Attached files
file | filename |
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EX-32.1 - CERTIFICATION - JAVELIN PHARMACEUTICALS, INC | javelin_10q-ex3201.htm |
EX-32.2 - CERTIFICATION - JAVELIN PHARMACEUTICALS, INC | javelin_10q-ex3202.htm |
EX-31.2 - CERTIFICATION - JAVELIN PHARMACEUTICALS, INC | javelin_10q-ex3102.htm |
EX-31.1 - CERTIFICATION - JAVELIN PHARMACEUTICALS, INC | javelin_10q-ex3101.htm |
United
States
Securities and
Exchange Commission
Washington,
D.C. 20549
FORM
10-Q
(Mark
one)
þ QUARTERLY REPORT UNDER SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For
the quarterly period ended September 30, 2009
o TRANSITION REPORT UNDER SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT
For the transition period from
___________ to ___________.
Commission
File Number:
001-32949
JAVELIN
PHARMACEUTICALS, INC.
(Exact
name of registrant as specified in its charter)
Delaware
|
88-0471759
|
|
(State
or other jurisdiction of
|
(I.R.S.
Employer
|
|
incorporation
or organization)
|
Identification
No.)
|
125
CambridgePark Drive, Cambridge, MA 02140
|
||
(Address
of principal executive offices) (Zip Code)
|
||
Issuer’s
telephone number: (617)
349-4500
|
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
past 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 No
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 in Rule
12b-2 of the Exchange Act).
Yes o No þ
At
November 6, 2009, 63,861,716 shares of the Registrant’s Common Stock, par value
$0.001, were outstanding.
JAVELIN
PHARMACEUTICALS, INC. AND SUBSIDIARIES
INDEX
Page
|
||
PART
I — FINANCIAL INFORMATION
|
||
ITEM
1. UNAUDITED FINANCIAL STATEMENTS
|
||
Condensed
Consolidated Balance Sheets as of September 30, 2009 (unaudited) and
December 31, 2008
|
3
|
|
Condensed
Consolidated Statements of Operations (unaudited) for the three and nine
months ended September 30, 2009 and 2008 and the cumulative period from
February 23, 1998 (inception) to September 30, 2009
|
4
|
|
Condensed
Consolidated Statement of Stockholders’ Equity (Deficit) (unaudited) for
the nine months ended September 30, 2009
|
5
|
|
Condensed
Consolidated Statements of Cash Flows (unaudited) for the nine months
ended September 30, 2009 and 2008 and the cumulative period from February
23, 1998 (inception) to September 30, 2009
|
6
|
|
Notes
to Condensed Consolidated Financial Statements (unaudited)
|
7
|
|
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
|
15
|
|
ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM
4. CONTROLS AND PROCEDURES
|
21
21
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|
PART
II — OTHER INFORMATION
|
||
ITEM
6. EXHIBITS
|
21
|
|
SIGNATURES
|
22
|
|
EXHIBITS
|
||
EX-31.1:
CERTIFICATION
|
||
EX-31.2:
CERTIFICATION
|
||
EX-32.1:
CERTIFICATION
|
||
EX-32.2:
CERTIFICATION
|
2
Javelin
Pharmaceuticals, Inc. and Subsidiaries
(A
Development Stage Enterprise)
(Unaudited)
September
30,
2009
|
December
31,
2008
|
|||||||
Assets
|
|
|
||||||
Current
assets:
|
|
|
||||||
Cash
and cash equivalents
|
$ | 3,272,678 | $ | 20,057,937 | ||||
Accounts
receivable, product sales
|
— | 470,288 | ||||||
Inventory
|
— | 1,847,904 | ||||||
Prepaid
expenses and other current assets
|
493,534 | 511,820 | ||||||
Total
current assets
|
3,766,212 | 22,887,949 | ||||||
Long
term marketable securities available for sale
|
— | 1,586,910 | ||||||
Fixed
assets, at cost, net of accumulated depreciation
|
950,426 | 1,195,670 | ||||||
Intangible
assets, net of accumulated amortization
|
3,039,090 | 3,480,248 | ||||||
Other
assets
|
146,468 | 154,918 | ||||||
Total
assets
|
7,902,196 | 29,305,695 | ||||||
Liabilities
and Stockholders’ Equity (Deficit)
|
||||||||
Current
liabilities:
|
||||||||
Accounts
payable and accrued expenses
|
7,770,353 | 8,119,006 | ||||||
Deferred
revenue, current
|
1,204,301 | — | ||||||
Deferred
lease liability
|
426,587 | 513,519 | ||||||
Total
current liabilities
|
9,401,241 | 8,632,525 | ||||||
Deferred
revenue, noncurrent
|
5,017,921 | — | ||||||
Total
liabilities
|
14,419,162 | 8,632,525 | ||||||
Commitments
and contingencies
|
||||||||
Stockholders’
equity (deficit)
|
||||||||
Preferred
stock, $0.001 par value, 5,000,000 shares authorized as of September 30,
2009 and December 31, 2008, none of which are outstanding
|
— | — | ||||||
Common
stock, $0.001 par value; 200,000,000 shares authorized as of September 30,
2009 and December 31, 2008; 60,675,016 and 60,649,358 shares
issued and outstanding at September 30, 2009 and December 31, 2008,
respectively
|
60,675 | 60,649 | ||||||
Additional
paid-in capital
|
176,801,138 | 174,534,897 | ||||||
Other
comprehensive income
|
25,499 | 10,383 | ||||||
Deficit
accumulated during the development stage
|
(183,404,278 | ) | (153,932,759 | ) | ||||
Total
stockholders’ equity (deficit)
|
(6,516,966 | ) | 20,673,170 | |||||
Total
liabilities and stockholders’ equity (deficit)
|
$ | 7,902,196 | $ | 29,305,695 |
The
accompanying notes are an integral part of the unaudited condensed consolidated
financial statements.
3
Javelin
Pharmaceuticals, Inc. and Subsidiaries
(A
Development Stage Enterprise)
(Unaudited)
Cumulative
from
|
||||||||||||||||||||
February
23, 1998
|
||||||||||||||||||||
For
the three months ended
|
For
the nine months ended
|
(inception)
to
|
||||||||||||||||||
September
30,
|
September
30,
|
September
30,
|
||||||||||||||||||
2009
|
2008
|
2009
|
2008
|
2009
|
||||||||||||||||
Revenues:
|
||||||||||||||||||||
Partner
revenue
|
$ | 1,130,966 | $ | — | $ | 3,330,849 | $ | — | $ | 3,330,849 | ||||||||||
Product
revenue
|
— | 366,050 | 188,172 | 611,352 | 1,289,785 | |||||||||||||||
Government
grants and contracts
|
— | — | — | — | 5,804,824 | |||||||||||||||
Total
revenues
|
1,130,966 | 366,050 | 3,519,021 | 611,352 | 10,425,458 | |||||||||||||||
Costs
and expenses:
|
||||||||||||||||||||
Costs
of revenue
|
881,539 | 272,358 | 2,899,368 | 451,763 | 3,748,959 | |||||||||||||||
Research
and development
|
4,165,716 | 6,887,952 | 21,320,172 | 17,043,301 | 124,387,356 | |||||||||||||||
Selling,
general and administrative
|
2,369,210 | 4,163,646 | 8,153,955 | 13,400,159 | 68,914,838 | (1) | ||||||||||||||
Depreciation
and amortization
|
79,615 | 85,958 | 245,138 | 206,561 | 814,910 | |||||||||||||||
Total
costs and expenses
|
7,496,080 | 11,409,914 | 32,618,633 | 31,101,784 | 197,866,063 | |||||||||||||||
Operating
loss
|
(6,365,114 | ) | (11,043,864 | ) | (29,099,612 | ) | (30,490,432 | ) | (187,440,605 | ) | ||||||||||
Other
income (expense):
|
||||||||||||||||||||
Interest
income
|
5,864 | 229,958 | 49,632 | 807,760 | 5,090,230 | |||||||||||||||
Interest
expense
|
— | — | — | — | (944,657 | ) | ||||||||||||||
Other
income (expense)
|
(394,187 | ) | (33,275 | ) | (415,327 | ) | 2,814 | (86,583 | ) | |||||||||||
Total
other income (expense)
|
(388,323 | ) | 196,683 | (365,695 | ) | 810,574 | 4,058,990 | |||||||||||||
Loss
before income tax provision
|
(6,753,437 | ) | (10,847,181 | ) | (29,465,307 | ) | (29,679,858 | ) | (183,381,615 | ) | ||||||||||
Income
tax provision
|
6,756 | 23,375 | 6,212 | 23,375 | 22,663 | |||||||||||||||
Net
loss
|
(6,760,193 | ) | (10,870,556 | ) | (29,471,519 | ) | (29,703,233 | ) | (183,404,278 | ) | ||||||||||
Deemed
dividend related to beneficial conversion feature of Series B redeemable
convertible preferred stock
|
— | — | — | — | (3,559,305 | ) | ||||||||||||||
Net
loss attributable to common stockholders
|
$ | (6,760,193 | ) | $ | (10,870,556 | ) | $ | (29,471,519 | ) | $ | (29,703,233 | ) | $ | (186,963,583 | ) | |||||
Net
loss per share attributable to common stockholders:
|
||||||||||||||||||||
Basic
and diluted
|
$ | (0.11 | ) | $ | (0.18 | ) | $ | (0.49 | ) | $ | (0.54 | ) | ||||||||
Weighted
average shares
|
60,447,975 | 60,393,432 | 60,433,689 | 54,767,751 |
(1)
|
Includes
related party transactions of $1,075,182 cumulative from February 23, 1998
(inception) through December 31,
2002.
|
The
accompanying notes are an integral part of the unaudited condensed consolidated
financial statements.
4
Javelin
Pharmaceuticals, Inc. and Subsidiaries
(A
Development Stage Enterprise)
For
the Nine Months Ended September 30, 2009
(Unaudited)
Common
Stock
|
Additional
Paid-in
|
Accumulated
Other
Comprehensive
|
Deficit
Accumulated
during
the
Development
|
Total
Stockholders’
Equity
|
||||||||||||||||||||
Shares
|
Amount
|
Capital
|
Income
(Loss)
|
Stage
|
(Deficit)
|
|||||||||||||||||||
Balance
at December 31, 2008
|
60,649,358 | $ | 60,649 | $ | 174,534,897 | $ | 10,383 | $ | (153,932,759 | ) | $ | 20,673,170 | ||||||||||||
Net
loss for the period ending September 30, 2009
|
(29,471,519 | ) | (29,471,519 | ) | ||||||||||||||||||||
Cumulative
translation adjustment
|
15,116 | 15,116 | ||||||||||||||||||||||
Change
in unrealized loss on investments
|
- | - | ||||||||||||||||||||||
Total
comprehensive income (loss)
|
(29,456,403 | ) | ||||||||||||||||||||||
Share
based compensation expense
|
2,254,709 | 2,254,709 | ||||||||||||||||||||||
Shares
issued for Employee Stock Purchase Plan
|
25,658 | 26 | 11,532 | 11,558 | ||||||||||||||||||||
Balance at September 30,
2009
|
60,675,016 | $ | 60,675 | $ | 176,801,138 | $ | 25,499 | $ | (183,404,278 | ) | $ | (6,516,966 | ) |
The
accompanying notes are an integral part of the unaudited condensed financial
statements.
5
Javelin
Pharmaceuticals, Inc. and Subsidiaries
(A
Development Stage Enterprise)
For
the Nine Months Ended September 30, 2009
(Unaudited)
For
the Nine Months Ended
September
30,
|
Cumulative
from
February
23, 1998
(Inception)
to
September
30, 2009
|
|||||||||||
2009
|
2008
|
|||||||||||
Cash
flows from operating activities:
|
||||||||||||
Net
loss
|
$ | (29,471,519 | ) | $ | (29,703,233 | ) | $ | (183,404,278 | ) | |||
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
||||||||||||
Depreciation
and amortization
|
245,138 | 206,561 | 814,910 | |||||||||
Amortization
of intangible asset
|
441,158 | 168,276 | 760,910 | |||||||||
Stock
based compensation expense
|
2,254,709 | 2,662,442 | 11,872,376 | |||||||||
Impairment
of long-term marketable securities
|
— | — | 213,090 | |||||||||
Realized
loss (gain) on sale of marketable securities
|
386,855 | (34,773 | ) | 352,082 | ||||||||
Amortization
of premium/discount on marketable securities
|
— | (6,324 | ) | (44,862 | ) | |||||||
Amortization
of deferred financing costs
|
— | — | 252,317 | |||||||||
Amortization
of original issue discount
|
— | — | 101,564 | |||||||||
Amortization
of unearned compensation
|
— | — | 345,672 | |||||||||
Non-cash
expense of issuance of Common Stock in connection with acquisition of a
license
|
— | — | 18,600,000 | |||||||||
Non-cash
expense recognized with issuance of Common Stock for license
milestone
|
— | — | 100,000 | |||||||||
Non-cash
expense recognized with issuance of Common Stock for liquidation
damages
|
— | — | 373,299 | |||||||||
Amortization
of discount on debenture
|
— | — | 314,795 | |||||||||
Warrants
issued in consideration for services rendered
|
— | — | 3,003,076 | |||||||||
Non-cash
expense contributed by affiliate
|
— | — | 1,075,182 | |||||||||
Changes
in assets and liabilities:
|
||||||||||||
Decrease
(increase) in accounts receivable
|
470,288 | (368,052 | ) | — | ||||||||
(Increase)
decrease in inventory
|
1,847,904 | (1,923,319 | ) | — | ||||||||
(Increase)
decrease in prepaid expenses, other current assets and other
assets
|
26,842 | 764,211 | (621,431 | ) | ||||||||
(Decrease)
increase in accounts payable, accrued expenses and other
liabilities
|
(333,537 | ) | 2,024,940 | 7,797,520 | ||||||||
Increase
in deferred revenue
|
6,222,222 | — | 6,222,222 | |||||||||
Increase
(decrease) in deferred lease liability
|
(86,932 | ) | 56,536 | 426,587 | ||||||||
Increase
in due to Licensor
|
— | — | 500,000 | |||||||||
Net
cash used in operating activities
|
(17,996,872 | ) | (26,152,735 | ) | (130,944,969 | ) | ||||||
Cash
flows from investing activities:
|
||||||||||||
Purchases
of marketable securities
|
— | (2,100,000 | ) | (82,752,017 | ) | |||||||
Sales
and redemptions of marketable securities
|
1,200,055 | 21,651,653 | 82,231,708 | |||||||||
Capital
expenditures
|
— | (934,651 | ) | (1,764,115 | ) | |||||||
Acquisition
of intangible assets
|
— | — | (3,800,000 | ) | ||||||||
Net
cash provided by (used in) investing activities
|
1,200,055 | 18,617,002 | (6,084,424 | ) | ||||||||
Cash
flows from financing activities:
|
||||||||||||
Proceeds
from exercise of warrants
|
— | — | 752,213 | |||||||||
Proceeds
from shares issued under ESPP
|
11,558 | — | 31,445 | |||||||||
Proceeds
from exercise of options
|
— | 507,361 | 1,908,119 | |||||||||
Proceeds
from sale of Common Stock
|
— | 27,529,702 | 122,921,776 | |||||||||
Proceeds
from sale of Preferred Stock
|
— | — | 25,451,201 | |||||||||
Costs
associated with sale of Common Stock
|
— | (1,767,857 | ) | (9,344,579 | ) | |||||||
Costs
associated with sale of Preferred Stock
|
— | — | (1,764,385 | ) | ||||||||
Proceeds
from notes payable
|
— | — | 2,015,000 | |||||||||
Proceeds
from issuance of debenture
|
— | — | 1,000,000 | |||||||||
Repayment
of debenture
|
— | — | (1,000,000 | ) | ||||||||
Costs
associated with notes payable
|
— | — | (153,719 | ) | ||||||||
Repayment
of notes payable
|
— | — | (1,515,000 | ) | ||||||||
Net
cash provided by financing activities
|
11,558 | 26,269,206 | 140,302,071 | |||||||||
Net
increase (decrease) in cash and cash equivalents
|
(16,785,259 | ) | 18,733,473 | 3,272,678 | ||||||||
Cash
and cash equivalents at beginning of period
|
20,057,937 | 15,931,243 | — | |||||||||
Cash
and cash equivalents at end of period
|
$ | 3,272,678 | $ | 34,664,716 | $ | 3,272,678 | ||||||
Supplemental
disclosures:
|
||||||||||||
Cash
paid for interest
|
$ | — | $ | — | $ | 271,633 | ||||||
Supplemental
disclosure of non-cash investing and financing activities:
|
||||||||||||
Non-cash
issuance of Common Stock
|
$ | — | $ | — | $ | 500,000 | ||||||
Non-cash
addition of intangible assets
|
$ | — | $ | — | $ | 2,000,000 | ||||||
Options
and warrants issued for services and financings
|
$ | — | $ | — | $ | 1,222,574 | ||||||
Conversion
of merger note and accrued interest to Series C stock
|
$ | — | $ | — | $ | 519,795 | ||||||
Recapitalization
in connection with merger with Intrac
|
$ | — | $ | — | $ | 1,153 |
The
accompanying notes are an integral part of the unaudited condensed consolidated
financial statements.
6
JAVELIN
PHARMACEUTICALS, INC. AND SUBSIDIARIES
(A
Development Stage Enterprise)
1.
Organization and Business
Javelin
Pharmaceuticals, Inc., along with its wholly owned subsidiaries Javelin
Pharmaceuticals UK Limited (through February 7, 2009), Javelin Pharmaceuticals
GmbH, and Innovative Drug Delivery Systems, Inc. (collectively, “we,” “us,” the
“Company” or “Javelin”), is a development stage enterprise engaged in the
research, development and commercialization of innovative treatments for the
relief of moderate to severe pain. We conduct operations in a single segment.
Substantially all of our operations are within the United States of America, as
our United Kingdom (“U.K.”) subsidiary was sold to Therabel Pharma N.V.
(“Therabel”) during the first quarter of 2009, and we have very limited
activities in our German branch office. We are a specialty pharmaceutical
company that applies proprietary technologies to develop new products and
improved formulations of existing drugs that target current unmet and
underserved medical needs primarily in the acute care pain management
market.
We have
three late stage product candidates in clinical development in the U.S.:
DylojectTM
(diclofenac sodium injectable), EreskaTM
(intranasal ketamine, formerly referred to as PMI-150) and RylomineTM
(intranasal morphine). On October 31, 2007, we received marketing
authorization approval in the U.K. for Dyloject®, our proprietary injectable
formulation of diclofenac sodium (75 mg/2 ml). Commercial launch of the product
occurred in December of 2007 upon first inclusion in local hospital formularies.
Product revenues related to Dyloject began in the first quarter of
2008.
In
addition to the normal risks associated with a new business venture, there can
be no assurance that our research and development will be successfully completed
or that any approved product will be commercially viable. In addition, we
operate in an environment of rapid change in technology, are governed by rules,
regulations, and requirements of the regulatory agencies, are dependent upon
raising capital to fund operations, and are dependent upon the services of our
employees, collaborators and consultants.
Partner
Transaction
On
January 15, 2009, we entered into a License and Commercialization Agreement
with Therabel, under which Therabel was granted an exclusive license under
certain of our technology to commercialize Dyloject and assumed all Dyloject
commercialization, regulatory, and manufacturing responsibilities and expenses
in the U.K. along with those for future market approvals in the European Union
(“E.U.”) and certain other countries outside of the U.S. In connection with this
transaction, Therabel acquired our U.K. subsidiary. In February 2009, we
received an upfront payment of $7.0 million. In April 2009 and August 2009,
we received approximately $1.7 million and $0.8 million, respectively, for the
sale of existing inventory of Dyloject to Therabel. Additionally, the agreement
provides for up to $59.5 million if certain sales and regulatory milestones
are met and provides for future royalties on sales of Dyloject. The agreement
shall continue in full force and effect on a country-by-country basis as long as
any product licensed under the agreement is being developed or commercialized
for use in any disease, disorder, or condition in humans. Either party may
terminate upon written notice upon the occurrence of certain events, including
material breach or bankruptcy, subject to certain cure provisions and
restrictions. In addition, Therabel may terminate the agreement following a
specified period of prior written notice to us.
2.
Summary of Significant Accounting Policies
Basis
of Preparation
The
condensed consolidated financial statements include the accounts of Javelin
Pharmaceuticals, Inc. and its wholly owned subsidiaries. All intercompany
balances and transactions have been eliminated. In the opinion of management,
the accompanying unaudited condensed consolidated financial statements include
all adjustments, consisting of only normal recurring accruals, necessary for a
fair statement of our financial position, results of operations and cash
flows.
The
information included in this Quarterly Report on Form 10-Q should be read in
conjunction with our Consolidated Financial Statements and the accompanying
Notes included in our Annual Report on Form 10-K for the year ended December 31,
2008. Our accounting policies are described in the Notes to the Consolidated
Financial Statements in our 2008 Annual Report on Form 10-K and updated, as
necessary, in this Form 10-Q.
The
consolidated balance sheet as of December 31, 2008 was derived from the audited
financial statements at that date but does not include all of the information
and notes required by accounting principles generally accepted in the United
States of America for complete financial statements.
The
financial statements have been prepared on a going-concern basis, which assumes
realization of all assets and settlement or payment of all liabilities in the
ordinary course of business. We have limited capital resources, net operating
losses and negative cash flows from operations since inception and expect these
conditions to continue for the foreseeable future.
7
We
generated revenues from product sales in the U.K. starting in the first quarter
of 2008 through February 7, 2009, at which point we licensed our product in the
U.K. and E.U. to Therabel for which we received an upfront payment of
$7.0 million. Additionally, the agreement provides for up to
$59.5 million if certain sales and regulatory milestones are met and
provides for future royalties on sales of Dyloject. The extent of the
anticipated revenue from royalties from product sales is dependent upon many
factors, including Therabel’s ability to successfully market the product, obtain
market acceptance, and file additional marketing applications for Dyloject in
the E.U. There can be no assurance that this will happen. Although we believe
that our existing cash resources, in addition to those cash resources that we
received pursuant to our registered direct offering in November 2009 discussed
below, will be sufficient to support the current operating plan into January
2010, we will need additional financing to support our operating plan
thereafter. We may seek to raise additional funds through the private and/or
public sale of our equity and/or debt securities. We may also seek to raise
capital through collaborative arrangements with corporate sources or other
sources of financing. There can be no assurance that such additional financing,
if at all available, can be obtained on terms reasonable to us. In the event
that sufficient funds are not available, we will need to postpone or discontinue
planned operations and projects. Our continuance as a going concern is dependent
upon, among other things, our ability to obtain adequate long-term financing,
the success of our research and development program and our attainment of
profitable operations. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
Use
of Estimates
The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Significant estimates relate to the valuation of equity instruments issued for
services rendered, fair value measurements, recoverability of fixed assets and
deferred taxes. Actual results could differ from those estimates.
Subsequent
Events
We
evaluated all events or transactions that occurred after September 30, 2009
up through November 9, 2009, the date we issued these financial statements.
During this period we did not have any material recognizable subsequent events.
Our non-recognizable subsequent event consisted of the issuance of
common stock to an investor in a registered direct offering in November
2009, which is disclosed in detail in Note 8 of these financial
statements.
Research
and Development Costs
We
expense all research and development costs as incurred for which there is no
alternative future use. Such expenses include licensing and upfront fees paid in
connection with collaborative agreements, as well as expenses incurred in
performing research and development activities including salaries and benefits,
clinical trial and related clinical manufacturing expenses, share-based
compensation expenses, contract services and other outside
expenses.
Revenue
Recognition
Product
Revenue
We
recognize revenue from product sales when persuasive evidence of an arrangement
exists, title to product and associated risk of loss has passed to the customer,
the price is fixed or determinable, collection from the customer is reasonably
assured and we have no further performance obligations.
From the
first quarter of 2008 through February 6, 2009 our product revenue consisted of
sales of Dyloject in the U.K. As of February 7, 2009, the commercial rights to
Dyloject in the EU were licensed to Therabel.
During
the period in which we recorded product revenue, our return policy allowed for
returns based on subjective criteria of the buyer for a limited period of time
after the product was delivered. Because we started recording sales in the first
quarter of 2008, we did not have a significant amount of history to draw upon in
determining the level of returns that we might experience based on our return
policy. As such, we believed it was appropriate not to record product revenue on
those shipments occurring in the reporting period that could be returned in the
following reporting period, and recognized product revenues on those shipments
when the right of return restrictions lapsed in the subsequent
period.
Partner
Revenue
On
January 15, 2009, we entered into a License and Commercialization Agreement
(“Agreement”) with Therabel Pharma N.V. (“Therabel”) under which Therabel was
granted an exclusive license under certain of our technology to assume all
Dyloject commercialization, regulatory, and manufacturing responsibilities and
expenses in the U.K. along with those for future market approvals in the
European Union (“E.U.”) and certain other countries outside of the
U.S.
8
In
February 2009, we received an upfront payment of $7.0 million. In
April 2009 and August 2009, we received approximately $1.7 million and $0.8
million, respectively, for the sale of existing inventory of Dyloject to
Therabel. The agreement also provides for the potential of up to
$59.5 million in sales and regulatory milestone payments and provides for future
royalties on sales of Dyloject. The Agreement shall continue in full force and
effect on a country-by-country basis as long as any product licensed under the
Agreement is being developed or commercialized for use in any disease, disorder,
or condition in humans. Either party may terminate the Agreement upon written
notice upon the occurrence of certain events, including material breach or
bankruptcy, subject to certain cure provisions and restrictions. In addition,
Therabel may terminate the Agreement following a specified period of prior
written notice to us.
Deferred
Revenue
In
connection with our license agreement with Therabel, we received an upfront
non-refundable payment of $7.0 million in February 2009. The
$7.0 million upfront fee was recorded as deferred revenue and is being
recognized on a straight-line basis over our estimated performance period under
the agreement, which we expect to extend through November 2014. Additionally,
the agreement provides for up to $59.5 million if certain sales and
regulatory milestones are met. All milestone payments will be recognized as
deferred revenue upon the achievement of the associated milestone and amortized
over the performance period.
Product
Sales to Partner
The
Agreement provides for the sale of our existing inventory to Therabel upon
acceptance of the inventory by Therabel. This particular existing inventory was
sold to Therabel on a one-time, royalty-free basis. For the three and nine
months ended September 30, 2009, Therabel had taken delivery of approximately
$0.8 million and $2.6 million, respectively, of inventory for which we recorded
revenue. We recognize revenue when all of the following criteria are met:
persuasive evidence of an arrangement exists; delivery has occurred or services
have been rendered; the seller’s price to the buyer is fixed or determinable;
and collectibility is reasonably assured. Revenues from product sales are
recognized when title and risk of loss have passed to the customer, which in
this case was upon delivery to Therabel’s third party distributor. We received
$1.7 million in April 2009 and $0.8 million in August 2009.
Recent
Accounting Pronouncements
In June
2009, the FASB approved the FASB Accounting Standards Codification
(“Codification” or “ASC”) as the single source of authoritative nongovernmental
U.S. GAAP to be launched on July 1, 2009. The Codification does not change
current U.S. GAAP, but is intended to simplify user access to all authoritative
U.S. GAAP by providing all the authoritative literature related to a particular
topic in one place. All existing accounting standard documents will be
superseded and all other accounting literature not included in the Codification
will be considered nonauthoritative. The Codification is effective for us on
September 30, 2009. The Codification did not have an impact on our financial
condition or results of operations.
3.
Inventory
Inventory
is valued at the lower of cost or market, with cost determined under the
first-in, first-out, or FIFO, method. It is comprised entirely of Dyloject. The
components of inventory are as follows:
September
30, 2009
|
December
31, 2008
|
|||||||
Work
in process
|
$ | — | $ | 463,473 | ||||
Finished
goods
|
— | 1,384,431 | ||||||
Total
|
$ | — | $ | 1,847,904 |
As of
February 7, 2009, we sold approximately $1.7 million of our Dyloject finished
goods inventory to Therabel as part of our licensing transaction. We sold an
additional $0.8 million to Therabel during the three months ended September 30,
2009. We have no inventory remaining as of September 30, 2009.
4.
Intangible Assets
As of
September 30, 2009 and December 31, 2008, our intangible assets related to our
Shimoda Biotech (Proprietary)
Ltd. milestones were as follows:
September
30, 2009
|
December
31, 2008
|
|||||||
Cost
|
$ | 3,800,000 | $ | 3,800,000 | ||||
Accumulated
amortization
|
(760,910 | ) | (319,752 | ) | ||||
Intangibles,
net
|
$ | 3,039,090 | $ | 3,480,248 |
For the
three and nine months ended September 30, 2009, our amortization expense of the
intangible assets amounted to $147,053 and $441,158, respectively. For the three
and nine months ended September 30, 2008, our amortization expense of the
intangible assets amounted to $56,092 and $168,276, respectively.
9
5.
Fair Value Measurements
Effective
January 1, 2008, we adopted the provisions of ASC 820-10, Fair Value Measurements and
Disclosures (formerly SFAS No. 157, Fair Value Measurements), for our financial assets
and liabilities that are re-measured and reported at fair value at each
reporting period, and non-financial assets and liabilities that are re-measured
and reported at fair value at least annually. Under the guidance, fair value is
defined as the exchange price that would be received for an asset or paid to
transfer a liability (an exit price) in the principal or most advantageous
market for the asset or liability in an orderly transaction between market
participants on the measurement date. The guidance also establishes a fair value
hierarchy which requires an entity to maximize the use of observable inputs and
minimize the use of unobservable inputs when measuring fair value.
We
implemented the guidance as it relates to our non-financial assets and
non-financial liabilities that are recognized and disclosed at fair value in the
financial statements on a nonrecurring basis effective January 1, 2009.
Implementation of this guidance for our non-financial assets and liabilities did
not have an impact on our financial position or results of
operations.
The
standard describes three levels of inputs that may be used to measure fair
value:
Level 1 — Quoted prices that
are available in active markets for identical assets or liabilities. The types
of financial instruments included in Level 1 are marketable equity available for
sale securities that are traded in an active exchange market.
Level 2 — Pricing inputs
other than quoted prices in active markets, such as quoted prices for similar
assets or liabilities; quoted prices in markets that are not active; or other
inputs that are observable or can be corroborated by observable market data for
substantially the full term of the assets or liabilities. Instruments included
in this category are warrants and derivative contracts whose value is determined
using a pricing model with inputs that are observable in the market or can be
derived principally from or corroborated by observable market data.
Level 3 — Unobservable inputs
that are supported by little or no market activity and that are significant to
the fair value of the assets or liabilities. Level 3 includes assets and
liabilities whose value is determined using pricing models, discounted cash flow
methodologies, or similar techniques, as well as instruments for which the
determination of fair value requires significant management judgment or
estimation.
Effective
April 1, 2009, we implemented a new accounting standard under ASC 820-10, which
provides additional authoritative guidance in determining whether a market is
active or inactive, and whether a transaction is distressed, is applicable to
all assets and liabilities (i.e. financial and nonfinancial). Additionally, we
are required to disclose in interim and annual periods the inputs and valuation
technique(s) used to measure fair value and a discussion of changes in valuation
techniques and related inputs, if any, during the period. The adoption of this
new accounting standard did not have any impact on our financial position or
results of operations.
As of
September 30, 2009, we have no assets or liabilities that are measured at fair
value on a recurring basis.
The
following table sets forth a summary of the changes in the fair value of our
Level 3 financial assets that are measured at fair value on a recurring
basis:
Three
months ending September 30,
|
Nine
months ending September 30,
|
|||||||||||||||
Auction
Rate Securities
|
2009
|
2008
|
2009
|
2008
|
||||||||||||
Beginning
balance
|
$ | 1,624,896 | $ | — | $ | 1,586,910 | $ | — | ||||||||
Settlements
|
(1,200,055 | ) | — | (1,200,055 | ) | — | ||||||||||
Losses
included in earnings
|
(386,855 | ) | — | (386,855 | ) | — | ||||||||||
Loss
included in OCI
|
(37,986 | ) | — | — | — | |||||||||||
Transfer
into Level 3
|
— | 1,800,000 | — | 1,800,000 | ||||||||||||
Ending
balance
|
$ | — | $ | 1,800,000 | $ | — | $ | 1,800,000 |
Our Level
3 financial assets consisted of a student loan auction rate bond issued by a
state agency and an auction rate preferred stock of a closed end mutual fund.
The closed end mutual fund primarily invested in common stocks, including
dividend paying common stocks such as those issued by utilities, real estate
investment trusts and regulated investment companies under the Internal Revenue
Code. The fund also invested in fixed income securities such as U.S. government
securities, preferred stocks and bonds.
Due to
adverse developments in the global credit and capital markets beginning in 2008,
certain auctions had failed as a result of liquidity issues and there was little
to no current market activity for these instruments. As a result, Level 1 and
Level 2 pricing inputs were unavailable to support the fair value of these
securities and we had classified these securities as Level 3 as December 31,
2008. With the help of a third party valuation specialist, we monitored the fair
value of these auction rate securities to determine if they could be impaired on
an “other-than-temporary” basis. This judgment was based on a qualitative and
quantitative analysis of each security. This included a review of each
security’s collateral, ratings and insurance in order to assess default risk,
credit spread risk and downgrade risk. Additionally, a risk assessment was
prepared for each security based on the details of each security, as well as the
influence of various credit risks and overall credit environment. We determined
these securities were impaired on an “other-than-temporary” basis as of December
31, 2008.
10
During
the quarter ended September 30, 2009, the auction rate market had not yet
returned to orderly functionality, however we became aware of various market
participants willing to enter into transactions at a discount. We were presented
with such an opportunity and on September 1, 2009, we redeemed our marketable
securities to use the funds for operating purposes. As a result, we realized a
loss of $386,855 on the sale of these securities, which is included in earnings
for the three and nine months ended September 30, 2009.
6.
Financial Instruments
As of
September 30, 2009, we had no long term marketable securities or other financial
instruments. The following is a summary of our long term marketable securities
available for sale as of December 31, 2008:
Unrealized
|
Unrealized
|
Estimated
|
||||||||||||||
Cost
|
Gains
|
Losses
|
Fair
Value
|
|||||||||||||
December
31, 2008:
|
||||||||||||||||
Long-term
marketable securities:
|
||||||||||||||||
Taxable
Auction Securities
|
1,586,910 | - | - | 1,586,910 | ||||||||||||
Total
long term marketable securities
|
$ | 1,586,910 | $ | - | $ | - | $ | 1,586,910 |
Our
auction rate securities were classified as long-term due to the fact that the
auctions on these securities had failed as a result of liquidity issues and
there is no current market activity for these instruments. Additionally, we
determined the fair value of these securities was below par, and recorded an
expense to the results of operations to reflect the impairment in the amount of
$213,090 in 2008. We had no unrealized losses on our marketable securities as of
December 31, 2008.
In April
2009, we adopted new accounting guidance under ASC 320-10, Investments – Debt and Equity
Securities (formerly FSP FAS 115-2, FAS 124-2, and EITF 99-20-2, Recognition and Presentation of
Other-Than-Temporary Impairments), which provides additional guidance to
provide greater clarity about the credit and noncredit component of an
other-than-temporary impairment event and to more effectively communicate when
an other-than-temporary impairment event has occurred. This new guidance applied
only to debt securities, and did not have an impact on our results of
operations.
For the
other than temporary impairment as of December 31, 2008, we believe the
impairment was correctly charged to earnings and no cumulative effect adjustment
was required to reclass amounts out of retained earnings into other
comprehensive income.
7.
Income Taxes
We
account for income taxes in accordance with the provisions of ASC 740, Income Taxes (formerly
Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes,
which requires that we recognize deferred tax liabilities and assets for the
expected future tax consequences of events that have been included in the
financial statements or tax returns. Under this method, deferred tax liabilities
and assets are determined on the basis of the difference between the tax basis
of assets and liabilities and their respective financial reporting amounts
(“temporary differences”) at enacted tax rates in effect for the years in which
the temporary differences are expected to reverse. It also requires that the
deferred tax assets be reduced by a valuation allowance, if based on the weight
of available evidence, it is more likely than not that some portion or all of
the recorded deferred tax assets will not be realized in future
periods.
ASC 740
also requires an entity to recognize the impact of a tax position in its
financial statements if that position is more likely than not to be sustained on
audit based on the technical merits of the position. We have evaluated our tax
positions related to our deferred tax assets and their valuation allowances as
of September 30, 2009. As a result of our evaluation, we believe that our income
tax filing positions and deductions would be sustained on audit and do not
anticipate any adjustments that would result in a material change to our
financial position. Therefore, no reserves for uncertain income tax positions
have been recorded pursuant to ASC 740. As of the date of these condensed
consolidated financial statements, all tax years for which we have a net
operating loss are open to the possibility of examination by federal, state, or
local taxing authorities. Our policy is to recognize interest related to income
tax matters to interest expense and penalties related to income tax matters to
other expense. We had no amounts accrued for interest or penalties as of
September 30, 2009.
8. Stockholders’
Equity
Registered
Direct Offering of Common Stock
In
November 2009, we issued 3,186,700 shares of our common stock to a certain
institutional investor in a registered direct offering. The aggregate gross
proceeds from the offering were approximately $4.0 million, and the aggregate
net proceeds, after deducting the fees of the placement agent and other offering
expenses, were approximately $3.7 million. We anticipate using the net
proceeds from the offering to fund clinical research and development programs
for our product candidates, capital expenditures, and for other general
corporate purposes. The common stock that was sold in the offering was
registered on a universal shelf registration statement on Form S-3
(No. 333-140481) that was declared effective by the Securities and Exchange
Commission (the “SEC”) on February 12, 2007, and under which approximately
$0.7 million remains available for future issuance after this
offering.
11
Comprehensive
Loss
ASC
220-10, Comprehensive Income
(formerly SFAS No. 130, Reporting
Comprehensive Income), provides standards for reporting and display of
comprehensive loss and its components in the financial statements. For the
three months ended September 30, 2009, our comprehensive loss was $6.8 million,
which consisted primarily of our net loss and approximately $38,000 change in
unrealized gain on marketable securities. For the three months ended September
30, 2008, our comprehensive loss was $10.8 million, which consisted
primarily of our net loss, offset by approximately $37,000 for the cumulative
translation adjustment impact in consolidation of our foreign
subsidiaries. For the nine months ended September 30, 2009, our
comprehensive loss was $29.5 million, which consisted primarily of our net loss
and $15,116 cumulative translation adjustment impact in consolidation of our
foreign subsidiaries. For the nine months ended September 30, 2008, our
comprehensive loss was $29.7 million, which consisted primarily of our net
loss, as well as an $8,594 change in unrealized gain on marketable securities
and $16,022 cumulative translation adjustment impact in consolidation of our
foreign subsidiaries.
9. Share Based
Compensation
Stock Incentive
Plan
We
recorded share-based compensation for the three and nine months ended September
30, 2009 and 2008 as follows:
Three
months ended
|
Nine
months ended
|
|||||||||||||||
September
30,
|
September
30,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Research
and development
|
$ | 301,066 | $ | 323,017 | $ | 794,931 | $ | 871,569 | ||||||||
Selling,
general and administrative
|
407,678 | 607,738 | 1,459,778 | 1,790,873 | ||||||||||||
Total
impact on results of operations
|
708,744 | 930,755 | 2,254,709 | 2,662,442 | ||||||||||||
Per
share impact on results of operations
|
$ | 0.01 | $ | 0.02 | $ | 0.04 | $ | 0.05 |
Included
in share based compensation for the three and nine months ending September 30,
2009 are expenses of $8,031 and $17,419, respectively, related to our employee
stock purchase plan. Included in share based compensation for the three and nine
months ending September 30, 2008 are expenses of $20,441 and $27,254,
respectively, related to our employee stock purchase plan, which we commenced in
May 2008.
The fair
values of the stock option grants were estimated on the dates of grant using the
Black-Scholes option valuation model that uses the following weighted-average
assumptions:
Three
months ended
|
Nine
months ended
|
|||||||||||||||
September
30,
|
September
30,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Expected
volatility
|
— | — | 96 | % | 76 | % | ||||||||||
Expected
life
|
— | — |
5.0
years
|
5.0
years
|
||||||||||||
Dividend
yield
|
— | — | 0 | % | 0 | % | ||||||||||
Risk
free interest rate
|
— | — | 1.8 | % | 2.8 | % | ||||||||||
Weighted
average per share grant date fair value
|
$ | — | $ | — | $ | 0.83 | $ | 1.99 |
Transactions
involving options granted under the 2005 Plan during the nine months ended
September 30, 2009 are summarized as follows:
Options
Outstanding
|
Options
Exercisable
|
||||||||||||
Number
of
Shares
|
Weighted
Average
Exercise
Price
|
Number
Exercisable
|
Weighted
Average
Exercise
Price
|
||||||||||
Balance
outstanding, January 1, 2009
|
7,110,950
|
$
|
3.25
|
4,044,316
|
$
|
3.02
|
|||||||
Granted
during the period
|
2,322,070
|
$
|
1.14
|
—
|
—
|
||||||||
Exercised
during the period
|
—
|
$
|
—
|
—
|
—
|
||||||||
Forfeited
during the period
|
(967,222
|
)
|
$
|
2.60
|
—
|
—
|
|||||||
Expired
during the period
|
(1,033,305
|
)
|
$
|
3.79
|
—
|
—
|
|||||||
Balance
outstanding, September 30, 2009
|
7,432,493
|
$
|
2.60
|
4,248,577
|
$
|
3.04
|
12
Stock
options – time-based vesting
In the
nine months ended September 30, 2009, we granted 1,558,300 stock options with
time-based vesting having exercise prices ranging from $1.07 to $1.26 per share,
with a weighted average exercise price of $1.12, which vest between eight months
and three years. This includes an annual award to employees of approximately
1,062,000 in January 2009 at a weighted average grant price of $1.07. These
awards were merit based awards granted to employees for 2008 services and vest
over three years. The deemed per share weighted average fair value of our stock
options at the time of the stock option grants for the nine months ended
September 30, 2009 was $0.82 for the time-based vesting options granted, based
upon the quoted market closing prices on the date of the grants using the
Black-Scholes method.
Stock
options – performance based vesting
In the
nine months ended September 30, 2009, we granted 763,770 stock options with
performance-based vesting having exercise prices ranging from $1.15 to $1.26 per
share, with a weighted average exercise price of $1.18. This includes a grant to
employees of 524,000 performance based stock options in March 2009 at a grant
price of $1.15. These options will vest annually over three years from the grant
date, but will be forfeited if specified 2009 corporate goals are not achieved.
Additionally, in May 2009, we granted a total of 239,770 performance based stock
options to certain members of senior management at a grant price of $1.26, which
were granted to replace any potential cash bonus for 2009 that they would
otherwise have received. These options vest in February 2010 if our goals are
met. If the goals are not met, the options will be forfeited. The deemed per
share weighted average fair value of our stock options at the time of the stock
option grants for the nine months ended September 30, 2009 was $0.87 for the
performance-based vesting options granted, based upon the quoted market closing
prices on the date of the grants using the Black-Scholes method.
The
weighted average remaining contractual lives of the options outstanding and
exercisable were approximately 7.2 years and 5.9 years, respectively. We have
not capitalized any compensation cost, and have recorded approximately $0.1
million of stock based compensation charges related to the modification of stock
option grants for the nine months ended September 30, 2009. This expense related
to the extension of time to exercise certain vested options for a terminated
employee. There was no compensation expense related to modifications of stock
options for the three months ended September 30, 2009 and the three and nine
months ended September 30, 2008. We received proceeds of $507,361 for stock
options exercised during the nine months ended September 30,
2008.
As of
September 30, 2009, the total compensation cost related to time-vesting unvested
option awards not yet recognized amounted to approximately $2.1million, which
will be recognized over a weighted average of 1.5 years. The total estimated
compensation cost related to performance-based vesting awards not yet recognized
amounted to approximately $0.2 million, which will be recognized over a weighted
average of 1.4 years.
Non-Plan
Options
The
following table summarizes non-plan stock option information as of September 30,
2009:
Options
Outstanding
|
Options
Exercisable
|
||||||||||||||||
Exercise
Price
|
Number
Outstanding
|
Weighted
Average
Contractual
Life
|
Weighted
Average
Exercise
Price
|
Number
Vested
|
Weighted
Average
Exercise
Price
|
||||||||||||
$
|
3.87
|
1,019,328
|
1.17
|
$
|
3.87
|
1,019,328
|
$
|
3.87
|
For both
the three and nine months ended September 30, 2009, 87,116 non-plan options
expired.
Restricted
Stock Units and Deferred Stock Units
Effective May 1, 2009, we
granted each of our Chief Executive Officer and our President and Chief
Medical Officer 119,048 deferred stock units (“DSUs”). In return, they agreed to
reduce the amount of their annual base salary of $450,000 to $300,000 for the
period from May 1, 2009 through April 30, 2010. The DSUs vest in twelve equal
monthly installments beginning on June 1, 2009, and will be distributed in equal
installments on May 1, 2010 and May 1, 2011. The DSUs had a grant date fair
value of $1.26 per share. The fair values of our
DSUs are based on the market value of our stock on the date of grant and are
recognized over the applicable service period. For both the three and nine
months ended September 30, 2009, we recorded share based compensation related to
the DSUs of approximately $75,000 and $125,000,
respectively.
On May 1,
2009, we granted certain members of senior management an aggregate of 30,000
restricted stock units, or RSUs. The RSUs would vest in
equal annual installments on the first and second anniversary of the grant date
(provided that they are employed by us on each date). The fair values of
these time-vested RSUs are based on the market value of our stock on the date of
grant and are recognized over the applicable service period, adjusted for the
effect of estimated forfeitures. The RSUs had a grant date fair value of $1.26
per share. For both the three and nine months ending September 30, 2009, we
recorded share based compensation related to the RSUs for approximately $7,000
and $12,000, respectively.
13
On May 1,
2009, we entered into an agreement with a consultant to provide partial
compensation in the form of RSUs. The RSUs are granted as of the last day of
each month worked, and are calculated based on the average closing stock price
for the month. They are immediately vested, and are expected to be distributed
in December 2009. The fair values of these time-vested RSUs are based on the
market value of our stock on the date of grant and are recognized over the
applicable service period. For the three and nine months ending September 30,
2009, we recorded share based compensation related to these RSUs for
approximately $47,000 and $72,000 respectively. Additionally, the
consultant was authorized to receive up to 32,500 RSUs if certain performance
criteria are met related to the acceptance of our Dyloject NDA by the FDA within
a specific timeframe. Since the service-inception date precedes the grant date,
we accrue compensation cost over the period between the service-inception date
and the estimated grant date. We use the stock price and other pertinent factors
on each subsequent reporting date to estimate the award’s fair value, until the
grant date (i.e., remeasure each period at fair value). On the grant date, the
estimate of the award’s fair value would be fixed, the cumulative amount of
previously recognized compensation cost would be adjusted, and the company would
no longer have to remeasure the award, assuming that the award was equity
classified. For both the three and nine months ended September 30, 2009, we have
recorded share-based compensation related to the performance-based RSUs of
approximately $32,000.
10.
Net Loss Per Share
Basic net
loss per share is computed on the basis of net loss for the period divided by
the weighted average number of shares of common stock outstanding during the
period. Since we have incurred net losses since inception, diluted net loss per
share does not include the number of shares issuable upon exercise of
outstanding options and warrants and the conversion of preferred stock since
such inclusion would be anti-dilutive. In addition, for all periods presented,
227,040 shares of common stock were held in escrow and have been excluded from
the calculation of basic and diluted per share amounts.
The
calculation of basic and diluted net loss per share is as follows:
For
the three months ended
|
For
the nine months ended
|
|||||||||||||||
September
30,
|
September
30,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Numerator:
|
||||||||||||||||
Net
loss, basic and diluted
|
$ | (6,760,193 | ) | $ | (10,870,556 | ) | $ | (29,471,519 | ) | $ | (29,703,233 | ) | ||||
Denominator:
|
||||||||||||||||
Weighted
average common shares
|
60,447,975 | 60,393,432 | 60,433,689 | 54,767,751 | ||||||||||||
Net
loss per share, basic and diluted
|
$ | (0.11 | ) | $ | (0.18 | ) | $ | (0.49 | ) | $ | (0.54 | ) |
Potentially
dilutive common stock which has been excluded from diluted per share amounts
because their effect would have been anti-dilutive includes the
following:
Three
months ended September 30,
|
Nine
months ended September 30,
|
|||||||||||||||||||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||||||||||||||||||
Weighted
|
Weighted
|
Weighted
|
Weighted
|
|||||||||||||||||||||||||||||
Weighted
|
Average
|
Weighted
|
Average
|
Weighted
|
Average
|
Weighted
|
Average
|
|||||||||||||||||||||||||
Average
|
Exercise
|
Average
|
Exercise
|
Average
|
Exercise
|
Average
|
Exercise
|
|||||||||||||||||||||||||
Number
|
Price
|
Number
|
Price
|
Number
|
Price
|
Number
|
Price
|
|||||||||||||||||||||||||
Options
|
8,730,156 | $ | 2.74 | 8,282,307 | $ | 3.39 | 8,872,991 | $ | 2.89 | 8,211,598 | $ | 3.41 | ||||||||||||||||||||
Warrants
|
2,378,589 | $ | 2.63 | 2,380,649 | $ | 2.63 | 2,378,809 | $ | 2.63 | 2,380,649 | $ | 2.63 | ||||||||||||||||||||
Total
|
11,108,745 | 10,662,956 | 11,251,800 | 10,592,247 |
11.
Commitments and Contingencies
Operating
Leases
We
recognize rental expense for leases on the straight-line basis over the life of
the lease.
For the
three and nine months ended September 30, 2009, we recognized rent expense of
$172,226 and $525,502, respectively, compared to rent expense of $194,654 and
$566,734 for the three and nine months ended September 30, 2008, respectively.
We recorded a deferred lease liability of $426,587 and $513,519 at September 30,
2009 and December 31, 2008, respectively, for rent expense in excess of amounts
paid.
Legal
Proceedings
From time
to time, we are involved in disputes or legal proceedings arising in the
ordinary course of business. However, we do not believe that any such current
disputes or known pending proceedings will have a material adverse effect on our
financial position, results of operations or cash flows.
Research
Collaboration, Licensing and Consulting Agreements
In
connection with our research and development efforts, we have entered into
various arrangements that provide us with rights to develop, produce and market
products using certain know-how, technology and patent rights maintained by the
parties. Terms of the various license agreements may require us to make
milestone payments upon the achievement of certain product development
objectives and pay royalties on future sales, if any, on commercial products
resulting from the collaboration.
14
This
discussion and analysis should be read in conjunction with our audited financial
statements and notes thereto for the year ended December 31, 2008 included in
the 2008 Form 10-K and the condensed consolidated unaudited financial statements
as of September 30, 2009. Operating results are not necessarily indicative of
results that may occur in future periods.
Forward
Looking Statements
We are
including the following cautionary statement in this Quarterly Report on Form
10-Q to make applicable and take advantage of the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995 for any forward-looking
statements made by us or on our behalf. Forward looking statements include
statements concerning plans, objectives, goals, strategies, future events or
performance and underlying assumptions and other statements which are other than
statements of historical facts. Certain statements contained herein are
forward-looking statements and accordingly involve risks and uncertainties which
could cause actual results or outcomes to differ materially from those expressed
in good faith forward-looking statements. Our expectations, beliefs and
projections are expressed in good faith and are believed by us to have a
reasonable basis, including, without limitation, management’s examination of
historical operating trends, data contained in our records and other data
available from third parties, but there can be no assurance that management’s
expectations, beliefs or projections will result or be achieved or accomplished.
Any forward-looking statement contained in this document speaks only as of the
date on which the statement is made. We undertake no obligation to update any
forward-looking statement or statements to reflect events or circumstances that
occur after the date on which the statement is made or to reflect the occurrence
of unanticipated events.
In
addition to other factors and matters discussed elsewhere herein, the following
are important factors that in our view could cause actual results to differ
materially from those discussed in the forward-looking statements: the rate of
acceptance of our product and our product candidates by physicians or patients;
the carrying-out of our research and development program for our product
candidates, including demonstrating their safety and efficacy at each stage of
testing; our ability to attract and/or maintain manufacturing, research,
development and/or commercialization partners; the timely receipt of regulatory
approvals, including product and patent approvals; the commercialization of our
product candidates, at reasonable costs; the ability of our suppliers to
continue to provide sufficient supply of products; the ability to compete
against products intended for similar use by recognized and well capitalized
pharmaceutical companies; our ability to raise capital when needed, and without
adverse and highly dilutive consequences to stockholders; and our ability to
retain management and attract additional employees as required. We are also
subject to numerous risks relating to our product and our product candidates,
manufacturing, regulatory, financial resources, competition and personnel as set
forth in the section “Risk Factors” in our Annual Report on Form 10-K for the
fiscal year ended December 31, 2008. Except to the extent required by applicable
laws or rules, we disclaim any obligations to update any forward looking
statements to reflect events or circumstances after the date
hereof.
Overview
We are a
specialty pharmaceutical company that applies proprietary technologies to
research, develop and in the case of our DylojectTM
product (injectable diclofenac), commercialize new products and improved
formulations of existing drugs that target current unmet and underserved medical
needs primarily in the acute care pain management market. We have three late
stage product candidates in clinical development in the United States (“U.S.”):
Dyloject (diclofenac sodium injectable), EreskaTM
(intranasal ketamine, formerly referred to as PMI-150) and RylomineTM
(intranasal morphine). On October 31, 2007, we received marketing authorization
approval in the United Kingdom (“U.K.”) for Dyloject®, our proprietary
injectable formulation of diclofenac sodium (75 mg/2 ml). Commercial launch of
the product occurred in December of 2007 upon first inclusion in local hospital
formularies. We began recording product revenues related to sales of Dyloject in
the U.K. in the first quarter of 2008.
We have
devoted substantially all of our resources since we began our operations in
February 1998 to the development, and during 2008 with respect to Dyloject the
commercialization, of proprietary pharmaceutical products for the treatment of
acute care pain. Since our inception, we have incurred an accumulated net loss
attributable to our common stockholders of approximately $183.4 million through
September 30, 2009, excluding approximately $3.6 million of a deemed dividend;
although $18.6 million of this amount was related to a non-cash charge we
incurred for the issuance of common stock in connection with the acquisition of
a license. These losses have resulted principally from costs incurred in
research and development activities, including acquisition of technology rights,
general and administrative expenses, and most recently, sales and marketing
expenses related to the commercialization of Dyloject in the U.K. Research and
development activities include salaries, benefits and stock-based compensation
for our research, development and manufacturing employees, costs associated with
nonclinical and clinical trials, process development and improvement, regulatory
and filing fees, and clinical and commercial scale manufacturing. Selling,
general and administrative costs include salaries, benefits and stock-based
compensation for employees, temporary and consulting expenses, and costs
associated with our pre- and post-launch selling and marketing activities in the
U.K.
15
On
January 15, 2009, we entered into a License and Commercialization Agreement with
Therabel Pharma N.V. under which Therabel was granted an exclusive license under
certain of our technology to commercialize Dyloject and will assume all Dyloject
commercialization, regulatory, and manufacturing responsibilities and expenses
in the U.K. along with those for future market approvals in the E.U. and certain
other countries outside of the U.S. In February 2009, we received an upfront
payment of $7.0 million. In April 2009 and August 2009, we received
approximately $1.7 million and $0.8 million, respectively, for the sale of our
existing inventory of Dyloject to Therabel. Additionally, the agreement provides
for up to $59.5 million if certain sales and regulatory milestones are met and
provides for future royalties on sales of Dyloject. The agreement shall continue
in full force and effect on a country-by-country basis as long as any product
licensed under the agreement is being developed or commercialized for use in any
disease, disorder, or condition in humans. Either party may terminate upon
written notice upon the occurrence of certain events, including material breach
or bankruptcy, subject to certain cure provisions and restrictions. In addition,
Therabel may terminate the agreement following a specified period of prior
written notice to us.
Since our
inception, we have incurred approximately $124.4 million of research and
development costs. The major research projects undertaken by us include the
development of Dyloject, Ereska and Rylomine. Total research and development
costs incurred to date for each of these products were approximately $54.8
million, $30.4 million and $19.0 million, respectively. In addition, we incurred
approximately $1.6 million of research and development costs since inception
that do not relate to our major research projects, and we incurred a charge of
approximately $18.6 million related to the merger of Innovative Drug Delivery Systems, Inc. (our
predecessor corporation) with Pain Management, Inc. and the related acquisition
of a licensing agreement in 1998.
For
various reasons, many of which are outside our control, including timing and
results of our clinical trials, requirements imposed by regulatory agencies,
obtaining regulatory approval and our dependence on third parties, we cannot
estimate the total remaining costs to be incurred to commercialize our product
candidates, nor is it possible to estimate when, if ever, any of our product
candidates will be approved by regulatory agencies for commercial sale. In
addition, we may experience adverse results in the development of our product
candidates, which could result in significant delays in obtaining approval to
sell our product candidates, additional costs to be incurred to obtain
regulatory approval or failure to obtain regulatory approval. If any of our
product candidates were to experience setbacks, it would have a material adverse
effect on our financial position and operating results. Even if we successfully
complete development and obtain regulatory approval of one or more of our
product candidates, difficulties in commercial scale manufacturing, failure to
gain favorable pricing from various institutions, and failure of physicians and
patients to accept our products as a safe, cost-effective alternative compared
to existing products would have a material adverse effect on our
business.
Our
financial statements have been prepared on a going-concern basis, which assumes
realization of assets and settlement of liabilities in the ordinary course of
business. We have limited capital resources, significant net operating losses
and negative cash flows from operations since inception and expect these
conditions to continue for the foreseeable future. Although we believe that our
existing cash resources, in addition to those cash resources that we received
pursuant to our registered direct offering in November 2009 described below,
will be sufficient to support the current operating plan into January 2010, we
will need additional financing to support our operating plan thereafter. We may
raise additional funds through the private and/or public sale of our equity
and/or debt securities. We may also seek to raise capital through collaborative
arrangements with corporate sources or other sources of financing. There can be
no assurance that such additional financing, if at all available, can be
obtained on terms reasonable to us. If sufficient funds are not available, we
will need to postpone or discontinue future planned operations and
projects.
Results
of Operations
Three
and Nine Months Ended September 30, 2009 and 2008
Revenues
Product Revenue. We had no
product revenue for the three months ended September 30, 2009 compared to
$366,050 for the three months ended September 30, 2008. For the nine months
ended September 30, 2009 and 2008, we recorded product revenue of $188,172 and
$611,352, respectively. Product revenue consists entirely of sales of Dyloject,
our proprietary injectable formulation of diclofenac sodium (75 mg/2 ml), to
hospitals in the U.K. Commercial launch of the product occurred in December 2007
upon first inclusion in local hospital formularies. Product revenue for 2009
includes only sales to hospitals prior to the Therabel transaction in February
2009. In February 2009, we licensed our U.K. and EU rights to the product to
Therabel, under which Therabel was granted an exclusive license under certain of
our technology to commercialize Dyloject and will assume all Dyloject
commercialization, regulatory, and manufacturing responsibilities and expenses
in the U.K. along with those for future market approvals in the European Union
(“E.U.”) and certain other countries outside of the U.S.
We do not
expect to generate any further product revenue in 2009. Any revenue we record in
the remainder of 2009 will be related to our agreement with
Therabel.
Partner Revenue. Our partner
revenue consists of revenue related to our transaction with Therabel, which
occurred in February 2009. There was no partner revenue in 2008.
16
A
breakout of our partner revenue is as follows:
Three
months ended September 30,
|
Nine
months ended September 30,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Product
sales to partner
|
$ | 829,891 | $ | — | $ | 2,553,072 | $ | — | ||||||||
Amortization
of partner milestones
|
301,075 | — | 777,777 | — | ||||||||||||
Total
|
$ | 1,130,966 | $ | — | $ | 3,330,849 | $ | — |
Product sales to
partner. The
Agreement provides for the sale of our existing inventory to Therabel upon
acceptance of the inventory by Therabel. This particular existing inventory is
sold to Therabel on a one-time, royalty-free basis. Through September 30, 2009,
Therabel had taken delivery of approximately $2.6 million of inventory, to which
we recorded revenue of $1.7 million in the first quarter of 2009 and $0.8
million in the third quarter of 2009. Revenues from product sales are recognized
when title and risk of loss have passed to the customer, which in this case was
upon delivery to Therabel’s third party distributor. Our entire existing
inventory at the time of the Therabel agreement has been sold to
Therabel.
Amortization of
partner milestones. The Agreement with Therabel
provided for $7.0 million in an upfront payment, which we received in February
2009. There are future performance obligations on our part under the License
Agreement. The upfront payment is being recognized in our results of operations
over the estimated term of the Agreement, which we expect will be through
November 2014.
Costs
and Expenses
Costs of Product Revenues. For
the three months ended September 30, 2009 and 2008, our cost of product revenues
was approximately $0.9 million and $0.3 million, respectively. For the nine
months ended September 30, 2009, our cost of product revenue was approximately
$2.9 million compared to $0.5 million for the first nine months of
2008.
For the
three and nine months ended September 30, 2009, cost of product sales included
costs of approximately $0.8 million and $2.6 million, respectively, for
inventory sold to Therabel. For the three and nine months ended
September 30, 2009, our cost of product revenue for our portion of royalties
payable to third parties for sales recorded by Therabel during the period were
approximately $68,000 and $166,000, respectively. Additionally, we recorded
charges of $161,000 for the cost of product revenue associated with our third
party sales during the January 1 to February 7, 2009 period. The high cost of
product revenues was due to the low yields and high per unit costs for
production, shipping, labeling, packaging and sampling costs related to our
contract manufacturer and early supply chain deployment for a new product
launch. Additionally, we incurred significant costs for new product sampling and
testing prior to labeling and packaging related to Dyloject. These costs were
immediately expensed to cost of goods sold in the period they
occurred.
There is
the potential for our gross margin on royalties to increase based on sales
performances and selling prices. However, whether that potential can be realized
and the extent to which such potential can be realized are
uncertain.
Research and Development Expenses.
Research and development expenses consist primarily of salaries, stock
based compensation and related expenses for personnel, materials and supplies
used to develop and manufacture our product candidates. Other research and
development expenses include compensation paid to consultants and outside
service providers to run the non-clinical and clinical trials. We expense
research and development costs as incurred. We expect that we will continue to
incur significant research and development expenses in the future as our three
product candidates proceed with pivotal clinical trials and progress through the
later stages of product development towards commercialization. Research and
development expenses may fluctuate from period to period due to the timing and
nature of non-clinical and clinical trial expenditures and regulatory
filings.
Research
and development expenses decreased from approximately $6.9 million for the three
months ended September 30, 2008 to $4.2 million for the three months ended
September 30, 2009. Research and development expenses increased from
approximately $17.0 million for the nine months ended September 30, 2008 to
$21.3 million for the nine months ended September 30, 2009.
For the
three months ended September 30, 2009, the decrease in research and development
expenses compared to the same period of 2008 was primarily attributable to lower
clinical trial expenses of approximately $1.7 million for Dyloject and Ereska in
the third quarter of 2009 over 2008. In the third quarter of 2009, Dyloject
expenses related primarily to the remaining expenses associated with our Phase 3
safety study for Dyloject, which began enrolling in September 2008 and completed
enrollment in the second quarter of 2009, intended to supplement our summary of
integrated patient safety data base, a part of our New Drug Application (NDA)
for Dyloject in the United States, planned for submission to the U.S. Food and
Drug Administration (the “FDA”) in 2009. Additional Dyloject expenses related to
the pharmacokinetic (PK) safety study that began in June 2009, as well as
consulting, regulatory and other costs associated with our NDA filing process
for Dyloject. In the third quarter of 2008, we incurred expenses related to the
initiation of our Phase 3 safety study for Dyloject and clinical trial expenses
for costs related to Ereska’s pivotal Phase 3 efficacy study to support the NDA
for Ereska in the US, which began enrollment in June 2008. Additionally,
expenses decreased by approximately $0.9 million for manufacturing-related costs
for the third quarter of 2009 from the third quarter of 2008. The
decrease is primarily due to the scale up and validation of Baxter Healthcare
Corporation as a secondary supplier for Dyloject in the UK that occurred in the
third quarter of 2008, and lower compensation and benefits for manufacturing
employees due to reduced headcount in the third quarter of 2009.
17
For the
nine months ended September 30, 2009, the increase in research and development
expenses compared to the same period of 2008 was primarily attributable to
higher clinical trial expenses of approximately $7.2 million for Dyloject and to
a lesser extent, Ereska, in the first nine months of 2009 over
2008. The increase is directly related to expenses incurred in our
Phase 3 safety study, in which a substantial portion of our enrollment occurred
in 2009, our PK safety studies that occurred in 2009, as well as consulting,
regulatory and other costs associated with our NDA filing process for Dyloject.
Our manufacturing-related costs decreased by approximately $3.0 million for the
first nine months of 2009 from the first nine months of 2008, primarily because
manufacturing costs in the first nine months of 2008 included the scale up and
validation of Baxter Healthcare Corporation as a secondary supplier for Dyloject
in the UK, as compared to lower manufacturing costs related to stability testing
and lower compensation and benefits for manufacturing employees due to reduced
headcount in the first nine months of 2009.
We expect
our research and development expenses to decrease in the near term. The expenses
may fluctuate from period to period due to the time and nature of clinical trial
expenditures and regulatory filings.
Selling, General and Administrative
Expenses. Selling, general and administrative expenses include salaries,
stock-based compensation and other related costs for personnel in executive,
finance, accounting, information technology, sales and marketing and human
resource functions. Other costs include medical information services,
monitoring, sales and marketing costs related to the launch of Dyloject in the
U.K., including our contracted sales force, medical education and market
research. Additionally, it includes facility costs and professional fees for
legal and accounting services. We expect selling, general and administrative
expenses to decrease significantly in 2009, primarily due to the outlicensing of
Dyloject in the U.K. to Therabel in January 2009, thereby eliminating our
sales and marketing costs associated with Dyloject in the U.K and previously
planned costs for the commercialization of the product in additional EU
countries.
Selling,
general and administrative expenses decreased from approximately $4.2 million
for the three months ended September 30, 2008 to $2.4 million for the three
months ended September 30, 2009. Selling, general and administrative expenses
decreased from approximately $13.4 million for the nine months ended September
30, 2008 to $8.2 million for the nine months ended September 30, 2009. The
decrease in selling, general and administrative expenses for the three and nine
months ended September 30, 2009 over the comparable period of 2008 was primarily
the result of $1.4 million and $4.2 million in decreased sales and marketing
costs for the three and nine month periods, respectively, as a result of our
termination of sales and marketing activities after the Therabel transaction in
February 2009. Additionally, our general and administrative costs decreased by
approximately $0.4 million and $1.1 million for the three and nine months ended
September 30, 2009, respectively, compared to the same periods in 2008. These
decreases were primarily due to overall cost savings initiatives across the
company, including legal fees, patent fees, and other third party service fees,
as well as reduced compensation and benefits from lower headcount in
2009.
Interest Income. Interest
income consists of interest earned on our cash, cash equivalents and marketable
securities available for sale. Interest income decreased from approximately $0.2
million for the three months ended September 30, 2008 to approximately $6,000
for the three months ended September 30, 2009. Interest income decreased from
approximately $0.8 million for the nine months ended September 30, 2008 to
approximately $50,000 for the nine months ended September 30, 2009. The decrease
was primarily due to current market conditions providing lower yields on
investments, and lower average cash balances.
Other Income (Expense). For
the three and nine months ended September 30, 2009, other expenses
consisted primarily of $386,855 of realized losses on
sales of our marketable securities in the third quarter of 2009, and of net
realized losses on foreign exchange transactions. Other income for the nine
months ended September 30, 2008 consists primarily of gains on the sales of
marketable securities in the first quarter of 2008, offset by foreign exchange
transaction losses realized in the third quarter of 2008.
Liquidity
and Capital Resources
Since
inception, we have financed our operations primarily through the public and private sale of our equity securities,
debt financings and grant revenue primarily from the U.S. Department of Defense.
We may raise additional funds through the private and/or public sale of our
equity and/or debt securities. We may also seek to raise capital through
collaborative arrangements with corporate sources or other sources of financing.
We intend to continue to use the proceeds from these sources to fund ongoing
research and development activities, activities related to potential future
commercialization, capital expenditures, working capital requirements and other
general purposes. As of September 30, 2009, we had cash and cash equivalents of
approximately $3.3 million, compared to cash, cash equivalents and
marketable securities of approximately $21.6 million, including
$1.6 million of long-term marketable securities, as of December 31,
2008.
18
On
January 15, 2009, we entered into a License and Commercialization Agreement with
Therabel Pharma N.V. under which Therabel was granted an exclusive license under
certain of our technology to commercialize Dyloject and assumed all Dyloject
commercialization, regulatory, and manufacturing responsibilities and expenses
in the U.K. along with those for future market approvals in the E.U. and certain
other countries outside of the U.S. In February 2009, we received an
upfront payment of $7.0 million In April 2009 and August 2009, we received
approximately $1.7 million and $0.8 million, respectively, for the sale of our
existing inventory of Dyloject to Therabel. Additionally, the agreement provides
for up to $59.5 million if certain sales and regulatory milestones are met
and provides for future royalties on sales of Dyloject. The agreement shall
continue in full force and effect on a country-by-country basis as long as any
product licensed under the agreement is being developed or commercialized for
use in any disease, disorder, or condition in humans. Either party may terminate
upon written notice upon the occurrence of certain events, including material
breach or bankruptcy, subject to certain cure provisions and restrictions. In
addition, Therabel may terminate the agreement following a specified period of
prior written notice to us.
In
November 2009, we issued 3,186,700 shares of our common stock to a certain
institutional investor in a registered direct offering. The aggregate gross
proceeds from the offering were approximately $4.0 million, and the aggregate
net proceeds, after deducting the fees of the placement agent and other offering
expenses, were approximately $3.7 million. We anticipate using the net
proceeds from the offering to fund clinical research and development programs
for our product candidates, capital expenditures, and for other general
corporate purposes. The common stock that was sold in the offering was
registered on a universal shelf registration statement on Form S-3
(No. 333-140481) that was declared effective by the Securities and Exchange
Commission (the “SEC”) on February 12, 2007, and under which approximately
$0.7 million remains available for future issuance after this
offering.
Although
we believe that our existing cash resources, in addition to the funds we
received pursuant to our registered direct offering, will be sufficient to
support the current operating plan into January 2010, we will need additional
financing to support our operating plan thereafter. We may raise additional
funds through the private and/or public sale of our equity and/or debt
securities. We may need to raise additional funds to meet long-term planned
goals. There can be no assurance that additional financing, if at all available,
can be obtained on terms acceptable to us. If we are unable to obtain such
additional financing, future operations will need to be scaled back or
discontinued.
As a
development stage enterprise, our primary efforts, to date, have been devoted to
conducting research and development, raising capital, forming collaborations and
recruiting staff. We have limited capital resources and revenues, have
experienced a $187.0 million net loss attributable to our common
stockholders and have had negative cash flows from operations since inception.
These losses have resulted principally from costs incurred in research and
development activities, including acquisition of technology rights, increasing
costs related to potential future commercialization of our product candidates,
and selling, general and administrative expenses. As of September 30, 2009, we
have paid an aggregate of $5.6 million and $6.0 million in cash since
inception to West Pharmaceutical and Shimoda Biotech (Proprietary) Ltd.
(“Shimoda”), respectively, pursuant to agreements that we have entered into with
these entities. We expect to incur additional operating losses until such time
as we generate sufficient revenue to offset expenses, and we may never achieve
profitable operations.
We expect
that our cash requirements for operating activities will fluctuate due to the
following future activities:
|
·
|
Conduct
clinical and non-clinical programs, including Phase 3 clinical trials to
support regulatory submissions and label extensions of our product
candidates;
|
|
·
|
Continue
to support Good Manufacturing Practices (“GMP”) drug supply requirements
of our non-clinical and clinical trials; complete formal stability
testing, analytical development, methods development, specification
development and commercial
scale-up;
|
|
·
|
Conduct
continued commercialization activities in support of Dyloject product
launch in the U.S. including, but not limited to, medical information
services, pharmacovigilance monitoring, pre-launch planning, development
of marketing plans, and pricing and reimbursement
studies;
|
|
·
|
Maintain,
protect and expand our intellectual
property;
|
|
·
|
Develop
expanded internal infrastructure;
and
|
|
·
|
Hire
additional personnel.
|
Cash
used in operating activities
From
inception through September 30, 2009, net cash used in operating activities was
approximately $130.9 million. Net cash used in operating activities decreased to
approximately $18.0 million for the nine months ended September 30, 2009 from
approximately $26.2 million for the nine months ended September 30,
2008.
Net cash
used in operating activities for the nine months ended September 30, 2009
consists primarily of our net loss of $29.5 million, offset primarily by cash
provided by Therabel of $7.0 million. We had higher cash outflows associated
with increased research and development activity in the first nine months of
2009 related to our clinical trials for Dyloject and Ereska, which were offset
by $7.0 million received from Therabel and reductions in sales and marketing
expense associated with the licensing of Dyloject in Europe. Operating cash
flows differ from net income as a result of non-cash charges or changes in
working capital, primarily our non-cash stock based compensation expenses, which
were approximately $2.3 million and $2.7 million in 2009 and 2008, respectively.
Also in the first nine months of 2009, our outstanding payables and accrued
expenses decreased by approximately $0.3 million, our accounts receivable
decreased by approximately $0.5 million, our prepaid expenses, other current
assets and other assets increased $0.03 million, and our inventory levels
decreased by approximately $1.8 million.
19
Cash
used in investing activities
From
inception through September 30, 2009, net cash used in investing activities was
approximately $6.1 million, primarily related to cash used in the acquisition of
intangible assets and fixed assets. We expect that cash used for investing
activities in 2009 will fluctuate based on the need for capital
improvements.
Cash
provided by financing activities
From
inception through September 30, 2009, net cash provided by financing activities
was approximately $140.3 million. We expect that cash provided by financing
activities will fluctuate based on our ability to raise additional funds through
the private and/or public sale of our equity securities, and the future volume
of warrants and stock options exercised.
Commitments
The following table summarizes our
commitments as of September 30, 2009:
Payments
due by period
|
||||||||||||||||||||
Total
|
<
1 year
|
1-3
years
|
3-5
years
|
Beyond
5
years
|
||||||||||||||||
Operating
leases
|
$ | 2,104,969 | $ | 774,328 | $ | 1,330,641 | $ | — | $ | — | ||||||||||
License
Agreement
|
7,000,000 | 2,000,000 | — | 5,000,000 | — | |||||||||||||||
Manufacturing
Supply Agreements
|
14,852,874 | 1,622,874 | 13,230,000 | — | — | |||||||||||||||
$ | 23,957,843 | $ | 4,397,202 | $ | 14,560,641 | $ | 5,000,000 | $ | — |
The
timing of the remaining license agreement milestones for Shimoda and Archimedes
Pharma Limited is dependent upon
factors that are beyond our control, including our ability to recruit patients,
the outcome of future non-clinical and clinical trials and any requirements
imposed on our non-clinical and clinical trials by regulatory agencies. However,
for the purpose of the above table, we have assumed that the payment of the
milestones will occur within five years from September 30, 2009.
Critical
Accounting Estimates
Research and
Development Costs. Since our inception, we have incurred approximately
$124.4 million of research and development costs. The major research projects
undertaken by us include the development of Dyloject, Ereska and Rylomine. We
expense all research and development costs as incurred for which there is no
alternative future use. For various reasons, many of which are outside our
control, including timing and results of our clinical trials, requirements
imposed by regulatory agencies, obtaining regulatory approval and dependence on
third parties, we cannot estimate the total remaining costs to be incurred to
commercialize our product candidates, nor is it possible to estimate when, if
ever, any of our product candidates will be approved by regulatory agencies for
commercial sale. In addition, we may experience adverse results in the
development of our product candidates, which could result in significant delays
in obtaining approval to sell our product candidates, additional costs to be
incurred to obtain regulatory approval or failure to obtain regulatory approval.
In the event any of our product candidates were to experience setbacks, it would
have a material adverse effect on our financial position and operating results.
Even if we successfully complete development and obtain regulatory approval of
one or more of our product candidates, difficulties in commercial scale
manufacturing, failure to gain favorable pricing from various institutions, and
failure of physicians and patients to accept our products as a safe,
cost-effective alternative compared to existing products would have a material
adverse effect on our business.
Stock Based
Compensation. We make certain assumptions in order to value and expense
our various share-based payment awards. In connection with valuing stock options
and warrants, we use the Black-Scholes model, which requires us to estimate
certain subjective assumptions. The key assumptions we make are: the expected
volatility of our stock; the expected term of the award; and the expected
forfeiture rate. We review our valuation assumptions periodically and, as a
result, we may change our valuation assumptions used to value stock-based awards
granted in future periods. In connection with our performance-based stock
options, our estimates and judgments include determining the likelihood of us
meeting our corporate goals, which is reviewed at least quarterly. Such changes
in our assumptions and judgments regarding stock based compensation may lead to
a significant change in the expense we recognize in connection with share-based
payments.
Income
Taxes. We
have incurred operating losses since inception and have established valuation
allowances equal to the total deferred tax assets due to the uncertainty with
respect to achieving profitable operations in the future. Should the uncertainty
regarding our ability to achieve profitable operations change in the future, we
would reverse all or a portion of the valuation allowance, the effect of which
could be material to our financial statements.
Deferred
Revenue. In connection with our license agreement with Therabel, we
received an upfront non-refundable payment of $7.0 million in February
2009. The $7.0 million upfront fee was recorded as deferred revenue and is
being recognized on a straight-line basis over our estimated performance period
under the agreement, which we expect will be through November 2014.
Additionally, the agreement provides for up to $59.5 million if certain
sales and regulatory milestones are met. All milestone payments will be
recognized as deferred revenue upon the achievement of the associated milestone
and amortized over the performance period.
20
Off
Balance Sheet Arrangements
Certain
warrants issued in conjunction with our common stock financing are equity linked
derivatives and accordingly represent an off balance sheet arrangement. These
warrants meet the scope exception in ASC 815-40, Derivatives and Hedging, Contracts
in Entity’s own Equity (formerly paragraph 11(a) of SFAS 133 –Accounting for Derivative
Instruments and Hedging Activities), and are accordingly not accounted
for as derivatives under the Codification, but instead included as a component
of equity. See Footnote 8 to the financial statements in our Annual Report on
Form 10-K for the fiscal year ended December 31, 2008 and the Consolidated
Statement of Shareholders’ Equity for more information.
Not applicable.
Item
4. Controls and Procedures
We have
disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)
of the Securities Exchange Act of 1934, as amended) to ensure that material
information relating to us and our consolidated subsidiaries are recorded,
processed, summarized and reported within the time periods specified by the
SEC’s rules and forms, particularly during the period in which this quarterly
report has been prepared. Our principal executive officer and principal
financial officer have reviewed and evaluated our disclosure controls and
procedures as of the end of the period covered by this report. Based on such
evaluation, our principal executive officer and principal financial officer have
concluded that our disclosure controls and procedures are effective at ensuring
that material information is recorded, processed, summarized and reported on a
timely and accurate basis in our filings with the SEC.
There has
been no change in our internal control over financial reporting during our most
recent fiscal quarter that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
The
exhibits required by this item are set forth in the Exhibit Index attached
hereto.
21
Pursuant
to the requirements of the Securities Exchange Act of 1934, as amended, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
JAVELIN
PHARMACEUTICALS, INC.
|
|||
Date:
November 9, 2009
|
By:
|
/s/ Martin J. Driscoll | |
Name:
Martin J. Driscoll
|
|||
Title:
Chief Executive Officer
|
|||
Date:
November 9, 2009
|
By:
|
/s/ Stephen J. Tulipano | |
Name:
Stephen J. Tulipano
|
|||
Title:
Chief Financial Officer
|
22
Exhibit
|
||
No.
|
Description
|
|
31.1
|
Certification
of Chief Executive Officer pursuant to Rules 13a-14 and 15d-14 under the
Securities Exchange Act of 1934, as amended. (1)
|
|
31.2
|
Certification
of Chief Financial Officer pursuant to Rules 13a-14 and 15d-14 under the
Securities Exchange Act of 1934, as amended. (1)
|
|
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.
(2)
|
|
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.
(2)
|
|
(1) Filed herewith.
(2) Furnished herewith.
23