenue, related party |
(2,343 | ) | (3,606 | ) | ||||
Other liabilities |
(780 | ) | (1,401 | ) | ||||
Net cash used in operating activities |
(41,605 | ) | (37,041 | ) | ||||
Cash flows from investing activities: |
||||||||
Purchases of property and equipment |
(752 | ) | (549 | ) | ||||
Sales of marketable security |
| 1,476 | ||||||
Net cash provided by (used in) investing activities |
(752 | ) | 927 | |||||
Cash flows from financing activities: |
||||||||
Proceeds from exercise of common stock options |
685 | 228 | ||||||
Proceeds from issuance of common stock to related party |
5,056 | 99 | ||||||
Proceeds from issuance of common stock, net of offering costs |
55,169 | 26,266 | ||||||
Net cash provided by financing activities |
60,910 | 26,593 | ||||||
Effect of changes in exchange rates on cash and cash equivalents |
25 | 22 | ||||||
Net increase (decrease) in cash and cash equivalents |
18,578 | (9,499 | ) | |||||
Cash and cash equivalents at beginning of period |
46,115 | 46,519 | ||||||
Cash and cash equivalents at end of period |
$ | 64,693 | $ | 37,020 | ||||
Supplemental disclosure of cash flow information: |
||||||||
Change in value of shares of common stock contingently issuable or issued
to related party |
$ | (120 | ) | $ | 297 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
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IDENIX PHARMACEUTICALS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BUSINESS OVERVIEW
Overview
Idenix Pharmaceuticals, Inc., which we refer to as Idenix, we, us or our, is a
biopharmaceutical company engaged in the discovery and development of drugs for the treatment of
human viral diseases with operations in the United States and Europe. Currently, our primary
research and development focus is on the treatment of patients with hepatitis C virus, or HCV. In
July 2011, we initiated enrollment of 100 HCV-infected patients into a 12-week phase IIb clinical
trial of our most advanced drug candidate, IDX184, a nucleotide
polymerase inhibitor. We will report an interim analysis from this
study after the first 30 patients have completed 28 days of
treatment. We have initiated dosing of the first 20 patients and are
currently enrolling the remaining ten patients. There have been no
safety signals to date. Based on the current rate of enrollment, we expect to complete one month dosing of the first 30 patients
in December 2011.
In addition to our strategy of developing drugs for the treatment of HCV, we have also
developed products and drug candidates for the treatment of patients with hepatitis B virus, or
HBV, human immunodeficiency virus type-1, or HIV, and acquired immune deficiency syndrome, or AIDS.
We successfully developed and received worldwide marketing approval for telbivudine
(Tyzeka®/Sebivo®), a drug for the treatment of HBV that we licensed to
Novartis Pharma AG, or Novartis. In 2007, we began receiving royalties from Novartis based on a
percentage of net sales of Tyzeka®/Sebivo®. We also discovered and developed
through proof-of-concept clinical testing IDX899, a drug candidate from the class of compounds
known as non-nucleoside reverse transcriptase inhibitors, or NNRTIs, for the treatment of HIV/AIDS.
We licensed our NNRTI compounds, including IDX899, now known as 761, to GlaxoSmithKline, or GSK,
in February 2009. In October 2009, GSK assigned this license agreement to ViiV Healthcare Company,
or ViiV, which is an affiliate of GSK. In February 2011, ViiV informed us that the U.S. Food and
Drug Administration, or FDA, placed 761 on clinical hold. ViiV has full responsibility for the
development of 761, including any regulatory interactions.
We are subject to risks common to companies in the biopharmaceutical industry including, but
not limited to, the successful development of products, clinical trial uncertainty, regulatory
approval, fluctuations in operating results and financial risks, potential need for additional
funding, protection of proprietary technology and patent risks, compliance with government
regulations, dependence on key personnel and collaboration partners, competition, technological and
medical risks and management of growth.
We have incurred losses in each year since our inception and at September 30, 2011, we had an
accumulated deficit of $657.6 million. We expect to incur losses over the next several years as we
continue to expand our drug discovery and development efforts, specifically, our phase IIb clinical
trial of IDX184 initiated in July 2011. As a result of continuing losses, we may seek additional
funding through a combination of public or private financing, collaborative relationships or other
arrangements and we may seek a partner who will assist in the future development and
commercialization of IDX184. In October 2011, we filed a shelf registration statement with the
Securities and Exchange Commission, or SEC, for an indeterminate amount of shares of common stock,
up to the aggregate of $150.0 million, for future issuance. Any financing requiring the issuance of
additional shares of capital stock must first be approved by Novartis so long as Novartis continues
to own at least 19.4% of our voting stock. Additional funding may not be available to us or, if
available, may not be on terms favorable to us. Further, any additional equity financing may be
dilutive to stockholders, other than Novartis, which has the right to maintain its current
ownership level. As of October 24, 2011, Novartis owned approximately 35% of our outstanding common
stock.
We believe that our current cash, cash equivalents and the expected royalty payments
associated with product sales of Tyzeka®/Sebivo® will be sufficient to
sustain operations into at least the second quarter of 2012. If we are unable to obtain adequate
financing on a timely basis, we could be required to delay, reduce or eliminate one or more of our
drug development programs, enter into new collaborative, strategic alliances or licensing
arrangements that may not be favorable to us and reduce the number of our employees. More
generally, if we are unable to obtain adequate funding, we may be required to scale back, suspend
or terminate our business operations.
Basis of Presentation
The condensed consolidated financial statements reflect the operations of Idenix
Pharmaceuticals, Inc. and our wholly owned subsidiaries. All intercompany accounts and transactions
have been eliminated in consolidation.
The accompanying condensed consolidated financial statements are unaudited and have been
prepared by us in accordance with generally accepted accounting principles in the United States of
America, or GAAP, for interim reporting. Accordingly, these interim financial statements do not
include all the information and footnotes required by GAAP for complete financial statements and
should be read in conjunction with the audited consolidated financial statements for the year ended
December 31, 2010, which are included in our Annual Report on Form 10-K filed with the SEC on March
7, 2011. These interim financial statements are unaudited, but in the opinion of management,
reflect all adjustments (including normal recurring accruals) necessary for a fair statement of the
financial position and results of operations for the interim periods presented. The year end
consolidated balance sheet data presented for comparative purposes was derived
from audited financial statements, but does not include all disclosures required by GAAP.
7
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IDENIX PHARMACEUTICALS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
(UNAUDITED)
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
(UNAUDITED)
The preparation of condensed consolidated financial statements in accordance with GAAP
requires management to make estimates and judgments that may affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities.
On an on-going basis, we evaluate our estimates, judgments and methodologies, including those
related to revenue recognition, our collaborative relationships, clinical trial expenses,
impairment and amortization of long-lived assets including intangible assets, share-based
compensation, income taxes including the valuation allowance for deferred tax assets,
contingencies, litigation and restructuring charges. We base our estimates on historical experience
and on various other assumptions that are believed to be reasonable, the results of which form the
basis for making judgments about the carrying values of assets and liabilities. Actual results may
differ from these estimates under different assumptions or conditions.
The results of operations for the interim periods are not necessarily indicative of the
results of operations to be expected for any future period or the fiscal year ending December 31,
2011.
Recent Accounting Pronouncements
In June, 2011, the Financial Accounting Standards Board, or FASB, issued Accounting Standard
Update No. 2011-5, Presentation of Comprehensive Income. The objective of this amendment is to
improve the comparability, consistency and transparency of financial reporting and to increase the
prominence of items reported in other comprehensive income. This guidance is effective for fiscal
years beginning after December 15, 2011. We do not expect that this guidance will have any material
effect on our consolidated financial statements.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
Revenue is recognized in accordance with SEC Staff Accounting Bulletin No. 101, Revenue
Recognition in Financial Statements, or SAB No. 101, as amended by SEC Staff Accounting Bulletin
No. 104, Revenue Recognition, and for revenue arrangements entered into after June 30, 2003, in
accordance with the revenue recognition guidance of the FASB. For multiple-element revenue
arrangements entered into or materially modified after January 1, 2011, we recognize revenue under
Accounting Standard Update No. 2009-13, Multiple-Deliverable Revenue Arrangements, or ASU No.
2009-13. We record revenue provided that there is persuasive evidence that an arrangement exists,
delivery has occurred or services have been rendered, the price is fixed or determinable and
collectability is reasonably assured.
Our revenues are generated primarily through collaborative research, development and/or
commercialization agreements. The terms of these agreements typically include payments to us for
non-refundable license fees, milestones, collaborative research and development funding and
royalties received from our collaboration partners.
Milestone Payments
Revenue is recognized for payments that are contingent upon the achievement of a milestone in
its entirety, in the period in which the milestone is achieved, only if the milestone is
substantive and meets all of the following criteria: a) performance consideration earned by
achieving the milestone be commensurate with either performance to achieve the milestone or the
enhancement of the value of the item delivered as a result of a specific outcome resulting from
performance to achieve the milestone; b) it relates to past performance; and c) the payment is
reasonable relative to all deliverables and payment terms in the arrangement.
Collaboration Revenue Related Party
We entered into a collaboration with Novartis relating to the worldwide development and
commercialization of our drug candidates in May 2003, which we refer to as the development and
commercialization agreement. Under this arrangement, we have received non-refundable license fees,
milestones, collaborative research and development funding and royalty payments. This arrangement
has several joint committees in which we and Novartis participate. We participate in these
committees as a means to govern or protect our interests. The committees span the period from early
development of a drug candidate through commercialization of any drug candidate licensed by
Novartis. As a result of applying the provisions of SAB No. 101, which was the applicable revenue
guidance at the time the collaboration was entered into, our revenue recognition policy attributes
revenue to the development period of the drug candidates licensed under the development and
commercialization agreement. We have not attributed revenue to our involvement in the committees
following the commercialization of the licensed products as we have determined that our
participation on the committees, as such participation relates to the commercialization of drug
candidates, is protective. Our determination is based in part on the fact that our expertise is,
and has been, the discovery and development of drugs for the treatment of human viral diseases. Novartis, on the
other hand, has the considerable commercialization expertise and infrastructure necessary for the
commercialization of such drug candidates. Accordingly, we believe our obligation post
commercialization is inconsequential.
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IDENIX PHARMACEUTICALS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
(UNAUDITED)
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
(UNAUDITED)
We recognize non-refundable payments over the performance period of our continuing
obligations. This period is estimated based on current judgments related to the product development
timeline of our licensed drug candidates and is currently estimated to be through May 2021. This
policy is described more fully in Note 5.
Royalty revenue consists of revenue earned under our license agreement with Novartis for sales
of Tyzeka®/Sebivo®, which is recognized when reported from Novartis. Royalty
revenue is equal to a percentage of Tyzeka®/Sebivo® net sales, with such
percentage increasing according to specified tiers of net sales. The royalty percentage varies
based on the specified territory and the aggregate dollar amount of net sales.
Other Revenue
In February 2009, we entered into a license agreement with ViiV, which we refer to as the ViiV
license agreement. Under the ViiV license agreement, we granted ViiV an exclusive worldwide license
to develop, manufacture and commercialize our NNRTI compounds, including 761, for the treatment of
human diseases, including HIV/AIDS. This agreement has performance obligations, including joint
committee participation and ViiVs right to license other NNRTI compounds that we may develop in
the future, that we have assessed under the FASB guidance related to multiple element arrangements,
prior to the implementation of ASU No. 2009-13. We concluded that this arrangement should be
accounted for as a single unit of accounting and recognized using the contingency adjusted
performance method. Under this agreement, we received a non-refundable license fee payment and
milestone payments from ViiV. These milestone payments did not meet our revenue recognition
criteria for immediate recognition. The non-refundable license fee payment and milestone payments
received from ViiV were recorded as deferred revenue and are recognized as revenue over the life of
the agreement, which is estimated to be 17 years. A cumulative catch-up was recognized for the
period from the execution of the license agreement in March 2009 through the period in which the
milestone payments were received. In February 2011, ViiV informed us that the FDA placed 761 on
clinical hold. ViiV has full responsibility for the development of 761, including any regulatory
interactions.
Cash and Cash Equivalents
We consider all highly liquid investments purchased with a maturity date of 90 days or less at
the date of purchase to be cash equivalents.
In connection with certain of our operating lease commitments, we issued letters of credit
collateralized by cash deposits that were classified as restricted cash on the condensed
consolidated balance sheets. Restricted cash amounts have been classified as current or non-current
based on the expected release date of the restrictions.
Fair Value Measurements
Our assets and liabilities that are measured at fair value on a recurring basis as of
September 30, 2011 and December 31, 2010 are measured in accordance with FASB guidance. Fair values
determined by Level 1 inputs utilize observable data such as quoted prices in active markets. Fair
values determined by Level 2 inputs utilize data points other than quoted prices in active markets
that are observable either directly or indirectly. Fair values determined by Level 3 inputs utilize
unobservable data points in which there is little or no market data, which require the reporting
entity to develop its own assumptions.
At September 30, 2011 and December 31, 2010, we had $47.7 million and $17.7 million,
respectively, in money market funds that were classified as Level 2 fair value and included as part
of cash and cash equivalents in our condensed consolidated balance sheets. There were no Level 3
assets held at fair value at September 30, 2011 or 2010. There were no gross unrealized gains or
losses for the three and nine months ended September 30, 2011 or 2010.
Share-Based Compensation
We recognize share-based compensation for employees and directors using a fair value based
method that results in expense being recognized in our condensed consolidated financial statements.
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IDENIX PHARMACEUTICALS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
(UNAUDITED)
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
(UNAUDITED)
3. NET LOSS PER COMMON SHARE
Basic net loss per common share is computed by dividing the net loss available to common
stockholders by the weighted average number of common shares outstanding during the period. Diluted
net loss per common share is computed by dividing the net loss available to common stockholders by
the weighted average number of common shares and other potential common shares then outstanding.
Potential common shares consist of common shares issuable upon the assumed exercise of outstanding
stock options (using the treasury stock method), the assumed issuance of contingently issuable
shares subject to Novartis stock subscription rights (Note 5) and restricted stock awards.
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(In Thousands, Except | (In Thousands, Except | |||||||||||||||
per Share Data) | per Share Data) | |||||||||||||||
Basic and diluted net loss per common share: |
||||||||||||||||
Net loss |
$ | (11,709 | ) | $ | (12,930 | ) | $ | (33,854 | ) | $ | (45,398 | ) | ||||
Basic and diluted weighted average number of
common shares outstanding |
96,133 | 72,934 | 87,414 | 69,941 | ||||||||||||
Basic and diluted net loss per common share |
$ | (0.12 | ) | $ | (0.18 | ) | $ | (0.39 | ) | $ | (0.65 | ) |
The following potential common shares were excluded from the calculation of diluted net loss
per common share because their effect was anti-dilutive:
Three and Nine Months Ended | ||||||||
September 30, | ||||||||
2011 | 2010 | |||||||
(In Thousands) | ||||||||
Options |
7,804 | 6,430 | ||||||
Contingently issuable shares to related party |
1,714 | 1,023 | ||||||
9,518 | 7,453 | |||||||
In addition to the contingently issuable shares to related party listed in the table above,
Novartis could be entitled to additional shares under its stock subscription rights which would be
anti-dilutive in future periods based on our current stock price.
4. COMPREHENSIVE LOSS
For the three and nine months ended September 30, 2011 and 2010 comprehensive loss was as
follows:
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(In Thousands) | (In Thousands) | |||||||||||||||
Net loss |
$ | (11,709 | ) | $ | (12,930 | ) | $ | (33,854 | ) | $ | (45,398 | ) | ||||
Changes in other comprehensive loss: |
||||||||||||||||
Foreign currency translation adjustment |
(386 | ) | 235 | 7 | (184 | ) | ||||||||||
Total comprehensive loss |
$ | (12,095 | ) | $ | (12,695 | ) | $ | (33,847 | ) | $ | (45,582 | ) | ||||
5. NOVARTIS RELATIONSHIP
Overview
In May 2003, we entered into a collaboration with Novartis relating to the worldwide
development and commercialization of our drug candidates. In May 2003, Novartis also purchased
approximately 54% of our common stock. Since this date, Novartis has had the ability to exercise
control over our strategic direction, research and development activities and other material
business decisions.
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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
(UNAUDITED)
Pursuant to the development and commercialization agreement, as amended, we have granted
Novartis the option to license any of our development-stage drug candidates, so long as Novartis
maintains at least 30% ownership of our common stock. Novartis may exercise this option generally
after demonstration of activity and safety in a proof-of-concept clinical trial. If Novartis
licenses a drug candidate, it is obligated to fund a portion of the development expenses that we
incur in accordance with development plans agreed upon by us and Novartis. Under the development
and commercialization agreement, we have granted Novartis an exclusive worldwide license to market
and sell drug candidates that Novartis chooses to license from us. The commercialization rights
under the development and commercialization agreement also include our right to co-promote or
co-market all licensed products in the United States, United Kingdom, France, Germany, Italy and
Spain. Under the development and commercialization agreement, we granted Novartis an exclusive
worldwide license to market and sell telbivudine (Tyzeka®/Sebivo®),
valtorcitabine and valopicitabine.
In 2003, Novartis licensed telbivudine from us under the development and commercialization
agreement and we co-developed and co-launched Tyzeka®/Sebivo® for the
treatment of HBV. In September 2007, we amended the development and commercialization agreement and
we transferred to Novartis our worldwide development, commercialization and manufacturing rights
and obligations pertaining to telbivudine in exchange for royalties based on net product sales of
Tyzeka®/Sebivo® from Novartis. The royalty percentage increases according to
specified tiers of net sales and the percentage varies based on specified territories and the
aggregate dollar amounts of net sales. We recognized $1.2 million and $1.1 million as royalty
revenue from Novartis sales of Tyzeka®/Sebivo® during the three months ended
September 30, 2011 and 2010, respectively, and we recognized $3.4 million and $3.0 million as
royalty revenue from Novartis sales of Tyzeka®/Sebivo® during the nine
months ended September 30, 2011 and 2010, respectively. The receivables from related party balances
of $1.2 million and $0.8 million at September 30, 2011 and December 31, 2010, respectively,
consisted of royalties associated with product sales of Tyzeka®/Sebivo® from
Novartis.
In October 2009, Novartis waived its right to license IDX184. As a result, we retain the
worldwide rights to develop, commercialize and license IDX184. We may seek a partner that will
assist in the future development and commercialization of this drug candidate.
To date, we have received $117.2 million of non-refundable payments from Novartis under the
development and commercialization agreement that have been recorded as deferred revenue. The $117.2
million of deferred payments are being recognized over the development period of the licensed drug
candidates, which represents the period of our continuing obligations. We estimate this period to
be through May 2021 based on current judgments related to the product development timeline of our
licensed drug candidates. We review our assessment and judgment on a quarterly basis with respect
to the expected duration of the development period of our licensed drug candidates. If the
estimated performance period changes, we will adjust the periodic revenue that is being recognized
and will record the remaining unrecognized non-refundable payments over the remaining development
period during which our performance obligations will be completed. Significant judgments and
estimates are involved in determining the estimated development period and different assumptions
could yield materially different results. Related to the deferred revenue, we recognized $0.8
million as revenue during each of the three months ended September 30, 2011 and 2010 and we
recognized $2.3 million and $3.6 million as revenue during the nine months ended September 30, 2011
and 2010, respectively. These amounts are impacted by Novartis stock subscription rights described
below.
As mentioned above, in addition to the collaboration, in May 2003, Novartis purchased
approximately 54% of our outstanding common stock from our then existing stockholders. The
stockholders received $255.0 million in cash from Novartis with an additional aggregate amount of
up to $357.0 million contingently payable to these stockholders if we achieve predetermined
development milestones relating to specific HCV drug candidates. As of October 24, 2011, Novartis
owned approximately 35% of our outstanding common stock.
Stockholders Agreement
In connection with Novartis purchase of stock from our stockholders, we, Novartis and
substantially all of our stockholders at that time entered into a stockholders agreement, which we
refer to as the stockholders agreement. The stockholders agreement was amended and restated in
2004 in connection with our initial public offering of our common stock and amended in April 2011
in connection with a subsequent offering of our common stock. The stockholders agreement, as
amended, provides, among other things, that we will use our reasonable best efforts to nominate for
election as a director at least two designees of Novartis for so long as Novartis and its
affiliates own at least 30% of our voting stock and that we will use our reasonable best efforts to
nominate for election as a director at least one designee of Novartis for so long as Novartis and
its affiliates own at least 19.4% of our voting stock. As long as Novartis and its affiliates
continue to own at least 19.4% of our voting stock, Novartis will have approval rights over a
number of corporate actions that we may take, including the authorization or issuance of additional
shares of capital stock and significant acquisitions and dispositions.
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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
(UNAUDITED)
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
(UNAUDITED)
Novartis Stock Subscription Rights
Under our stock purchase agreement with Novartis, which we refer to as the stock purchase
agreement, Novartis has the right to
purchase, at par value of $0.001 per share, such number of shares as is required to maintain its
percentage ownership of our voting stock if we issue shares of capital stock in connection with the
acquisition or in-licensing of technology through the issuance of up to 5% of our stock in any
24-month period. These purchase rights of Novartis remain in effect until the earlier of: a) the
date that Novartis and its affiliates own less than 19.4% of our voting stock; or b) the date that
Novartis becomes obligated to make the additional contingent payments of $357.0 million to holders
of our stock who sold shares to Novartis on May 8, 2003.
In addition to the right to purchase shares of our stock at par value as described above, if
we issue any shares of our capital stock, other than in certain situations, Novartis has the right
to purchase such number of shares required to maintain its percentage ownership of our voting stock
for the same consideration per share paid by others acquiring our stock. Any financing requiring
the issuance of additional shares of capital stock must first be approved by Novartis so long as
Novartis continues to own at least 19.4% of our voting stock. In April 2010, we received approval
from Novartis to issue capital shares pursuant to a financing under an existing shelf registration
statement filed with the SEC in September 2008 so long as the issuance of shares did not reduce
Novartis interest in Idenix below 40%. Pursuant to this shelf registration statement in April
2010, we issued approximately 6.5 million shares of our common stock pursuant to an underwritten
offering and received $26.3 million in net proceeds. Novartis did not participate in this offering.
In April 2011, we received approval from Novartis to issue capital shares and on April 13, 2011, we
issued approximately 21.1 million shares of our common stock pursuant to this shelf registration
statement and approximately 1.8 million shares of our common stock to Novartis pursuant to a
private placement agreement. The net proceeds of both transactions were $60.2 million. Upon
completion of this offering, we fully utilized the shelf registration statement. In conjunction
with the issuance of common stock in April 2011, we amended the collaboration with Novartis to
provide that: a) Novartis retains the exclusive option to obtain rights to drug candidates
developed by us so long as Novartis maintains ownership of at least 30% of our common stock, rather
than ownership of at least 40% as was the case prior to the amendment; b) we will use reasonable
best efforts to nominate for election as directors at least two designees of Novartis so long as
Novartis maintains ownership of at least 30% of our common stock, rather than ownership of at least
35% as was the case prior to the amendment; and c) Novartis consent is required for the selection
and appointment of our chief financial officer so long as Novartis owns at least 30% of our common
stock, rather than ownership of at least 40% as was the case prior to the amendment. As of October
24, 2011, Novartis owned approximately 35% of our outstanding common stock.
In connection with the closing of our initial public offering in July 2004, Novartis
terminated a common stock subscription right with respect to approximately 1.4 million shares of
common stock issuable by us as a result of the exercise of stock options granted after May 8, 2003
pursuant to the 1998 equity incentive plan. In exchange for Novartis termination of such right, we
issued 1.1 million shares of common stock to Novartis for a purchase price of $0.001 per share. The
fair value of these shares was determined to be $15.4 million at the time of issuance. As a result
of the issuance of these shares, Novartis rights to purchase additional shares as a result of
future option grants and stock issuances under the 1998 equity incentive plan were terminated and
no additional adjustments to revenue and deferred revenue will be required. Prior to the
termination of the stock subscription rights under the 1998 equity incentive plan, as we granted
options that were subject to this stock subscription right, the fair value of our common stock that
would be issuable to Novartis, less par value, was recorded as an adjustment of the non-refundable
payments received from Novartis. We remain subject to potential revenue adjustments with respect to
grants of options and stock awards under our stock incentive plans other than the 1998 equity
incentive plan.
Upon the grant of options and stock awards under our stock incentive plans, with the exception
of the 1998 equity incentive plan, the fair value of our common stock that would be issuable to
Novartis, less the exercise price, if any is payable by the option or award holder, is recorded as
a reduction of the non-refundable payments associated with the Novartis collaboration. The amount
is attributed proportionately between cumulative revenue recognized through the current date and
the remaining amount of deferred revenue. These amounts will be adjusted through the date that
Novartis elects to purchase the shares to maintain its percentage ownership based upon changes in
the value of our common stock and in Novartis percentage ownership.
As of September 30, 2011, the aggregate impact of Novartis stock subscription rights has
reduced the non-refundable payments by $18.2 million, which has been recorded as additional paid-in
capital. Of this amount, $4.5 million has been recorded as a reduction of deferred revenue with the
remaining amount of $13.7 million recorded as a reduction of license fee revenue. For the three and
nine months ended September 30, 2011, there was no cumulative significant impact of Novartis stock
subscription rights to additional paid-in capital, deferred revenue or license fee revenue as the
value of Novartis stock subscription rights at September 30, 2011 was comparable with the values
at June 30, 2011 and December 31, 2010, respectively.
Manufacturing and Supply Agreement
Under the master manufacturing and supply agreement, dated May 8, 2003, with Novartis, which
we refer to as the manufacturing and supply agreement, we appointed Novartis to manufacture or have
manufactured the clinical supply of the active pharmaceutical ingredient, or API, for each drug
candidate licensed under the development and commercialization agreement and certain other drug
candidates. The cost of the clinical supply will be treated as a development expense, allocated
between us and Novartis in accordance with the agreement. We have
the ability to appoint Novartis or a third-party to manufacture the commercial supply of the API
based on a competitive bid process in which Novartis has the right to match the best third-party
bid. Novartis will perform the finishing and packaging of the API into the final form for sale.
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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
(UNAUDITED)
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
(UNAUDITED)
Product Sales Arrangement
In connection with the drug candidates that Novartis licenses from us, with the exception of
Tyzeka®/Sebivo®, we have retained the right to co-promote or co-market all
licensed products in the United States, United Kingdom, France, Germany, Italy and Spain. In the
United States, we would act as the lead commercial party and record revenue from product sales and
share equally the net benefit from co-promotion from the date of product launch. In the United
Kingdom, France, Germany, Italy and Spain, Novartis would act as the lead commercial party, record
revenue from product sales and would share with us the net benefit from co-promotion and
co-marketing. The net benefit is defined as net product sales minus related cost of sales. The
amount of the net benefit that would be shared with us would start at 15% for the first 12-month
period following the date of launch, increasing to 30% for the second 12-month period following the
date of launch and 50% thereafter. In other countries, we would effectively sell products to
Novartis for their further sale to third-parties. Novartis would pay us for such products at a
price that is determined under the terms of our manufacturing and supply agreement with Novartis
and we would receive a royalty payment from Novartis on net product sales.
6. ViiV HEALTHCARE COMPANY AND GLAXOSMITHKLINE COLLABORATION
In February 2009, we entered into a license agreement which granted GSK an exclusive worldwide
license to develop, manufacture and commercialize our NNRTI compounds, including 761, for the
treatment of human diseases, including HIV/AIDS. We also entered into a stock purchase agreement
with GSK in February 2009, which we refer to as the GSK stock purchase agreement. Under the GSK
stock purchase agreement, GSK purchased approximately 2.5 million shares of our common stock at an
aggregate purchase price of $17.0 million, or a per share price of $6.87. These agreements became
effective in March 2009. In October 2009, GSK assigned this license agreement to ViiV, an affiliate
of GSK.
In March 2009, we received $34.0 million related to this collaboration, which consisted of a
$17.0 million license fee payment under the ViiV license agreement and $17.0 million under the GSK
stock purchase agreement. In May 2010, we received a $6.5 million milestone payment related to the
achievement of a preclinical operational milestone and in November 2010, we received a $20.0
million milestone payment for the initiation of a phase IIb clinical study related to the
development of 761. These milestone payments did not meet our revenue recognition criteria for
immediate recognition and are being recognized over the term of the agreement. Pursuant to the ViiV
license agreement, we could also potentially receive up to $390.0 million in additional milestone
payments as well as double-digit tiered royalties on worldwide product sales. The parties have
agreed that if ViiV, its affiliates or its sublicensees desire to develop 761 for an indication
other than HIV, or if ViiV intends to develop any other licensed compound for any indication, the
parties will mutually agree on a separate schedule of milestone and royalty payments prior to the
start of development.
The ViiV license agreement has performance obligations, including joint committee
participation and ViiVs right to license other NNRTI compounds that we may develop in the future,
that we have assessed under the FASB guidance related to multiple element arrangements, prior to
the implementation of ASU No. 2009-13. We concluded that this arrangement should be accounted for
as a single unit of accounting and recognized using the contingency adjusted performance method.
The $43.5 million payments from ViiV were recorded as deferred revenue and are being recognized as
revenue over the life of the agreement, which is estimated to be 17 years. A cumulative catch-up
was recognized for the period from the execution of the license agreement in March 2009 through the
period in which milestone payments were received. We recognized $0.7 million and $0.4 million of
collaboration revenue for the three months ended September 30, 2011 and 2010, respectively, and
recognized $2.0 million and $1.4 million of collaboration revenue for the nine months ended
September 30, 2011 and 2010, respectively. We recorded $36.7 million and $38.7 million of deferred
revenue as of September 30, 2011 and December 31, 2010, respectively, related to payments received
from ViiV.
In February 2011, ViiV informed us that the FDA placed 761 on clinical hold. ViiV has full
responsibility for the development of 761, including any regulatory interactions.
7. INTANGIBLE ASSET, NET
Our intangible asset relates to a settlement agreement entered into by and among us along with
our former chief executive officer in his individual capacity, the Universite Montpellier II, or
the University of Montpellier, Le Centre National de la Recherche Scientifique, or CNRS, the Board
of Trustees of the University of Alabama on behalf of the University of Alabama at Birmingham, or
UAB, the University of Alabama at Birmingham Research Foundation, or UABRF, and Emory University as
described more fully in Note 10. The settlement
agreement, entered into in July 2008 and effective as of June 1, 2008, included a full release of
all claims, contractual or otherwise, by the parties.
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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
(UNAUDITED)
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
(UNAUDITED)
Pursuant to the settlement agreement, we paid UABRF (on behalf of UAB and Emory University) a
$4.0 million upfront payment and will make additional payments to UABRF equal to 20% of all royalty
payments received by us from Novartis based on worldwide sales of telbivudine, subject to minimum
payment obligations aggregating $11.0 million. We are amortizing $15.0 million related to this
settlement payment to UAB and related entities over the life of the agreement, or August 2019.
The following table is a rollforward of our intangible asset as shown in our condensed
consolidated balance sheets:
September 30, | December 31, | |||||||
2011 | 2010 | |||||||
(In Thousands) | ||||||||
Beginning balance |
$ | 9,843 | $ | 11,069 | ||||
Amortization expense |
(851 | ) | (1,226 | ) | ||||
Ending balance |
$ | 8,992 | $ | 9,843 | ||||
As of September 30, 2011 and December 31, 2010, accumulated amortization was $6.0 million and
$5.2 million, respectively. Amortization expense for this asset is anticipated to be $1.1 million
per year through September 30, 2016 and a total of $3.5 million thereafter through 2019, which is
the term of the expected economic benefit of the asset.
8. ACCRUED EXPENSES
Accrued expenses consisted of the following:
September 30, | December 31, | |||||||
2011 | 2010 | |||||||
(In Thousands) | ||||||||
Research and development contract costs |
$ | 1,668 | $ | 1,948 | ||||
Payroll and benefits |
2,730 | 3,232 | ||||||
Professional fees |
647 | 797 | ||||||
Short-term portion of accrued settlement payment |
856 | 1,086 | ||||||
Severance payments |
| 2,297 | ||||||
Other |
1,371 | 2,112 | ||||||
$ | 7,272 | $ | 11,472 | |||||
On October 28, 2010, our former chief executive officer resigned from his positions as
chairman of the board of directors, president and chief executive officer and received severance
payments of approximately $2.3 million, which were paid as of June 30, 2011.
9. SHARE-BASED COMPENSATION
The following table shows share-based compensation expense as reflected in our condensed
consolidated statements of operations:
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(In Thousands) | (In Thousands) | |||||||||||||||
Research and development |
$ | 269 | $ | 308 | $ | 820 | $ | 942 | ||||||||
General and administrative |
345 | 646 | 1,023 | 1,950 | ||||||||||||
Total share-based compensation expense |
$ | 614 | $ | 954 | $ | 1,843 | $ | 2,892 | ||||||||
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IDENIX PHARMACEUTICALS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
(UNAUDITED)
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
(UNAUDITED)
The table below illustrates the fair value per share and Black-Scholes option pricing model
with the following assumptions used for
grants issued during the three and nine months ended September 30, 2011 and 2010:
Three Months Ended September 30, | Nine Months Ended Septemeber 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Weighted average fair value of
options |
$ | 2.62 | $ | 3.06 | $ | 2.15 | $ | 1.74 | ||||||||
Risk-free interest rate |
0.99 | % | 1.60 | % | 2.07 | % | 2.37 | % | ||||||||
Expected dividend yield |
| | | | ||||||||||||
Expected option term (in years) |
5.20 | 5.14 | 5.20 | 5.14 | ||||||||||||
Expected volatility |
74.8 | % | 70.2 | % | 75.0 | % | 69.1 | % |
The expected option term and expected volatility were determined by examining the expected
term and expected volatility of our stock.
The following table summarizes option activity under the equity incentive plans:
Weighted | ||||||||
Number of | Average Exercise | |||||||
Shares | Price per Share | |||||||
Options outstanding at December 31, 2010 |
7,031,736 | $ | 6.61 | |||||
Granted |
1,281,800 | $ | 3.42 | |||||
Cancelled |
(311,358 | ) | $ | 6.39 | ||||
Exercised |
(198,666 | ) | $ | 3.45 | ||||
Options outstanding at September 30, 2011 |
7,803,512 | $ | 6.17 | |||||
Options exercisable at September 30, 2011 |
5,886,662 | $ | 6.98 |
We had an aggregate of $4.4 million of share-based compensation expense as of September 30,
2011 remaining to be amortized over a weighted average expected term of 2.66 years.
10. COMMITMENTS AND CONTINGENCIES
Product and Drug Candidates
In connection with the resolution of matters relating to certain of our HCV drug candidates,
we entered into a settlement agreement in May 2004 with UAB which provides for a milestone payment
of $1.0 million to UAB upon receipt of regulatory approval in the United States to market and sell
certain HCV products invented or discovered by our former chief executive officer during the period
from November 1, 1999 to November 1, 2000. This settlement agreement also provides that if such HCV
products were approved and commercialized, we will pay UAB an amount equal to 0.5% of worldwide net
sales of such HCV products with a minimum sales-based payment equal to $12.0 million. Currently,
there are no such HCV products approved and therefore there was no related liability recorded as of
September 30, 2011.
We have potential payment obligations under the license agreement with the Universita degli
Studi di Cagliari, or the University of Cagliari, pursuant to which we have the exclusive worldwide
right to make, use and sell certain HCV and HIV technologies. We made certain payments to the
University of Cagliari under these arrangements based on the payments we received under the ViiV
and GSK collaboration. We are also liable for certain payments to the University of Cagliari if we
receive license fees or milestone payments with respect to such technology from Novartis, ViiV or
another collaborator.
Pursuant to the license agreement between us and UAB, we were granted an exclusive license to
the rights that UABRF, an affiliate of UAB, Emory University and CNRS have to a 1995 U.S. patent
application and progeny thereof and counterpart patent applications in Europe, Canada, Japan and
Australia that cover the use of certain synthetic nucleosides for the treatment of HBV. In July
2008, we entered into a settlement agreement with UAB, UABRF and Emory University relating to our
telbivudine technology. Pursuant to this settlement agreement, all contractual disputes relating to
patents covering the use of certain synthetic nucleosides for the treatment of HBV and all
litigation matters relating to patents and patent applications related to the use of
ß-L-2-deoxy-nucleosides for the treatment of HBV assigned to one or more of Idenix, CNRS and the
University of Montpellier and which cover the use of Tyzeka®/Sebivo®
(telbivudine) for the treatment of HBV have been resolved. UAB also agreed to abandon certain
continuation patent applications it filed in July 2005. Under the terms of the settlement
agreement, we paid UABRF (on behalf of UAB and Emory University) a $4.0 million upfront payment and
will make additional payments to UABRF equal to 20% of all royalty payments received by us from
Novartis based on worldwide sales of telbivudine,
subject to minimum payment obligations aggregating $11.0 million. Our payment obligations under the
settlement agreement will expire in August 2019. The settlement agreement was effective on June 1,
2008 and included mutual releases of all claims and covenants not to sue among the parties. It also
included a release from a third-party scientist who had claimed to have inventorship rights in
certain Idenix/CNRS/University of Montpellier patents.
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IDENIX PHARMACEUTICALS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
(UNAUDITED)
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
(UNAUDITED)
In May 2003, we and Novartis entered into an amended and restated agreement with CNRS and the
University of Montpellier pursuant to which we worked in collaboration with scientists from CNRS
and the University of Montpellier to discover and develop technologies relating to antiviral
substances, including telbivudine. This cooperative agreement expired in December 2006, but we
retain rights to exploit the patents derived from the collaboration. Under the cooperative
agreement, we are obligated to make royalty payments for products derived from such patents,
including products for HBV, HCV, and HIV.
Legal Contingencies
In December 2001, we retained the services of Clariant (subsequently acquired by Archimica
Group), a provider of manufacturing services in the specialty chemicals industry, in the form of a
multi-project development and supply agreement. Under the terms of the agreement with Clariant, we
would, on an as needed basis, utilize the Clariant process development and manufacture services
in the development of certain of our drug candidates, including telbivudine. After reviewing
respective bids from both Novartis and Clariant, the joint Idenix and Novartis manufacturing
committee decided to proceed with Novartis as the primary manufacturer of telbivudine. In late
2007, we transferred full responsibility to Novartis for the development, commercialization and
manufacturing of telbivudine. As a result, in January 2008, we exercised our right under the
agreement with Clariant to terminate the agreement effective July 2008. In February 2008, Clariant
asserted that they should have been able to participate in the manufacturing process for
telbivudine as a non-primary supplier and as a result are due an unspecified amount. We do not
agree with Clariants assertion. No estimate of a potential loss can be made and therefore we have
not recorded a liability associated with this potential contingent matter. Clariant has not
initiated legal proceedings. If legal proceedings are initiated, we intend to vigorously defend
against such lawsuit.
We have been involved in a dispute with the City of Cambridge, Massachusetts and its License
Commission pertaining to the level of noise emitted from certain rooftop equipment at our research
facility located at 60 Hampshire Street in Cambridge. The License Commission has claimed that we
are in violation of the local noise ordinance pertaining to sound emissions, based on a complaint
from neighbors living adjacent to the property. We have contested this alleged violation before the
License Commission, as well as the Middlesex County, Massachusetts, Superior Court. In July 2010,
the License Commission granted us a special variance from the requirements of the local noise
ordinance for a period of one-year, effective as of July 1, 2010. In August 2011, the License
Commission granted an extension of the July 2010 variance until August 2012. We may, however, be
required to cease certain activities at the building if: a) the noise emitted from certain rooftop
equipment at our research facility exceeds the levels permitted by the special variance; b) the
parties are unable to resolve this matter through negotiations and remedial action after August
2012; or c) a future legal challenge to the position of the City of Cambridge and the License
Commission is unsuccessful. In any such event, we could be required to relocate to another facility
which could interrupt some of our business activities and could be time consuming and costly. No
estimate of a potential loss can be made and therefore we have not recorded a liability associated
with this potential contingent matter.
Indemnification
We have agreed to indemnify Novartis and its affiliates against losses suffered as a result of
any breach of representations and warranties in the development and commercialization agreement and
the stock purchase agreement. Under the development and commercialization agreement and the stock
purchase agreement, we made numerous representations and warranties to Novartis regarding our HBV
and HCV drug candidates, including representations regarding our ownership of the inventions and
discoveries described above. If one or more of the representations or warranties were not true at
the time they were made to Novartis, we would be in breach of one or both of these agreements. In
the event of a breach by us, Novartis has the right to seek indemnification from us and, under
certain circumstances, us and our stockholders who sold shares to Novartis, which include some of
our directors and officers, for damages suffered by Novartis as a result of such breach. While it
is possible that we may be required to make payments pursuant to the indemnification obligations we
have under the development and commercialization agreement and stock purchase agreement, we cannot
reasonably estimate the amount of such payments or the likelihood that such payments would be
required.
Under the ViiV license agreement and the GSK stock purchase agreement, we have agreed to
indemnify ViiV, GSK and their respective affiliates against losses suffered as a result of our
breach of representations and warranties in these agreements. We made numerous representations and
warranties to both parties regarding our NNRTI program, including 761, as well as representations
regarding our ownership of inventions and discoveries. If one or more of these representations or
warranties were not true at the time we made them, we would be in breach of these agreements. In
the event of a breach by us, the parties have the right to seek indemnification from us for damages
suffered as a result of such breach. While it is possible that we may be required to make payments
pursuant to the indemnification obligations we have under these agreements, we cannot reasonably
estimate the amount of such payments or the likelihood that such payments would be required.
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ITEM 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations |
This report contains forward-looking statements within the meaning of Section 21E of the
Securities Exchange Act of 1934, as amended. For this purpose, any statements contained herein
regarding our strategy, future operations, financial position, future revenues, projected costs and
expenses, prospects, plans and objectives of management, other than statements of historical facts,
are forward-looking statements. The words anticipate, believe, estimate, intend, may,
plan, will, would and similar expressions are intended to identify forward-looking
statements, although not all forward-looking statements contain these identifying words. Such
statements reflect our current views with respect to future events. Because these forward-looking
statements involve known and unknown risks and uncertainties, actual results, performance or
achievements could differ materially from those expressed or implied by these forward-looking
statements for a number of important reasons, including those discussed under Critical Accounting
Policies and Estimates, Risk Factors, Managements Discussion and Analysis of Financial
Condition and Results of Operations and elsewhere in this Quarterly Report on Form 10-Q. We cannot
guarantee any future results, levels of activity, performance or achievements. Should one or more
of these risks or uncertainties materialize, or should underlying assumptions prove incorrect,
actual results may vary materially from those described in this Form 10-Q as anticipated, believed,
estimated or expected. The forward-looking statements contained in this Quarterly Report on Form
10-Q represent our estimates as of the date of this Quarterly Report on Form 10-Q (unless another
date is indicated) and should not be relied upon as representing our expectations as of any other
date. While we may elect to update these forward-looking statements, we specifically disclaim any
obligation to do so.
Overview
Idenix Pharmaceuticals, Inc., which we reference together with our wholly owned subsidiaries
as Idenix, we, us or our, is a biopharmaceutical company engaged in the discovery and development
of drugs for the treatment of human viral diseases with operations in the United States and Europe.
Currently, our primary research and development focus is on the treatment of patients with
hepatitis C virus, or HCV. Our HCV discovery program is focused on multiple classes of drugs, which
include nucleoside/nucleotide polymerase inhibitors and NS5A inhibitors. Our strategic goal is to
develop all oral combinations of direct-acting antiviral, or DAA, drug candidates that should
eliminate the need for interferon and/or ribavirin with the current treatment for HCV. Our
objective is to develop low dose, once- or twice-daily agents with broad genotypic activity that
have low potential for drug-drug interaction, high tolerability and are designed for use in
multiple combination regimens. We will seek to build a combination development strategy, both
internally and with partners, to advance the future of HCV treatments. We believe that
nucleosides/nucleotides will have a significant role in a combination DAA strategy for the
treatment of HCV and therefore we are currently concentrating a substantial amount of our discovery
efforts on this class of drugs. We believe we have strong nucleoside/nucleotide scientific
expertise within our organization and should be able to leverage our intellectual patent portfolio
to develop additional novel nucleoside/nucleotide drug candidates.
In addition to our strategy of developing drugs for the treatment of HCV, we have also
developed products and drug candidates for the treatment of patients with hepatitis B virus, or
HBV, human immunodeficiency virus type-1, or HIV, and acquired immune deficiency syndrome, or AIDS.
We successfully developed and received worldwide marketing approval for telbivudine
(Tyzeka®/Sebivo®), a drug for the treatment of HBV that we licensed to
Novartis Pharma AG, or Novartis. In 2007, we began receiving royalties from Novartis based on a
percentage of net sales of Tyzeka®/Sebivo®. We also discovered and developed
through proof-of-concept clinical testing IDX899, a drug candidate from the class of compounds
known as non-nucleoside reverse transcriptase inhibitors, or NNRTIs, for the treatment of HIV/AIDS.
We licensed our NNRTI compounds, including IDX899, now known as 761, to GlaxoSmithKline, or GSK,
in February 2009. This agreement, which we refer to as the ViiV license agreement, was assigned to
ViiV Healthcare Company, or ViiV, which is an affiliate of GSK. In February 2011, ViiV informed us
that the U.S. Food and Drug Administration, or FDA, placed 761 on clinical hold. ViiV has full
responsibility for the development of 761, including any regulatory interactions.
In September 2010, the FDA placed two of our HCV drug candidates, IDX184 and IDX320, on
clinical hold. The hold was imposed due to three serious adverse events of elevated liver function
tests that were detected during post drug exposure safety visits following a 14-day drug-drug
interaction study of a combination of IDX184 and IDX320 in 20 healthy volunteers. We believe the
hepatotoxicity observed in this drug-drug interaction study was caused by IDX320 and therefore
discontinued the clinical development of this drug candidate. In February 2011, the full clinical
hold on IDX184 was removed. The program was placed on partial clinical hold, which allows us to
initiate a phase IIb 12-week clinical trial of IDX184 in combination with pegylated interferon and
ribavirin, or Peg-IFN/RBV. In July 2011, we initiated enrollment of 100 HCV-infected patients into
the phase IIb clinical trial of IDX184 and have begun dosing patients in this clinical trial.
The phase IIb clinical trial of IDX184 is double-blind and will include 100 treatment-naïve
HCV genotype 1-infected patients. Fifty patients will be randomized to 50 mg of IDX184 and 50
patients to 100 mg of IDX184, each for 12 weeks in combination with Peg-IFN/RBV. Patients will
receive an additional 12 or 36 weeks of Peg-IFN/RBV, depending on the virologic response. We will
provide an interim analysis of the first 30 patients following 28 days of treatment to a data
safety monitoring board, or DSMB, and to the FDA. Once the interim analysis of the 28 day data on
the first 30 patients has been reviewed by the DSMB, we will dose the remaining patients in the
trial. An additional interim analysis will be provided to the DSMB after 60 patients have been
treated for 28 days.
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The following table summarizes key information regarding our pipeline of HCV drug candidates
as well as Tyzeka®/Sebivo® and 761:
Product/Drug | ||||
Indication | Candidates/Programs | Description | ||
HCV
|
Nucleoside/Nucleotide Polymerase Inhibitors (IDX184) |
In the second quarter of 2011, we completed a one-month single dose bioavailability study in healthy volunteers of a tablet formulation of IDX184. Using the new formulation, in July of 2011, we initiated the phase IIb clinical trial of IDX184 in 100 HCV genotype 1-infected patients. We will report an interim analysis from this study after the first 30 patients have completed 28 days of treatment. We have initiated dosing of the first 20 patients and are currently enrolling the remaining ten patients. There have been no safety signals to date. Based on the current rate of enrollment, we expect to complete one month dosing of the first 30 patients in December 2011. | ||
Currently, our discovery efforts are concentrated on this class of drugs to develop additional novel nucleoside/nucleotide drug candidates. We have identified and are advancing in preclinical development additional highly potent nucleotide polymerase inhibitors, including purine and pyrimidine compounds. We are also pursuing several innovative prodrug approaches to preferentially deliver these agents to the liver. | ||||
NS5A Inhibitors (IDX719) |
We selected IDX719 as our lead candidate for our NS5A program. In preclinical studies, IDX719 has shown potent and broad genotypic activity. We anticipate submitting an investigational new drug, or IND, or a clinical trial application, or CTA, by year end 2011 and beginning clinical studies in early 2012. | |||
Protease Inhibitors (IDX077 and IDX791) |
We have elected not to devote significant resources to the protease inhibitors discovery program at this time and have reallocated these resources to the discovery and development of additional nucleoside/nucleotide drug candidates. We will continue to evaluate potential partnerships and licensing agreements for these drug candidates and related intellectual property. | |||
Non-Nucleoside Polymerase Inhibitor (IDX375) |
In the first quarter of 2011, we completed a three-day proof-of-concept study of IDX375 in treatment-naïve genotype 1-infected patients. After three days of dosing with 100 mg, 200 mg and 400 mg of IDX375 administered twice a day, mean HCV viral load reductions were 1.3, 2.3 and 2.7 log10 IU/mL, respectively. We have elected not to continue clinical development of this drug candidate at this time and have reallocated these resources to the discovery and development of additional nucleoside/nucleotide drug candidates. We will continue to evaluate potential partnerships and licensing agreements for this drug candidate and related intellectual property. | |||
HBV
|
Tyzeka®/Sebivo® (telbivudine) (L-nucleoside) |
Novartis has worldwide development, commercialization and manufacturing rights and obligations related to telbivudine (Tyzeka®/Sebivo®). We receive royalty payments equal to a percentage of net sales of Tyzeka®/Sebivo®. | ||
HIV
|
Non-Nucleoside Reverse Transcriptase Inhibitor (761) |
In February 2009, we granted ViiV an exclusive worldwide license to develop, manufacture and commercialize 761. In the fourth quarter of 2010, ViiV initiated a phase IIb clinical study of 761 in HIV-infected patients. In February 2011, ViiV informed us that the FDA placed 761 on clinical hold. ViiV has full responsibility for the development of 761, including any regulatory interactions. |
All of our drug candidates are currently in preclinical or clinical development. To
commercialize any of our drug candidates, we will be required to obtain marketing authorization
approvals after successfully completing preclinical studies and clinical trials of such drug
candidates. Our current estimates for additional research and development expenses are subject to
risks and uncertainties associated with research, development, clinical trials and the FDA and
foreign regulatory review and approval processes. The time and cost to complete development of our
drug candidates may vary significantly and depends upon a number of factors, including the
requirements mandated by the FDA and other regulatory agencies, the success of our clinical trials,
the availability of financial resources, and our collaborations, particularly with Novartis and its
participation in the manufacturing and clinical development of our drug candidates.
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Novartis has the option to license our development-stage drug candidates after demonstration
of activity and safety in a proof-of-concept
clinical trial so long as Novartis maintains at least 30% ownership of our common stock
pursuant to our development, license and commercialization agreement with Novartis, as amended,
which we refer to as the development and commercialization agreement. If Novartis licenses any of
our drug candidates, Novartis is obligated to fund development expenses that we incur in accordance
with development plans agreed upon by us and Novartis. In October 2009, Novartis waived its option
to license IDX184. As a result, we retain the worldwide rights to develop, manufacture,
commercialize and license IDX184. We may seek a partner who will assist in the future development
and commercialization of this drug candidate.
We have incurred significant losses each year since our inception in May 1998 and at September
30, 2011, we had an accumulated deficit of $657.6 million. Historically, we have generated losses
principally from costs associated with research and development activities, including clinical
trial costs, and general and administrative activities. As a result of planned expenditures for
future discovery and development activities, we expect to incur additional losses for the
foreseeable future. We believe that our current cash, cash equivalents and the expected
royalty payments associated with product sales of Tyzeka®/Sebivo® will be
sufficient to sustain operations into at least the second quarter of 2012.
Results of Operations
Comparison of Three Months Ended September 30, 2011 and 2010
Revenues
Revenues for the three months ended September 30, 2011 and 2010 were as follows:
Three Months Ended September 30, | ||||||||
2011 | 2010 | |||||||
(In Thousands) | ||||||||
Collaboration revenue related party: |
||||||||
License fee revenue |
$ | 821 | $ | 2,355 | ||||
Royalty revenue |
1,161 | 1,069 | ||||||
1,982 | 3,424 | |||||||
Other revenue: |
||||||||
Collaboration revenue |
656 | 354 | ||||||
Government grants |
| 10 | ||||||
Total revenues |
$ | 2,638 | $ | 3,788 | ||||
Collaboration revenue related party consisted of revenues associated with our collaboration
with Novartis for the worldwide development and commercialization of our drug candidates.
Collaboration revenue related party was comprised of the following:
| license and other fees received from Novartis for the license of our HBV and HCV drug candidates, net of changes for Novartis stock subscription rights, which are being recognized over the development period of our licensed drug candidates; and |
| royalty payments associated with product sales of Tyzeka®/Sebivo® made by Novartis. |
Collaboration revenue related party was $2.0 million in the three months ended September
30, 2011 compared to $3.4 million in the same period in 2010. The $1.4 million change was due to
additional revenue recognized in 2010 related to the impact of Novartis stock subscription rights.
Payments received under the ViiV and GSK collaboration are classified as collaboration revenue
under other revenue in our condensed consolidated statements of operations. Collaboration revenue
was $0.7 million in the three months ended September 30, 2011 which was substantially unchanged as
compared to the same period in 2010.
Cost of Revenues
Cost of revenues were $0.6 million in the three months ended September 30, 2011 which was
substantially unchanged as compared to the same period in 2010.
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Research and Development Expenses
Research and development expenses were $10.2 million in the three months ended September 30,
2011 as compared to $11.6 million in the same period in 2010. The decrease of $1.4 million was
primarily due to $3.3 million of lower expenses related to devoting fewer resources our protease
inhibitor and non-nucleoside polymerase inhibitor programs in 2011 partially offset by a $1.8
million increase in
expenses related to preclinical development of our NS5A drug candidates.
General and Administrative Expenses
General and administrative expenses were $3.9 million in the three months ended September 30,
2011 as compared to $4.4 million in the same period in 2010. The decrease of $0.5 million was
mainly due to lower salaries and personnel related costs, primarily due to reduced headcount.
Other Income (Expense), Net
Other income, net was $0.3 million in the three months ended September 30, 2011 and was
primarily comprised of research and development credits. This amount was substantially unchanged as
compared to the same period in 2010.
Income Tax Benefit
There was no income tax benefit in the three months ended September 30, 2011 which was
substantially unchanged as compared to the same period in 2010.
Comparison of Nine Months Ended September 30, 2011 and 2010
Revenues
Revenues for the nine months ended September 30, 2011 and 2010 were as follows:
Nine Months Ended September 30, | ||||||||
2011 | 2010 | |||||||
(In Thousands) | ||||||||
Collaboration revenue related party: |
||||||||
License fee revenue |
$ | 2,361 | $ | 3,406 | ||||
Royalty revenue |
3,354 | 2,960 | ||||||
5,715 | 6,366 | |||||||
Other revenue: |
||||||||
Collaboration revenue |
1,967 | 1,390 | ||||||
Government grants |
| 31 | ||||||
Total revenues |
$ | 7,682 | $ | 7,787 | ||||
Collaboration revenue related party was $5.7 million in the nine months ended September 30,
2011 as compared to $6.4 million in the same period in 2010. The $0.7 million change was primarily
due to additional -revenue recognized in 2010 related to the impact of Novartis stock subscription
rights.
Collaboration revenue recognized under the ViiV and GSK collaboration was $2.0 million in the
nine months ended September 30, 2011 compared to $1.4 million in 2010. The increase of $0.6 million
was due mainly to the recognition of additional revenue related to the $20.0 million milestone
payment received in November 2010.
Cost of Revenues
Cost of revenues were $1.7 million in the nine months ended September 30, 2011 which was
substantially unchanged as compared to the same period in 2010.
Research and Development Expenses
Research and development expenses were $28.5 million in the nine months ended September 30,
2011 as compared to $35.5 million in the same period in 2010. The decrease of $7.0 million was
primarily due to $5.5 million of lower expenses related to devoting fewer resources to our protease
inhibitor and non-nucleoside polymerase inhibitor programs in 2011. Additionally, expenses
decreased $2.6 million related to the timing of clinical trials; in January 2010 we initiated a
phase IIa clinical trial of IDX184, whereas in July 2011 we initiated a phase IIb clinical trial of
IDX184. Salaries and personnel related costs decreased $0.8 million in 2011 compared to 2010,
primarily due to reduced headcount, as well as a $0.6 million adjustment to the 2010 bonus
liability, which was paid in 2011. Offsetting these amounts was an increase of $3.7 million related
to the preclinical development of our NS5A drug candidates.
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We expect our research and development expenses for 2011 to be consistent with the amount
incurred in 2010. We expect to incur
additional expenses related to the ongoing phase IIb clinical trial for IDX184 offset by lower
expenses related to devoting fewer resources to our protease inhibitor and non-nucleoside
polymerase inhibitor programs in 2011. We may seek a partner that will assist in the further
development and commercialization of IDX184, which would reduce future costs associated with
IDX184.
We will continue to devote substantial resources to our research and development activities,
expand our research pipeline and engage in future development activities as we continue to advance
our drug candidates and explore collaborations with other entities that we believe will create
shareholder value.
General and Administrative Expenses
General and administrative expenses were $12.3 million in the nine months ended September 30,
2011 as compared to $14.3 million in the same period in 2010. The decrease of $2.0 million was
mainly due to $1.4 million of lower salaries and personnel related costs primarily due to reduced
headcount, as well as a $0.3 million adjustment to the 2010 bonus liability, which was paid in
2011.
We expect general and administrative expenses in 2011 to be lower than expenses incurred in
2010 mainly due to the absence of the severance expense related to our former chief executive
officers resignation.
Restructuring Charges
During the first quarter of 2010, we recorded charges of $2.2 million for employee severance
costs related to reductions in the workforce in our United States and France facilities in
connection with our ongoing cost saving initiatives. All significant severance amounts were paid in
2010.
Other Income, Net
Other income, net was $1.0 million in the nine months ended September 30, 2011 and was
primarily comprised of research and development credits. This amount was substantially unchanged as
compared to the same period in 2010.
Income Tax Expense
Income tax expense was less than $0.1 million in the nine months ended September 30, 2011
which was substantially unchanged as compared to the same period in 2010.
Liquidity and Capital Resources
Since our inception in 1998, we have financed our operations with proceeds obtained in
connection with license and development arrangements and equity financings. The proceeds include:
| license, milestone, royalty and other payments from Novartis; |
| license, milestone and stock purchase payments from ViiV and GSK; |
| reimbursements from Novartis for costs we have incurred subsequent to May 8, 2003 in connection with the development of Tyzeka®/Sebivo®, valtorcitabine and valopicitabine; |
| sales of Tyzeka® in the United States through September 30, 2007; |
| net proceeds from Sumitomo Pharmaceuticals Co., Ltd., or Sumitomo, for reimbursement of development costs; |
| net proceeds from private placements of our convertible preferred stock in 1998, 1999 and 2001; |
| net proceeds from public or underwritten offerings in July 2004, October 2005, August 2009, April 2010 and April 2011; |
| net proceeds from private placements of our common stock concurrent with our 2004, 2005 and 2011 public offerings; and |
| proceeds from the exercise of stock options granted pursuant to our equity compensation plans. |
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Any financing requiring the issuance of additional shares of capital stock must first be
approved by Novartis for so long as Novartis continues to own at least 19.4% of our voting stock.
In April 2010, we received approval from Novartis to issue capital shares pursuant to financing
transactions under an existing shelf registration statement filed with the Securities and Exchange
Commission, or SEC, in
September 2008 so long as the issuance of shares did not reduce Novartis interest in Idenix
below 40%. Pursuant to this shelf registration statement in April 2010, we issued approximately 6.5
million shares of our common stock pursuant to an underwritten offering and received $26.3 million
in net proceeds. Novartis did not participate in this offering. In April 2011, we received approval
from Novartis to issue capital shares and on April 13, 2011, we issued approximately 21.1 million
shares of our common stock pursuant to this shelf registration statement and approximately 1.8
million shares of our common stock to Novartis pursuant to a private placement agreement. The net
proceeds of both transactions were $60.2 million. Upon completion of this offering, we fully
utilized the shelf registration statement.
We have incurred losses in each year since our inception and at September 30, 2011, we had an
accumulated deficit of $657.6 million. We expect to incur losses over the next several years as we
continue to expand our drug discovery and development efforts, specifically, our phase IIb clinical
study of IDX184 initiated in July 2011. As a result, we may seek additional funding through a
combination of public or private financing, collaborative relationships or other arrangements and
we may seek a partner who will assist in the future development and commercialization of IDX184. In
October 2011, we filed a shelf registration statement with the SEC for an indeterminate amount of
shares of common stock, up to the aggregate of $150.0 million, for future issuance. As previously
noted, any financing requiring the issuance of additional shares of capital stock must first be
approved by Novartis so long as Novartis continues to own at least 19.4% of our voting stock. As of
October 24, 2011, Novartis owned approximately 35% of our outstanding common stock. Additional
funding may not be available to us or, if available, may not be on terms favorable to us. Further,
any additional equity financing may be dilutive to stockholders, other than Novartis, which has the
right to maintain its current ownership level.
We believe that our current cash, cash equivalents and the expected royalty payments
associated with product sales of Tyzeka®/Sebivo® will be sufficient to
sustain operations into at least the second quarter of 2012. If we are unable to obtain adequate
financing on a timely basis, we could be required to delay, reduce or eliminate one or more of our
drug development programs, enter into new collaborative, strategic alliances or licensing
arrangements that may not be favorable to us and reduce the number of our employees. More
generally, if we are unable to obtain adequate funding, we may be required to scale back, suspend
or terminate our business operations.
We had total cash and cash equivalents of $64.7 million and $46.1 million as of September 30,
2011 and December 31, 2010, respectively. Our investment policy seeks to manage these assets to
achieve our goals of preserving principal and maintaining adequate liquidity. As of September 30,
2011, all of our investments were in government agency and treasury money market instruments.
Net cash used in operating activities was $41.6 million and $37.0 million in the nine months
ended September 30, 2011 and 2010, respectively. The $4.6 million net change was due to decreases
in accrued expenses and the receipt of a milestone payment under the ViiV license agreement in
2010, offset by lower operating expenses incurred in 2011.
Net cash used in investing activities was $0.8 million and net cash provided by investing
activities was $0.9 million in the nine months ended September 30, 2011 and 2010, respectively. The
$1.7 million net change was primarily due to the sale of a marketable security in 2010.
Net cash provided by financing activities was $60.9 million and $26.6 million in the nine
months ended September 30, 2011 and 2010, respectively. The increase of $34.3 million was primarily
due to the receipt of proceeds from the underwritten offering in April 2011 of $60.2 million as
compared to the underwritten offering in April 2010 of $26.3 million.
Contractual Obligations and Commitments
Set forth below is a description of our contractual obligations as of September 30, 2011:
Payments Due by Period | ||||||||||||||||||||
Less Than | After 5 | |||||||||||||||||||
Contractual Obligations | Total | 1 Year | 1-3 Years | 4-5 Years | Years | |||||||||||||||
(In Thousands) | ||||||||||||||||||||
Operating leases |
$ | 8,506 | $ | 2,819 | $ | 3,908 | $ | 1,424 | $ | 355 | ||||||||||
Settlement payments and other agreements |
1,860 | 1,230 | 446 | 184 | | |||||||||||||||
Long-term obligations |
7,857 | | 538 | | 7,319 | |||||||||||||||
Total contractual obligations |
$ | 18,223 | $ | 4,049 | $ | 4,892 | $ | 1,608 | $ | 7,674 | ||||||||||
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Included in the table above is $8.4 million related to a settlement agreement we entered into
in July 2008 with the University of Alabama at Birmingham, or UAB, the University of Alabama at
Birmingham Research Foundation, or UABRF, an affiliate of UAB, and Emory University relating to our
telbivudine technology. Pursuant to this settlement agreement, all contractual disputes relating to
patents covering the use of certain synthetic nucleosides for the treatment of HBV and all
litigation matters relating to patents and patent applications related to the use of
ß-L-2-deoxy-nucleosides for the treatment of HBV assigned to one or more of Idenix, Le Centre
National de la Recherche Scientifique, or CNRS, and the Universite Montpellier II, or the
University of Montpellier, and which cover the use of Tyzeka®/Sebivo®
(telbivudine) for the treatment of HBV have been resolved. Under the terms of the settlement
agreement, we paid UABRF (on behalf of UAB
and Emory University) a $4.0 million upfront payment and will make additional payments to
UABRF equal to 20% of all royalty payments received by us from Novartis based on worldwide sales of
telbivudine, subject to minimum payment obligations aggregating $11.0 million. Our payment
obligations under the settlement agreement will expire in August 2019. The settlement agreement was
effective on June 1, 2008 and included mutual releases of all claims and covenants not to sue among
the parties. It also included a release from a third-party scientist who had claimed to have
inventorship rights in certain Idenix/CNRS/University of Montpellier patents.
In connection with certain of our operating leases, we have two letters of credit with a
commercial bank totaling $1.2 million which expire at varying dates through December 31, 2013.
As of September 30, 2011, we had $3.1 million of long-term liabilities recorded. These
liabilities and certain potential payment obligations relating to our HBV, HCV and HIV product and
drug candidates that are described below are excluded from the contractual obligations table above
as we cannot make a reliable estimate of the period in which the cash payments may be made.
In May 2004, we entered into a settlement agreement with UAB which provides for a milestone
payment of $1.0 million to UAB upon receipt of regulatory approval in the United States to market
and sell certain HCV products invented or discovered by our former chief executive officer during
the period from November 1, 1999 to November 1, 2000. This settlement agreement also provides that
if such HCV products were approved and commercialized, we will pay UAB an amount equal to 0.5% of
worldwide net sales of such HCV products with a minimum sales-based payment equal to $12.0 million.
Currently, there are no such HCV products approved and therefore there was no related liability
recorded as of September 30, 2011.
We have potential payment obligations under the license agreement with the Universita degli
Studi di Cagliari, or the University of Cagliari, pursuant to which we have the exclusive worldwide
right to make, use and sell certain HCV and HIV technologies. We made certain payments to the
University of Cagliari under these arrangements based on the payment we received under the ViiV and
GSK collaboration. We are also liable for certain payments to the University of Cagliari if we
receive license fees or milestone payments with respect to such technology from Novartis, ViiV or
another collaborator.
In May 2003, we and Novartis entered into an amended and restated agreement with CNRS and the
University of Montpellier pursuant to which we worked in collaboration with scientists from CNRS
and the University of Montpellier to discover and develop technologies relating to antiviral
substances, including telbivudine. This cooperative agreement expired in December 2006, but we
retain rights to exploit the patents derived from the collaboration. Under the cooperative
agreement, we are obligated to make royalty payments for products derived from such patents.
In March 2003, we entered into a final settlement agreement with Sumitomo, under which the
rights to develop and commercialize telbivudine in Japan, China, South Korea and Taiwan previously
granted to Sumitomo were returned to us. This settlement agreement provides for a $5.0 million
milestone payment to Sumitomo if and when the first commercial sale of telbivudine occurs in Japan
for the treatment of HBV. As part of the development and commercialization agreement, Novartis will
reimburse us for any such payment made to Sumitomo.
In December 2001, we retained the services of Clariant (subsequently acquired by Archimica
Group), a provider of manufacturing services in the specialty chemicals industry, in the form of a
multiproject development and supply agreement. Under the terms of the agreement with Clariant, we
would, on an as needed basis, utilize the Clariant process development and manufacture services
in the development of certain of our drug candidates, including telbivudine. After reviewing
respective bids from both Novartis and Clariant, the joint manufacturing committee decided to
proceed with Novartis as the primary manufacturer of telbivudine. In late 2007, we transferred full
responsibility to Novartis for the development, commercialization and manufacturing of telbivudine.
As a result, in January 2008, we exercised our right under the agreement with Clariant to terminate
effective July 2008. In February 2008, Clariant asserted that they should have been able to
participate in the manufacturing process for telbivudine as a non-primary supplier and as a result
are due an unspecified amount. We do not agree with Clariants assertion and therefore have not
recorded a liability associated with this potential contingent matter. Clariant has not initiated
legal proceedings. If legal proceedings are initiated, we intend to vigorously defend against such
lawsuit.
Off-Balance Sheet Arrangements
We currently have no off-balance sheet arrangements.
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Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations are based on
our condensed consolidated financial statements, which have been prepared in accordance with
generally accepted accounting principles in the United States of America. The preparation of the
condensed consolidated financial statements requires us to make estimates and judgments that affect
the reported amounts of assets, liabilities, revenues and expenses. On an ongoing basis, we
evaluate our estimates and judgments, including those related to revenue recognition, accrued
expenses and share-based compensation. We base our estimates on historical experience and on
various other
assumptions that we believe to be reasonable under the circumstances, the results of which
form the basis for making judgments about the carrying value of assets and liabilities that are not
readily apparent from other sources. Actual results may differ from these estimates under different
assumptions or conditions.
Our significant accounting policies are more fully described in Note 2 to our consolidated
financial statements included in our Annual Report on Form 10-K for the year ended December 31,
2010.
Recent Accounting Pronouncements
In June, 2011, the Financial Accounting Standards Board issued Accounting Standard Update No.
2011-5, Presentation of Comprehensive Income. The objective of this amendment is to improve the
comparability, consistency and transparency of financial reporting and to increase the prominence
of items reported in other comprehensive income. This guidance is effective for fiscal years
beginning after December 15, 2011. We do not expect that this guidance will have any material
effect on our consolidated financial statements.
Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
Interest Rate Risk
Changes in interest rates may impact our financial position, operating results or cash flows.
The primary objective of our investment activities is to preserve capital while maintaining
liquidity until it is required to fund operations. To minimize risk, we maintain our operating cash
in commercial bank accounts. We invest our cash in high quality financial instruments, primarily
government agency and treasury money market instruments. Due to the conservative nature of these
instruments, we do not believe that we have a material exposure to interest rate risk.
Foreign Currency Exchange Rate Risk
Our foreign currency transactions include agreements denominated, wholly or partly, in foreign
currencies, European subsidiaries that are denominated in foreign currencies and royalties earned
based on worldwide product sales of Sebivo® by Novartis. As a result of these foreign
currency transactions, our financial position, results of operations and cash flows can be affected
by market fluctuations in foreign currency exchange rates. We have not entered into any derivative
financial instruments to reduce the risk of fluctuations in currency exchange rates.
Item 4. | Controls and Procedures |
Disclosure Controls and Procedures
We have conducted an evaluation under the supervision and with the participation of our
management, including our chief executive officer and chief financial officer (our principal
executive officer and principal financial officer, respectively), regarding the effectiveness of
our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934, as amended, or the Exchange Act) as of the end of the period
covered by this report. Based on such evaluation, our chief executive officer and chief financial
officer concluded that, as of September 30, 2011, our disclosure controls and procedures are
effective.
Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting (as defined in Rules
13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter ended September
30, 2011 that has materially affected, or is reasonably likely to materially affect, our internal
control over financial reporting.
PART II. OTHER INFORMATION
Item 1. | Legal Proceedings |
See Part I, Item 3 of our Annual Report on Form 10-K for the year ended December 31, 2010 and
Note 10 of this quarterly report for discussions of our legal proceedings.
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Item 1A. | Risk Factors |
Our business faces many risks. The risks described below may not be the only risks we face.
Additional risks we do not yet know of or which we currently believe are immaterial may also impair
our business operations. If any of the events or circumstances described in the following risks
actually occurs, our business, financial condition or results of operations could suffer and the
trading price of our common
stock could decline. The following risks should be considered, together with all of the other
information in our Annual Report on Form 10-K for the year ended December 31, 2010, before deciding
to invest in our securities.
Factors Related to Our Business
The FDA placed one of our drug candidates, IDX184, on partial clinical hold and our business may be
adversely affected if we are not able to continue to pursue development of IDX184 or if we are
significantly delayed in developing IDX184.
Our primary research and development focus is the treatment of patients with HCV. Our most
advanced compound under development is IDX184, a nucleotide polymerase inhibitor. Our other drug
candidates for the treatment of HCV are in preclinical and early clinical stages of development. In
the third quarter of 2010, we completed a dose-ranging phase IIa trial evaluating IDX184 in
combination with Peg-IFN/RBV. Following a 14-day drug-drug interaction study of a combination of
IDX184 and IDX320 in healthy volunteers, in September 2010, the FDA placed IDX184 and IDX320 on
clinical hold due to three serious adverse events of elevated liver function tests that were
detected during post drug exposure safety visits. We believe the hepatotoxicity observed in this
drug-drug interaction study was caused by IDX320 and therefore discontinued the clinical
development of this drug candidate. In February 2011, the full clinical hold on IDX184 was removed.
The program was placed on partial clinical hold, which allows us to initiate a phase IIb 12-week
clinical trial of IDX184 in combination with Peg-IFN/RBV with safety evaluations of the patients
that will be shared with the FDA at certain intervals in the trial. We initiated this clinical
trial in July 2011, however, if we are not able to continue development of IDX184, or if our
progress in development of IDX184 is slowed significantly due to the partial clinical hold, our
business may be adversely affected.
Our product candidates may exhibit undesirable side effects when used alone or in combination with
other approved pharmaceutical products or investigational agents, which may delay or preclude their
further development or regulatory approval, or limit their use if approved.
Throughout the drug development process, we must continually demonstrate the safety and
tolerability of our product candidates in order to obtain regulatory approval to advance their
clinical development or to market them. Even if our product candidates demonstrate biologic
activity and clinical efficacy, any unacceptable adverse side effects or toxicities, when
administered alone or in the presence of other pharmaceutical products or investigational agents,
which can arise at any stage of development, may outweigh their potential benefit. For instance, in
September 2010, two of our drug candidates, IDX184 and IDX320, were placed on clinical hold by the
FDA due to three serious adverse events of elevated liver function tests that were detected during
post drug exposure safety visits following a 14-day drug-drug interaction study of a combination of
IDX184 and IDX320 in healthy volunteers. In future preclinical studies and clinical trials our
product candidates may demonstrate unacceptable safety profiles or unacceptable drug-drug
interactions, which could result in the delay or termination of their development, prevent
regulatory approval or limit their market acceptance if they are ultimately approved.
We have a limited operating history and have incurred a cumulative loss since inception. If we do
not generate significant revenues, we will not be profitable.
We have incurred significant losses each year since our inception in May 1998. Telbivudine
(Tyzeka®/Sebivo®), our only product to reach commercialization, is marketed
by Novartis, and we receive royalty payments associated with sales of this product. We have
generated limited revenue from the sales of Tyzeka®/Sebivo® to date. Due to
our limited Tyzeka®/Sebivo® sales history, there is risk in determining the
potential future revenue associated with potential sales of this product or any other product that
reaches commercialization. We will not be able to generate additional revenues from other product
sales until we successfully complete clinical development and receive regulatory approval for one
of our other drug candidates, and we or a collaboration partner successfully introduce such product
commercially. We expect to incur annual operating losses over the next several years as we continue
to expand our drug discovery and development efforts. We also expect that the net loss we will
incur will fluctuate from quarter to quarter and such fluctuations may be substantial. To generate
product revenue, regulatory approval for products we successfully develop must be obtained and we
and/or one of our existing or future collaboration partners must effectively manufacture, market
and sell such products. Even if we successfully commercialize drug candidates that receive
regulatory approval, we may not be able to realize revenues at a level that would allow us to
achieve or sustain profitability. Accordingly, we may never generate significant revenue and, even
if we do generate significant revenue, we may never achieve profitability.
We will need additional capital to fund our operations, including the development, manufacture and
potential commercialization of our drug candidates. If we do not have or cannot raise additional
capital when needed, we will be unable to develop and ultimately commercialize our drug candidates
successfully.
Our cash and cash equivalents balance was $64.7 million at September 30, 2011. We believe that
in addition to this balance the anticipated royalty payments associated with product sales of
Tyzeka®/Sebivo® will be sufficient to sustain operations into at least the
second quarter of 2012. Our drug development programs and the potential commercialization of our
drug candidates will require substantial cash to fund expenses that we will incur in connection
with preclinical studies and clinical trials, regulatory review and future manufacturing and sales
and marketing efforts.
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Our need for additional funding will depend in part on whether:
| with respect to 761, ViiV is able to continue clinical development of this drug candidate, following the clinical hold imposed by the FDA in February 2011, such that we receive certain future clinical development milestone payments; | ||
| with respect to our other drug candidates, Novartis exercises its option to license any such drug candidates, and we receive related license fees, milestone payments and development expense reimbursement payments from Novartis; with respect to any of our drug candidates not licensed by Novartis, we receive related license fees, milestone payments and development expense reimbursement payments from third-parties; | ||
| with respect to Tyzeka®/Sebivo®, whether the level of royalty payments received from Novartis is significant; and | ||
| the terms of a development and commercialization agreement, if any, that we enter into with respect to our drug candidate, IDX184, for the treatment of HCV. |
In addition, although Novartis has agreed to pay for certain development expenses incurred
under development plans it approves for products and drug candidates that it has licensed from us,
Novartis has the right to terminate its license and the related funding obligations with respect to
any such product or drug candidate by providing us with six months written notice. Furthermore,
ViiV has the right to terminate the ViiV license agreement by providing us with 90 days written
notice.
Our future capital needs will also depend generally on many other factors, including:
| the amount of revenue that we may be able to realize from commercialization and sale of drug candidates, if any, which are approved by regulatory authorities; | ||
| the scope and results of our preclinical studies and clinical trials; | ||
| the progress of our current preclinical and clinical development programs for HCV; | ||
| the cost of obtaining, maintaining and defending patents on our drug candidates and our processes; | ||
| the cost, timing and outcome of regulatory reviews; | ||
| any costs associated with changes in rules and regulations promulgated by the FDA related to the drug development process and/or clinical trials, including but not limited to increased costs associated with the evolving standard of care treatment regimens; | ||
| the commercial potential of our drug candidates; | ||
| the rate of technological advances in our markets; | ||
| the cost of acquiring or in-licensing new discovery compounds, technologies, drug candidates or other business assets; | ||
| the magnitude of our general and administrative expenses; | ||
| any costs related to litigation in which we may be involved or related to any claims made against us; | ||
| any costs we may incur under current and future licensing arrangements; and | ||
| the costs of commercializing and launching other products, if any, which are successfully developed and approved for commercial sale by regulatory authorities. |
We expect that we will incur significant costs to complete the clinical trials and other
studies required to enable us to submit regulatory applications with the FDA and/or the European
Medicines Agency, or EMEA, for our drug candidates as we continue development of each of our drug
candidates. The time and cost to complete clinical development of our drug candidates may vary as a
result of a number of factors.
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We may seek additional capital through a combination of public and private equity offerings,
debt financings and collaborative, strategic alliance and licensing arrangements. Such additional
financing may not be available when we need it or may not be available on terms that are favorable
to us. In October 2011, we filed a shelf registration statement with the SEC for an indeterminate
amount of shares of common stock, up to the aggregate of $150.0 million, for future issuance. Any
financing requiring the issuance of additional shares of capital stock must first be approved by
Novartis so long as Novartis continues to own at least 19.4% of our voting stock. As of October 24,
2011, Novartis
owned approximately 35% of our outstanding common stock.
If we raise additional capital through the sale of our common stock, existing stockholders,
other than Novartis, which has the right to maintain a certain level of ownership, will experience
dilution of their current level of ownership of our common stock and the terms of the financing may
adversely affect the holdings or rights of our stockholders. If we are unable to obtain adequate
financing on a timely basis, we could be required to delay, reduce or eliminate one or more of our
drug development programs or to enter into new collaborative, strategic alliances or licensing
arrangements that may not be favorable to us. More generally, if we are unable to obtain adequate
funding, we may be required to scale back, suspend or terminate our business operations.
Our research and development efforts may not result in additional drug candidates being discovered
on anticipated timelines, which could limit our ability to generate revenues.
Some of our research and development programs are at preclinical stages. Additional drug
candidates that we may develop or acquire will require significant research, development,
preclinical studies and clinical trials, regulatory approval and commitment of resources before any
commercialization may occur. We cannot predict whether our research will lead to the discovery of
any additional drug candidates that could generate revenues for us.
Our failure to successfully acquire or develop and market additional drug candidates or approved
drugs would impair our ability to grow.
As part of our strategy, we intend to establish a franchise in the HCV market by developing
multiple drug candidates for this therapeutic indication. The success of this strategy depends upon
the development and commercialization of additional drug candidates that we successfully discover,
license or otherwise acquire. In September 2010, the FDA placed two of our HCV drug candidates,
IDX184 and IDX320, on clinical hold. The hold was imposed due to three serious adverse events of
elevated liver function tests that were detected during post drug exposure safety visits following
a 14-day drug-drug interaction study of a combination of IDX184 and IDX320 in healthy volunteers.
We believe the hepatotoxicity observed in this drug-drug interaction study was caused by IDX320 and
therefore discontinued the clinical development of this drug candidate. In February 2011, the full
clinical hold on IDX184 was removed by the FDA and the program was placed on partial clinical hold.
Drug candidates we discover, license or acquire will require additional and likely substantial
development, including extensive clinical testing and approval by the FDA and applicable foreign
regulatory authorities. All drug candidates are prone to the risks of failure which are inherent in
pharmaceutical drug development, including the possibility that the drug candidate will not be
shown to be sufficiently safe and effective for approval by regulatory authorities.
Proposing, negotiating and implementing the acquisition or in-license of drug candidates may
be a lengthy and complex process. Other companies, including those with substantially greater
financial, marketing and sales resources, may compete with us for the acquisition of drug
candidates. We may not be able to acquire the rights to additional drug candidates on terms that we
find acceptable.
Our investments are subject to general credit, liquidity, market and interest rate risks.
As of September 30, 2011, all of our cash and cash equivalents were invested in government
agency and treasury money market instruments. Our investment policy seeks to manage these assets to
achieve our goals of preserving principal and maintaining adequate liquidity. Should our
investments cease paying or reduce the amount of interest paid to us, our interest income would
suffer. In addition, general credit, liquidity, market and interest risks associated with our
investment portfolio may have an adverse effect on our financial condition.
The commercial markets which we intend to enter are subject to intense competition. If we are
unable to compete effectively, our drug candidates may be rendered noncompetitive or obsolete.
We are engaged in segments of the pharmaceutical industry that are highly competitive and
rapidly changing. Many large pharmaceutical and biotechnology companies, academic institutions,
governmental agencies and other public and private research organizations are commercializing or
pursuing the development of products that target viral diseases, including the same diseases we are
targeting.
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We face intense competition from existing products and we expect to face increasing
competition as new products enter the market and advanced technologies become available. For the
treatment of HBV, we are aware of six other drug products, specifically, lamivudine, entecavir,
adefovir dipivoxil, tenofovir, pegylated interferon and interferon alpha, which are approved by the
FDA and commercially available in the United States or in foreign jurisdictions. Five of these
products have preceded Tyzeka®/Sebivo® into the marketplace and have gained
acceptance with physicians and patients. For the treatment of HIV, there are approximately 25
antiviral therapies currently approved for commercial sale in the United States. For the treatment
of HCV, pegylated interferon in combination with ribavirin are approved by the FDA for commercial
sale. Two drug products, Incivek (telaprevir) and Victrelis (boceprevir), were recently approved by
the FDA for the treatment of HCV in combination with Peg-IFN/RBV. Increased costs associated with
the evolving standard of care treatment regimens
and the cure rates of patients using either one of these approved drugs and future approved
combinations of DAAs may be such that our development and discovery efforts in the area of HCV may
be rendered noncompetitive.
We believe that a significant number of drug candidates that are currently under development
may become available in the future for the treatment of HBV, HCV and HIV. Our competitors products
may be more effective, have fewer side effects, have lower costs or be better marketed and sold
than any of our products. Additionally, products that our competitors successfully develop for the
treatment of HCV and HIV may be marketed prior to any HCV or HIV product we or our collaboration
partners successfully develop. Many of our competitors have:
| significantly greater financial, technical and human resources than we have and may be better equipped to discover, develop, manufacture and commercialize products; | ||
| more extensive experience in conducting preclinical studies and clinical trials, obtaining regulatory approvals and manufacturing and marketing pharmaceutical products; | ||
| products that have been approved or drug candidates that are in late-stage development; and | ||
| collaborative arrangements in our target markets with leading companies and research institutions. |
Novartis and ViiV have the right to market and sell products that compete with the drug
candidates and products that we license to them and any competition by Novartis or ViiV could have
a material adverse effect on our business.
Competitive products may render our products obsolete or noncompetitive before we can recover
the expenses of developing and commercializing our drug candidates. Furthermore, the development of
new treatment methods and/or the widespread adoption or increased utilization of vaccines for the
diseases we are targeting could render our drug candidates noncompetitive, obsolete or
uneconomical.
With respect to Tyzeka®/Sebivo® and other products, if any, we may
successfully develop and obtain approval to commercialize, we will face competition based on the
safety and effectiveness of our products, the timing and scope of regulatory approvals, the
availability and cost of supply, marketing and sales capabilities, reimbursement coverage, price,
patent position and other factors. Our competitors may develop or commercialize more effective or
more affordable products or obtain more effective patent protection than we do. Accordingly, our
competitors may commercialize products more rapidly or effectively than we do, which could
adversely affect our competitive position and business.
Biotechnology and related pharmaceutical technologies have undergone and continue to be
subject to rapid and significant change. Our future will depend in large part on our ability to
maintain a competitive position with respect to these technologies.
If we are not able to attract and retain key management and scientific personnel and advisors, we
may not successfully develop our drug candidates or achieve our other business objectives.
The growth of our business and our success depends in large part on our ability to attract and
retain key management and research and development personnel. Our key personnel include our senior
officers, many of whom have very specialized scientific, medical or operational knowledge. The loss
of the service of any of the key members of our senior management team may significantly delay or
prevent our discovery of additional drug candidates, the development of our drug candidates and
achievement of our other business objectives. Our ability to attract and retain qualified
personnel, consultants and advisors is critical to our success.
We face intense competition for qualified individuals from numerous pharmaceutical and
biotechnology companies, academic institutions, governmental entities and other research
institutions. We may be unable to attract and retain these individuals and our failure to do so
would have an adverse effect on our business.
Our business has a substantial risk of product liability claims. If we are unable to obtain or
maintain appropriate levels of insurance, a product liability claim against us could adversely
affect our business.
Our business exposes us to significant potential product liability risks that are inherent in
the development, manufacturing and marketing of human therapeutic products. Product liability
claims could result in a recall of products or a change in the therapeutic indications for which
such products may be used. In addition, product liability claims may distract our management and
key personnel from our core business, require us to spend significant time and money in litigation
or to pay significant damages, which could prevent or interfere with commercialization efforts and
could adversely affect our business. Claims of this nature would also adversely affect our
reputation, which could damage our position in the marketplace.
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For Tyzeka®/Sebivo®, product liability claims could be made against us
based on the use of our product prior to October 1, 2007, at
which time we transferred to Novartis our worldwide development, commercialization and
manufacturing rights and obligations related to Tyzeka®/Sebivo® in exchange
for royalty payments equal to a percentage of net sales. For Tyzeka®/Sebivo®
and our drug candidates, product liability claims could be made against us based on the use of our
drug candidates in clinical trials. We have obtained product liability insurance for
Tyzeka®/Sebivo® and maintain clinical trial insurance for our drug candidates
in development. Such insurance may not provide adequate coverage against potential liabilities. In
addition, clinical trial and product liability insurance is becoming increasingly expensive. As a
result, we may be unable to maintain or increase current amounts of product liability and clinical
trial insurance coverage, obtain product liability insurance for other products, if any, that we
seek to commercialize, obtain additional clinical trial insurance or obtain sufficient insurance at
a reasonable cost. If we are unable to obtain or maintain sufficient insurance coverage on
reasonable terms or to otherwise protect against potential product liability claims, we may be
unable to commercialize our products or conduct the clinical trials necessary to develop our drug
candidates. A successful product liability claim brought against us in excess of our insurance
coverage may require us to pay substantial amounts in damages. This could adversely affect our cash
position and results of operations.
Our insurance policies are expensive and protect us only from some business risks, which will leave
us exposed to significant, uninsured liabilities.
We do not carry insurance for all categories of risk that our business may encounter. We
currently maintain general liability, property, workers compensation, products liability,
directors and officers and employment practices insurance policies. We do not know, however, if
we will be able to maintain existing insurance with adequate levels of coverage. Any significant
uninsured liability may require us to pay substantial amounts, which would adversely affect our
cash position and results of operations.
If the estimates we make, and the assumptions on which we rely, in preparing our financial
statements prove inaccurate, our actual results may vary from those reflected in our projections
and accruals.
Our financial statements have been prepared in accordance with generally accepted accounting
principles in the United States of America. The preparation of these financial statements requires
us to make estimates and judgments that affect the reported amounts of our assets, liabilities,
revenues and expenses, the amounts of charges accrued by us and related disclosures of contingent
assets and liabilities. We base our estimates on historical experience and on various other
assumptions that we believe to be reasonable under the circumstances. There can be no assurance,
however, that our estimates, or the assumptions underlying them, will not change.
One of these estimates is our estimate of the development period over which we amortize
non-refundable payments from Novartis, which we review on a quarterly basis. We estimate this
period to be through May 2021 based on current judgments related to the product development
timeline of our licensed drug candidates. When the estimated development period changes, we adjust
periodic revenue that is being recognized and record the remaining unrecognized non-refundable
payments over the remaining development period during which our performance obligations are
completed. Significant judgments and estimates are involved in determining the estimated
development period and different assumptions could yield materially different financial results.
This, in turn, could adversely affect our stock price.
If we fail to design and maintain an effective system of internal controls, we may not be able to
accurately report our financial results or prevent fraud. As a result, current and potential
stockholders could lose confidence in our financial reporting, which could harm our business and
the trading price of our common stock.
As directed by Section 404 of the Sarbanes-Oxley Act of 2002, the SEC adopted rules requiring
public companies to include a report in Annual Reports on Form 10-K that contains an assessment by
management of the effectiveness of the companys internal controls over financial reporting. In
addition, the companys registered independent public accounting firm must attest to the
effectiveness of our internal controls over financial reporting.
We have completed an assessment and will continue to review in the future our internal
controls over financial reporting in an effort to ensure compliance with the Section 404
requirements. The manner by which companies implement, maintain and enhance these requirements
including internal control reforms, if any, to comply with Section 404, and how registered
independent public accounting firms apply these requirements and test companies internal controls,
is subject to change and will evolve over time. As a result, notwithstanding our efforts, it is
possible that either our management or our registered independent public accounting firm may in the
future determine that our internal controls over financial reporting are not effective.
A determination that our internal controls over financial reporting are ineffective could
result in an adverse reaction in the financial marketplace due to a loss of investor confidence in
the reliability of our financial statements, which ultimately could negatively impact the market
price of our stock, increase the volatility of our stock price and adversely affect our ability to
raise additional funding.
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Our business is subject to international economic, political and other risks that could negatively
affect our results of operations or financial position.
Our business is subject to risks associated with doing business internationally, including:
| changes in a specific countrys or regions political or economic conditions, including Western Europe, in particular; | ||
| potential negative consequences from changes in tax laws affecting our ability to repatriate profits; | ||
| difficulty in staffing and managing operations overseas; | ||
| unfavorable labor regulations applicable to our European or other international operations; | ||
| changes in foreign currency exchange rates; and | ||
| the need to ensure compliance with the numerous regulatory and legal requirements applicable to our business in each of these jurisdictions and to maintain an effective compliance program to ensure compliance. |
Our operating results are impacted by the health of the North American, European and Asian
economies. Our business and financial performance may be adversely affected by current and future
economic conditions that cause a decline in business and consumer spending, including a reduction
in the availability of credit, rising interest rates, financial market volatility and recession.
We may be required to relocate one of our principal research facilities, which could interrupt our
business activities and result in significant expense.
We have been involved in a dispute with the City of Cambridge, Massachusetts and its License
Commission pertaining to the level of noise emitted from certain rooftop equipment at our research
facility located at 60 Hampshire Street in Cambridge. The License Commission has claimed that we
are in violation of the local noise ordinance pertaining to sound emissions, based on a complaint
from neighbors living adjacent to the property. We have contested this alleged violation before the
License Commission, as well as the Middlesex County, Massachusetts, Superior Court. In July 2010,
the License Commission granted us a special variance from the requirements of the local noise
ordinance for a period of one-year, effective as of July 1, 2010. In August 2011, the License
Commission granted an extension of the July 2010 variance until August 2012. We may, however, be
required to cease certain activities at the building if: a) the noise emitted from certain rooftop
equipment at our research facility exceeds the levels permitted by the special variance; b) the
parties are unable to resolve this matter through negotiations and remedial action after August
2012; or c) any future legal challenge to the position of the City of Cambridge and the License
Commission is unsuccessful. In any such event, we could be required to relocate to another facility
which could interrupt some of our business activities and could be time consuming and costly.
Factors Related to Development, Clinical Testing and Regulatory Approval of Our Drug Candidates
All of our drug candidates are in development. Our drug candidates remain subject to clinical
testing and regulatory approval. If we are unable to develop our drug candidates, we will not be
successful.
To date, we have limited experience marketing, distributing and selling any products. The
success of our business depends primarily upon Novartis ability to commercialize
Tyzeka®/Sebivo®, ViiVs ability to successfully develop and commercialize our
NNRTI compounds, including 761, and our ability, or that of any future collaboration partner, to
successfully commercialize other products we may successfully develop. We received approval from
the FDA in the fourth quarter of 2006 to market and sell Tyzeka® for the treatment of
HBV in the United States. In April 2007, Sebivo® was approved in the European Union for
the treatment of patients with HBV. Effective October 1, 2007, we transferred to Novartis our
worldwide development, commercialization and manufacturing rights and obligations related to
telbivudine (Tyzeka®/Sebivo®) in exchange for royalty payments equal to a
percentage of net sales. The royalty percentage varies based on the specified territory and the
aggregate dollar amount of net sales. In February 2009, we entered into the ViiV license agreement
whereby ViiV is solely responsible for the worldwide development, manufacture and commercialization
of our NNRTI compounds, including 761, for the treatment of human diseases, including HIV/AIDS. In
February 2011, ViiV informed us that the FDA placed 761 on clinical hold. ViiV has full
responsibility for the development of 761, including any regulatory interactions. If ViiV is
unable to successfully develop 761 or any other compound licensed to it, we will not receive
additional milestone or royalty payments from ViiV.
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Our other drug candidates are in various earlier stages of development. All of our drug
candidates require regulatory review and approval prior to commercialization. Approval by
regulatory authorities requires, among other things, that our drug candidates satisfy rigorous
standards of safety, including efficacy and assessments of the toxicity and carcinogenicity of the
drug candidates we are developing. To satisfy these standards, we must engage in expensive and
lengthy testing. Notwithstanding the efforts to satisfy these regulatory standards, our drug
candidates may not:
| offer therapeutic or other improvements over existing drugs; | ||
| be proven safe and effective in clinical trials; | ||
| meet applicable regulatory standards; | ||
| be capable of being produced in commercial quantities at acceptable costs; or | ||
| be successfully commercialized. |
Commercial availability of our drug candidates is dependent upon successful clinical
development and receipt of requisite regulatory approvals. Clinical data often are susceptible to
varying interpretations. Many companies that have believed that their drug candidates performed
satisfactorily in clinical trials in terms of both safety and efficacy have nonetheless failed to
obtain regulatory approval for commercial sale. Furthermore, the FDA and other regulatory
authorities may request additional information including data from additional clinical trials,
which may significantly delay any approval and these regulatory agencies ultimately may not grant
marketing approval for any of our drug candidates. For example, in September 2010, the FDA placed
two of our HCV drug candidates, IDX184 and IDX320, on clinical hold. The hold was imposed due to
three serious adverse events of elevated liver function tests that were detected during post drug
exposure safety visits following a 14-day drug-drug interaction study of a combination of IDX184
and IDX320 in healthy volunteers. We believe the hepatotoxicity observed in this drug-drug
interaction study was caused by IDX320 and therefore discontinued the clinical development of this
drug candidate. In February 2011, the full clinical hold on IDX184 was removed. The program was
placed on partial clinical hold, which allows us to initiate a phase IIb 12-week clinical trial of
IDX184 in combination with Peg-IFN/RBV with safety evaluations of the patients that will be shared
with the FDA at certain intervals in the trial.
If our clinical trials are not successful, we will not obtain regulatory approval for the
commercial sale of our drug candidates.
To obtain regulatory approval for the commercial sale of our drug candidates, we will be
required to demonstrate through preclinical studies and clinical trials that our drug candidates
are safe and effective. Preclinical studies and clinical trials are lengthy and expensive and the
historical rate of failure for drug candidates is high. The results from preclinical studies of a
drug candidate may not predict the results that will be obtained in human clinical trials.
We, the FDA or other applicable regulatory authorities may prohibit the initiation or suspend
clinical trials of a drug candidate at any time if we or they believe the persons participating in
such clinical trials are being exposed to unacceptable health risks or for other reasons. The
observation of adverse side effects in a clinical trial may result in the FDA or foreign regulatory
authorities refusing to approve a particular drug candidate for any or all indications of use.
Additionally, adverse or inconclusive clinical trial results concerning any of our drug candidates
could require us to conduct additional clinical trials, result in increased costs, significantly
delay the submission of applications seeking marketing approval for such drug candidates, result in
a narrower indication than was originally sought or result in a decision to discontinue development
of such drug candidates. Even if we successfully complete our clinical trials with respect to our
drug candidates, we may not receive regulatory approval for such candidate.
Clinical trials require sufficient patient enrollment, which is a function of many factors,
including the size of the patient population, the nature of the protocol, the proximity of patients
to clinical sites, the availability of effective treatments for the relevant disease, the
eligibility criteria for the clinical trial and other clinical trials evaluating other
investigational agents for the same or similar uses, which may compete with us for patient
enrollment. Delays in patient enrollment can result in increased costs and longer development
times.
We cannot predict whether we will encounter additional problems with any of our completed,
ongoing or planned clinical trials that will cause us or regulatory authorities to delay or suspend
our clinical trials, delay or suspend patient enrollment into our clinical trials or delay the
analysis of data from our completed or ongoing clinical trials. Delays in the development of our
drug candidates would delay our ability to seek and potentially obtain regulatory approvals,
increase expenses associated with clinical development and likely increase the volatility of the
price of our common stock. Any of the following could suspend, terminate or delay the completion of
our ongoing, or the initiation of our planned, clinical trials:
| discussions with the FDA or comparable foreign authorities regarding the scope or design of our clinical trials; | ||
| delays in obtaining, or the inability to obtain, required approvals from, or suspensions or termination by, institutional review boards or other governing entities at clinical sites selected for participation in our clinical trials; | ||
| delays in enrolling participants into clinical trials; | ||
| lower than anticipated retention of participants in clinical trials; | ||
| insufficient supply or deficient quality of drug candidate materials or other materials necessary to conduct our clinical trials; | ||
| serious or unexpected drug-related side effects experienced by participants in our clinical trials; or | ||
| negative results of clinical trials. |
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If
the results of our or our partners ongoing or planned clinical trials for our drug candidates are not
available when we expect or if we encounter any delay in the analysis of data from our preclinical
studies and clinical trials:
| we may be unable to commence human clinical trials of any drug candidates; | ||
| ViiV may be unable to continue human clinical trials of 761, due to the clinical hold imposed by the FDA on 761 in February 2011, or commence human clinical trials of any other licensed compound; | ||
| Novartis may choose not to license our drug candidates and we may not be able to enter into other collaborative arrangements for any of our other drug candidates; or | ||
| we may not have the financial resources to continue the research and development of our drug candidates. |
If our drug candidates fail to obtain United States and/or foreign regulatory approval, we and our
partners will be unable to commercialize our drug candidates.
Each of our drug candidates is subject to extensive governmental regulations relating to
development, clinical trials, manufacturing and commercialization. Rigorous preclinical studies and
clinical trials and an extensive regulatory approval process are required in the United States and
in many foreign jurisdictions prior to the commercial sale of any drug candidates. Before any drug
candidate can be approved for sale, we, or ViiV, in the case of an NNRTI, including 761, or other
collaboration partners, must demonstrate that it can be manufactured in accordance with the FDAs
current good manufacturing practices, or cGMP, requirements. In addition, facilities where the
principal commercial supply of a product is to be manufactured must pass FDA inspection prior to
approval. Satisfaction of these and other regulatory requirements is costly, time consuming,
uncertain and subject to unanticipated delays. It is possible that none of the drug candidates we
are currently developing, or have licensed to ViiV to develop, will obtain the appropriate
regulatory approvals necessary to permit commercial distribution.
The time required for FDA review and other approvals is uncertain and typically takes a number
of years, depending upon the complexity of the drug candidate. Analysis of data obtained from
preclinical studies and clinical trials is subject to confirmation and interpretation by regulatory
authorities, which could delay, limit or prevent regulatory approval. We or one of our partners may
also encounter unanticipated delays or increased costs due to government regulation from future
legislation or administrative action, changes in FDA policy during the period of product
development, clinical trials and FDA regulatory review.
Any delay in obtaining or failure to obtain required approvals could materially adversely
affect our ability or that of a partner to generate revenues from a particular drug candidate. For
example, in September 2010, the FDA placed a clinical hold on IDX184 and IDX320, two of our drug
candidates for the treatment of HCV. We discontinued the clinical development of IDX320 and in
February 2011, the full clinical hold on IDX184 was removed by the FDA and the program was placed
on partial clinical hold. In February 2011, ViiV informed us that the FDA placed 761 on clinical
hold and we do not know whether or when the FDA will allow ViiV to continue development of 761.
Furthermore, any regulatory approval to market a product may be subject to limitations on the
indicated uses for which we or a partner may market the product. These restrictions may limit the
size of the market for the product. Additionally, drug candidates we or our partners successfully
develop could be subject to post market surveillance and testing.
We are also subject to numerous foreign regulatory requirements governing the conduct of
clinical trials, and we, with our partners, are subject to numerous foreign regulatory requirements
relating to manufacturing and marketing authorization, pricing and third-party reimbursement. The
foreign regulatory approval processes include all of the risks associated with FDA approval
described above as well as risks attributable to the satisfaction of local regulations in foreign
jurisdictions. Approval by any one regulatory authority does not assure approval by regulatory
authorities in other jurisdictions. Many foreign regulatory authorities, including those in the
European Union and in China, have different approval procedures than those required by the FDA and
may impose additional testing requirements for our drug candidates. Any failure or delay in
obtaining such marketing authorizations for our drug candidates would have a material adverse
effect on our business.
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Our products will be subject to ongoing regulatory review even after approval to market such
products is obtained. If we or our partners fail to comply with applicable United States and
foreign regulations, we or our partners could lose approvals that we or our partners have been
granted and our business would be seriously harmed.
Even after approval, any drug product that we or our collaboration partners successfully
develop will remain subject to continuing regulatory review, including the review of clinical
results, which are reported after our product becomes commercially available. The marketing claims
we or our collaboration partners are permitted to make in labeling or advertising regarding our
marketed drugs in the United
States will be limited to those specified in any FDA approval, and in other markets such as
the European Union, to the corresponding regulatory approvals. Any manufacturer we or our
collaboration partners use to make approved products will be subject to periodic review and
inspection by the FDA or other similar regulatory authorities in the European Union and other
jurisdictions. We and our collaboration partners are required to report any serious and unexpected
adverse experiences and certain quality problems with our products and make other periodic reports
to the FDA or other similar regulatory authorities in the European Union and other jurisdictions.
The subsequent discovery of previously unknown problems with the drug, manufacturer or facility may
result in restrictions on the drug manufacturer or facility, including withdrawal of the drug from
the market. We do not have, and currently do not intend to develop, the ability to manufacture
material at commercial scale or for our clinical trials. Our reliance on third-party manufacturers
entails risks to which we would not be subject if we manufactured products ourselves, including
reliance on such manufacturers for regulatory compliance. Certain changes to an approved product,
including the way it is manufactured or promoted, often require prior approval from regulatory
authorities before the modified product may be marketed.
If we or our collaboration partners fail to comply with applicable continuing regulatory
requirements, we or our collaboration partners may be subject to civil penalties, suspension or
withdrawal of any regulatory approval obtained, product recalls and seizures, injunctions,
operating restrictions and criminal prosecutions and penalties.
If we or our partners fail to comply with ongoing regulatory requirements after receipt of approval
to commercialize a product, we or our partners may be subject to significant sanctions imposed by
the FDA, EMEA or other United States and foreign regulatory authorities.
The research, testing, manufacturing and marketing of drug candidates and products are subject
to extensive regulation by numerous regulatory authorities in the United States and other
countries. Failure to comply with these requirements may subject a company to administrative or
judicially imposed sanctions. These enforcement actions may include, without limitation:
| warning letters and other regulatory authority communications objecting to matters such as promotional materials and requiring corrective action such as revised communications to healthcare practitioners; | ||
| civil penalties; | ||
| criminal penalties; | ||
| injunctions; | ||
| product seizure or detention; | ||
| product recalls; | ||
| total or partial suspension of manufacturing; and | ||
| FDA refusal to review or approve pending new drug applications or supplements to new drug applications for previously approved products and/or similar rejections of marketing applications or supplements by foreign regulatory authorities. |
The imposition of one or more of these sanctions on us or one of our partners could have a
material adverse effect on our business.
If we do not comply with laws regulating the protection of the environment and health and human
safety, our business could be adversely affected.
Our research and development activities involve the controlled use of hazardous materials,
chemicals and various radioactive compounds. Although we believe that our safety procedures for
handling and disposing of these materials comply with the standards prescribed by state and federal
laws and regulations, the risk of accidental contamination or injury from these materials cannot be
eliminated. If an accident occurs, we could be held liable for resulting damages, which could be
substantial. We are also subject to numerous environmental, health and workplace safety laws and
regulations, including those governing laboratory procedures, exposure to blood-borne pathogens and
the handling of biohazardous materials. Although we maintain workers compensation insurance to
cover us for costs we may incur due to injuries to our employees resulting from the use of these
materials and environmental liability insurance to cover us for costs associated with environmental
or toxic tort claims that may be asserted against us, this insurance may not provide adequate
coverage against all potential liabilities. Additional federal, state, foreign and local laws and
regulations affecting our operations may be adopted in the future. We may incur substantial costs
to comply with these laws or regulations. Additionally, we may incur substantial fines or penalties
if we violate any of these laws or regulations.
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Growing availability of specialty pharmaceuticals may lead to increased focus of cost containment.
Specialty pharmaceuticals refer to medicines that treat rare or life-threatening conditions
that have smaller patient populations, such as certain types of cancer, multiple sclerosis, HBV,
HCV and HIV. The growing availability and use of innovative specialty pharmaceuticals, combined
with their relative higher cost as compared to other types of pharmaceutical products, is beginning
to generate significant payer interest in developing cost containment strategies targeted to this
sector. While the impact on our payers efforts to control access and pricing of specialty
pharmaceuticals has been limited to date, our portfolio of specialty products, combined with the
increasing use of health technology assessment in markets around the world and the deteriorating
finances of governments, may lead to a more significant adverse business impact in the future.
Factors Related to Our Relationship with Novartis
Novartis has substantial control over us and could delay or prevent a change in corporate control.
As of October 24, 2011, Novartis owned approximately 35% of our outstanding common stock. For
so long as Novartis owns 19.4% of our voting stock, Novartis has the ability to delay or prevent a
change in control of Idenix that may be favored by other stockholders and otherwise exercise
substantial control over all corporate actions requiring stockholder approval including:
| the election of our directors; | ||
| any amendment of our restated certificate of incorporation or amended and restated by-laws; | ||
| the approval of mergers and other significant corporate transactions, including a sale of substantially all of our assets; or | ||
| the defeat of any non-negotiated takeover attempt that might otherwise benefit our other stockholders. |
Novartis has the right to exercise control over certain corporate actions, strategic direction, our
research and development focus and other material decisions that may not otherwise require
stockholder approval as long as it holds at least 19.4% of our voting stock.
As long as Novartis and its affiliates own at least 19.4% of our voting stock, which we define
below, we cannot take certain actions without the consent of Novartis. These actions include:
| the authorization or issuance of additional shares of our capital stock or the capital stock of our subsidiaries, except for a limited number of specified issuances; | ||
| any change or modification to the structure of our board of directors or a similar governing body of any of our subsidiaries; | ||
| any amendment or modification to any of our organizational documents or those of our subsidiaries; | ||
| the adoption of a three-year strategic plan; | ||
| the adoption of an annual operating plan and budget, if there is no approved strategic plan; | ||
| any decision that would result in a variance of total annual expenditures, capital or expense, in excess of 20% from the approved three-year strategic plan; | ||
| any decision that would result in a variance in excess of the greater of $10.0 million or 20% of our profit or loss target in the strategic plan or annual operating plan; | ||
| the acquisition of stock or assets of another entity that exceeds 10% of our consolidated net revenue, net income or net assets; | ||
| the sale, lease, license or other disposition of any assets or business which exceeds 10% of our net revenue, net income or net assets; | ||
| the incurrence of any indebtedness by us or our subsidiaries for borrowed money in excess of $2.0 million; | ||
| any material change in the nature of our business or that of any of our subsidiaries; | ||
| any change in control of Idenix or any subsidiary; and | ||
| any dissolution or liquidation of Idenix or any subsidiary, or the commencement by us or any subsidiary of any action under applicable bankruptcy, insolvency, reorganization or liquidation laws. |
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Pursuant to the amended and restated stockholders agreement, which we refer to as the
stockholders agreement, among us, Novartis and certain of our stockholders, we are obligated to
use our reasonable best efforts to nominate for election as directors at least two designees of
Novartis for so long as Novartis and its affiliates own at least 30% of our voting stock and at
least one designee of Novartis for so long as Novartis and its affiliates own at least 19.4% of our
voting stock.
Under the stockholders agreement, voting stock means our outstanding securities entitled to
vote in the election of directors, but does not include securities issued in connection with our
acquisition of all of the capital stock, or all or substantially all of the assets of another
entity, and shares of common stock issued upon exercise of stock options or stock awards pursuant
to compensation and equity incentive plans. Notwithstanding the foregoing, voting stock includes up
to approximately 1.4 million shares that were reserved as of May 8, 2003 for issuance under our
1998 equity incentive plan.
In April 2011, we amended the development and commercialization agreement to provide that
Novartis retains the exclusive option to obtain rights to drug candidates developed by us, or in
some cases licensed to us, so long as Novartis maintains ownership of at least 30% of our common
stock, rather than ownership of at least 40%, as was the requirement prior to the execution of this
amendment.
Additionally, in April 2011, we amended an agreement with Novartis providing that so long as
Novartis and its affiliates own at least 30% of our common stock, Novartis consent is required for
the selection and appointment of our chief financial officer. Prior to this amendment, the
ownership requirement was 40%. If in Novartis reasonable judgment our chief financial officer is
not satisfactorily performing his or her duties, we are required to terminate his or her
employment.
Furthermore, under the terms of the stock purchase agreement, dated as of March 21, 2003,
which we refer to as the stock purchase agreement, among us, Novartis and substantially all of our
then existing stockholders, Novartis is required to make future contingent payments of up to $357.0
million to these stockholders if we achieve predetermined development milestones with respect to
specific HCV drug candidates. As a result, in making determinations as to our annual operating plan
and budget for the development of our drug candidates, the interests of Novartis may be different
than the interests of our other stockholders and Novartis could exercise its approval rights in a
manner that may not be in the best interests of all of our stockholders.
We currently depend on Novartis for a significant portion of our revenues, for the continuing
commercialization of Tyzeka®/Sebivo®and for support in the development of
drug candidates Novartis could license from us in the future. If our development and
commercialization agreement with Novartis terminates, our business, in particular, the development
of our drug candidates and the commercialization of any products that we successfully develop could
be harmed.
In May 2003, we received a $75.0 million license fee from Novartis in connection with the
license of our then HBV drug candidates, telbivudine and valtorcitabine. In April 2007, we received
a $10.0 million milestone payment for regulatory approval of Sebivo® in China and in
June 2007, we received an additional $10.0 million milestone payment for regulatory approval of
Sebivo® in the European Union. Pursuant to the development and commercialization
agreement, as amended, Novartis also acquired options to license valopicitabine and additional drug
candidates from us. In March 2006, Novartis exercised its option and acquired a license to
valopicitabine. As a result, we received a $25.0 million license fee and the right to receive up to
an additional $45.0 million in license fee payments upon advancement of a specified HCV drug
candidate into phase III clinical trials. Assuming we successfully develop and commercialize our
drug candidates licensed by Novartis, under the terms of the development and commercialization
agreement, we are entitled to receive reimbursement of expenses we incur in connection with the
development of these drug candidates and additional milestone payments from Novartis. Additionally,
if any of the drug candidates we have licensed to Novartis are approved for commercialization, we
anticipate receiving proceeds in connection with the sales of such products. If Novartis exercises
the option to license other drug candidates that we discover, or in some cases, acquire, we are
entitled to receive license fees and milestone payments as well as reimbursement of expenses we
incur in the development of such drug candidates in accordance with development plans mutually
agreed with Novartis.
Under the existing terms of the development and commercialization agreement, we have the right
to co-promote and co-market with Novartis in the United States, United Kingdom, Germany, Italy,
France and Spain any products licensed by Novartis, excluding
Tyzeka®/Sebivo®. For Tyzeka®/Sebivo®, we acted as the
lead commercial party in the United States. Effective on October 1, 2007, we transferred to
Novartis our worldwide development, commercialization and manufacturing rights and obligations
related to telbivudine (Tyzeka®/Sebivo®). We receive royalty payments equal
to a percentage of net sales of Tyzeka®/Sebivo®, with such percentage
increasing according to specified tiers of net sales. The royalty percentage varies based on the
specified territory and the aggregate dollar amount of net sales.
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Novartis may terminate the development and commercialization agreement in any country or with
respect to any product or drug candidate licensed under the development and commercialization
agreement for any reason with six months written notice. If the development and commercialization
agreement is terminated in whole or in part and we are unable to enter similar arrangements with
other collaborators or partners, our business would be materially adversely affected.
Novartis has the option to license from us drug candidates we discover or, in some cases, acquire.
If Novartis does not exercise its option or disputes the adequacy of the notice provided by us
pertaining to the drug candidate, or after we provide notice, delays its decision to exercise such
option with respect to a drug candidate, our development, manufacture and/or commercialization of
such drug candidate may be substantially delayed or limited.
Our drug development programs and potential commercialization of our drug candidates will
require substantial additional funding. In addition to its license of
Tyzeka®/Sebivo®, valtorcitabine and valopicitabine, Novartis has the option
under the development and commercialization agreement to license our other drug candidates.
Furthermore, under the development and commercialization agreement, we must provide Novartis
with notice and a data package as part of Novartis consideration to license a drug candidate from
us. This notice includes information regarding the efficacy, safety and such other related material
information from the final data set for the relevant clinical trial for the drug candidate, as well
as a proposed development plan and proposed licensing terms. The development and commercialization
agreement is not specific as to the exact content of the information required in such notice. If
Novartis disputes the adequacy of the notice or data package, Novartis may argue that it is
entitled to additional information or data, which would likely lead to a delay in its review of our
drug candidate. Potential disputes over the adequacy of the notice and data package we provide
Novartis may cause delays in our development programs in order to resolve any disputes with
Novartis over the adequacy of such material. This could require substantial financial resources and
could take a significant amount of time to complete.
If Novartis elects not to exercise such option, we may be required to seek other collaboration
arrangements to provide funds necessary to enable us to develop such drug candidates. In October
2009, Novartis waived its option to license IDX184. As a result, we retain the worldwide rights to
develop, manufacture, commercialize and license IDX184. We may seek a partner who will assist in
the future development and commercialization of this drug candidate. We may not be successful in
our efforts to enter into a collaboration arrangement with respect to a drug candidate not licensed
by Novartis and we may not have sufficient funds to develop such drug candidate internally. As a
result, our business would be adversely affected. In addition, the negotiation of a collaborative
agreement is time consuming and could, even if successful, delay the development, manufacture
and/or commercialization of a drug candidate and the terms of the collaboration agreements may not
be favorable to us.
If we breach any of the numerous representations and warranties we made to Novartis under the
development and commercialization agreement or the stock purchase agreement, Novartis has the right
to seek indemnification from us for damages it suffers as a result of such breach. These amounts
could be substantial.
We have agreed to indemnify Novartis and its affiliates against losses suffered as a result of
our breach of representations and warranties in the development and commercialization agreement and
the stock purchase agreement. Under the development and commercialization agreement and stock
purchase agreement, we made numerous representations and warranties to Novartis regarding our HCV
and HBV drug candidates, including representations regarding our ownership of and licensed rights
to the inventions and discoveries relating to such drug candidates. If one or more of our
representations or warranties were subsequently determined not to be true at the time we made them
to Novartis, we would be in breach of these agreements. In the event of a breach by us, Novartis
has the right to seek indemnification from us and, under certain circumstances, us and our
stockholders who sold shares to Novartis, which include many of our directors and officers, for
damages suffered by Novartis as a result of such breach. The amounts for which we could become
liable to Novartis could be substantial.
In May 2004, we entered into a settlement agreement with UAB, relating to our ownership of our
former chief executive officers inventorship interest in certain of our patents and patent
applications, including patent applications covering our HCV drug candidates. Under the terms of
the settlement agreement, we agreed to make payments to UAB, including an initial payment made in
2004 in the amount of $2.0 million, as well as regulatory milestone payments and payments relating
to net sales of certain products. Novartis may seek to recover from us and, under certain
circumstances, us and our stockholders who sold shares to Novartis, which include many of our
officers and directors, the losses it suffers as a result of any breach of the representations and
warranties we made relating to our HCV drug candidates and may assert that such losses include the
settlement payments.
In July 2008, we, our former chief executive officer, in his individual capacity, the
University of Montpellier and CNRS entered into a settlement agreement with UAB, UABRF, and Emory
University. Pursuant to this settlement agreement, all contractual disputes relating to patents
covering the use of certain synthetic nucleosides for the treatment of HBV and all litigation
matters relating to patents and patent applications related to the use of ß-L-2-deoxy-nucleosides
for the treatment of HBV assigned to one or more of Idenix, CNRS, and the University of Montpellier
and which cover the use of telbivudine (Tyzeka®/Sebivo®) for the treatment of
HBV have been resolved. Under the terms of the settlement, we paid UABRF (on behalf of UAB and
Emory University) a $4.0 million upfront payment and will make additional payments to UABRF equal
to 20% of all royalty payments received by us from Novartis based on worldwide sales of
telbivudine, subject to minimum payment obligations aggregating $11.0 million. Novartis may seek to
recover from us and, under certain circumstances, us and those of our officers, directors and other
stockholders who sold shares to Novartis, such losses and other losses it suffers as a result of
any breach of the representations and warranties we made relating to our HBV drug candidates and
may assert that such losses include the settlement payments.
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If we materially breach our obligations or covenants arising under the development and
commercialization agreement with Novartis, we may lose our rights to develop or commercialize our
drug candidates.
We have significant obligations to Novartis under the development and commercialization
agreement. The obligations to which we are subject include the responsibility for developing and,
in some countries, co-promoting or co-marketing the products licensed to Novartis in accordance
with plans and budgets subject to Novartis approval. The covenants and agreements we made when
entering into the development and commercialization agreement include covenants relating to
payments of our required portion of development expenses under the development and
commercialization agreement, compliance with certain third-party license agreements, the conduct of
our clinical studies and activities relating to the commercialization of any products that we
successfully develop. If we materially breach this agreement and are unable within an agreed time
period to cure such breach, the agreement may be terminated and we may be required to grant
Novartis an exclusive license to develop, manufacture and/or sell such products. Although such a
license would be subject to payment of a royalty by Novartis to be negotiated in good faith, we and
Novartis have stipulated that no such payments would permit the breaching party to receive more
than 90% of the net benefit it was entitled to receive before the agreement was terminated.
Accordingly, if we materially breach our obligations under the development and commercialization
agreement, we may lose our rights to develop our drug candidates or commercialize our successfully
developed products and may receive lower payments from Novartis than we had anticipated.
If we issue capital stock, in certain situations, Novartis will be able to purchase shares at par
value to maintain its percentage ownership in Idenix and, if that occurs, this could cause
dilution. In addition, Novartis has the right, under specified circumstances, to purchase a pro
rata portion of other shares that we may issue.
Under the terms of the stockholders agreement, Novartis has the right to purchase, at par
value of $0.001 per share, such number of shares of our capital stock that would be required to
maintain its percentage ownership of our voting stock if we issue shares of capital stock in
connection with the acquisition or in-licensing of technology through the issuance of up to 5% of
our stock in any 24-month period. If Novartis elects to maintain its percentage ownership of our
voting stock under the rights described above, Novartis will be buying such shares at a price that
is substantially below market value, which would cause dilution. This right of Novartis will remain
in effect until the earlier of:
| the date that Novartis and its affiliates own less than 19.4% of our voting stock; or | ||
| the date that Novartis becomes obligated under the stock purchase agreement to make the additional future contingent payments of $357.0 million to our stockholders who sold shares to Novartis in May 2003. |
In addition to the right to purchase shares of our common stock at par value as described
above, Novartis has the right, subject to limited exceptions noted below, to purchase a pro rata
portion of shares of capital stock that we issue. The price that Novartis pays for these securities
would be the price that we offer such securities to third-parties, including the price paid by
persons who acquire shares of our capital stock pursuant to awards granted under stock compensation
or equity incentive plans. Novartis right to purchase a pro rata portion does not include:
| securities issuable in connection with any stock split, reverse stock split, stock dividend or recapitalization that we undertake that affects all holders of our common stock proportionately; | ||
| shares that Novartis has the right to purchase at par value, as described above; | ||
| shares of common stock issuable upon exercise of stock options and other awards pursuant to our 1998 equity incentive plan; and | ||
| securities issuable in connection with our acquisition of all the capital stock or all or substantially all of the assets of another entity. |
Novartis right to purchase shares includes a right to purchase securities that are
convertible into, or exchangeable for, our common stock, provided that Novartis right to purchase
stock in connection with options or other convertible securities issued to any of our directors,
officers, employees or consultants pursuant to any stock compensation or equity incentive plan will
not be triggered until the underlying equity security has been issued to the director, officer,
employee or consultant. Novartis waived its right to purchase additional shares of our common stock
as a result of the shares of common stock we issued to GSK in 2009. Additionally, Novartis did not
purchase shares of our common stock pursuant to our underwritten offerings in August 2009 and in
April 2010. On April 13, 2011, we issued approximately 21.1 million shares of our common stock
pursuant to an underwritten agreement and approximately 1.8 million shares of our common stock to
Novartis pursuant to a private placement agreement. The net proceeds of both transactions were
$60.2 million. As of October 24, 2011, Novartis owned approximately 35% of our outstanding common
stock.
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If Novartis terminates or fails to perform its obligations under the development and
commercialization agreement, we may not be able to successfully commercialize our drug candidates
licensed to Novartis and the development and commercialization of our other drug candidates could
be delayed, curtailed or terminated.
Under the amended development and commercialization agreement, Novartis is solely responsible
for the worldwide development, commercialization and manufacturing rights to telbivudine. We expect
to co-promote or co-market with Novartis other products, if any, that Novartis has licensed or will
license from us which are successfully developed and approved for commercialization. As a result,
we will depend upon the success of the efforts of Novartis to manufacture, market and sell
Tyzeka®/Sebivo® and our other products, if any, that we successfully develop
and license to Novartis. However, we have limited control over the resources that Novartis may
devote to such manufacturing and commercialization efforts and, if Novartis does not devote
sufficient time and resources to such efforts, we may not realize the commercial or financial
benefits we anticipate, and our results of operations may be adversely affected.
In addition, Novartis has the right to terminate the development and commercialization
agreement with respect to any product, drug candidate or country with six months written notice to
us. If Novartis were to breach or terminate this agreement with us, the development or
commercialization of the affected drug candidate or product could be delayed, curtailed or
terminated because we may not have sufficient resources or capabilities, financial or otherwise, to
continue development and commercialization of the drug candidate, and we may not be successful in
entering into a collaboration with another third-party.
Novartis has the right to market and sell products that compete with the drug candidates and
products that we license to it and any competition by Novartis could have a material adverse effect
on our business.
Novartis may market, sell, promote or license competitive products. Novartis has significantly
greater financial, technical and human resources than we have and is better equipped to discover,
develop, manufacture and commercialize products. In addition, Novartis has more extensive
experience in preclinical studies and clinical trials, obtaining regulatory approvals and
manufacturing and marketing pharmaceutical products. In the event that Novartis competes with us,
our business could be materially and adversely affected.
Factors Related to Our Dependence on Third-Parties Other Than Novartis
If we seek to enter into collaboration agreements for any drug candidates other than those licensed
to Novartis and ViiV and we are not successful in establishing such collaborations, we may not be
able to continue development of those drug candidates.
Our drug development programs and product commercialization efforts will require substantial
additional cash to fund expenses to be incurred in connection with these activities. While we have
entered into the development and commercialization agreement with Novartis in May 2003 and the ViiV
license agreement in February 2009, we may seek to enter into additional collaboration agreements
with other pharmaceutical companies to fund all or part of the costs of drug development and
commercialization of drug candidates that Novartis does not license. We may seek a partner who will
assist in the future development and commercialization of our drug candidate, IDX184, for the
treatment of HCV. We may not be able to enter into collaboration agreements and the terms of any
such collaboration agreements may not be favorable to us. If we are not successful in our efforts
to enter into a collaboration arrangement with respect to a drug candidate, we may not have
sufficient funds to develop such drug candidate or any other drug candidate internally.
If we do not have sufficient funds to develop our drug candidates, we will not be able to
bring these drug candidates to market and generate revenue. As a result, our business will be
adversely affected. In addition, the inability to enter into collaboration agreements could delay
or preclude the development, manufacture and/or commercialization of a drug candidate and could
have a material adverse effect on our financial condition and results of operations because:
| we may be required to expend our own funds to advance the drug candidate to commercialization; | ||
| revenue from product sales could be delayed; or | ||
| we may elect not to develop or commercialize the drug candidate. |
Our license agreement with ViiV is important to our business. The milestone payments and royalties
we could receive under our license agreement with ViiV could be delayed, reduced or terminated if
ViiV terminates or fails to perform its obligations under its agreement with us or if ViiV is
unsuccessful in its sales efforts.
In February 2009, we entered into the ViiV license agreement under which we granted ViiV an
exclusive worldwide license to develop, manufacture and commercialize our NNRTI compounds,
including 761, for the treatment of human diseases, including HIV/AIDS. In February 2011, ViiV
informed us that the FDA placed 761 on clinical hold. Our potential revenues under this license
agreement will consist primarily of development and sales milestones and royalty payments based on
worldwide annual net sales, if any, of an NNRTI compound, including 761, by ViiV, its affiliates
and sublicensees. Milestone payments and royalties under this agreement will depend solely on
ViiVs efforts, including development and sales efforts and enforcement of patents, which we cannot
control. If ViiV does not devote sufficient time and resources to its license agreement with us,
including the resolution of the clinical hold relating to 761, or focuses its efforts in countries
where we do not hold patents, we may not receive any such milestone or royalty payment and our
results of operations may be adversely
affected.
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If ViiV were to breach or terminate its agreement with us or fail to perform its obligations
to us in a timely manner, the milestone payments and royalties we could receive under the ViiV
license agreement could decrease or cease. Any delay or termination of this type could have a
material adverse effect on our financial condition and results of operations because we may lose
technology rights and milestone or royalty payments from ViiV and/or revenues from product sales,
if any, could be delayed, reduced or terminated.
Our collaborations with outside scientists may be subject to restriction and change.
We work with chemists and biologists at academic and other institutions that assist us in our
research and development efforts. Many of our drug candidates were discovered with the research and
development assistance of these chemists and biologists. Many of the scientists who have
contributed to the discovery and development of our drug candidates are not our employees and may
have other commitments that would limit their future availability to us. Although our scientific
advisors and collaborators generally agree not to do competing work, if a conflict of interest
between their work for us and their work for another entity arises, we may lose their services.
We have depended on third-party manufacturers to manufacture products for us. If in the future we
manufacture any of our products, we will be required to incur significant costs and devote
significant efforts to establish these capabilities.
We have relied upon third-parties to produce material for preclinical and clinical studies and
may continue to do so in the future. Although we believe that we will not have any material supply
issues, we cannot be certain that we will be able to obtain long-term supply arrangements of those
materials on acceptable terms. We also expect to rely on third-parties to produce materials
required for clinical trials and for the commercial production of certain of our products if we
succeed in obtaining necessary regulatory approvals. If we are unable to arrange for third-party
manufacturing, or to do so on commercially reasonable terms, we may not be able to complete
development of our products or market them.
Reliance on third-party manufacturers entails risks to which we would not be subject if we
manufactured products ourselves, including reliance on the third-party for regulatory compliance
and quality assurance, the possibility of breach by the third-party of agreements related to supply
because of factors beyond our control and the possibility of termination or nonrenewal of the
agreement by the third-party, based on its own business priorities, at a time that is costly or
damaging to us.
In addition, the FDA and other regulatory authorities require that our products be
manufactured according to cGMP regulations. Any failure by us or our third-party manufacturers to
comply with cGMPs and/or our failure to scale up our manufacturing processes could lead to a delay
in, or failure to obtain, regulatory approval. In addition, such failure could be the basis for
action by the FDA to withdraw approvals for drug candidates previously granted to us and for other
regulatory action.
Factors Related to Patents and Licenses
If we are unable to adequately protect our patents and licenses related to our drug candidates, or
if we infringe the rights of others, it may not be possible to successfully commercialize products
that we develop.
Our success will depend in part on our ability to obtain and maintain patent protection both
in the United States and in other countries for any products we successfully develop. The patents
and patent applications in our patent portfolio are either owned by us, exclusively licensed to us,
or co-owned by us and others and exclusively licensed to us. Our ability to protect any products we
successfully develop from unauthorized or infringing use by third-parties depends substantially on
our ability to obtain and maintain valid and enforceable patents. Due to evolving legal standards
relating to the patentability, validity and enforceability of patents covering pharmaceutical
inventions and the scope of claims made under these patents, our ability to obtain and enforce
patents is uncertain and involves complex legal and factual questions. Accordingly, rights under
any issued patents may not provide us with sufficient protection for any products we successfully
develop or provide sufficient protection to afford us a commercial advantage against our
competitors or their competitive products or processes. In addition, we cannot guarantee that any
patents will be issued from any pending or future patent applications owned by or licensed to us.
Even if patents have been issued or will be issued, we cannot guarantee that the claims of these
patents are, or will be, valid or enforceable, or provide us with any significant protection
against competitive products or otherwise be commercially valuable to us.
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We may not have identified all patents, published applications or published literature that
may affect our business, either by blocking our ability to commercialize our drug candidates, by
preventing the patentability of our drug candidates by us, our licensors or co-owners, or by
covering the same or similar technologies that may invalidate our patents, limiting the scope of
our future patent claims or adversely affecting our ability to market our drug candidates. For
example, patent applications in the United States are maintained in confidence for up to 18 months
after their filing. In some cases, however, patent applications remain confidential in the U.S.
Patent and Trademark Office, which we refer to as the U.S. Patent Office, for the entire time prior
to issuance of a U.S. patent. Patent applications filed in countries outside the United States are
not typically published until at least 18 months from their first filing date. Similarly,
publication of discoveries in the scientific or patent literature often lags behind actual
discoveries. Therefore, we cannot be certain that we or our licensors or co-owners were the first
to invent, or the first to file, patent applications on our product or drug candidates or for
their uses. In the event that a third-party has also filed a U.S. patent application covering our
product or drug candidates or a similar invention, we may have to participate in an adversarial
proceeding, known as an interference, declared by the U.S. Patent Office to determine priority of
invention in the United States.
The costs of these proceedings could be substantial and it is possible that our efforts could
be unsuccessful, potentially resulting in a loss of our U.S. patent position. The laws of some
foreign jurisdictions do not protect intellectual property rights to the same extent as in the
United States and many companies have encountered significant difficulties in protecting and
defending such rights in foreign jurisdictions. If we encounter such difficulties in protecting, or
are otherwise precluded from effectively protecting, our intellectual property rights in foreign
jurisdictions, our business prospects could be substantially harmed.
Since our HBV product, telbivudine, was a known compound before the filing of our patent
applications covering the use of this drug candidate to treat HBV, we cannot obtain patent
protection on telbivudine itself. As a result, we have obtained and maintain patents granted on the
method of using telbivudine as a medical therapy for the treatment of HBV.
In July 2008, we entered into a settlement agreement with UAB, UABRF and Emory University
relating to our telbivudine technology. Pursuant to this settlement agreement, all contractual
disputes relating to patents covering the use of certain synthetic nucleosides for the treatment of
HBV and all litigation matters relating to patents and patent applications related to the use of
ß-L-2-deoxy-nucleosides for the treatment of HBV assigned to one or more of Idenix, CNRS and the
University of Montpellier and which cover the use of telbivudine
(Tyzeka®/Sebivo®) for the treatment of HBV have been resolved. UAB also
agreed to abandon certain continuation patent applications it filed in July 2005. Under the terms
of the settlement, we paid UABRF (on behalf of UAB and Emory University) a $4.0 million upfront
payment and will make additional payments to UABRF equal to 20% of all royalty payments received by
us from Novartis based on worldwide sales of telbivudine, subject to minimum payment obligations in
the aggregate of $11.0 million.
In accordance with our patent strategy, we are attempting to obtain patent protection for our
HCV nucleoside/nucleotide polymerase inhibitor drug candidates, including IDX184. We have filed
U.S. and foreign patent applications, and in some jurisdictions have obtained patent protection,
related to IDX184 itself, as well as to methods of treating HCV with IDX184. Further, we are
prosecuting U.S. and foreign patent applications, and have been granted U.S. and foreign patents,
claiming methods of treating HCV with nucleoside/nucleotide polymerase inhibitors.
We are aware that a number of other companies have filed patent applications attempting to
cover broad classes of compounds and their use to treat HCV or infection by any member of the
Flaviviridae virus family to which HCV belongs. These classes of compounds might relate to
nucleoside polymerase inhibitors associated with IDX184. The companies include Merck & Co., Inc.,
Isis Pharmaceuticals, Inc., Ribapharm, Inc. (a wholly-owned subsidiary of Valeant Pharmaceuticals
International), Genelabs Technologies, Inc., Pharmasset, Inc. and Biota, Inc. (a subsidiary of
Biota Holdings Ltd.). A foreign country may grant patent rights covering one or more of our drug
candidates to one or more other companies. If that occurs, we may need to challenge the third-party
patent rights, and if we do not challenge or are not successful with the challenge, we will need to
obtain a license that might not be available on commercially reasonable terms or at all. The U.S.
Patent Office may grant patent rights covering one or more of our drug candidates to one or more
other companies. If that occurs, we may need to challenge the third-party patent rights, and if we
do not challenge or are not successful with the challenge, we will need to obtain a license that
might not be available at all or on commercially reasonable terms.
In accordance with our patent strategy, we are attempting to obtain, and in some jurisdictions
have obtained, patent protection for our HIV drug candidate 761, which we licensed to ViiV in
2009. We have filed and are prosecuting U.S. and foreign patent applications directed to 761
itself, as well as methods of treating HIV with 761.
A number of companies have filed patent applications and have obtained patents covering
certain compositions and methods for the treatment, diagnosis and/or screening of HBV, HCV and HIV
that could materially affect the ability to develop and commercialize
Tyzeka®/Sebivo® and other drug candidates we may develop in the future. For
example, we are aware that Apath, LLC has obtained broad patents covering HCV proteins, nucleic
acids, diagnostics and drug screens. If we need to use these patented materials or methods to
develop any of our HCV drug candidates and the materials or methods fall outside certain safe
harbors in the laws governing patent infringement, we will need to buy these products from a
licensee of the company authorized to sell such products or we will require a license from one or
more companies, which may not be available to us on commercially reasonable terms or at all. This
could materially affect or preclude our ability to develop and sell our HCV drug candidates.
If we find that any drug candidates we are developing should be used in combination with a
product covered by a patent held by another company or institution, and that a labeling instruction
is required in product packaging recommending that combination, we could be accused of, or held
liable for, infringement or inducement of infringement of certain third-party patents claims
covering the product recommended for co-administration with our product. In that case, we may be
required to obtain a license from the other company or institution to provide the required or
desired package labeling, which may not be available on commercially reasonable terms or at all.
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Litigation and disputes related to intellectual property matters occur frequently in the
biopharmaceutical industry. Litigation regarding
patents, patent applications and other proprietary rights may be expensive and time consuming.
If we are unsuccessful in litigation concerning patents or patent applications owned or co-owned by
us or licensed to us, we may not be able to protect our products from competition or we may be
precluded from selling our products. If we are involved in such litigation, it could cause delays
in bringing drug candidates to market and harm our ability to operate. Such litigation could take
place in the United States in a federal court or in the U.S. Patent Office. The litigation could
also take place in a foreign country, in either the courts or the patent office of that country.
Our success will depend in part on our ability to uphold and enforce patents or patent
applications owned or co-owned by us or licensed to us, which cover products we successfully
develop. Proceedings involving our patents or patent applications could result in adverse decisions
regarding:
| ownership of patents and patent applications; | ||
| the patentability of our inventions relating to our products and drug candidates; and/or | ||
| the enforceability, validity or scope of protection offered by our patents relating to our products and drug candidates. |
Even if we are successful in these proceedings, we may incur substantial costs and divert
managements time and attention in pursuing these proceedings, which could have a material adverse
effect on us.
In May 2004, we and our former chief executive officer entered into a settlement agreement
with UAB resolving a dispute regarding ownership of inventions and discoveries made by our former
chief executive officer during the period from November 1999 to November 2002, at which time our
former chief executive officer was on sabbatical and then unpaid leave from his position at UAB.
The patent applications we filed with respect to such inventions and discoveries include the patent
applications covering valopicitabine and IDX184.
Under the terms of the settlement agreement, we agreed to make a $2.0 million initial payment
to UAB, as well as other contingent payments based upon the commercial launch of other HCV products
discovered or invented by our former chief executive officer during his sabbatical and unpaid
leave. In addition, UAB and UABRF have each agreed that neither of them has any right, title or
ownership interest in these inventions and discoveries. Under the development and commercialization
agreement and stock purchase agreement, we made numerous representations and warranties to Novartis
regarding our HCV program, including representations regarding our ownership of the inventions and
discoveries. If one or more of our representations or warranties were subsequently determined not
to be true at the time we made them to Novartis, we would be in breach of these agreements. In the
event of a breach by us, Novartis has the right to seek indemnification from us and, under certain
circumstances, us and our stockholders who sold shares to Novartis, which include many of our
directors and officers, for damages suffered by Novartis as a result of such breach. The amounts
for which we could be liable to Novartis could be substantial.
Our success will also depend in part on our ability to avoid infringement of the patent rights
of others. If it is determined that we do infringe a patent right of another, we may be required to
seek a license (which may not be available on commercially reasonable terms or at all), defend an
infringement action or challenge the validity of the patents in court. Patent litigation is costly
and time consuming. We may not have sufficient resources to bring these actions to a successful
conclusion. In addition, if we are not successful in infringement litigation and we do not license
or develop non-infringing technology, we may:
| incur substantial monetary damages; | ||
| encounter significant delays in bringing our drug candidates to market; and/or | ||
| be precluded from participating in the manufacture, use or sale of our drug candidates or methods of treatment requiring licenses. |
Confidentiality agreements with employees and others may not adequately prevent disclosure of trade
secrets and other proprietary information.
To protect our proprietary technology and processes, we also rely in part on confidentiality
agreements with our corporate collaborators, employees, consultants, outside scientific
collaborators and sponsored researchers and other advisors. These agreements may not effectively
prevent disclosure of confidential information and may not provide an adequate remedy in the event
of unauthorized disclosure of confidential information. In addition, others may independently
discover our trade secrets and confidential information and in such cases we could not assert any
trade secret rights against such parties. Costly and time consuming litigation could be necessary
to enforce and determine the scope of our proprietary rights and failure to obtain or maintain
trade secret protection could adversely affect our competitive business position.
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If any of our agreements that grant us the exclusive right to make, use and sell our drug
candidates are terminated, we and/or our collaboration partners may be unable to develop or
commercialize our drug candidates.
We, together with Novartis, entered into an amended and restated agreement with CNRS and the
University of Montpellier, co-owners of the patents and patent applications covering
Tyzeka®/Sebivo® and valtorcitabine. This agreement covers both the
cooperative research program and the terms of our exclusive right to exploit the results of the
cooperative research, including Tyzeka®/Sebivo® and valtorcitabine. The
cooperative research program with CNRS and the University of Montpellier ended in December 2006
although many of the terms remain in effect for the duration of the patent life of the affected
products. We, together with Novartis, and in 2009 with ViiV, have also entered into two agreements
with the University of Cagliari, the co-owner of the patents and patent applications covering some
of our HCV drug candidates and certain HIV drug candidates. One agreement with the University of
Cagliari covers our cooperative research program and the other agreement is an exclusive license to
develop and sell jointly created drug candidates. Under the amended and restated agreement with
CNRS and the University of Montpellier and the license agreement, as amended, with the University
of Cagliari, we obtained from our co-owners the exclusive right to exploit these drug candidates.
Subject to certain rights afforded to Novartis and to ViiV as they relate to the license agreement
with the University of Cagliari, these agreements can be terminated by either party in
circumstances such as the occurrence of an uncured breach by the non-terminating party. The
termination of our rights, including patent rights, under the agreement with CNRS and the
University of Montpellier or the license agreement, as amended, with the University of Cagliari
would have a material adverse effect on our business and could prevent us from developing a drug
candidate or selling a product. In addition, these agreements provide that we pay certain costs of
patent prosecution, maintenance and enforcement. These costs could be substantial. Our inability or
failure to pay these costs could result in the termination of the agreements or certain rights
under them.
Under our amended and restated agreement with CNRS and the University of Montpellier and our
license agreement, as amended, with the University of Cagliari, we and Novartis have the right to
exploit and license certain co-owned drug candidates. Under our license agreement, as amended, with
the University of Cagliari, we and ViiV have the right to exploit and license certain co-owned drug
candidates. However, our agreements with CNRS and the University of Montpellier and with the
University of Cagliari are currently governed by, and will be interpreted and enforced under,
French and Italian law, respectively, which are different in substantial respects from United
States law and which may be unfavorable to us in material respects. Under French law, co-owners of
intellectual property cannot exploit, assign or license their individual rights without the
permission of the co-owners. Similarly, under Italian law, co-owners of intellectual property
cannot exploit or license their individual rights without the permission of the co-owners.
Accordingly, if our agreements with the University of Cagliari terminate based on a breach, we may
not be able to exploit, license or otherwise convey to Novartis, ViiV or other third-parties our
rights in certain products or drug candidates for a desired commercial purpose without the consent
of the co-owner, which could materially affect our business and prevent us from developing certain
drug candidates and selling our products.
Under United States law, a patent co-owner has the right to prevent another co-owner from
suing infringers by refusing to join voluntarily in a suit to enforce a patent. Our amended and
restated agreement with CNRS and the University of Montpellier and our license agreement, as
amended, with the University of Cagliari provide that such parties will cooperate to enforce our
jointly owned patents on our products or drug candidates. If these agreements terminate or the
parties cooperation is not given or is withdrawn, or they refuse to join in litigation that
requires their participation, we may not be able to enforce these patent rights or protect our
markets.
Factors Related to Our Common Stock
Our common stock may have a volatile trading price and low trading volume.
The market price of our common stock could be subject to significant fluctuations. Some of the
factors that may cause the market price of our common stock to fluctuate include:
| realization of license fees and achievement of milestones under our development and commercialization agreement with Novartis; | ||
| realization of license fees, achievement of preclinical and clinical milestones and sales thresholds under the ViiV license agreement; | ||
| reductions in proceeds associated with Novartis right to maintain its percentage ownership of our voting stock when we issue shares at a price below fair market value; | ||
| adverse developments regarding the safety and efficacy of Tyzeka®/Sebivo® or our other drug candidates; | ||
| the results of ongoing and planned clinical trials of our drug candidates; | ||
| developments in the market with respect to competing products or more generally the treatment of HBV, HCV or HIV; |
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| the results of preclinical studies and planned clinical trials of our other discovery-stage programs; | ||
| future sales of, and the trading volume in, our common stock; | ||
| the timing and success of the launch of products, if any, we successfully develop; | ||
| future royalty payments received by us associated with sales of Tyzeka®/Sebivo®; | ||
| the entry into key agreements, including those related to the acquisition or in-licensing of new programs, or the termination of key agreements; | ||
| the results and timing of regulatory actions relating to the approval of our drug candidates, including any decision by the regulatory authorities to place a clinical hold on our drug candidates; | ||
| the initiation of, material developments in or conclusion of litigation to enforce or defend any of our intellectual property rights; | ||
| the initiation of, material developments in or conclusion of litigation to defend products liability claims; | ||
| the failure of any of our drug candidates, if approved, to achieve commercial success; | ||
| the results of clinical trials conducted by others on drugs that would compete with our drug candidates; | ||
| issues in manufacturing our drug candidates or any approved products; | ||
| the loss of key employees; | ||
| adverse publicity related to our company, our products or our product candidates; | ||
| changes in estimates or recommendations by securities analysts who cover our common stock; | ||
| future financings through the issuance of equity or debt securities or otherwise; | ||
| changes in the structure of health care payment systems; | ||
| our cash position and period-to-period fluctuations in our financial results; | ||
| general and industry-specific economic conditions; and | ||
| the decision by Novartis to license a drug candidate that has completed a proof-of-concept clinical trial. |
Moreover, the stock markets in general have experienced substantial volatility that has often
been unrelated to the operating performance of individual companies. These broad market
fluctuations may also adversely affect the trading price of our common stock.
We do not anticipate paying cash dividends, so you must rely on stock price appreciation for any
return on your investment.
We anticipate retaining any future earnings for reinvestment in our research and development
programs. Therefore, we do not anticipate paying cash dividends in the future. As a result, only
appreciation of the price of our common stock will provide a return to stockholders. Investors
seeking cash dividends should not invest in our common stock.
Sales of additional shares of our common stock could result in dilution to existing stockholders
and cause the price of our common stock to decline.
Sales of substantial amounts of our common stock in the public market or the availability of
such shares for sale, could adversely affect the price of our common stock. In addition, the
issuance of common stock upon exercise of outstanding options could be dilutive and may cause the
market price for a share of our common stock to decline. As of October 24, 2011, we had 96,153,387
shares of common stock issued and outstanding, together with outstanding options to purchase
approximately 7,803,512 shares of common stock with a weighted average exercise price of $6.17 per
share.
Novartis and other holders of shares of common stock have rights, subject to certain
conditions, to require us to file registration statements covering their shares or to include their
shares in registration statements that we may file for ourselves or other stockholders.
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An investment in our common stock may decline in value as a result of announcements of business
developments by us or our competitors.
The market price of our common stock is subject to substantial volatility as a result of
announcements by us or other companies in our industry. As a result, purchasers of our common stock
may not be able to sell their shares of common stock at or above the price at which they purchased
such stock. Announcements which may subject the price of our common stock to substantial volatility
include:
| our collaboration with Novartis; | ||
| our collaboration with ViiV and GSK; | ||
| the results of our clinical trials pertaining to any of our drug candidates; | ||
| the results of discovery, preclinical studies and clinical trials by us or our competitors; | ||
| the acquisition of technologies, drug candidates or products by us or our competitors; | ||
| the development of new technologies, drug candidates or products by us or our competitors; | ||
| regulatory actions with respect to our drug candidates or products or those of our competitors, including those relating to clinical trials, such as clinical holds imposed by regulatory authorities, marketing authorizations, pricing and reimbursement; | ||
| the timing and success of launches of any product we successfully develop; | ||
| future royalty payments received by us associated with sales of Tyzeka®/Sebivo®; | ||
| the market acceptance of any products we successfully develop; | ||
| significant changes to our existing business model; | ||
| the initiation of, material developments in or conclusion of litigation to enforce or defend any of our intellectual property rights; and | ||
| significant acquisitions, strategic partnerships, joint ventures or capital commitments by us or our competitors. |
In addition, if we fail to reach an important research, development or commercialization
milestone or result by a publicly expected deadline, even if by only a small margin, there could be
a significant impact on the market price of our common stock. Additionally, as we approach the
announcement of important clinical data or other significant information and as we announce such
results and information, we expect the price of our common stock to be particularly volatile and
negative results would have a substantial negative impact on the price of our common stock.
We could be subject to class action litigation due to stock price volatility, which, if such
litigation occurs, will distract our management and could result in substantial costs or large
judgments against us.
The stock market frequently experiences extreme price and volume fluctuations. In September
2010, we experienced a significant decline in our stock price based on the FDAs decision to place
a clinical hold on IDX184 and IDX320, two of our drug candidates for the treatment of HCV. In
addition, the market prices of securities of companies in the biotechnology and pharmaceutical
industry have been extremely volatile and have experienced fluctuations that have often been
unrelated or disproportionate to the operating performance of these companies. These fluctuations
could adversely affect the market price of our common stock. In the past, securities class action
litigation has often been brought against companies following periods of volatility in the market
prices of their securities. Due to the volatility in our stock price, we may be the target of
similar litigation in the future.
Securities litigation could result in substantial costs and divert our managements attention
and resources, which could cause serious harm to our business, operating results and financial
condition.
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
None.
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Item 3. | Defaults Upon Senior Securities |
None.
Item 4. | [Removed and Reserved] |
Item 5. | Other Information |
None.
Item 6. | Exhibits |
See Exhibit Index on the page immediately preceding the exhibits for a list of the exhibits
filed as a part of this Quarterly Report, which Exhibit Index is incorporated herein by reference.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: November 2, 2011 | By: | /s/ RONALD C. RENAUD, JR. | ||
Ronald C. Renaud, Jr. | ||||
President and Chief Executive Officer (Principal Executive Officer) |
||||
Date: November 2, 2011 | By: | /s/ DANIELLA BECKMAN | ||
Daniella Beckman | ||||
Chief Financial Officer (Principal Financial Officer) |
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EXHIBIT INDEX
Exhibit | ||||
No. | Description | |||
31.1 | Certification of Chief Executive Officer pursuant to Rule
13a-14(a)/Rule 15d-14(a) of the Securities Exchange Act of
1934, as amended. |
|||
31.2 | Certification of Chief Financial Officer pursuant to Rule
13a-14(a)/Rule 15d-14(a) of the Securities Exchange Act of
1934, as amended. |
|||
32.1 | Certification of Chief Executive Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002. |
|||
32.2 | Certification of Chief Financial Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002. |
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