Back to GetFilings.com

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

For the quarterly period ended December 31, 2003, or

Commission File No. 0-18728

INDEVUS PHARMACEUTICALS, INC.

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code: (781) 861-8444

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 such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12(b)-2 of the Exchange Act.) Yes  x    No  ¨

Indicate the number of shares outstanding of each of the issuer’s class of common stock, as of the latest practicable date.

Table of Contents

INDEVUS PHARMACEUTICALS, INC.

INDEX TO FORM 10-Q

2

Table of Contents

Item 1. Financial Statements

INDEVUS PHARMACEUTICALS, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(Amounts in thousands except share data)

The accompanying notes are an integral part of these unaudited consolidated financial statements.

3

Table of Contents

INDEVUS PHARMACEUTICALS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

For the three months ended December 31, 2003 and 2002

(Unaudited)

(Amounts in thousands except per share data)

The accompanying notes are an integral part of these unaudited consolidated financial statements.

4

Table of Contents

INDEVUS PHARMACEUTICALS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the three months ended December 31, 2003 and 2002

(Unaudited)

(Amounts in thousands)

The accompanying notes are an integral part of these unaudited consolidated financial statements.

5

Table of Contents

INDEVUS PHARMACEUTICALS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

A. Basis of Presentation

The consolidated financial statements included herein have been prepared by Indevus Pharmaceuticals, Inc. (“Indevus” or the “Company”) without audit, pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, the accompanying unaudited consolidated financial statements include all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the consolidated financial position, results of operations and cash flows of the Company. The unaudited consolidated financial statements included herein should be read in conjunction with the audited consolidated financial statements and the notes thereto included in the Company’s Form 10-K for the fiscal year ended September 30, 2003.

Indevus is a biopharmaceutical company engaged in the development and commercialization of a diversified portfolio of product candidates, including multiple compounds in late-stage clinical development.

B. Basic and Diluted Loss per Common Share

During the three month period ended December 31, 2003, securities not included in the computation of diluted earnings per share, because their exercise price exceeded the average market price during the period were as follows: (i) the notes convertible into 10,817,000 shares of Common Stock at a conversion price of $6.656 per share and which are convertible through July 15, 2008; (ii) options to purchase 3,206,000 shares of Common Stock at prices ranging from $5.72 to $20.13 with expiration dates ranging up to May 13, 2012 and (iii) warrants to purchase 55,000 shares of Common Stock with exercise prices ranging from $5.00 to $6.19 and with expiration dates ranging up to July 17, 2006. Additionally, during the three month period ended December 31, 2003, potentially dilutive securities not included in the computation of diluted earnings per share, because they would have an antidilutive effect due to the net loss for the period, were as follows: (i) options to purchase 6,985,000 shares of Common Stock at prices ranging from $1.22 to $5.32 with expiration dates ranging up to June 3, 2013 and (ii) Series B and C preferred stock convertible into 622,222 shares of Common Stock.

During the three month period ended December 31, 2002, securities not included in the computation of diluted earnings per share, because their exercise price exceeded the average market price during the period, were as follows: (i) options to purchase 9,571,786 shares of Common Stock at exercise prices ranging from $2.00 to $20.13 with expiration dates ranging up to May 13, 2012; and (ii) warrants to purchase 105,000 shares of Common Stock with exercise prices ranging from $5.00 to $7.13 and with expiration dates ranging up to July 17, 2006. Additionally, during the three month period ended December 31, 2002, securities not included in the computation of diluted earnings per share, because they would have an antidilutive effect due to the net loss for the period, were as follows: (i) options to purchase 585,739 shares of Common Stock at exercise prices ranging from $1.22 to $1.88 and expiration dates ranging up to October 8, 2012; (ii) Series B and C preferred stock convertible into 622,222 shares of Common Stock.

Certain of the above securities contain anti-dilution provisions which may result in a change in the exercise price or number of shares issuable upon exercise of such securities.

C. Pro Forma Net Loss Information:

The Company applies Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations, in accounting for its stock-based compensation plans. The Company has adopted the disclosure-only provisions of Statement of Financial Accounting Standards No. 148, Accounting for Stock-Based Compensation-Transition and Disclosure, an amendment of FASB Statement No. 123 (“SFAS No. 148”). Had compensation expense for the Company’s stock option plans been determined based on the fair value at the grant date for awards under these plans using a Black-Scholes option pricing model consistent with the methodology prescribed under SFAS No. 148, the Company’s net loss and net loss per share would have approximated the pro forma amounts indicated below:

6

Table of Contents

D. Comprehensive Loss

Comprehensive loss for the three month periods ended December 31, 2003 and 2002, respectively, is as follows:

E. Agreements

In October 2003, CPEC LLC, a consolidated subsidiary, licensed its bucindolol development and marketing rights to ARCA Discovery, Inc. in exchange for potential future milestone and royalty payments.

Effective January 22, 2004, we entered into a new agreement with Ferrer Internacional S.A. (“Ferrer”) covering the development, manufacture, and marketing of citicoline in the U.S. and Canada. Under the terms of the new agreement, we have granted Ferrer exclusive rights to our patents and know-how related to citicoline. In exchange, Ferrer agreed to assume all future development, manufacturing, and commercialization costs of citicoline. Indevus will receive 50% of all milestone payments made to Ferrer by a third party and royalties on net sales of the product.

F. Recent Accounting Pronouncement

In January 2003, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 46, “Consolidation of Variable Interest Entities,” (“FIN 46”). FIN 46 requires that if an entity has a controlling financial interest in a variable interest entity (“VIE”), the assets, liabilities and results of activities of the VIE should be included in the consolidated financial statements of the entity. FIN 46 requires that its provisions are effective immediately for all arrangements entered into after January 31, 2003. The Company does not have any financial interests in VIE’s created after January 31, 2003. For those arrangements entered into prior to January 31, 2003, FIN 46 requires its provisions, as amended by FIN 46R which was issued by the FASB in December 2003, be adopted by the Company in the second quarter of fiscal 2004. The adoption of FIN 46R is not expected to have a material impact on the Company’s financial position or results of operations.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations:

Statements in this Form 10-Q that are not statements or descriptions of historical facts are “forward-looking” statements under Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995 and are subject to numerous risks and uncertainties. These and other forward-looking statements made by us in reports that we file with the SEC, press releases, and public statements of our officers, corporate spokespersons or our representatives are based on a number of assumptions and relate to, without limitation: our ability to successfully develop, obtain regulatory approval for and commercialize any products, including trospium; our ability to enter into corporate collaborations or to obtain sufficient additional capital to fund operations; and the Redux^™-related litigation. The words “believe,” “expect,” “anticipate,” “intend,” “plan,” “estimate” or other expressions which predict or indicate future events and trends and do not relate to historical matters identify forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements as they involve risks and uncertainties and such forward-looking statements may turn out to be wrong. Actual results could differ materially from those currently anticipated due to a number of factors, including those set forth under “Risk Factors” in the Company’s Form 10-K for its fiscal year ended September 30, 2003. These factors include, but are not limited to: dependence on the success of trospium; the early stage of products under development; uncertainties relating to clinical trials, regulatory approval and commercialization of our products, including trospium; risks associated with contractual agreements; dependence on third parties for manufacturing and marketing; competition; need for additional funds and corporate partners, including the commercialization of trospium and the development of our other product candidates; failure to acquire and develop additional product candidates; history of operating losses and expectation of future losses; product liability and insurance uncertainties; risks relating to the Redux-related litigation; limited patents and proprietary rights; dependence on market exclusivity; valuation of our common stock; risks related to repayment of debts; risks related to increased leverage; and other risks. The forward-looking statements represent our judgment and expectations as of the date of this Form 10-Q. We assume no obligation to update any such forward-looking statements.

The following discussion should be read in conjunction with the Company’s unaudited consolidated financial statements and notes thereto appearing elsewhere in this report and audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2003. Unless the context indicates otherwise, “Indevus,” the “Company,” “we” or “us” refer to Indevus Pharmaceuticals, Inc.

7

Table of Contents

Description of the Company

Indevus is a biopharmaceutical company engaged in the development and commercialization of a diversified portfolio of product candidates, including multiple compounds in late-stage clinical development. We currently have rights to six compounds in development: trospium for overactive bladder, pagoclone for panic and generalized anxiety disorders, citicoline for ischemic stroke, IP 751 for pain and inflammatory disorders, PRO 2000 for the prevention of infection by HIV and other sexually transmitted pathogens, and aminocandin for treatment of systemic fungal infections.

Recent Product Developments

Trospium

We submitted the New Drug Application (“NDA”) for trospium for overactive bladder (“OAB”) on April 28, 2003. Pursuant to the NDA, the trospium finished product will be manufactured by our licensor, Madaus AG, at their manufacturing facility in Germany. The U.S. Food and Drug Administration (“FDA”) conducted a pre-approval inspection at this site in early February 2004. No significant issues were noted by the inspector, and therefore, we are now initiating a manufacturing campaign to have launch quantities of finished product available by June or July, 2004.

FDA requires drugs in the pharmacological class to which trospium belongs (muscarinic receptor antagonists), and most new drugs, to undergo rigorous analysis to determine if they have any clinically significant effect on the QT interval of cardiac muscle contractility. Administration of drugs that significantly prolong the QT interval may lead to serious or fatal cardiac arrhythmias. The NDA for trospium contained a placebo-controlled study conducted by the sponsor to assess the effect of trospium on the QT interval. The study was designed with FDA input and was considered the current standard at that time. The study concluded that trospium administration did not prolong the QT interval. In November 2002, the FDA issued a preliminary concept paper concerning the clinical evaluation of QT interval prolongation for non-antiarrhythmia drugs which stipulated that QT interval studies should have larger sample sizes than previously required, should include a greater number of ECG readings than previously required, and should include a positive control, such as the drug moxifloxacin, which causes a predictable increase in the QT interval. In late 2003, we became aware that a competitive overactive bladder product with a pending NDA received an approvable letter, requiring the sponsor to perform a QT study. A second competitive OAB product also received an approvable letter with a requirement to perform additional unspecified clinical studies. Although we believe that our QT study of trospium, completed in 2001, demonstrated no effect on the QT interval, we decided to perform a second QT study with the new standard as described in the November 2002 FDA concept paper. FDA was consulted on the study design, the study was completed in late 2003, and the final study report was recently submitted to FDA. The study demonstrated that both trospium and placebo had no significant effect on the QT interval while moxifloxacin, the positive comparator, had an expected increase in QT interval. Thus, the study concluded that trospium has no significant effect on the QT interval.

As a result of the submission of this new QT study, we received a letter dated February 12, 2004, from the FDA establishing a 90-day extension to the original Prescription Drug User Fee Act (“PDUFA”) action date of February 27, 2004, moving that date to May 28, 2004.

We have also recently completed a successful trial designed to explore further certain attributes of trospium. The 12-week, placebo-controlled trial enrolled 658 patients at 52 sites in the U.S. Preliminary results show that the trial met all of its primary and secondary endpoints with a high degree of statistical significance, including a reduction in both micturitions (urinations) and urinary incontinence episodes among patients treated with trospium versus placebo. In particular, the study confirmed a rapid onset of action within one week of therapy and a significant reduction in urge severity. The most frequent side effects seen in the trial were the common anti-cholinergic side effects of dry mouth and constipation, with results consistent with our previous studies. We hope to use these findings in discussions with the FDA to support proposed statements in the product label which may help reinforce trospium’s position in the marketplace. We also intend to submit the results of the study for presentation in scientific forums and publication in peer-reviewed journals.

We intend to enter into a commercialization agreement for the launch and marketing of trospium. We have entered into late stage negotiations for a trospium marketing partnership that, if consummated, would allow us to establish a specialty sales force and co-promote trospium. As part of our continuing development program, we are also conducting additional clinical trials in the U.S. to develop extended release formulations of trospium.

Citicoline

Effective January 22, 2004, we entered into a new agreement with Ferrer Internacional S.A. (“Ferrer”) covering the development, manufacture, and marketing of citicoline in the U.S. and Canada. Under the terms of the new agreement, we have granted Ferrer exclusive rights to our patents and know-how related to citicoline. In exchange, Ferrer agreed to assume all future development, manufacturing, and commercialization costs of citicoline. Indevus will receive 50% of all milestone payments made to Ferrer by a third party and royalties on net sales of the product. This new agreement allows Indevus to retain significant participation in the future economics of citicoline, should the product be approved and marketed in the U.S. and Canada, without incurring any further costs.

Critical Accounting Policies and Significant Judgments and Estimates

The discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements that have been prepared in accordance with generally accepted accounting principles in the U.S. The preparation of these financial statements requires us to make certain estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expense during the reported periods. These items are constantly monitored and analyzed by management for changes in facts and circumstances, and material changes in these estimates could occur in the future. Changes in estimates are recorded in the period in which they become known. We base our estimates on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from our estimates if past experience or other assumptions do not turn out to be substantially accurate.

Critical Accounting Policies

We believe a critical accounting policy is a policy that is both important to the portrayal of our financial conditions and results, and requires managemen