As filed with the Securities and Exchange Commission on September 15, 2010
Registration No.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
EMISPHERE TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
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Delaware
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2834
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13-3306985 |
(State or other jurisdiction of
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(Primary Standard Industrial
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(I.R.S. Employer |
incorporation or organization)
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Classification Code Number)
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Identification No.) |
240 Cedar Knolls Road
Suite 200
Cedar Knolls, New Jersey 07927
(973) 532-8000
(Address, including zip code, and telephone number, including area
code, of registrants principal executive offices)
Michael V. Novinski
President and Chief Executive Officer
Emisphere Technologies, Inc.
240 Cedar Knolls Road
Suite 200
Cedar Knolls, New Jersey 07927
(973) 532-8000
(Name, address, including zip code, and telephone number, including area code, of agent for service)
With a copy to:
Timothy C. Maguire, Esq.
Brown Rudnick LLP
One Financial Center
Boston, Massachusetts 02111
(617) 856-8200
Approximate date of commencement of proposed sale to the public: From time to time after this
Registration Statement becomes effective, as determined by the selling security holders names in
the prospectus contained herein.
If any of the securities being registered on this Form are to be offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.
þ
If this Form is filed to register additional securities for an offering pursuant to Rule
462(b) under the Securities Act, please check the following box and list the Securities Act
registration statement number of the earlier effective registration statement for the same
offering. o
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities
Act, check the following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. o
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities
Act, check the following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check one):
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Large accelerated filer o
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Accelerated filer o
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Non-accelerated filer o
(Do not check if a smaller reporting company)
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Smaller reporting company þ |
CALCULATION OF REGISTRATION FEE
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Proposed |
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Proposed |
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Maximum |
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Maximum |
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Amount to Be |
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Offering Price per |
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Aggregate Offering |
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Amount of |
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Title of Each Class of Securities To Be Registered |
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Registered (1) |
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Unit (2) |
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Price (2) |
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Registration Fee |
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Common Stock, par value $0.01 per share(3) |
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4,651,712 |
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$1.03 |
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$4,768,005.05 |
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$339.96 |
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Common Stock, par value $0.01 per share, issuable upon exercise
of
warrants(4) |
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3,488,784 |
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$1.03 |
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$3,576,003.78 |
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$254.97 |
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Total |
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8,140,496 |
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$1.03 |
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$8,344,008.83 |
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$594.93 |
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(1) |
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Represents outstanding shares of common stock of the registrant and shares of common stock issuable upon exercise of warrants held by the selling
security holders, as applicable, offered by the selling security holders. In accordance with Rule 416 under the Securities Act of 1933, as
amended (the Securities Act), the common stock offered hereby shall also be deemed to cover additional securities to be offered or issued to
prevent dilution resulting from stock splits, stock dividends or similar transactions. |
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Estimated solely for the purpose of calculating the registration fee in accordance with Rule 457(c) and Rule 457(g) of the Securities Act, based
on the average high and low prices of the common stock of the registrant as reported on the OTC Bulletin Board on September 10, 2010. |
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Represents shares of the registrants common stock being registered for resale that have been issued to the selling security holders named in the
prospectus. |
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Represents shares of the registrants common stock issuable upon exercise of the warrants held by the selling security holders named in the
prospectus. |
The registrant hereby amends this registration statement on such date or dates as may be
necessary to delay its effective date until the registrant shall file a further amendment which
specifically states that this registration statement shall thereafter become effective in
accordance with Section 8(a) of the Securities Act or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.
The information in this prospectus is not complete and may be changed. The selling security
holders will not sell these securities until after the registration statement filed with the
Securities and Exchange Commission is declared effective. This prospectus is not an offer to sell
these securities and it is not soliciting an offer to buy these securities in any state where the
offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED SEPTEMBER 15, 2010
PROSPECTUS
8,140,496 Shares of Common Stock
This prospectus relates to the offer for sale by the existing holders of our common stock named in
this prospectus of 8,140,496 shares of our common stock, par value $0.01 per share, including
3,488,784 shares of our common stock issuable upon exercise of the warrants held by the selling
security holders. These existing holders of our common stock are referred to as selling security
holders throughout this prospectus.
All of the shares of common stock offered by this prospectus are being sold by the selling security
holders. It is anticipated that the selling security holders will sell these shares of common stock
from time to time in one or more transactions, in negotiated transactions or otherwise, at
prevailing market prices or at prices otherwise negotiated. We will not receive any proceeds from
the sales of shares of common stock by the selling security holders. We have agreed to pay all fees
and expenses incurred by us incident to the registration of our common stock, including SEC filing
fees. Each selling security holder will be responsible for all costs and expenses in connection
with the sale of their shares of common stock, including brokerage commissions or dealer discounts.
Our common stock is currently traded on the Over-The-Counter Bulletin Board, commonly known as the
OTC Bulletin Board (OTCBB), under the symbol EMIS. As of September 10, 2010, the closing sale
price of our common stock was $1.04 per share.
Investing in our securities involves substantial risks. You should carefully consider the
matters discussed under the section entitled Risk Factors beginning on page 6 of this prospectus.
Neither the Securities and Exchange Commission (SEC) nor any state securities commission has
approved or disapproved of these securities or passed upon the accuracy or adequacy of this
prospectus. Any representation to the contrary is a criminal offense.
The date of this prospectus is , 2010
TABLE OF CONTENTS
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PROSPECTUS SUMMARY
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1 |
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THE OFFERING
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SUMMARY HISTORICAL FINANCIAL INFORMATION
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RISK FACTORS
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DILUTION
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STOCKHOLDERS
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DIVIDEND POLICY
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USE OF PROCEEDS
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PRICE RANGE OF COMMON STOCK
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PRIVATE PLACEMENT OF COMMON SHARES AND WARRANTS
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SELLING SECURITY HOLDERS
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PLAN OF DISTRIBUTION
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BUSINESS
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LEGAL PROCEEDINGS
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MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
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CAUTION CONCERNING FORWARD-LOOKING STATEMENTS
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PROPERTIES
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CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
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DIRECTOR AND OFFICER INFORMATION
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EXECUTIVE COMPENSATION
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
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CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
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DESCRIPTION OF SECURITIES TO BE REGISTERED
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SHARES ELIGIBLE FOR FUTURE SALE
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INTERESTS OF NAMED EXPERTS AND COUNSEL
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CONTROLS AND PROCEDURES
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LEGAL MATTERS
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EXPERTS
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WHERE YOU CAN FIND MORE INFORMATION
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FINANCIAL STATEMENTS INDEX
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F-1 |
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PROSPECTUS SUMMARY
This summary highlights information contained throughout this prospectus and is
qualified in its entirety to the more detailed information and financial
statements included elsewhere herein. This summary may not contain all of the
information that may be important to you. You should assume that the
information appearing in this prospectus is accurate only as of the date on the
front cover of this prospectus. Our business, financial condition, results of
operations and prospects may have changed since that date. Before making an
investment decision, you should read carefully the entire prospectus, including
the information under Risk Factors beginning on page 6 and our financial
statements and related notes.
Overview of the Company
Emisphere Technologies, Inc. is a biopharmaceutical company that focuses on a
unique and improved delivery of therapeutic molecules or nutritional
supplements using its Eligen® Technology. These molecules could be currently
available or are under development. Such molecules are usually delivered by
injection; in many cases, their benefits are limited due to poor
bioavailability, slow on set of action or variable absorption. In those cases,
our technology may increase the benefit of the therapy by improving
bioavailability or absorption or by increasing the onset of action. The Eligen®
Technology can be applied to the oral route of administration as well other
delivery pathways, such as buccal, rectal, inhalation, intra-vaginal or
transdermal. The Eligen® Technology can make it possible to orally deliver
certain therapeutic molecules without altering their chemical form or
biological integrity. Eligen® delivery agents, or carriers, facilitate or
enable the transport of therapeutic molecules across the mucous membranes of
the gastrointestinal tract, to reach the tissues of the body where they can
exert their intended pharmacological effect.
Since our inception in 1986, substantial efforts and resources have been
devoted to understanding the Eligen® Technology and establishing a product
development pipeline that incorporated this technology with selected molecules.
Since 2007, Emisphere has undergone many positive changes. A new senior
management team, led by Michael V. Novinski, was hired; the Eligen® Technology
was reevaluated and our corporate strategy was refocused on commercializing the
Eligen® Technology as quickly as possible, building high-value partnerships and
reprioritizing the product pipeline. Spending was redirected and aggressive
cost control initiatives were implemented. These changes resulted in
redeployment of resources to programs, one of which yielded the introduction of
our first commercial product during 2009. We continue to develop potential
product candidates in-house and we demonstrated and enhanced the value of the
Eligen® Technology as evident in the progress made by our development partners
Novo Nordisk A/S (Novo Nordisk) and Novartis Pharma AG (Novartis) on their
respective product development programs. Further development, exploration and
commercialization of the technology entail risk and operational expenses.
However, we have made significant progress on refocusing our efforts on
strategic development initiatives and cost control and continue to aggressively
seek to reduce non-strategic spending.
The application of the Eligen® Technology is potentially broad and may provide
for a number of opportunities across a spectrum of therapeutic modalities or
nutritional supplements. During 2010, we continue to develop our product
pipeline utilizing the Eligen® Technology with prescription and nonprescription
product candidates. We prioritized our development efforts based on overall
potential returns on investment, likelihood of success, and market and medical
need. Our goal is to implement our Eligen® Technology to enhance overall
healthcare, including patient accessibility and compliance, while benefiting
the commercial pharmaceutical marketplace and driving company valuation.
Investments required to continue developing our product pipeline may be
partially paid by income-generating license arrangements whose value tends to
increase as product candidates move from pre-clinical into clinical
development. It is our intention that incremental investments that may be
required to fund our research and development will be approached incrementally
in order to minimize disruption or dilution.
We plan to attempt to expand our current collaborative relationships to take
advantage of the critical knowledge that others have gained by working with our
technology. We will also continue to pursue product candidates for internal
development and commercialization. We believe that these internal candidates
must be capable of development with reasonable investments in an acceptable
time period and with a reasonable risk-benefit profile.
Our product pipeline includes prescription and medical foods candidates. We
reported progress on a medical food formulation of Eligen® B12 for use by B12
deficient individuals. Our recently completed clinical trial showed that
Eligen® B12 1000mcg can efficiently and quickly restore Vitamin B12 levels in
deficient individuals compared to the current standard of care. During July
2010, we announced that we are engaged in ongoing discussions with a potential
licensee for our oral Eligen® B12 1000mcg as a Medical Food for individuals
with B12 deficiency. In addition, we are evaluating other potential licensees
as well as the possibility of marketing the product without a partner. As a
medical food, Emispheres Eligen® B12 (1000 mcg) is designed as a specially
formulated and processed oral formulation for the specific dietary management
of patients under medical supervision who, because of a limited or impaired
capacity to absorb Vitamin B12 , have a diagnosed Vitamin B12 deficiency. It is
planned to be available early in 2011. It is estimated that as many as 10
million people in the U.S. and over 100 million people worldwide may be B12
deficient. Oral Eligen® B12 and the foregoing statements have not been
evaluated by the Food and Drug Administration. Oral Eligen® B12 is not intended
to diagnose, treat, cure, or prevent any disease.
Our other product candidates in development are in earlier or preclinical
research phases, and we continue to assess them for their compatibility with
our technology and market need. Our intent is to seek partnerships with
pharmaceutical and biotechnology companies for certain of these products. We
plan to expand our pipeline with product candidates that demonstrate
significant opportunities for growth.
1
Recent Developments
On August 25, 2010, we entered into a Securities Purchase Agreement (the Securities Purchase Agreement) with the selling security
holders to sell an aggregate of 3,497,528 shares of our common stock and warrants to purchase a total of 2,623,146 shares of our
common stock for gross proceeds, before deducting fees and expenses and excluding the proceeds, if any, from the exercise of the
warrants of $3,532,503 (the Private Placement). Each unit, consisting of one share of common stock and a warrant to purchase 0.75
shares of common stock, was sold at a purchase price of $1.01. The warrants are exercisable at an exercise price of $1.26 per share
beginning immediately after issuance and expire 5 years from the date of issuance. The exercise price of the warrants is subject to
adjustment in the case of stock splits, stock dividends, combinations of shares and similar recapitalization transactions. The
warrants also contain full-ratchet anti-dilution protection for issuances or sales by us of securities below the exercise price of
the warrants, but only to the extent that, as a result of such issuances or sales, the exercise or conversion price of the MHR
Securities (as defined in the warrant) is actually reduced to a price below the exercise price of the warrants. The full ratchet
anti-dilution protection contained in the warrants shall only be effective from the date of the Securities Purchase Agreement until
the six month anniversary of the issuance date of the warrants. The Private Placement closed on August 26, 2010, after the
satisfaction of customary closing conditions, and we issued the shares of common stock and the warrants to the selling security
holders on such closing date.
Also on August 25, 2010, we entered into a securities purchase agreement with MHR Fund Management LLC (the MHR Buyer) to sell an
aggregate of 3,497,528 shares of our common stock and warrants to purchase a total of 2,623,146 shares of our common stock for gross
proceeds, before deducting fees and expenses and excluding the proceeds, if any, from the exercise of the warrants of $3,532,503
(the MHR Private Placement). Each unit, consisting of one share of common stock and a warrant to purchase 0.75 shares of common
stock, was sold at a purchase price of $1.01. The warrants issued to the MHR Buyer had substantially the same terms as the warrants
issued to the selling security holders in the Private Placement. The MHR Private Placement closed on August 26, 2010, after the
satisfaction of customary closing conditions, and we issued the shares of common stock and the warrants to the MHR Buyer on such
closing date.
In connection with the Private Placement and the MHR Private Placement, on August 25, 2010, we entered into a Waiver Agreement with
MHR (the Waiver Agreement), pursuant to which MHR waived certain anti-dilution adjustment rights under the MHR Senior Secured
Notes and certain warrants issued by us to MHR that would otherwise have been triggered by the Private Placement described above. As
consideration for such waiver, on August 26, 2010, we issued to MHR a warrant to purchase 975,000 shares of our common stock and
agreed to reimburse MHR for 50% of its legal fees up to a maximum reimbursement of $50,000. Such warrant is the same form as the
warrants issued in connection with the MHR Private Placement described above.
On July 29, 2010, we issued a promissory note (the MHR 2010 Note) to MHR Institutional Partners IIA LP and MHR Institutional
Partners II LP (together, MHR) in the principal amount of $525,000. The MHR 2010 Note provides for an interest rate of 15% per
annum, with the entire principal amount due and payable on October 27, 2010 (the Maturity Date). The Maturity Date was accelerated
per the terms of the MHR 2010 Note upon completion of the Private Placement and MHR Private Placement, as described below. The
amount payable by the MHR Buyer to the Company in connection with the MHR Private Placement was reduced to allow for the repayment
by the Company to MHR of the aggregate principal and interest outstanding under the MHR 2010 Note. As a result, the MHR 2010 Note
is no longer outstanding.
During July 2010, we announced that Novartis Pharma AG and its license partner Nordic Bioscience a/s (the Sponsor) reported the
following in connection with their Phase III Study 2302 in osteoarthritis assessing the safety and efficacy of oral calcitonin in
the treatment of osteoarthritis of the knee. This study incorporates Emispheres unique and proprietary Eligen® Drug Delivery
Technology for the improved oral absorption of salmon calcitonin. An independent Data Monitoring Committee (DMC) conducted a
futility analysis of one-year data for all patients enrolled in this two-year study, including assessments of safety and efficacy
parameters. The DMC concluded that although there is no reason to stop Study 2302 because of safety concerns, there is no reason to
continue the study for efficacy. The DMC also concluded that the final decision whether to continue Study 2302 rests with the
Sponsor. A parallel two-year Phase III Study 2301 in osteoarthritis assessing the safety and efficacy of oral calcitonin in the
treatment of osteoarthritis of the knee is still in progress. A parallel two-year Phase III Study 2301 in osteoarthritis assessing
the safety and efficacy of oral calcitonin in the treatment of osteoarthritis of the knee is still in progress. In December 2009,
the DMC conducted a futility analysis of one-year data for all patients enrolled in this two-year study, including assessments of
safety and efficacy parameters, and recommended to continue with such Study. The Sponsor currently intends to continue the clinical
program of oral calcitonin in osteoarthritis, including both Phase III Study 2301 and Phase III Study 2302. Novartis and Nordic
Bioscience will continue to work together to assess next steps once the final data of Study 2301 is available. This data is expected
to be available in the fourth quarter, 2010. Additionally, the Sponsor currently intends to continue the clinical program of oral
calcitonin in osteoporosis. Previously, in its quarterly earnings report for the period ended June 30, 2010, Novartis stated that
oral calcitonin for the treatment of osteoporosis is planned to file with the regulatory authorities during 2011.
During June 2010, we announced that we entered into an expanded relationship with Novartis pursuant to which Novartis has cancelled
the Companys Convertible Promissory Note (the Novartis Note). The Novartis Note was originally issued to Novartis on December 1,
2004 in connection with the Research Collaboration and Option License Agreement between the parties of that date and was originally
due December 1, 2009. Previously, Novartis had agreed to extend the maturity date to June 4, 2010. In connection with the
cancellation of the Novartis Note, the parties agreed to modify the royalty and milestone payment schedule for the Research
Collaboration and Option Agreement and License Agreement between the parties for the development of an oral salmon calcitonin
product for the treatment of osteoarthritis and osteoporosis. Additionally, we have granted Novartis the right to evaluate the
feasibility of using Emispheres Eligen® Technology with two new compounds to assess the potential for new product development
opportunities.
During April 2010, we announced the publication of a research study entitled, Investigation of the Direct Effect of Salmon
Calcitonin on Human Osteoarthritic Chondrocytes, by Nordic Bioscience in the April 5, 2010 edition of the publication BMC
Musculoskeletal Disorders. Oral salmon calcitonin, which uses Emispheres proprietary Eligen® Technology, is currently being studied
in osteoarthritis and osteoporosis by Novartis Pharma AG and Nordic Bioscience. The study was conducted in vitro on cartilage
samples obtained from female patients undergoing total knee arthroplasty surgery for the treatment of osteoarthritis. The article
describes the growth promoting effects of salmon calcitonin on these cartilage samples. The study shows that treatment with
pharmacological concentrations of calcitonin increases synthesis of both proteoglycan (proteins and sugars which interweave with
collagen) and collagen type II the key components of articular cartilage. This research is unique and significant as it
represents the first work to look chiefly at the ability of salmon calcitonin to stimulate cartilage synthesis. These findings
provide evidence to substantiate the theory that calcitonin may exert a positive effect on joint health through its dual action of
promoting both bone and cartilage formation.
2
During April 2010, we announced that Novartis Pharma AG initiated a second Phase I trial for an oral PTH1-34 which uses Emispheres
Eligen® Technology, and is in development for the treatment of postmenopausal osteoporosis. The study is a partially blinded,
placebo controlled, active comparator study to explore the safety, tolerability, pharmacokinetics and pharmacodynamics in
postmenopausal women after daily oral doses of PTH1-34. The study has two parts (A and B) and will enroll a total of approximately
up to 120 postmenopausal women. In Part A of the trial, ascending doses of oral PTH1-34 using the Eligen® Technology will be tested
for safety, tolerability and pharmacokinetics and compared to Forsteo®. In Part B, in addition to safety and tolerability of oral
PTH1-34 using the Eligen® Technology, pharmacodynamic responses will be measured by bone biomarker levels and bone mineral density,
and compared to Forsteo®. The first patient was enrolled in April.
Company Information
Our principal executive offices are located at 240 Cedar Knolls Road, Cedar Knolls, New Jersey. Our telephone number is (973)
532-8000, fax number is (973) 532-8121 and our website address is www.emisphere.com. The information on our website is not
incorporated by reference into this prospectus and should not be relied upon with respect to this offering.
As of June 9, 2009, our common stock has been trading on the OTCBB.
About this Prospectus
Unless the context otherwise requires, all references to Emisphere, we, us, our, our company, or the Company in this
prospectus refer to Emisphere Technologies, Inc., a Delaware corporation.
You should rely only on the information contained in this prospectus. We have not authorized any other person to provide you with
different information. If anyone provides you with different or inconsistent information, you should not rely on it. For further
information, please see the section of this prospectus entitled Where You Can Find More Information. We are not making an offer to
sell these securities in any jurisdiction where the offer or sale is not permitted.
You should not assume that the information appearing in this prospectus is accurate as of any date other than the date on the front
cover of this prospectus, regardless of the time of delivery of this prospectus or any sale of a security. Our business, financial
condition, results of operations and prospects may have changed since those dates.
We obtained statistical data, market data and other industry data and forecasts used throughout this prospectus from market
research, publicly available information and industry publications. Industry publications generally state that they obtain their
information from sources that they believe to be reliable, but they do not guarantee the accuracy and completeness of the
information. Similarly, while we believe that the statistical data, industry data and forecasts and market research are reliable, we
have not independently verified the data, and we do not make any representation as to the accuracy of the information. We have not
sought the consent of the sources to refer to their reports appearing in this prospectus.
This prospectus contains trademarks, tradenames, service marks and service names of Emisphere Technologies, Inc. and other companies.
3
THE OFFERING
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Common Stock being offered by the selling security holders
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Up to 8,140,496 shares of our common stock, including 3,488,784 shares of our
common stock issuable upon exercise of the warrants held by the selling security holders. |
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Common Stock outstanding prior to the offering
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51,889,102 shares of common stock (1) |
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Common Stock to be outstanding after the offering
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54,512,248 shares of common stock (2) |
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Use of proceeds
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We will not receive any proceeds from the sales of shares of common stock by the selling security holders. |
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OTCBB symbol
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Our common stock is currently traded on the OTCBB under the symbol EMIS. |
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Risk factors
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Investing in our securities involves a high degree of risk. You should carefully read and consider the information set forth under the
heading Risk Factors beginning on page 6 of this prospectus and all other information in this prospectus before investing in our securities. |
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(1) |
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Based upon the total number of issued and outstanding shares as of August 30, 2010. |
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(2) |
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Based upon the total number of issued and outstanding shares as of August 30, 2010, including shares of our common stock issuable upon exercise of
the warrants held by the selling security holders but excluding: |
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3,065,466 shares issuable upon the exercise of stock options outstanding at a weighted average exercise price of $3.68 as of August 30,
2010; |
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9,209,680 shares issuable upon exercise of outstanding warrants or options to purchase warrants (excluding the warrants held
by the selling security holders) at a weighted average exercise price of $1.39 as of August 30, 2010; |
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6,434,366 shares issuable upon conversion of a convertible note (including 114,509 shares accrued from June 30, 2010) at a conversion price
of $3.78 which shall be issued to MHR upon exchange by MHR of the $24.3 million note payable to MHR for such convertible note as of August 30,
2010; |
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1,154,184 shares, representing an additional 33% of the shares issued to the selling security holders, which shares the Company is required
to register pursuant to that certain Registration Rights Agreement, dated August 26, 2010, by and between the Company and the Selling Security
Holders (the Registration Rights Agreement); and |
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865,638 shares, representing an additional 33% of the shares issuable upon exercise of outstanding warrants held by the selling security
holders, which shares the Company is required to register pursuant to the Registration Rights Agreement. |
4
SUMMARY HISTORICAL FINANCIAL INFORMATION
The following summary historical financial information should be read in connection with, and is qualified by reference to, our financial statements and their
related notes and Managements Discussion and Analysis of Financial Condition and Results of Operations, included elsewhere in this prospectus. The statement
of operations data for the fiscal years ended December 31, 2007, 2008 and 2009 and the balance sheet data as of December 31, 2008 and 2009 are derived from
audited financial statements included elsewhere in this prospectus. The statement of operations data for the fiscal years ended December 31, 2005 and 2006 and
the balance sheet data as of December 31, 2005, 2006 and 2007 have been derived from audited financial statements not included in this prospectus. The
statement of operations data for interim periods shown below and the balance sheet data as of June 30, 2009 and 2010 are derived from our unaudited condensed
financial statements included elsewhere in this prospectus. In January 2006, the start of the first quarter of fiscal 2006, the Company adopted the provisions
of FASB ASC 718, Compensation-Stock Compensation, which requires that the costs resulting from all stock based payment transactions be recognized in the
financial statements at their fair values. Results from prior periods have not been restated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, |
|
|
|
|
|
|
Year Ended December 31, |
|
|
2010 |
|
2009 |
|
2009 |
|
2008 |
|
2007 |
|
2006 |
|
2005 |
|
|
|
|
|
|
|
|
(in thousands, except per share data) |
|
|
|
|
|
|
Statement of Operations Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
51 |
|
|
$ |
|
|
|
$ |
92 |
|
|
$ |
251 |
|
|
$ |
4,077 |
|
|
$ |
7,259 |
|
|
$ |
3,540 |
|
Costs, expenses and income from settlement of
lawsuit: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development expenses |
|
|
1,294 |
|
|
|
2,670 |
|
|
|
4,046 |
|
|
|
12,785 |
|
|
|
21,076 |
|
|
|
18,892 |
|
|
|
18,915 |
|
General and administrative expenses |
|
|
4,463 |
|
|
|
5,855 |
|
|
|
10,068 |
|
|
|
9,176 |
|
|
|
14,459 |
|
|
|
11,693 |
|
|
|
13,165 |
|
Other costs and expenses |
|
|
149 |
|
|
|
(515 |
) |
|
|
(422 |
) |
|
|
779 |
|
|
|
1,083 |
|
|
|
3,802 |
|
|
|
3,915 |
|
Restructuring charge |
|
|
50 |
|
|
|
(353 |
) |
|
|
(356 |
) |
|
|
3,831 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (expense) from settlement of lawsuit, net |
|
|
220 |
|
|
|
|
|
|
|
1,293 |
|
|
|
|
|
|
|
(11,890 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total costs, expenses and income from
settlement of lawsuit |
|
|
6,176 |
|
|
|
7,657 |
|
|
|
14,629 |
|
|
|
26,571 |
|
|
|
24,728 |
|
|
|
34,387 |
|
|
|
35,995 |
|
|
|
|
Operating loss |
|
|
(6,125 |
) |
|
|
(7,657 |
) |
|
|
(14,552 |
) |
|
|
(26,320 |
) |
|
|
(20,651 |
) |
|
|
(27,128 |
) |
|
|
(32,455 |
) |
Beneficial conversion of convertible security |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,215 |
) |
|
|
|
|
Gain on extinguishment of note payable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,663 |
|
Change in fair value of derivative instruments |
|
|
(22,599 |
) |
|
|
(334 |
) |
|
|
(2,473 |
) |
|
|
2,220 |
|
|
|
5,057 |
|
|
|
(1,390 |
) |
|
|
(624 |
) |
Sale of patent |
|
|
|
|
|
|
500 |
|
|
|
500 |
|
|
|
1,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
(32,170 |
) |
|
|
(9,604 |
) |
|
|
(21,243 |
) |
|
|
(24,388 |
) |
|
|
(16,928 |
) |
|
|
(41,766 |
) |
|
|
(18,051 |
) |
Net loss per share Basic |
|
$ |
(0.75 |
) |
|
$ |
(0.32 |
) |
|
$ |
(0.61 |
) |
|
$ |
(0.80 |
) |
|
$ |
(0.58 |
) |
|
$ |
(1.58 |
) |
|
$ |
(0.81 |
) |
Net loss per share Diluted |
|
$ |
(0.75 |
) |
|
$ |
(0.32 |
) |
|
$ |
(0.61 |
) |
|
$ |
(0.80 |
) |
|
$ |
(0.76 |
) |
|
$ |
(1.58 |
) |
|
$ |
(0.81 |
) |
Weighted average shares outstanding, basic |
|
|
42,711,367 |
|
|
|
30,341,078 |
|
|
|
34,679,321 |
|
|
|
30,337,442 |
|
|
|
29,039,101 |
|
|
|
26,474,072 |
|
|
|
22,300,646 |
|
Weighted average shares outstanding, diluted |
|
|
42,711,367 |
|
|
|
30,341,078 |
|
|
|
34,679,321 |
|
|
|
30,337,442 |
|
|
|
29,128,013 |
|
|
|
26,474,072 |
|
|
|
22,311,881 |
|
|
|
|
June 30, |
|
|
|
|
|
|
December 31, |
|
|
2010 |
|
2009 |
|
2009 |
|
2008 |
|
2007 |
|
2006 |
|
2005 |
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
|
|
|
|
|
|
|
|
|
Balance Sheet Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, cash
equivalents, restricted cash and investments |
|
$ |
677 |
|
|
$ |
1,534 |
|
|
$ |
3,825 |
|
|
$ |
7,469 |
|
|
$ |
14,100 |
|
|
$ |
21,533 |
|
|
$ |
9,218 |
|
Working capital (deficit) |
|
|
(22,218 |
) |
|
|
(16,128 |
) |
|
|
(20,441 |
) |
|
|
(7,954 |
) |
|
|
9,622 |
|
|
|
13,377 |
|
|
|
(522 |
) |
Total assets |
|
|
3,105 |
|
|
|
3,834 |
|
|
|
5,933 |
|
|
|
10,176 |
|
|
|
19,481 |
|
|
|
28,092 |
|
|
|
18,988 |
|
Derivative instruments |
|
|
29,166 |
|
|
|
4,118 |
|
|
|
10,780 |
|
|
|
267 |
|
|
|
2,487 |
|
|
|
6,498 |
|
|
|
6,528 |
|
Long-term liabilities and deferrals |
|
|
40,862 |
|
|
|
22,309 |
|
|
|
24,652 |
|
|
|
31,531 |
|
|
|
27,648 |
|
|
|
24,744 |
|
|
|
23,121 |
|
Accumulated deficit |
|
|
(468,841 |
) |
|
|
(425,032 |
) |
|
|
(436,671 |
) |
|
|
(433,688 |
) |
|
|
(409,300 |
) |
|
|
(392,372 |
) |
|
|
(350,606 |
) |
Stockholders (deficit) equity |
|
|
(73,406 |
) |
|
|
(39,580 |
) |
|
|
(47,864 |
) |
|
|
(37,028 |
) |
|
|
(13,674 |
) |
|
|
(6,106 |
) |
|
|
(14,895 |
) |
5
RISK FACTORS
An investment in our securities involves a high degree of risk. You should carefully consider the
risks described below and the other information before deciding to invest in our securities. The
risks described below are not the only ones facing our company. Additional risks not presently
known to us or that we currently consider immaterial may also adversely affect our business. If any
of the following risks actually happen, our business, financial condition and operating results
could be materially adversely affected. In this case, you could lose all or part of your
investment.
Special Note Regarding Forward-Looking Statements
From time to time, information provided by us, statements made by our employees or information
included in our filings with the SEC (including this prospectus) may contain statements that are
not historical facts, so-called forward-looking statements, which involve risks and
uncertainties. Such forward-looking statements are made pursuant to the safe harbor provisions of
Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act). In some cases
you can identify forward-looking statements by terminology such as may, should, could,
will, expect, intend, plans, predict, anticipate, estimate, continue, believe or
the negative of these terms or other similar words. These statements discuss future expectations,
contain projections of results of operations or of financial condition or state other
forward-looking information. When considering forward-looking statements, you should keep in mind
the risk factors and other cautionary statements in this Report.
Our actual future results may differ significantly from those stated in any forward-looking
statements. Factors that may cause such differences include, but are not limited to, the factors
discussed below. Each of these factors, and others, are discussed from time to time in our filings
with the SEC.
Risks Related to Our Company
Our operating results may fluctuate because of a number of factors, many of which are beyond
our control. If our operating results are below the expectations of public market analysts or
investors, then the market price of our common stock could decline. Some of the factors that affect
our quarterly and annual results, but which are difficult to control or predict, are:
We have a history of operating losses and we may never achieve profitability. If we continue to
incur losses or we fail to raise additional capital or receive substantial cash inflows from our
partners by early December 2010, we may be forced to cease operations.
As of June 30, 2010, we had approximately $0.7 million in cash and restricted cash, approximately
$22.2 million in working capital deficiency, a stockholders deficit of approximately $73.4 million
and an accumulated deficit of approximately $468.8 million. Our net loss and operating loss for the
three months ended June 30, 2010 were approximately $13.7 million and $3.1 million, respectively
and $32.2 million and $6.1 million, respectively for the six months ended June 30, 2010. Since our
inception in 1986, we have generated significant losses from operations. We anticipate that we will
continue to generate significant losses from operations for the foreseeable future, and that our
business will require substantial additional investment that we have not yet secured. These
conditions raise substantial doubt about our ability to continue as a going concern. The audit
reports prepared by our independent registered public accounting firms relating to our financial
statements for the years ended December 31, 2007, 2008 and 2009, respectively included an
explanatory paragraph expressing substantial doubt about our ability to continue as a going
concern.
On July 29, 2010, we issued a promissory note (the MHR 2010 Note) to MHR Institutional Partners
IIA LP and MHR Institutional Partners II LP (together, MHR) in the principal amount of $525,000.
The MHR 2010 Note provides for an interest rate of 15% per annum, with the entire principal amount
due and payable on October 27, 2010 (the Maturity Date). The Maturity Date was accelerated per
the terms of the MHR 2010 Note upon completion of the Private Placement and MHR Private Placement,
as described below. The amount payable by the MHR Buyer to the Company in connection with the MHR
Private Placement was reduced to allow for the repayment by the Company to MHR of the aggregate
principal and interest outstanding under the MHR 2010 Note. As a result, the MHR 2010 Note is no
longer outstanding.
On August 25, 2010, we entered into a Securities Purchase Agreement (the Securities Purchase
Agreement) with the selling security holders to sell an aggregate of 3,497,528 shares of our
common stock and warrants to purchase a total of 2,623,146 shares of our common stock for gross
proceeds, before deducting fees and expenses and excluding the proceeds, if any, from the exercise
of the warrants of $3,532,503 (the Private Placement). Each unit, consisting of one share of
common stock and a warrant to purchase 0.75 shares of common stock, was sold at a purchase price of
$1.01. The warrants are exercisable at an exercise price of $1.26 per share beginning immediately
after issuance and expire 5 years from the date of issuance. Also on August 25, 2010, we also
entered into a Securities Purchase Agreement with MHR Fund Management LLC (the MHR Buyer) to sell
an aggregate of 3,497,528 shares of our common stock and warrants to purchase a total of 2,623,146
shares of our common stock for gross proceeds, before deducting fees and expenses and excluding the
proceeds, if any, from the exercise of the warrants of $3,532,503 (the MHR Private Placement).
The aggregate principal and interest outstanding under the MHR 2010 Note was utilized, per the
terms of the MHR 2010 Note, as a portion of the payment by MHR to the Company in connection with
the MHR Private Placement. Each unit, consisting of one share of common stock and a warrant to
purchase 0.75 shares of common stock, was sold at a purchase price of $1.01. The warrants issued to
the MHR Buyer had substantially the same terms as the warrants issued to the selling security
holders in the Private Placement. Both the Private Placement and the MHR Private Placement closed
on August 26, 2010.
In connection with the Private Placement and the MHR Private Placement, on August 25, 2010, we
entered into a Waiver Agreement with MHR (the Waiver Agreement), pursuant to which MHR waived
certain anti-dilution adjustment rights under the MHR Senior Secured Notes and certain warrants
issued by us to MHR that would otherwise have been triggered by the Private Placement described
above. As consideration for such waiver, on August 26, 2010, we issued to MHR a warrant to purchase
975,000 shares of our common stock and agreed to reimburse MHR for 50% of its legal fees up to a
maximum reimbursement of $50,000. Such warrant is the same form as the warrants issued in
connection with the MHR Private Placement described above.
We anticipate that we will continue to generate significant losses from operations for the
foreseeable future, and that our business will require substantial additional investment that we
have not yet secured. As such, we anticipate that our existing cash resources, including the
amounts provided by the Private Placement and the MHR Private Placement, will enable us to continue
operations through approximately early December 2010, or earlier if unforeseen events arise that
negatively affect our liquidity. Further, we have significant future commitments and obligations.
These conditions raise substantial doubt about our ability to continue as a going concern.
Consequently, the audit opinion issued by our independent registered public accounting firm
relating to our financial statements for the year ended December 31, 2009 contained a going concern
explanatory paragraph. We are pursuing new as well as enhanced collaborations and exploring other
financing options, with the objective of minimizing dilution and disruption. If we fail to raise
additional capital or obtain substantial cash inflows from existing partners prior to early
December 2010, we could be forced to cease operations.
While our plan is to raise capital when needed and/or to pursue product partnering opportunities,
we cannot be sure how much we will need to spend in order to develop, market, and manufacture new
products and technologies in the future. We expect to continue to spend substantial amounts on
research and development, including amounts spent on conducting clinical trials for our product
candidates. Further, we will not have sufficient resources to develop fully any new products or
technologies unless we are able to raise substantial additional financing or to secure funds from
new or existing partners. We cannot assure you that financing will be
6
available when needed, or on favorable terms or at all. The current economic environment combined
with a number of other factors pose additional challenges to the Company in securing adequate
financing under acceptable terms. If additional capital is raised through the sale of equity or
convertible debt securities, the issuance of such securities would result in dilution to our
existing stockholders. Additionally, these conditions may increase the costs to raise capital. Our
failure to raise capital when needed would adversely affect our business, financial condition, and
results of operations, and could force us to reduce or discontinue operations.
We may not be able to meet the covenants detailed in the Convertible Notes with MHR Institutional
Partners IIA LP, which could result in an increase in the interest rate on the Convertible Notes
and/or accelerated maturity of the Convertible Notes, which we would not be able to satisfy.
On September 26, 2005, we executed a Senior Secured Loan Agreement (the Loan Agreement) with MHR
Institutional Partners IIA LP (together with its affiliates, MHR). The Loan Agreement, as
amended, provides for a seven year, $15 million secured loan from MHR to us at an interest rate of
11% (the Loan). Under the Loan Agreement, MHR requested, and on May 16, 2006 we effected, the
exchange of the Loan for 11% senior secured convertible notes (the Convertible Notes) with
substantially the same terms as the Loan agreement, except that the Convertible Notes are
convertible, at the sole discretion of MHR or any assignee thereof, into shares of our common stock
at a price per share of $3.78. Interest will be payable in the form of additional Convertible Notes
rather than in cash and we have the right to call the Convertible Notes after September 26, 2010 if
certain conditions are satisfied. The Convertible Notes are secured by a first priority lien in
favor of MHR on substantially all of our assets.
The Convertible Notes provide for certain events of default including failure to perfect liens in
favor of MHR created by the transaction, failure to observe any covenant or agreement, failure to
maintain the listing and trading of our common stock, sale of a substantial portion of our assets,
or merger with another entity without the prior consent of MHR, or any governmental action renders
us unable to honor or perform our obligations under the Convertible Notes or results in a material
adverse effect on our operations among other things. If an event of default occurs, the Convertible
Notes provide for the immediate repayment of the Notes and certain additional amounts described
above and as set forth in the Convertible Notes. At such time, we may not be able to make the
required payment, and if we are unable to pay the amount due under the Notes, the resulting default
would enable MHR to foreclose on all of our assets. Any of the foregoing events would have a
material adverse effect on our business and on the value of our stockholders investments in our
common stock. We currently have a waiver from MHR for failure to perfect liens on certain
intellectual property rights, through August 17, 2011.
We are highly dependent upon collaborative partners to develop and commercialize compounds using
our delivery agents.
A key part of our strategy is to form collaborations with pharmaceutical companies that will assist
us in developing, testing, obtaining government approval for and commercializing oral forms of
therapeutic macromolecules using the Eligen® Technology. We have a collaborative agreement for
candidates in clinical development with Novartis, Novo Nordisk and Genta.
We negotiate specific ownership rights with respect to the intellectual property developed as a
result of the collaboration with each partner. While ownership rights vary from program to program,
in general we retain ownership rights to developments relating to our carrier and the collaborator
retains rights related to the drug product developed.
Despite our existing agreements, we cannot make any assurances that:
|
|
|
we will be able to enter into additional collaborative arrangements to develop products
utilizing our drug delivery technology; |
|
|
|
|
any existing or future collaborative arrangements will be sustainable or successful; |
|
|
|
|
the product candidates in collaborative arrangements will be further developed by
partners in a timely fashion; |
|
|
|
|
any collaborative partner will not infringe upon our intellectual property position in
violation of the terms of the collaboration contract; or |
|
|
|
|
milestones in collaborative agreements will be met and milestone payments will be
received. |
If we are unable to obtain development assistance and funds from other pharmaceutical companies to
fund a portion of our product development costs and to commercialize our product candidates, we may
be unable to issue equity to allow us to raise sufficient capital to fund clinical development of
our product candidates. Lack of funding would cause us to delay, curtail, or stop clinical
development of one or more of our projects. The determination of the specific project to curtail
would depend upon the relative future economic value to us of each program.
Our collaborative partners control the clinical development of the drug candidates and may
terminate their efforts at will.
Novartis controls the clinical development of oral salmon calcitonin, PTH, and rhGH. Novo Nordisk
controls the clinical development of oral GLP-1 analogs. Genta controls the clinical development of
oral gallium. Novartis, Novo Nordisk and Genta control the decision-making for the design and
timing of their clinical studies.
Moreover, the agreements with Novartis, Novo Nordisk and Genta provide that they may terminate
their programs at will for any reason and without any financial penalty or requirement to fund any
further clinical studies. We cannot make any assurance that Novartis, Novo Nordisk or Genta will
continue to advance the clinical development of the drug candidates subject to collaboration.
Our collaborative partners are free to develop competing products.
Aside from provisions preventing the unauthorized use of our intellectual property by our
collaborative partners, there is nothing in our collaborative agreements that prevent our partners
from developing competing products. If one of our partners were to develop a competing product, our
collaboration could be substantially jeopardized.
Our product candidates are in various stages of development, and we cannot be certain that any will
be suitable for commercial purposes.
To be profitable, we must successfully research, develop, obtain regulatory approval for,
manufacture, introduce, market, and distribute our products under development, or secure a partner
to provide financial and other assistance with these steps. The time necessary to achieve these
goals for any individual pharmaceutical product is long and can be uncertain. Before we or a
potential partner can sell any of the pharmaceutical products currently under development,
pre-clinical (animal) studies and clinical (human) trials must demonstrate that the product is safe
and effective for human use for each targeted indication. We have never successfully commercialized
a drug or a nonprescription candidate and we cannot be certain that we or our current or future
partners will be able to begin, or continue, planned clinical trials for our product candidates, or
if we are able, that the product candidates will prove to be safe and will produce their intended
effects.
Even if safe and effective, the size of the solid dosage form, taste, and frequency of dosage may
impede their acceptance by patients.
7
A number of companies in the drug delivery, biotechnology, and pharmaceutical industries have
suffered significant setbacks in clinical trials, even after showing promising results in earlier
studies or trials. Only a small number of research and development programs ultimately result in
commercially successful drugs. Favorable results in any pre-clinical study or early clinical trial
do not imply that favorable results will ultimately be obtained in future clinical trials. We
cannot make any assurance that results of limited animal and human studies are indicative of
results that would be achieved in future animal studies or human clinical studies, all or some of
which will be required in order to have our product candidates obtain regulatory approval.
Similarly, we cannot assure you that any of our product candidates will be approved by the FDA.
Even if clinical trials or other studies demonstrate safety and effectiveness of any of our product
candidates for a specific disease or condition and the necessary regulatory approvals are obtained,
the commercial success of any of our product candidates will depend upon their acceptance by
patients, the medical community, and third-party payers and on our partners ability to
successfully manufacture and commercialize our product candidates.
Our future business success depends heavily upon regulatory approvals, which can be difficult and
expensive to obtain.
Our pre-clinical studies and clinical trials of our prescription drug and biologic product
candidates, as well as the manufacturing and marketing of our product candidates, are subject to
extensive, costly and rigorous regulation by governmental authorities in the U.S. and other
countries. The process of obtaining required approvals from the FDA and other regulatory
authorities often takes many years, is expensive, and can vary significantly based on the type,
complexity, and novelty of the product candidates. We cannot assure you that we, either
independently or in collaboration with others, will meet the applicable regulatory criteria in
order to receive the required approvals for manufacturing and marketing. Delays in obtaining U.S.
or foreign approvals for our self-developed projects could result in substantial additional costs
to us, and, therefore, could adversely affect our ability to compete with other companies.
Additionally, delays in obtaining regulatory approvals encountered by others with whom we
collaborate also could adversely affect our business and prospects. Even if regulatory approval of
a product is obtained, the approval may place limitations on the intended uses of the product, and
may restrict the way in which we or our partner may market the product.
The regulatory approval process for our prescription drug product candidates presents several risks
to us:
|
|
|
In general, pre-clinical tests and clinical trials can take many years, and require the
expenditure of substantial resources. The data obtained from these tests and trials can be
susceptible to varying interpretation that could delay, limit or prevent regulatory
approval. |
|
|
|
|
Delays or rejections may be encountered during any stage of the regulatory process based
upon the failure of the clinical or other data to demonstrate compliance with, or upon the
failure of the product to meet, a regulatory agencys requirements for safety, efficacy,
and quality or, in the case of a product seeking an orphan drug indication, because another
designee received approval first. |
|
|
|
|
Requirements for approval may become more stringent due to changes in regulatory agency
policy or the adoption of new regulations or guidelines. |
|
|
|
|
New guidelines can have an effect on the regulatory decisions made in previous years. |
|
|
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The scope of any regulatory approval, when obtained, may significantly limit the
indicated uses for which a product may be marketed and may impose significant limitations
in the nature of warnings, precautions, and contraindications that could materially affect
the profitability of the drug. |
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Approved drugs, as well as their manufacturers, are subject to continuing and ongoing
review, and discovery of problems with these products or the failure to adhere to
manufacturing or quality control requirements may result in restrictions on their
manufacture, sale or use or in their withdrawal from the market. |
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Regulatory authorities and agencies may promulgate additional regulations restricting
the sale of our existing and proposed products. |
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Once a product receives marketing approval, the FDA may not permit us to market that
product for broader or different applications, or may not grant us clearance with respect
to separate product applications that represent extensions of our basic technology. In
addition, the FDA may withdraw or modify existing clearances in a significant manner or
promulgate additional regulations restricting the sale of our present or proposed products. |
Additionally, we face the risk that our competitors may gain FDA approval for a product before us.
Having a competitor reach the market before us would impede the future commercial success for our
competing product because we believe that the FDA uses heightened standards of approval for
products once approval has been granted to a competing product in a particular product area. We
believe that this standard generally limits new approvals to only those products that meet or
exceed the standards set by the previously approved product.
The regulatory approval process for nonprescription product candidates will likely vary by the
nature of therapeutic molecule being delivered
Our business will suffer if we cannot adequately protect our patent and proprietary rights.
Although we have patents for some of our product candidates and have applied for additional
patents, there can be no assurance that patents applied for will be granted, that patents granted
to or acquired by us now or in the future will be valid and enforceable and provide us with
meaningful protection from competition, or that we will possess the financial resources necessary
to enforce any of our patents. Also, we cannot be certain that any products that we (or a licensee)
develop will not infringe upon any patent or other intellectual property right of a third party.
We also rely upon trade secrets, know-how, and continuing technological advances to develop and
maintain our competitive position. We maintain a policy of requiring employees, scientific
advisors, consultants, and collaborators to execute confidentiality and invention assignment
agreements upon commencement of a relationship with us. We cannot assure you that these agreements
will provide meaningful protection for our trade secrets in the event of unauthorized use or
disclosure of such information.
Part of our strategy involves collaborative arrangements with other pharmaceutical companies for
the development of new formulations of drugs developed by others and, ultimately, the receipt of
royalties on sales of the new formulations of those drugs. These drugs are generally the property
of the pharmaceutical companies and may be the subject of patents or patent applications and other
rights of protection owned by the pharmaceutical companies. To the extent those patents or other
forms of rights expire, become invalid or otherwise ineffective, or to the extent those drugs are
covered by patents or other forms of protection owned by third parties, sales of those drugs by the
collaborating pharmaceutical company may be restricted, limited, enjoined, or may cease.
Accordingly, the potential for royalty revenues to us may be adversely affected.
We may be at risk of having to obtain a license from third parties making proprietary improvements
to our technology.
There is a possibility that third parties may make improvements or innovations to our technology in
a more expeditious manner than we do. Although we are not aware of any such circumstance related to
our product portfolio, should such circumstances arise, we may need to obtain a license from such
third party to obtain the benefit of the improvement or innovation. Royaltys payable under such a
license would reduce our share of total revenue. Such a license may not be available to us at all
or on
8
commercially reasonable terms. Although we currently do not know of any circumstances related to
our product portfolio which would lead us to believe that a third party has developed any
improvements or innovation with respect to our technology, we cannot assure you that such
circumstances will not arise in the future. We cannot reasonably determine the cost to us of the
effect of being unable to obtain any such license.
We are dependent on third parties to manufacture and test our products.
Currently, we have no manufacturing facilities for production of our carriers or any therapeutic
compounds under consideration as products. We have no facilities for clinical testing. The success
of our self-developed programs is dependent upon securing manufacturing capabilities and
contracting with clinical service and other service providers.
The availability of manufacturers is limited by both the capacity of such manufacturers and their
regulatory compliance. Among the conditions for NDA approval is the requirement that the
prospective manufacturers quality control and manufacturing procedures continually conform with
the FDAs current GMP (GMP are regulations established by the FDA that govern the manufacture,
processing, packing, storage and testing of drugs intended for human use). In complying with GMP,
manufacturers must devote extensive time, money, and effort in the area of production and quality
control and quality assurance to maintain full technical compliance. Manufacturing facilities and
company records are subject to periodic inspections by the FDA to ensure compliance. If a
manufacturing facility is not in substantial compliance with these requirements, regulatory
enforcement action may be taken by the FDA, which may include seeking an injunction against
shipment of products from the facility and recall of products previously shipped from the facility.
Such actions could severely delay our ability to obtain product from that particular source.
The success of our clinical trials and our partnerships is dependent on the proposed or current
partners capacity and ability to adequately manufacture drug products to meet the proposed demand
of each respective market. Any significant delay in obtaining a supply source (which could result
from, for example, an FDA determination that such manufacturer does not comply with current GMP)
could harm our potential for success. Additionally, if a current manufacturer were to lose its
ability to meet our supply demands during a clinical trial, the trial may be delayed or may even
need to be abandoned.
We may face product liability claims related to participation in clinical trials or future
products.
We have product liability insurance with a policy limit of $5.0 million per occurrence and in the
aggregate. The testing, manufacture, and marketing of products for humans utilizing our drug
delivery technology may expose us to potential product liability and other claims. These may be
claims directly by consumers or by pharmaceutical companies or others selling our future products.
We seek to structure development programs with pharmaceutical companies that would complete the
development, manufacturing and marketing of the finished product in a manner that would protect us
from such liability, but the indemnity undertakings for product liability claims that we secure
from the pharmaceutical companies may prove to be insufficient.
We are subject to environmental, health, and safety laws and regulations for which we incur costs
to comply.
We use some hazardous materials in our research and development activities and are subject to
environmental, health, and safety laws and regulations governing the use of such materials. For
example, our operations involve the controlled use of chemicals, biologicals and radioactive
materials and we bear the costs of complying with the various regulations governing the use of such
materials. Costs of compliance have not been material to date. While we believe we are currently in
compliance with the federal, state, and local laws governing the use of such materials, we cannot
be certain that accidental injury or contamination will not occur. Should we be held liable or face
regulatory actions regarding an accident involving personal injury or an environmental release, we
potentially could incur costs in excess of our resources or insurance coverage, although, to date,
we have not had to deal with any such actions. During each of 2009, 2008, and 2007, we incurred
costs of approximately $0.1 million, $0.2 million and $0.2 million, respectively, in our compliance
with environmental, health, and safety laws and regulations.
We face rapid technological change and intense competition.
Our success depends, in part, upon maintaining a competitive position in the development of
products and technologies in an evolving field in which developments are expected to continue at a
rapid pace. We compete with other drug delivery, biotechnology and pharmaceutical companies,
research organizations, individual scientists, and non-profit organizations engaged in the
development of alternative drug delivery technologies or new drug research and testing, as well as
with entities developing new drugs that may be orally active. Many of these competitors have
greater research and development capabilities, experience, and marketing, financial, and managerial
resources than we have, and, therefore, represent significant competition.
Our products, when developed and marketed, may compete with existing parenteral or other versions
of the same drug, some of which are well established in the marketplace and manufactured by
formidable competitors, as well as other existing drugs. For example, our salmon calcitonin product
candidate, if developed and marketed, would compete with a wide array of existing osteoporosis
therapies, including a nasal dosage form of salmon calcitonin, estrogen replacement therapy,
selective estrogen receptor modulators, bisphosphonates, and other compounds in development.
Our competitors may succeed in developing competing technologies or obtaining government approval
for products before we do. Developments by others may render our product candidates, or the
therapeutic macromolecules used in combination with our product candidates, noncompetitive or
obsolete. At least one competitor has notified the FDA that it is developing a competing
formulation of salmon calcitonin. If our products are marketed, we cannot assure you that they will
be preferred to existing drugs or that they will be preferred to or available before other products
in development.
If a competitor announces a successful clinical study involving a product that may be competitive
with one of our product candidates or an approval by a regulatory agency of the marketing of a
competitive product, such announcement may have a material adverse effect on our operations or
future prospects resulting from reduced sales of future products that we may wish to bring to
market or from an adverse impact on the price of our common stock or our ability to obtain
regulatory approval for our product candidates.
We are dependent on our key personnel and if we cannot recruit and retain leaders in our research,
development, manufacturing, and commercial organizations, our business will be harmed.
We are dependent on our executive officers. Our President and Chief Executive Officer, Michael V.
Novinski, joined the Company in May 2007. We could be significantly disadvantaged if Mr. Novinski
were to leave Emisphere. The loss of other officers could have an adverse effect as well, given
their specific knowledge related to our proprietary technology and personal relationships with our
pharmaceutical company partners. If we are not able to retain our executive officers, our business
may suffer. None of our key officers have announced any intention to leave Emisphere. We do not
maintain key-man life insurance policies for any of our executive officers.
There is intense competition in the biotechnology industry for qualified scientists and managerial
personnel in the development, manufacture, and commercialization of drugs. We may not be able to
continue to attract and retain the qualified personnel necessary for developing our business.
Additionally, because of the knowledge and experience of our scientific personnel and their
specific knowledge with respect to our drug carriers the continued development of our product
candidates could be adversely affected by the loss of any significant number of such personnel.
9
Provisions of our corporate charter documents, Delaware law, and our stockholder rights plan may
dissuade potential acquirers, prevent the replacement or removal of our current management and may
thereby affect the price of our common stock.
Our Board of Directors has the authority to issue up to 1,000,000 shares of preferred stock and to
determine the rights, preferences and privileges of those shares without any further vote or action
by our stockholders. Of these 1,000,000 shares, 200,000 are currently designated Series A Junior
Participating Cumulative Preferred Stock (A Preferred Stock) in connection with our stockholder
rights plan, and the remaining 800,000 shares remain available for future issuance. Rights of
holders of common stock may be adversely affected by the rights of the holders of any preferred
stock that may be issued in the future.
We also have a stockholder rights plan, commonly referred to as a poison pill, in which Preferred
Stock Purchase Rights (the Rights) have been granted at the rate of one one-hundredth of a share
of A Preferred Stock at an exercise price of $80 for each share of our common stock. The Rights are
not exercisable or transferable apart from the common stock, until the earlier of (i) ten days
following a public announcement that a person or group of affiliated or associated persons have
acquired beneficial ownership of 20% or more of our outstanding common stock or (ii) ten business
days (or such later date, as defined) following the commencement of, or announcement of an
intention to make a tender offer or exchange offer, the consummation of which would result in the
beneficial ownership by a person, or group, of 20% or more of our outstanding common stock. If we
enter into consolidation, merger, or other business combinations, as defined, each Right would
entitle the holder upon exercise to receive, in lieu of shares of A Preferred Stock, a number of
shares of common stock of the acquiring company having a value of two times the exercise price of
the Right, as defined. By potentially diluting the ownership of the acquiring company, our rights
plan may dissuade prospective acquirers of our company. MHR is specifically excluded from the
provisions of the plan.
The A Preferred Stockholders will be entitled to a preferential cumulative quarterly dividend of
the greater of $1.00 per share or 100 times the per-share dividend declared on our stock and are
also entitled to a liquidation preference, thereby hindering an acquirers ability to freely pay
dividends or to liquidate the company following an acquisition. Each A Preferred Stock share will
have 100 votes and will vote together with the common shares, effectively preventing an acquirer
from removing existing management. The Rights contain anti-dilutive provisions and are redeemable
at our option, subject to certain defined restrictions for $.01 per Right. The Rights expire on
April 7, 2016.
Provisions of our corporate charter documents, Delaware law and financing agreements may prevent
the replacement or removal of our current management and members of our Board of Directors and may
thereby affect the price of our common stock.
In connection with the MHR financing transaction, and after approval by our Board of Directors, Dr.
Mark H. Rachesky was appointed to the Board of Directors by MHR (the MHR Nominee) and Dr. Michael
Weiser was appointed to the Board of Directors by both the majority of our Board of Directors and
MHR (the Mutual Director), as contemplated by our bylaws. Our certificate of incorporation
provides that the MHR Nominee and the Mutual Director may be removed only by the affirmative vote
of at least 85% of the shares of common stock outstanding and entitled to vote at an election of
directors. Our certificate of incorporation also provides that the MHR Nominee may be replaced only
by an individual designated by MHR unless the MHR Nominee has been removed for cause, in which case
the MHR Nominee may be replaced only by an individual approved by both a majority of our Board of
Directors and MHR. Furthermore, the amendments to the by-laws and the certificate of incorporation
provide that the rights granted to MHR by these amendments may not be amended or repealed without
the unanimous vote or unanimous written consent of the Board of Directors or the affirmative vote
of the holders of at least 85% of the shares of Common Stock outstanding and entitled to vote at
the election of directors. The amendments to the by-laws and the certificate of incorporation will
remain in effect as long as MHR holds at least 2% of the shares of fully diluted Common Stock. The
amendments to the by-laws and the certificate of incorporation will have the effect of making it
more difficult for a third party to gain control of our Board of Directors.
Additional provisions of our certificate of incorporation and by-laws could have the effect of
making it more difficult for a third party to acquire a majority of our outstanding voting common
stock. These include provisions that classify our Board of Directors, limit the ability of
stockholders to take action by written consent, call special meetings, remove a director for cause,
amend the by-laws or approve a merger with another company.
We are subject to the provisions of Section 203 of the Delaware General Corporation Law which
prohibits a publicly-held Delaware corporation from engaging in a business combination with an
interested stockholder for a period of three years after the date of the transaction in which the
person became an interested stockholder, unless the business combination is approved in a
prescribed manner. For purposes of Section 203, a business combination includes a merger, asset
sale or other transaction resulting in a financial benefit to the interested stockholder, and an
interested stockholder is a person who, either alone or together with affiliates and associates,
owns (or within the past three years, did own) 15% or more of the corporations voting stock.
Our stock price has been and may continue to be volatile.
The trading price for our common stock has been and is likely to continue to be highly volatile.
The market prices for securities of drug delivery, biotechnology and pharmaceutical companies have
historically been highly volatile.
Factors that could adversely affect our stock price include:
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fluctuations in our operating results; announcements of partnerships or technological
collaborations; |
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innovations or new products by us or our competitors; |
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governmental regulation; |
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developments in patent or other proprietary rights; |
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public concern as to the safety of drugs developed by us or others; |
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the results of pre-clinical testing and clinical studies or trials by us, our partners
or our competitors; |
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litigation; |
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general stock market and economic conditions; |
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number of shares available for trading (float); and |
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inclusion in or dropping from stock indexes. |
10
As of September 10, 2010, our 52-week high and low closing market price for our common stock was
$3.70 and $0.54, respectively.
Future sales of common stock or warrants, or the prospect of future sales, may depress our stock
price.
Sales of a substantial number of shares of common stock or warrants, or the perception that sales
could occur, could adversely affect the market price of our common stock. As of August 30, 2010,
there were outstanding options to purchase up to 2,165,701 shares of our common stock that are
currently exercisable, and additional outstanding options to purchase up to 899,765 shares of
common stock that are exercisable over the next several years. As of August 30, 2010, the MHR
Convertible Notes were convertible into 6,319,856 shares of our common stock. As of August 30,
2010, there were outstanding warrants to purchase 11,832,826 shares of our stock. The holders of
these options have an opportunity to profit from a rise in the market price of our common stock
with a resulting dilution in the interests of the other. The existence of these options may
adversely affect the terms on which we may be able to obtain additional financing. The weighted
average exercise price of issued and outstanding options is $4.61 and the weighted average exercise
price of warrants is $1.42 which compares to the $1.04 market price at closing on September 10,
2010.
Risks Related to This Offering
Our common stock is traded on the Over-the-Counter Bulletin Board.
The Companys securities began trading on the Over-the-Counter Bulletin Board (the OTCBB), an
electronic quotation service maintained by the Financial Industry Regulatory Authority, effective
with the open of business on June 9, 2009. The Companys trading symbol has remained EMIS; however,
it is our understanding that, for certain stock quote publication websites, investors may be
required to key EMIS.OB to obtain quotes.
Because our stock is traded on the Over-the-Counter Bulletin Board market, selling our common stock
could be more difficult because smaller quantities of shares would likely be bought and sold,
transactions could be delayed, and security analysts coverage of us may be reduced or harder to
obtain. In addition, because our common stock was de-listed from the NASDAQ Capital Market,
broker-dealers have certain regulatory burdens imposed upon them, which may discourage
broker-dealers from effecting transactions in our common stock, further limiting the liquidity
thereof. These factors could result in lower prices and larger spreads in the bid and ask prices
for shares of our common stock and/or limit an investors ability to execute a transaction.
The listing on the OTCBB or future declines in our stock price could also greatly impair our
ability to raise additional necessary capital through equity or debt financing, and could
significantly increase the ownership dilution to stockholders caused by our issuing equity in
financing or other transactions.
Shares issuable upon the conversion of warrants or the exercise of outstanding options may
substantially increase the number of shares available for sale in the public market and depress the
price of our common stock.
As of August 30, 2010, we had outstanding warrants exercisable for an aggregate of 11,832,826
shares of our common stock at a weighted average exercise price of $1.42 per share. In addition,
as of August 30, 2010, options to purchase an aggregate of 3,065,466 shares of our common stock
were outstanding at a weighted average exercise price of $3.68 per share. As of August 30, 2010,
1,535,048 shares of our stock were available for future option grants under our 2007 Stock Option
Plan. To the extent any of these warrants or options are exercised and any additional options are
granted and exercised, there will be further dilution to investors. Until the options and warrants
expire, these holders will have an opportunity to profit from any increase in the market price of
our common stock without assuming the risks of ownership. Holders of options and warrants may
convert or exercise these securities at a time when we could obtain additional capital on terms
more favorable than those provided by the options or warrants. The exercise of the options and
warrants will dilute the voting interest of the owners of presently outstanding shares by adding a
substantial number of additional shares of our common stock.
The price you pay in this offering will fluctuate and may be higher or lower than the prices paid
by other individuals or entities participating in this offering.
The price you pay in this offering may fluctuate based on the prevailing market price of our common
stock on the OTCBB. Accordingly, the price you pay in this offering may be higher or lower than
the prices paid by other people participating in this offering.
There is an increased potential for short sales of our common stock due to the sales of shares
issued upon exercise of warrants or options, which could materially affect the market price of the
stock.
Downward pressure on the market price of our common stock that likely will result from sales of our
common stock issued in connection with an exercise of warrants or options could encourage short
sales of our common stock by market participants. Generally, short selling means selling a
security, contract or commodity not owned by the seller. The seller is committed to eventually
purchase the financial instrument previously sold. Short sales are used to capitalize on an
expected decline in the securitys price. As the holders exercise their warrants or options, we
issue shares to the exercising holders, which such holders may then sell into the market. Such
sales could have a tendency to depress the price of the stock, which could increase the potential
for short sales. Additionally, one or more registration statements for shares/warrants could
increase the possibility of such short sales.
DILUTION
We are not offering or selling any of the shares of common stock in this offering. All of the
offered shares of our common stock are held by selling security holders and, accordingly, no
dilution will result from the sale of the securities.
STOCKHOLDERS
As of August 30, 2010, an aggregate of 51,889,102 shares of common stock were issued and
outstanding and were owned by approximately 227 stockholders of record, including record owners
holding shares on behalf of an indeterminate number of beneficial owners, based on information
provided by our transfer agent.
DIVIDEND POLICY
We have never paid cash dividends and do not intend to pay cash dividends in the foreseeable
future. We intend to retain earnings, if any, to finance the growth of our
business.
11
USE OF PROCEEDS
We will not receive any proceeds from the sale of shares by the selling security holders. All net
proceeds from the sale of the common stock covered by this prospectus will go to the selling
security holders. We will pay the expenses of registration of these shares, including
legal and accounting fees.
PRICE RANGE OF COMMON STOCK
Emisphere common stock has traded on the OTCBB under the symbol EMIS since June 9, 2009. Prior
to June 9, 2009, Emisphere common stock traded on The NASDAQ Capital Market under the symbol
EMIS.
The closing price of our common stock on September 10, 2010 was $1.04.
The following table sets forth the range of high and low intra-day sale prices as reported by the
OTCBB or The NASDAQ Capital Market, as the case may be, for each period indicated:
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High |
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Low |
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2007 |
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First quarter |
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5.82 |
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$ |
2.94 |
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Second quarter |
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4.98 |
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2.80 |
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Third quarter |
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5.13 |
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3.65 |
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Fourth quarter |
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5.17 |
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2.60 |
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2008 |
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First quarter |
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2.78 |
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1.43 |
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Second quarter |
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2.69 |
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1.33 |
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Third quarter |
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4.21 |
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1.98 |
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Fourth quarter |
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2.05 |
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0.57 |
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2009 |
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First quarter |
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1.06 |
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0.43 |
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Second quarter |
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1.38 |
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0.49 |
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Third quarter |
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1.18 |
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0.72 |
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Fourth quarter |
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1.08 |
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0.46 |
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2010 |
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First quarter |
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2.75 |
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0.92 |
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Second quarter |
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3.75 |
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2.07 |
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Third quarter (through September 10, 2010) |
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3.20 |
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0.77 |
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12
PRIVATE PLACEMENT OF COMMON SHARES AND WARRANTS
On August 25, 2010, we entered into a Securities Purchase Agreement (the Securities Purchase
Agreement) with the selling security holders to sell an aggregate of 3,497,528 shares of our
common stock and warrants to purchase a total of 2,623,146 shares of our common stock for gross
proceeds, before deducting fees and expenses and excluding the proceeds, if any, from the exercise
of the warrants of $3,532,503 (the Private Placement). Each unit, consisting of one share of
common stock and a warrant to purchase 0.75 shares of common stock, was sold at a purchase price of
$1.01. The warrants are exercisable at an exercise price of $1.26 per share beginning immediately
after issuance and expire 5 years from the date of issuance. The exercise price of the warrants is
subject to adjustment in the case of stock splits, stock dividends, combinations of shares and
similar recapitalization transactions. The warrants also contain full-ratchet anti-dilution
protection for issuances or sales by us of securities below the exercise price of the warrants, but
only to the extent as a result of such issuances or sales the exercise or conversion price of the
MHR Securities (as defined in the warrant) is actually reduced to a price below the exercise price
of the warrants. The full ratchet anti-dilution protection contained in the warrants shall only be
effective from the date of the Securities Purchase Agreement until the six month anniversary of the
issuance date of the warrants. The Private Placement closed on August 26, 2010, after the
satisfaction of customary closing conditions, and we issued the shares of common stock and the
warrants to the selling security holders on such closing date.
In connection with the Securities Purchase Agreement, on August 26, 2010, we entered into a
Registration Rights Agreement (the Registration Rights Agreement) with the selling security
holders. Pursuant to the Registration Rights Agreement, we agreed to provide certain registration
rights to the selling security holders under the Securities Act and applicable state securities
laws and also agreed to file a registration statement with the SEC within 20 days of the closing
date and to use our reasonable best efforts to have such registration statement declared effective
as soon as practicable, but in no event later than 50 days of the closing date of the private
placement (90 days in the event the SEC reviews the registration statement).
Pursuant to the Securities Purchase Agreement and the Registration Rights Agreement, we are
registering 8,140,496 shares of our common stock under the Securities Act, which includes 3,488,784
shares of common stock issuable upon exercise of the warrants held by the selling security holders.
All 8,140,496 shares of common stock are being offered pursuant to this prospectus.
13
SELLING SECURITY HOLDERS
The shares of common stock being offered by the selling security holders are those previously
issued to the selling security holders and those issuable to the selling security holders upon
exercise of the warrants. For additional information regarding the issuance of common stock and
the warrants, see Private Placement of Common Shares and Warrants above. We are registering the
shares of common stock in order to permit the selling security holders to offer the shares for
resale from time to time. Except for the ownership of the common stock and the warrants issued
pursuant to the Securities Purchase Agreement, the selling security holders have not had any
material relationship with us within the past three years.
The table below lists the selling security holders and other information regarding the beneficial
ownership (as determined under Section 13(d) of the Exchange Act and the rules and regulations
thereunder) of the shares of common stock held by each of the selling security holders. The second
column lists the number of shares of common stock beneficially owned by the selling security
holders, based on their respective ownership, of shares of common stock, as of August 30, 2010,
assuming exercise of the warrants held by each such selling security holders on that date but
taking account of any limitations on exercise set forth therein.
The third column lists the shares of common stock being offered by this prospectus by the selling
security holders and does not take in account any limitations on exercise of the warrants set forth
therein.
In accordance with the terms of the Registration Rights Agreement with the holders of the common
stock and the warrants, this prospectus generally covers the resale of 133% of the sum of (i) the
number of shares of common stock issued in connection with the Securities Purchase Agreement and
(ii) maximum number of shares of common stock issuable upon exercise of the warrants, in each case,
determined as if the outstanding warrants were exercised in full (without regard to any limitations
on exercise contained therein) as of the trading day immediately preceding the date this
registration statement was initially filed with the SEC. Because the exercise price of the
warrants may be adjusted, the number of shares that will actually be issued may be more or less
than the number of shares being offered by this prospectus. The fourth column assumes the sale of
all of the shares offered by the selling security holders pursuant to this prospectus.
Under the terms of the warrants, a selling security holder may not exercise the warrants to the
extent (but only to the extent) such selling security holders or any of its affiliates would
beneficially own a number of shares of our common stock which would exceed 4.9%. The number of
shares in the second column reflects these limitations. The selling security holders may sell all,
some or none of their shares in this offering. See Plan of Distribution.
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Shares of Common |
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Number of Shares |
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Number of Shares of |
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Stock to be Sold |
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of Common Stock of |
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Common Stock Owned |
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Pursuant to this |
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Owned After |
Name of Selling Security Holder |
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Prior to Offering |
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Prospectus |
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Offering |
Bai Ye Feng |
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3,220,165 |
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4,655,000 |
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Anson Investments Master Fund LP |
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875,000 |
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1,163,750 |
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Iroquois Master Fund, Ltd.1 |
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875,000 |
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1,163,750 |
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Hudson Bay Master Fund Ltd.2 |
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437,500 |
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581,875 |
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Cranshire Capital, L.P.3 |
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411,516 |
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547,316 |
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Freestone Advantage Partners, LP4 |
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21,658 |
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28,805 |
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Total: |
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5,840,839 |
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8,140,496 |
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1 |
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Iroquois Capital Management L.L.C.
(Iroquois Capital) is the investment manager of Iroquois Master Fund, Ltd
(IMF). Consequently, Iroquois Capital has voting control and investment
discretion over securities held by IMF. As Joshua Silverman and Richard Abbe
make voting and investment decisions on behalf of Iroquois Capital in its
capacity as investment manager to IMF, they may be deemed to have voting
control and investment discretion over securities held by each of the Iroquois
Funds. As a result of the foregoing, each of Iroquois Capital, Mr. Silverman
and Mr. Abbe may be deemed to have beneficial ownership (as determined under
Section 13(d) of the Exchange Act) of the securities held by each of the
Iroquois Funds. |
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2 |
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Hudson Bay Capital Management LP, the
investment manager of Hudson Bay Master Fund Ltd., has voting and investment
power over these securities. Sander Gerber is the managing member of Hudson
Bay Capital GP LLC, which is the general partner of Hudson Bay Capital
Management LP. Sander Gerber disclaims beneficial ownership over these
securities. |
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3 |
|
Downsview Capital, Inc. (Downsview) is
the general partner of Cranshire Capital, L.P. (Cranshire) and consequently
has voting control and investment discretion over securities held by Cranshire.
Mitchell P. Kopin (Mr. Kopin), President of Downsview, has voting control
over Downsview. As a result of the foregoing, each of Mr. Kopin and Downsview
may be deemed to have beneficial ownership (as determined under Section 13(d)
of the Exchange Act) of the shares of common stock beneficially owned by
Cranshire. |
|
4 |
|
Downsview is the investment manager for a
managed account of Freestone Advantage Partners, LP and consequently has voting
control and investment discretion over securities held in such account. Mr.
Kopin, President of Downsview, has voting control over Downsview. As a result
of the foregoing, each of Mr. Kopin and Downsview may be deemed to have
beneficial ownership (as determined under Section 13(d) of the Exchange Act) of
the shares held in such account which are being registered hereunder. |
14
PLAN OF DISTRIBUTION
We are registering the shares of common stock previously issued and the shares of common stock
issuable upon exercise of the warrants to permit the resale of these shares of common stock by the
holders of the common stock and warrants from time to time after the date of this prospectus. We
will not receive any of the proceeds from the sale by the selling security holders of the shares of
common stock. We will bear all fees and expenses incident to our obligation to register the shares
of common stock.
The selling security holders may sell all or a portion of the shares of common stock held by them
and offered hereby from time to time directly or through one or more underwriters, broker-dealers
or agents. If the shares of common stock are sold through underwriters or broker-dealers, the
selling security holders will be responsible for underwriting discounts or commissions or agents
commissions. The shares of common stock may be sold in one or more transactions at fixed prices, at
prevailing market prices at the time of the sale, at varying prices determined at the time of sale
or at negotiated prices. These sales may be effected in transactions, which may involve crosses or
block transactions, pursuant to one or more of the following methods:
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on any national securities exchange or quotation service on which the securities may
be listed or quoted at the time of sale; |
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in the over-the-counter market; |
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in transactions otherwise than on these exchanges or systems or in the
over-the-counter market; |
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through the writing or settlement of options, whether such options are listed on an
options exchange or otherwise; |
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ordinary brokerage transactions and transactions in which the broker-dealer solicits
purchasers; |
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block trades in which the broker-dealer will attempt to sell the shares as agent but
may position and resell a portion of the block as principal to facilitate the
transaction; |
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purchases by a broker-dealer as principal and resale by the broker-dealer for its
account; |
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an exchange distribution in accordance with the rules of the applicable exchange; |
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privately negotiated transactions; |
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short sales made after the date the Registration Statement is declared effective by
the SEC; |
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agreements entered into between broker-dealers and a selling security holder to sell
a specified number of such shares at a stipulated price per share; |
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a combination of any such methods of sale; and |
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any other method permitted pursuant to applicable law. |
The selling security holders may also sell shares of common stock under Rule 144 promulgated under
the Securities Act, if available, rather than under this prospectus. In addition, the selling
security holders may transfer the shares of common stock by other means not described in this
prospectus. If the selling security holders effect such transactions by selling shares of common
stock to or through underwriters, broker-dealers or agents, such underwriters, broker-dealers or
agents may receive commissions in the form of discounts, concessions or commissions from the
selling security holders or commissions from purchasers of the shares of common stock for whom they
may act as agent or to whom they may sell as principal (which discounts, concessions or commissions
as to particular underwriters, broker-dealers or agents may be in excess of those customary in the
types of transactions involved). In connection with sales of the shares of common stock or
otherwise, the selling security holders may enter into hedging transactions with broker-dealers,
which may in turn engage in short sales of the shares of common stock in the course of hedging in
positions they assume. The selling security holders may also sell shares of common stock short and
deliver shares of common stock covered by this prospectus to close out short positions and to
return borrowed shares in connection with such short sales. The selling security holders may also
loan or pledge shares of common stock to broker-dealers that in turn may sell such shares.
The selling security holders may pledge or grant a security interest in some or all of the warrants
or shares of common stock owned by them and, if they default in the performance of their secured
obligations, the pledgees or secured parties may offer and sell the shares of common stock from
time to time pursuant to this prospectus or any amendment to this prospectus under Rule 424(b)(3)
or other applicable provision of the Securities Act amending, if necessary, the list of selling
security holders to include the pledgee, transferee or other successors in interest as selling
security holders under this prospectus. The selling security holders also may transfer and donate
the shares of common stock in other circumstances in which case the transferees, donees, pledgees
or other successors in interest will be the selling beneficial owners for purposes of this
prospectus.
To the extent required by the Securities Act and the rules and regulations thereunder, the selling
security holders and any broker-dealer participating in the distribution of the shares of common
stock may be deemed to be underwriters within the meaning of the Securities Act, and any
commission paid, or any discounts or concessions allowed to, any such broker-dealer may be deemed
to be underwriting commissions or discounts under the Securities Act. At the time a particular
offering of the shares of common stock is made, a prospectus supplement, if required, will be
distributed, which will set forth the aggregate amount of shares of common stock being offered and
the terms of the offering, including the name or names of any broker-dealers or agents, any
discounts, commissions and other terms constituting compensation from the selling security holders
and any discounts, commissions or concessions allowed or re-allowed or paid to broker-dealers.
Under the securities laws of some states, the shares of common stock may be sold in such states
only through registered or licensed brokers or dealers. In addition, in some states the shares of
common stock may not be sold unless such shares have been registered or qualified for sale in such
state or an exemption from registration or qualification is available and is complied with.
There can be no assurance that any selling security holder will sell any or all of the shares of
common stock registered pursuant to the registration statement, of which
this prospectus forms a part.
15
The selling security holders and any other person participating in such distribution will be
subject to applicable provisions of the Exchange Act and the rules and regulations thereunder,
including, without limitation, to the extent applicable, Regulation M of the Exchange Act, which
may limit the timing of purchases and sales of any of the shares of common stock by the selling
security holders and any other participating person. To the extent applicable, Regulation M may
also restrict the ability of any person engaged in the distribution of the shares of common stock
to engage in market-making activities with respect to the shares of common stock. All of the
foregoing may affect the marketability of the shares of common stock and the ability of any person
or entity to engage in market-making activities with respect to the shares of common stock.
We will pay all expenses of the registration of the shares of common stock pursuant to the
Registration Rights Agreement, estimated to be approximately $100,000 in total, including, without
limitation, Securities and Exchange Commission filing fees and expenses of compliance with state
securities or blue sky laws; provided, however, a selling security holder will pay all
underwriting discounts and selling commissions, if any. We will indemnify the selling security
holders against liabilities, including some liabilities under the Securities Act in accordance with
the registration rights agreements or the selling security holders will be entitled to
contribution. We may be indemnified by the selling security holders against civil liabilities,
including liabilities under the Securities Act that may arise from any written information
furnished to us by the selling security holder specifically for use in this prospectus, in
accordance with the related registration rights agreements or we may be entitled to contribution.
Once sold under the registration statement, of which this prospectus forms a part, the shares of
common stock will be freely tradable in the hands of persons other than our affiliates.
16
BUSINESS
Introduction and History
Emisphere Technologies, Inc. (Emisphere, the Company, our, us, or we) is a
biopharmaceutical company that focuses on a unique and improved delivery of therapeutic molecules
or nutritional supplements using its Eligen® Technology. These molecules could be
currently available or under development. Such molecules are usually delivered by injection and in
many cases, their benefits are limited due to poor bioavailability, slow on set of action or
variable absorption. In those cases, our technology may increase the benefit of the therapy by
improving bioavailability or absorption or by increasing the rate of absorption and accelerating
the onset of action. The Eligen® Technology can be applied to the oral route of
administration as well other delivery pathways, such as buccal, rectal, inhalation, intra-vaginal
or transdermal. Our core business strategy is to develop oral forms of drugs or nutrients that are
not currently available or have poor bioavailability in oral form, either alone or with corporate
partners, by applying the Eligen® Technology to those drugs or nutrients. Typically, the
drugs that we target have received regulatory approval, have demonstrated safety and efficacy, and
are currently available on the market. Our website is www.emisphere.com. The contents of that
website are not incorporated herein by reference thereto. Investor related questions should be
directed to info@emisphere.com.
Emisphere was originally founded as Clinical Technologies Associates, Inc. in 1986. We conducted an
initial public offering in 1989 and were listed on NASDAQ under the ticker symbol CTAI. In 1990
we decided to focus on our oral drug delivery technology, now known as the Eligen®
Technology. In 1991, we changed our name to Emisphere Technologies, Inc., and we continued to be
listed on NASDAQ under the new ticker symbol EMIS. The Companys securities were suspended from
trading on The NASDAQ Capital Market effective at the open of business on Tuesday, June 9, 2009,
and NASDAQ delisted the Companys securities thereafter. The delisting resulted from the Companys
non-compliance with the minimum market value of listed securities requirement for continued
listing. Simultaneously, the Companys securities began trading on the Over-the-Counter
Bulletin Board (the OTCBB), an electronic quotation service maintained by the Financial Industry
Regulatory Authority, effective with the open of business on Tuesday, June 9, 2009. The Companys
trading symbol remains EMIS, however, it is our understanding that, for certain stock quote
publication websites, investors may be required to key EMIS.OB to obtain quotes.
Since our inception in 1986, substantial efforts and resources have been devoted to understanding
the Eligen® Technology and establishing a product development pipeline that incorporated
this technology with selected molecules. Since 2007, Emisphere has undergone many positive changes.
A new senior management team, led by Michael V. Novinski, was hired, the Eligen®
Technology was reevaluated and our corporate strategy was refocused on commercializing the
Eligen® Technology as quickly as possible, building high-value partnerships and
reprioritizing the product pipeline. Spending was redirected and aggressive cost control
initiatives were implemented. These changes resulted in redeployment of resources to programs, one
of which, yielded the introduction of our first commercial product during 2009. We continue to
develop potential product candidates in-house and we demonstrated and enhanced the value of the
Eligen® Technology as evident in the progress made by our development partners Novo
Nordisk A/S (Novo Nordisk) and Novartis Pharma AG (Novartis) on their respective product
development programs. Further development, exploration and commercialization of the technology
entail risk and operational expenses. However, we have made significant progress on refocusing our
efforts on strategic development initiatives and cost control and continue to aggressively seek to
reduce non-strategic spending.
The Eligen
® Technology
The Eligen® Technology is a broadly applicable proprietary oral drug delivery technology
based on the use of proprietary synthetic chemical compounds known as EMISPHERE®
delivery agents, or carriers. These delivery agents facilitate and enable the transport of
therapeutic macromolecules (such as proteins, peptides, and polysaccharides) and poorly absorbed
small molecules across biological membranes in the gastrointestinal tract, including the stomach,
which is where most of the eligen mediated absorption is thought to occur. We believe no other
carrier system or drug delivery company can do this. The result is rapid absorption. The stomach as
an absorptive organ also contradicts normal absorption mechanisms and makes the proposition easy to
understand, but at the same time difficult to believe. Another characteristic that distinguishes
Eligen® from the competition is that this permeability in the stomach takes place
through a transcellular, not paracellular pathway. This underscores the safety of
Eligen® as the passage of the Eligen® carrier and the molecule preserve the
integrity of the tight junctions within the cell and reduces any likelihood of inflammatory
processes and autoimmune gastrointestinal diseases. Furthermore, because Eligen®
Technology carriers are rapidly absorbed, metabolized and eliminated from the body, they do not
accumulate in the organs and tissues and are considered safe at anticipated dose and dosing
regimens.
The Eligen® Technology was extensively reevaluated in 2007 by our scientists, senior
management and expert consultants. Based on this analysis, we believe that our technology can
enhance overall healthcare, including patient accessibility and compliance, while benefiting the
commercial pharmaceutical marketplace and driving company valuation. The application of the
Eligen® Technology is potentially broad and may provide for a number of opportunities
across a spectrum of therapeutic modalities.
Implementing the Eligen® Technology is quite simple. It only requires co-mixing a drug
or nutritional supplement and an Eligen® carrier to produce an active formulation. The
carrier does not alter the chemical properties of the drug nor its biological activity. Some
therapeutic molecules are better suited for use with the Eligen® Technology than others.
Drugs or nutritional supplements whose bioavailability is limited by poor membrane permeability or
chemical or biological degradation, and which have a moderate-to-wide therapeutic index, appear to
be the best candidates. Drugs or nutritional supplements with a narrow therapeutic window or high
molecular weight may not be favorable with the technology.
We believe that our Eligen® Technology makes it possible to safely deliver a therapeutic
macromolecule orally or increase the absorption of a poorly absorbed small molecule without
altering its chemical composition or compromising the integrity of biological membranes. We believe
that the key benefit of our Eligen® Technology is that it improves the ability of the
body to absorb small and large molecule drugs.
The application of the Eligen® Technology is potentially broad and may provide for a
number of opportunities across a spectrum of therapeutic modalities or nutritional supplements.
During the second quarter 2010, we continued to develop our product pipeline utilizing the
Eligen® Technology with prescription and nonprescription product candidates. We
prioritized our development efforts based on overall potential returns on investment, likelihood of
success, and market and medical need. Our goal is to implement our Eligen® Technology to
enhance overall healthcare, including patient accessibility and compliance, while benefiting the
commercial pharmaceutical marketplace and driving company valuation. Investments required to
continue developing our product pipeline may be partially paid by income-generating license
arrangements whose value tends to increase as product candidates move from pre-clinical into
clinical development. It is our intention that incremental investments that may be required to fund
our research and development will be approached incrementally in order to minimize disruption or
dilution.
Emisphere Today
During 2010, the Company continued to focus on efforts to apply the Eligen® Technology
and realize its value by developing profitable commercial applications. We continue to develop our
product pipeline utilizing the Eligen® Technology with prescription and nonprescription
product candidates. We prioritized our development efforts based on overall potential returns on
investment, likelihood of success, and market and medical need. Additionally, we continue to
improve operational effectiveness and efficiency. Our goal is to implement our Eligen®
Technology to enhance overall healthcare, including patient accessibility and compliance, while
benefiting the commercial pharmaceutical/healthcare marketplace.
To accelerate commercialization of the technology, Emisphere embarked on a two-pronged strategy.
First, we concentrated on unique prescription molecules and nutritional supplements obtained
through partnerships with other pharmaceutical companies for molecules where oral absorption is
difficult yet substantially beneficial
17
if proven. With prescription molecules, we are working to generate new interest in the
Eligen® Technology with new potential partners and attempt to expand our current
collaborative relationships to take advantage of the critical knowledge that others have gained by
working with our technology. Second, we continue to pursue commercialization of product candidates
developed internally. We believe that these internal candidates need to be developed with
reasonable investment in an acceptable time period and with a reasonable risk-benefit profile.
To support our internal development programs, the Company implemented its new commercialization
strategy for the Eligen® Technology. Using extensive safety data available for its SNAC
carrier, the Company obtained GRAS (Generally Recognized as Safe) status for its SNAC carrier,
and then applied the Eligen® Technology with B12, another GRAS substance where
bioavailability and absorption is difficult and improving such absorption would yield substantial
benefit and value. Using this strategy, the Company launched its first commercially available
product, oral Eligen® B12 (100 mcg). Given sufficient time and resources, the Company
intends to apply this strategy to develop other commercial products. Examples of other GRAS
substances that may be developed into additional commercial products using this strategy would
include vitamins such as Vitamin D; minerals such as iron; and other supplements such as the
polyphenols and catechins, among others. Our planned second product, a higher dose formulation of
Eligen® B12, for use by patients who are Vitamin B12 deficient, is under development.
Funding required to continue developing our product pipeline may be partially paid by
income-generating license arrangements whose value tends to increase as product candidates move
from pre-clinical into clinical development. It is our intention that investments that may be
required to fund our research and development will be approached incrementally in order to minimize
disruption or dilution.
The Company also continues to focus on improving operational efficiency. By terminating the lease
of our research and development facility in Tarrytown, NY in April 2009, and by utilizing
independent contractors to conduct research and development, we reduced our annual operating costs
by approximately 55% from 2008 levels. Annual cash expenditures were reduced by approximately
$11 million, and the resulting cash burn rate to support continuing operations is approximately
$8 million per year. Additionally, we expect to accelerate the commercialization of the
Eligen® Technology in a cost effective way and to gain operational efficiencies by
tapping into advanced scientific processes offered by independent contractors.
We plan to attempt to expand our current collaborative relationships to take advantage of the
critical knowledge that others have gained by working with our technology. We will also continue to
pursue product candidates for internal development and commercialization. We believe that these
internal candidates must be capable of development with reasonable investments in an acceptable
time period and with a reasonable risk-benefit profile.
Overall Product Pipeline
Emisphere has a deep and varied pipeline that includes prescription and nutritional supplement
product candidates in varying stages of development. Our product pipeline includes prescription and
medical foods candidates. We continue to assess therapeutic molecules for their potential
compatibility with our technology and market need. Our intent is to continue to expand our pipeline
with product candidates that demonstrate significant opportunities for growth. Our focus is on
molecules that meet the criteria for success based on our increased understanding of our
Eligen® Technology. Depending on the molecule, market potential and interest, we intend
to pursue potential product development opportunities through development alliances or internal
development.
Vitamin B12
B12 is an important nutrient that is poorly absorbed in the oral form. In most healthy people,
Vitamin B12 is absorbed in a receptor-mediated pathway in the presence of an intrinsic factor. A
large number of people take B12 supplements by the oral route, many in megadoses, and by injection.
Currently, it is estimated that at least five million people in the U.S. are taking 40 million
injections of Vitamin B12 per year to treat a variety of debilitating medical condition. Another
estimated five million are consuming more than 600 million tablets of Vitamin B12 orally. The
international market is larger than the U.S. market. Many B12 deficient patients suffer from
pernicious anemia and neurological disorders and many of them are infirm or elderly. Vitamin B12
deficiency can cause severe and irreversible damage, especially to the brain and nervous system. At
levels only slightly lower than normal, a variety of symptoms such as fatigue, depression, and poor
memory may be experienced.
We reported progress on a medical food formulation of Eligen® B12 for use by B12
deficient individuals. Our recently completed clinical trial showed that Eligen® B12
1000mcg can efficiently and quickly restore Vitamin B12 levels in deficient individuals compared to
the current standard of care. During July 2010, we announced that we are engaged in ongoing
discussions with a potential licensee for our oral Eligen® B12 1000mcg as a Medical Food
for individuals with B12 deficiency. In addition, we are evaluating other potential licensees as
well as the possibility of marketing the product without a partner. As a medical food, Emispheres
Eligen® B12 (1000 mcg) is designed as a specially formulated and processed oral
formulation for the specific dietary management of patients under medical supervision who, because
of a limited or impaired capacity to absorb Vitamin B12, have a diagnosed Vitamin B12 deficiency.
It is planned to be available in 2011. It is estimated that as many as 10 million people in the
U.S. and over 100 million people worldwide may be B12 deficient. Oral Eligen® B12 and
the foregoing statements have not been evaluated by the Food and Drug Administration. Oral
Eligen® B12 is not intended to diagnose, treat, cure, or prevent any disease.
The Company previously announced that interim data from an ongoing study demonstrated its oral
Eligen® B12 (1000mcg) restored B12 to normal levels in individuals with Vitamin B12
deficiency. Normal levels of serum B12 and active B12 were achieved by 100 percent of those study
participants who had taken Eligen® B12 (1000mcg) 15 days into the 90-day study when the
first blood samples were taken. As part of an interim analysis in this randomized, multi-center
study, levels of serum B12, active B12, homocysteine and methyl malonic acid were measured on day
15, at which point a total of 18 participants (8 on IM injection and 10 on oral) had received
either five 1000mcg intramuscular injections of Vitamin B12 or once daily tablets of oral
Eligen® B12 (1000mcg). Study subjects taking Eligen® B12 also had a marked
decrease in homocysteine, which is a known risk factor for cardiovascular disease. This clinical
study with Eligen® B12 (1000mcg) is expected to be completed within the first half of
2010. These data, in Abstract Number 8370, were presented at the Experimental Biology 2010
Conference in Anaheim, California. In this open-label, randomized, 90-day study, serum cobalamin
(B12) and holotranscobalamin (active B12) were collected and measured at Baseline, Day 15, Day 31,
Day 61 and Day 91. A total of 49 study participants were enrolled (26 on IM injection and 23 on
oral) and received either nine 1000mcg intramuscular injections of Vitamin B12 or once daily
tablets of oral Eligen® B12 (1000 mcg). The results from the interim analysis showed
that serum cobalamin and active B12 returned to the normal range with both products and
normalization was maintained. With participants in the oral Eligen® B12 (1000mcg) group
showing the ability to rapidly achieve normalized serum and active B12 levels, the study
illustrates the potential of the Eligen® Technology and of the oral Eligen®
B12 (1000mcg) formulation to offer a much needed medical food alternative to painful and
inconvenient IM injections.
Emisphere developed Eligen® B12 independently, as a nutritional supplement product
candidate. Following our proof of concept animal studies of the absorption of Vitamin B12 using our
Eligen® Technology, additional preclinical studies using dogs further demonstrated that
the Eligen® Technology enhances the absorption of oral B12 and confirmed earlier proof
of concept studies conducted in rats. We completed our first clinical study testing our new Vitamin
B12 formulation in 20 normal healthy males.
The data from our first pharmacokinetic study showed mean Vitamin B12 peak blood levels were more
than 10 times higher for the Eligen® B12 5mg formulation than for the 5mg commercial
formulation. The mean time to reach peak concentration (Tmax) was reduced by over 90%; to 0.5 hours
for the Eligen® B12 5mg from 6.8 hours for the commercial 5mg product. Improvement in
bioavailability was approximately 240%, with absorption time at 30 minutes and a mean
bioavailability of 5%. The study was conducted with a single administration of Eligen®
B12; there were no adverse reactions, and Eligen® B12 was well-tolerated.
18
The data from our first Eligen® B12 clinical study demonstrated a new, more bioavailable
oral form of Vitamin B12 and a potential new avenue for addressing the problems with B12
supplementation. Eligen® B12 avoids the normal specialized absorption process that
limits absorption of Vitamin B12 from current formulations.
In May 2009, the Company was informed by an independent expert panel of scientists that its SNAC
carrier has been provisionally designated as Generally Recognized as Safe (GRAS) for its intended
application in combination with nutrients added to food and dietary supplements. Following a
comprehensive evaluation of research and toxicology data, Emispheres SNAC was found to be safe at
a dosage up to 250 mg per day when used in combination with nutrients to improve their dietary
availability. In July 2009, concurrent with the publication of two papers in the July/August issue
of the peer reviewed journal, International Journal of Toxicology, which describes the toxicology
of its SNAC carrier, SNAC achieved GRAS status for its intended use in combination with nutrients
added to food and dietary supplements. The publication of those two papers in the International
Journal of Toxicology was the final, necessary step in the process of obtaining GRAS status for its
SNAC carrier. Since SNAC achieved GRAS status, it is exempt from pre-market approval for its
intended use in combination with nutrients added to food and dietary supplements. This opens the
way for the potential commercialization of the Eligen® Technology with other substances
such as vitamins. The Companys first product is its oral Eligen® Vitamin B12.
During April 2009 we announced a strategic alliance with AAIPharma, Inc. intended to expand the
application of Emispheres Eligen® Technology and AAIPharmas drug development services.
AAIPharma is a global provider of pharmaceutical product development services that enhance the
therapeutic performance of its clients drugs. AAIPharma works with many pharmaceutical and biotech
companies and currently provides drug product formulation development services to Emisphere. This
relationship expands our access to new therapeutic candidates for the Eligen®
Technology, which potentially could lead to new products and to new alliance agreements as well.
We have obtained patents for the carrier we are using in the oral B12 formulation and have filed
applications covering the combination of the carrier and many other compounds, including Vitamin
B12.
Phase III Programs
On the prescription side, our licensees include Novartis, which is using our drug delivery
technology in combination with salmon calcitonin, parathyroid hormone, and human growth hormone.
During June 2010, we announced that we entered into an expanded relationship with Novartis pursuant
to which Novartis has cancelled the Companys Convertible Promissory Note (the Novartis Note).
The Novartis Note was originally issued to Novartis on December 1, 2004 in connection with the
Research Collaboration and Option License Agreement between the parties of that date and was
originally due December 1, 2009. Previously, Novartis had agreed to extend the maturity date to
June 4, 2010. In connection with the cancellation of the Novartis Note, the parties agreed to
modify the royalty and milestone payment schedule for the Research Collaboration and Option
Agreement and License Agreement between the parties for the development of an oral salmon
calcitonin product for the treatment of osteoarthritis and osteoporosis. Additionally, we have
granted Novartis the right to evaluate the feasibility of using Emispheres Eligen®
Technology with two new compounds to assess the potential for new product development
opportunities. If Novartis chooses to develop oral formulations of these new compounds using the
Eligen® Technology, the parties will negotiate additional agreements. In that case,
Emisphere could be entitled to receive development milestone and royalty payments in connection
with the development and commercialization of these potentially new products.
Novartis most advanced program is testing an oral formulation of calcitonin to treat
osteoarthritis and osteoporosis. Novartis is conducting two Phase III clinical studies for
osteoarthritis and one Phase III clinical study for osteoporosis. Now that these Phase III studies
are fully enrolled, over 5,500 clinical study patients used the Eligen® Technology
during 2009 and continue to use it during 2010. During July 2010, we announced that Novartis Pharma
AG and its license partner Nordic Bioscience a/s (the Sponsor) reported the following in
connection with their Phase III Study 2302 in osteoarthritis assessing the safety and efficacy of
oral calcitonin in the treatment of osteoarthritis of the knee. This study incorporates Emispheres
unique and proprietary Eligen® Drug Delivery Technology for the improved oral absorption
of salmon calcitonin. An independent Data Monitoring Committee (DMC) conducted a futility
analysis of one-year data for all patients enrolled in this two-year study, including assessments
of safety and efficacy parameters. The DMC concluded that although there is no reason to stop Study
2302 because of safety concerns, there is no reason to continue the study for efficacy. The DMC
also concluded that the final decision whether to continue Study 2302 rests with the Sponsor. A
parallel two-year Phase III Study 2301 in osteoarthritis assessing the safety and efficacy of oral
calcitonin in the treatment of osteoarthritis of the knee is still in progress. In December 2009,
the DMC conducted a futility analysis of one-year data for all patients enrolled in this two-year
study, including assessments of safety and efficacy parameters, and recommended to continue with
such Study. The Sponsor currently intends to continue the clinical program of oral calcitonin in
osteoarthritis, including both Phase III Study 2301 and Phase III Study 2302. Novartis and Nordic
Bioscience will continue to work together to assess next steps once the final data of Study 2301 is
available. This data is expected to be available in the fourth quarter, 2010. Additionally, the
Sponsor currently intends to continue the clinical program of oral calcitonin in osteoporosis.
Previously, in its quarterly earnings report for the period ended June 30, 2010, Novartis stated
that oral calcitonin for the treatment of osteoporosis is planned to file with the regulatory
authorities during 2011.
During April 2010, we announced the publication of a research study entitled, Investigation of the
Direct Effect of Salmon Calcitonin on Human Osteoarthritic Chondrocytes, by Nordic Bioscience in
the April 5, 2010 edition of the publication BMC Musculoskeletal Disorders. Oral salmon calcitonin,
which uses Emispheres proprietary Eligen® Technology, is currently being studied in
osteoarthritis and osteoporosis by Novartis Pharma AG and Nordic Bioscience. The study was
conducted in vitro on cartilage samples obtained from female patients undergoing total knee
arthroplasty surgery for the treatment of osteoarthritis. The article describes the growth
promoting effects of salmon calcitonin on these cartilage samples. The study shows that treatment
with pharmacological concentrations of calcitonin increases synthesis of both proteoglycan
(proteins and sugars which interweave with collagen) and collagen type II the key components of
articular cartilage. This research is unique and significant as it represents the first work to
look chiefly at the ability of salmon calcitonin to stimulate cartilage synthesis. These findings
provide evidence to substantiate the theory that calcitonin may exert a positive effect on joint
health through its dual action of promoting both bone and cartilage formation.
During December 2009, we announced a meta-analysis published in the December 2009 edition of
Rheumatology Reports examining independent evidence of the analgesic action of the hormone
calcitonin. This publication restated the potential of calcitonin in filling a significant unmet
need for alternative treatments for persistent musculoskeletal pain. Scientists from Nordic
Bioscience were involved in the preparation of this meta-analysis. Non-malignant musculoskeletal
pain is the most common clinical symptom that causes patients to seek medical attention and is a
major cause of disability in the world. Musculoskeletal pain can arise from a variety of common
conditions including osteoarthritis, rheumatoid arthritis, osteoporosis, surgery, low back pain and
bone fracture. The meta-analysis, conducted by researchers at the Center for Sensory-Motor
Interaction in the Department of Health Science and Technology at Aalborg University in Denmark,
examined independent pre-clinical and clinical studies spanning nearly 45 years of the possible
intrinsic analgesic properties of calcitonin, with special focus on the challenges in the
musculoskeletal system. The authors concluded that well-designed clinical trials should be
conducted to further validate evidence of calcitonins analgesic action and its promising potential
role in the management of musculoskeletal pain. The effects of calcitonin on clinical pain
conditions have received increasing attention in the past decades, although a consensus on
mechanism-of-action and potential indications has not been reached. The analgesic activity of oral
salmon calcitonin has been shown in several controlled prospective double-blind studies; besides
pain management in osteoporosis, calcitonin has shown analgesic action in painful conditions such
as phantom limb pain, diabetic neuropathy, complex regional pain syndrome, adhesive capsulitis,
rheumatoid arthritis, vertebral crush fractures, spondylitis, tumor metastasis, cancer pain,
migraine, Pagets disease of bone as well as post-operative pain. An ideal treatment with an
optimal efficacy, safety and convenience profile is not available for the musculoskeletal pain
associated with such conditions as osteoporosis and osteoarthritis. This review of the literature
highlights the clear unmet medical need that could be addressed by Emispheres oral salmon
calcitonin product.
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Phase I Programs
Emisphere also has several product candidates under development in Phase I.
Our other product candidates in development are in earlier or preclinical research phases, and we
continue to assess them for their compatibility with our technology and market need. Our intent is
to seek partnerships with pharmaceutical and biotechnology companies for certain of these products.
We plan to expand our pipeline with product candidates that demonstrate significant opportunities
for growth. During March 2010, Emisphere and Alchemia Ltd. (ASX:ACL) announced that they would join
efforts to develop an oral formulation of the anti-coagulant drug fondaparinux with Emispheres
Eligen® Technology. Fondaparinux, an anti-coagulant used for the prevention of deep vein
thrombosis, is marketed in injectable form as Arixtra® by GlaxoSmithKline.
Arixtra® has been off patent since 2002 but, due to the complexity of its synthesis,
there is currently no approved generic or alternative source of commercial scale active
pharmaceutical ingredient (API). Alchemia has developed a novel, patent protected synthesis for
the manufacture of fondaparinux at commercial scale. In March 2009, Alchemias manufacturing and
U.S. marketing partner, Dr Reddys Laboratories (NYSE: RDY) submitted an ANDA to the U.S. FDA for a
generic version of the injectable form of fondaparinux. We believe an oral formulation of
fondaparinux could dramatically increase the market potential for fondaparinux. Based on what we
know from our experience with other chemically-related anti-coagulants, the profile of fondaparinux
should fit very well with the Eligen® Technology given its half life and safety profile.
Although developing an oral formulation of an injectable compound is always challenging, this
project could produce substantial benefits for the medical community. The combination of
Emispheres delivery technology and Alchemias fondaparinux may ultimately allow us to bring an
oral anti-coagulant to market in an accelerated fashion. Alchemia has already seen preclinical data
suggesting that enhanced levels of oral absorption can be achieved for fondaparinux. If the dose
formulated with the Eligen® Technology can be successfully optimized, it could open up a
host of medically and commercially compelling opportunities for fondaparinux, Alchemia plans to
evaluate a number of different formulations initially in order to optimize oral bioavailability and
pharmacokinetics, with the aim of then rapidly moving into human clinical studies.
Novartis conducted a Phase I study in postmenopausal women to determine the safety and tolerability
of oral PTH 1-34, a combination of human PTH 1-34 and Emispheres delivery agent 5-CNAC, for the
treatment of postmenopausal osteoporosis. The study is designed to assess the bioavailability
profile of increasing doses of PTH 1-34 combined with different amounts of 5-CNAC administered
orally. Study results demonstrating that a single dose of the novel oral parathyroid hormone PTH
1-34, which utilizes Emispheres proprietary Eligen® Drug Delivery Technology and
absorption-enhancing carrier molecule 5-CNAC, achieved potentially therapeutically relevant
exposure and safety profiles similar to those of the currently available injectable formulation in
healthy postmenopausal women. The results, from a single-center, partially-blinded, incomplete
cross-over study conducted by Emispheres partner Novartis, were presented October 19, 2009 in a
poster session at the 73rd Annual Scientific Meeting of the American College of Rheumatology in
Philadelphia. This study, designed to assess the exposure and safety of orally administered doses
of PTH1-34 and different amounts of the absorption enhancer 5-CNAC was conducted in 32 healthy
postmenopausal women. The subjects were randomized to receive a single dose of placebo, 20 mcg of
subcutaneously injected parathyroid hormone PTH1-34 (FORTEO®), or one of several orally
administered doses of PTH1-34 formulated with either 100 or 200 mg of Emispheres
absorption-enhancer 5-CNAC. While all doses of oral PTH1-34 were rapidly absorbed and showed
appreciable blood concentrations in a dose-dependent manner, the 2.5 and 5 mg doses of oral PTH1-34
containing 200 mg 5-CNAC achieved exposure levels closest to those of 20 mcg injectable PTH1-34,
with a comparable incidence of adverse events. Ionized calcium remained within normal limits in all
treatment groups. The results of this study indicate we may be able to provide women with
postmenopausal osteoporosis a more convenient oral option for parathyroid hormone therapy, which is
now available only as an injection. There were no serious adverse events in the study. Nine
participants withdrew from the study due to treatment-related AEs. Of those, five (one on placebo,
one on FORTEO® and three on either 2.5 or 5 mg PTH1-34) withdrew because of symptomatic
hypotension. Three patients on either 2.5 or 5 mg PTH1-34 withdrew because of delayed vomiting. One
patient on 2.5mg PTH1-34 (100 mg 5-CNAC) withdrew because of symptomatic, but unconfirmed,
hypercalcemia. PTH is produced by the parathyroid glands to regulate the amount of calcium and
phosphorus in the body. When used therapeutically, it increases bone density and bone strength to
help prevent fractures. It is approved to treat osteoporosis, a disease associated with a gradual
thinning and weakening of the bones that occurs most frequently in women after menopause. Untreated
postmenopausal osteoporosis can lead to chronic back pain, disabling fractures, and lost mobility.
During April 2010, we announced that Novartis Pharma AG initiated a second Phase I trial for an
oral PTH-1-34 which uses Emispheres Eligen® Technology, and is in development for the
treatment of postmenopausal osteoporosis. The study is a partially blinded, placebo controlled,
active comparator study to explore the safety, tolerability, pharmacokinetics and pharmacodynamics
in postmenopausal women after daily oral doses of PTH-1-34. The study has two parts (A and B) and
will enroll a total of approximately up to 120 postmenopausal women. In Part A of the trial,
ascending doses of oral PTH-1-34 using the Eligen® Technology will be tested for safety,
tolerability and pharmacokinetics and compared to Forsteo®. In Part B, in addition to
safety and tolerability of oral PTH-1-34 using the Eligen® Technology, pharmacodynamic
responses will be measured by bone biomarker levels and bone mineral density, and compared to
Forsteo®. The first patient was enrolled in April.
Novartis has also conducted Phase I studies with oral salmon calcitonin. During September 2009,
Novartis and its partner, Nordic Bioscience, issued study results in which twice-daily oral salmon
calcitonin using Emispheres proprietary Eligen® Drug Delivery Technology significantly
suppressed markers of cartilage and bone degradation versus placebo in men and women with
osteoarthritis, the most common form of arthritis. The study, a Phase I, placebo-controlled,
double-blind, double-dummy, randomized, gender-stratified clinical trial, was conducted on behalf
of Emispheres partner Novartis by Nordic Bioscience, and published online in the September 2009
issue of Osteoarthritis and Cartilage. A total of 73 male and female subjects aged 57 to 75 years
with painful osteoarthritis of the knee received twice-daily 0.6 mg or 0.8 mg doses of oral salmon
calcitonin with the Eligen® Technology or placebo administered over 14 days. Doses of
0.8mg compared with 0.6mg produced significantly higher Cmax and AUC(0-4 hrs), of calcitonin,
P=0.03. This resulted in significant reductions in CTX-I and CTX-II which are biochemical markers
of bone degradation and of cartilage degradation, respectively. Gender had no observable influence
on results. Oral sCT doses were well tolerated; 44 adverse events and no serious adverse events
were reported in this study. For further details please consult the original publication which is
available online (Karsdal MA et al; The effect of oral salmon calcitonin delivered with 5-CNAC on
bone and cartilage degradation in osteoarthritic patients: a 14-day randomized study;
Osteoarthritis and Cartilage; available online September 1, 2009). Emerging data continue to
indicate oral salmon calcitonin in combination with the Companys absorption-enhancing
Eligen® Technology may be a potential therapeutic option for women and men with
osteoarthritis, which affects more than 20 million people in the United States.
A study conducted by Novartis and Nordic Bioscience published in the December 2008 issue of BMC
Clinical Pharmacology demonstrated that orally administered salmon calcitonin using Emispheres
carrier, (5-CNAC) an Eligen® oral delivery technology, is effective in reducing bone
breakdown. The randomized, double-blind, double-dummy, placebo-controlled study among 81 subjects
in Copenhagen was conducted on behalf of Emispheres partner Novartis by Nordic Bioscience by M.A.
Karsdal, I. Byrjalsen, B.J. Riis and C. Christiansen. The study suggests that orally administered
0.8 mg of salmon calcitonin was effective in suppression of Serum CTX irrespective of time of
dosing. Serum CTX-1 (Serum C-terminal telo-peptide of collagen type I) is the biochemical marker
used to measure bone resorption. There were no safety concerns with the salmon calcitonin oral
formulation using Emispheres carrier 5-CNAC, which had been previously demonstrated in earlier
studies.
A study conducted by Novartis and Nordic Bioscience published in the October 2008 issue of BMC
Clinical Pharmacology demonstrated that oral salmon calcitonin using Emispheres proprietary
Eligen® Technology taken 30 to 60 minutes before meals with 50 ml of water results in
improved absorption and improved efficacy measured by the biomarker of reduced bone resorption
(sCTX-I) compared to the commonly prescribed nasal formulation. The study was a randomized,
partially-blind, placebo-controlled, single-dose exploratory crossover clinical trial conducted
with 56 healthy postmenopausal women.
For the treatment of Diabetes, research using the Eligen® Technology and GLP-1
(Glucagon-Like Peptide-1) , a potential treatment for Type 2 Diabetes is being conducted by Novo
Nordisk A/S (Novo Nordisk) and by Dr. Christoph Beglinger, M.D., of the Clinical Research Center,
Department of Biomedicine Division of Gastroenterology, and Department of Clinical Pharmacology and
Toxicology at University Hospital in Basel, Switzerland. We had previously conducted extensive
tests on oral insulin for Type 1 Diabetes and concluded that a more productive pathway is to move
forward with GLP-1 and its analogs, an oral form of which might be used
to treat Type 2 Diabetes and related conditions. Our research indicated that the development of
oral formulations of Novo Nordisk proprietary GLP-1 receptor agonists
20
may represent an opportunity
for Emisphere. Consequently, on June 21, 2008 we entered into an exclusive Development and License
Agreement with Novo Nordisk focused on the development of oral formulations of Novo Nordisks
proprietary GLP-1 receptor agonists. Under such Agreement Emisphere could receive more than
$87 million in contingent product development and sales milestone payments including a $10 million
non-refundable license fee which was received during June 2008. Emisphere would also be entitled to
receive royalties in the event Novo Nordisk commercializes products developed under such Agreement.
Under the terms of the Agreement, Novo Nordisk is responsible for the development and
commercialization of the products. Initially Novo Nordisk is focusing on the development of oral
formulations of its proprietary GLP-1 receptor agonists.
During January 2010, we announced that Novo Nordisk had initiated its first Phase I clinical trial
with a long-acting oral GLP-1 analogue (NN9924). This milestone released a $2 million payment to
Emisphere, whose proprietary Eligen® Technology is used in the formulation of NN9924.
GLP-1 (Glucagon-Like Peptide-1) is a natural hormone involved in controlling blood sugar levels. It
stimulates the release of insulin only when blood sugar levels become too high. GLP-1 secretion is
often impaired in people with Type 2 Diabetes. The aim of this trial, which is being conducted in
the UK, is to investigate the safety, tolerability and bioavailability of NN9924 in healthy
volunteers. The trial will enroll approximately 155 individuals and results from the trial are
expected in 2011. There are many challenges in developing an oral formulation of GLP-1, in
particular obtaining adequate bioavailability. NN9924 addresses some of these key challenges by
utilizing Emispheres Eligen® Technology to facilitate absorption from the
gastrointestinal tract.
An early stage human study of an oral formulation that combines PYY and native GLP-1 with
Emispheres proprietary delivery agent known as SNAC was conducted at University Hospital in Basel,
Switzerland by Professor Christoph Beglinger of the Clinical Research Center, Department of
Biomedicine Division of Gastroenterology, and Department of Clinical Pharmacology and Toxicology at
the hospital. The results of the study were published in the August issue of American Journal of
Clinical Nutrition The paper was published by Steinert, et.al. The study was designed to assess the
oral administration of GLP-1 and PYY3-36 with SNAC and its affects of food intake in healthy male
subjects. As described in the publication, twelve healthy male subjects were studied in a
randomized double-blind, placebo-controlled 4-way crossover trial. Each subject received in random
order 2.0 mg GLP-1, 1.0 mg PYY3-36, or 2.0 mg. GLP-1 plus 1.0 mg PYY3-36. The peptides were mixed
with Emispheres Sodium N-[8-(2-hydroxybenzoyl) Amino] Caprylate (SNAC) carrier. The published
results show a marked effect of orally administered GLP-1 and PYY3-36 on appetite by showing
enhanced fullness at meal onset and reduced energy intake.
An article published in the September 2009 issue of Clinical Pharmacology and Therapeutics,
describes previously reported findings of an independent clinical study designed to assess the
pharmacokinetics, pharmacodynamics (PK/PD) and safety of oral administration of the peptide GLP-1
utilizing Emispheres Eligen® carrier technology. The study was conducted at the
University Hospital in Basel, Switzerland by Professor Beglinger. The paper, titled Orally
Administered Glucagon-Like Peptide-1 Affects Glucose Homeostasis Following an Oral Glucose
Tolerance Test in Healthy Male Subjects, was published by Steinert, et.al. Publication of this
data in a prominent peer reviewed journal underscores the potential of the Eligen®
Technology to transform oral peptide delivery. Specifically, the data further supports the concept
of the potential advantages of utilizing GLP-1 and similar molecules as therapeutic agents in the
treatment of Type 2 Diabetes. As described in the publication, a randomized, double-blind,
placebo-controlled, two-way crossover trial was conducted in 16 healthy male subjects between the
ages of 20 and 43. The study was designed to investigate the PK/PD effects of a single dose (2 mg)
of oral GLP-1 formulated with Emispheres Sodium N-[8-(2-hydroxybenzoyl) Amino] Caprylate (SNAC)
carrier (150 mg) administered 15 minutes prior to an oral glucose tolerance test. The published
data show that the orally administered peptide, when administered with Emispheres SNAC®
carrier, is rapidly absorbed from the gastrointestinal tract, leading to tenfold higher plasma
concentrations compared to control. The pharmacodynamic effects were consistent with the known
pharmacology of GLP-1, resulting in significantly increased basal insulin release (P< 0.027),
and marked effects on glucose levels. The postprandial glucose peak was delayed with GLP-1,
suggesting an effect on gastric emptying. No adverse events were reported.
During May 2009 the Company announced data from a clinical study conducted by Dr. Beglinger
designed to assess the effect of oral administration of two peptides, GLP-1 and PYY3-36, utilizing
Emispheres Eligen® Technology on appetite suppression. The randomized, double-blind,
placebo-controlled trial was conducted in 16 normal weight males between the ages of 18 and 40. The
study was designed to investigate the effects of orally administered GLP-1 and PYY3-36 formulated
with Emispheres Sodium N-[8-(2-hydroxybenzoyl) Amino] Caprylate (SNAC) carrier and their
potential effect in the control of food intake and satiety. Prior studies have shown the ability of
both peptides to reduce appetite and food consumption in healthy subjects and in patients with
obesity. The study concluded that these orally administered peptides, when delivered with
Emispheres SNAC carrier, were rapidly absorbed from the gastrointestinal tract, leading to
concentrations several times higher than endogenous hormone levels achieved after a standard test
meal. Specifically, results showed that oral GLP-1 (2 mg tablet) alone and the combination of oral
GLP-1 (2 mg tablet) plus PYY3-36 (1 mg tablet) induced a significant reduction in calorie intake
although there was no synergistic effect when the two peptides were used in combination. Oral
PYY3-36 at a 1 mg dose by itself, did not significantly reduce calorie intake. Oral GLP-1 (2 mg
tablet) and oral PYY3-36 (1 mg tablet) were both shown to induce a rapid increase in plasma GLP-1
concentrations and plasma PYY concentrations, respectively. This new data represents further
evidence of the ability of the Eligen® Technology, and the SNAC carrier, to enhance oral
absorption of peptides which normally exhibit low oral bioavailability. In this case, GLP-1 alone,
and the combination of the two peptides together, were able to cross the gastrointestinal tract
into the bloodstream in high enough concentrations to significantly affect appetite.
In October 2008, Professor Beglinger published the results of another study assessing the oral
delivery of GLP-1 and PYY3-36 using Emispheres proprietary delivery technology. The study was
conducted at University Hospital in Basel, Switzerland and showed, for the first time, that satiety
peptides such as GLP-1 and PYY3-36 can be delivered orally in humans with safety and efficiency.
The study, conducted in 12 healthy subjects, was designed to establish the pharmacokinetics and
pharmacodynamics of increasing oral doses of GLP-1 and PYY3-36. Emispheres delivery agent, known
as SNAC, was formulated as a tablet with GLP-1 or PYY3-36. Both oral GLP-1 and PYY3-36 induce rapid
and dose-dependent increases in plasma drug concentrations; GLP-1 induces a relevant insulin
release; and, both peptides suppressed ghrelin secretion in healthy male volunteers. This clinical
study of the compound confirms Professor Beglingers earlier results that SNAC allows for rapid
oral absorption of GLP-1 or PYY3-36. The study results were published in the October 2008 issue of
Clinical Pharmacology & Therapeutics.
Intravenous or subcutaneous applications of GLP-1 are cumbersome and impractical for chronic
treatment regimens. Current oral application of peptides is ineffective because peptides have a low
oral bioavailability due to their molecular size and physico-chemical characteristics. Professor
Beglingers studies show that Emispheres Eligen® Technology can overcome some of these
oral delivery issues safely and efficiently.
Preclinical Programs
Our other product candidates in development are in earlier or preclinical research phases, and we
continue to assess them for their compatibility with our technology and market need. Our intent is
to seek partnerships with pharmaceutical and biotechnology companies for certain of these product
candidates as we continue to expand our pipeline and seek opportunities for growth. Our focus is on
molecules that meet the criteria for success based on our increased understanding of our
Eligen® Technology.
During June 2009 the Company entered into a research agreement with Syracuse University to combine
Emispheres proprietary Eligen® Technology with a new oral drug delivery system
developed in the laboratory of Robert Doyle, Assistant Professor of Chemistry in Syracuse
Universitys College of Arts and Sciences. The experiments will test whether the combination of
Eligen® and Doyles oral drug delivery technology will enhance the absorption of an
appetite-suppressing hormone. Dr. Doyle and his colleagues have successfully developed innovative
methods for the oral delivery of both proteins and peptides using novel methods. There may be
significant potential for innovation in this partnership and an opportunity for further expansion
for the use of the Eligen® Technology in the drug delivery arena. Researchers in Doyles
lab are trying to find a way to create an appetite-suppressing drug using PYY that can be taken
orally rather than by injection. PYY is a hormone
that is released by the cells lining the small intestine after people eat, which signals feelings
of fullness. Recent research has shown that the higher the level of PYY in
21
the bloodstream, the
greater the feeling of fullness. The Eligen® Technology platform has shown great promise
for improving the bodys ability to absorb both small and large molecule drugs. Dr. Doyle and his
colleagues at Syracuse University are interested in assessing its ability to overcome the limited
natural absorption of their vitamin based carrier to achieve significant advancements in oral
protein/peptide delivery.
Overview of Drug Delivery Industry
The drug delivery industry develops technologies for the improved administration of therapeutic
molecules with the goal of expanding markets for existing products and extending drug franchises.
Drug delivery companies also seek to develop products on their own that would be patent-protected
by applying proprietary technologies to off-patent pharmaceutical products. Primarily, drug
delivery technologies are focused on improving safety, efficacy, ease of patient use and/or patient
compliance. Pharmaceutical and biotechnology companies consider improved drug delivery as a means
of gaining competitive advantage over their peers.
Therapeutic macromolecules, of which proteins are the largest sub-class, are prime targets for the
drug delivery industry for a number of reasons. Most therapeutic macromolecules must currently be
administered by injection (most common) or other device such as an inhaler or nasal spray system.
Many of these compounds address large markets for which there is an established medical need. These
drugs are widely used, as physicians are familiar with them and accustomed to prescribing them.
Therapeutic macromolecules could be significantly enhanced through alternative delivery. These
medicines are comprised of proteins and other large or highly charged molecules (carbohydrates,
peptides, ribonucleic acids) that, if orally administered using traditional oral delivery methods,
would degrade in the stomach or intestine before they are absorbed into the bloodstream. Also,
these molecules are typically not absorbed following oral administration due to their poor
permeability. Therefore, the vast majority are administered parenterally. However, for many
reasons, parenteral administration is undesirable, including patient discomfort, inconvenience and
risk of infection. Poor patient acceptance of parenteral therapies can lead to medical
complications. In addition, parenteral therapies can often require incremental costs associated
with administration in hospitals or doctors offices.
Previously published research indicates that patient acceptance of and adherence to a dosing
regimen is higher for orally delivered medications than it is for non-orally delivered medications.
Our business strategy is partly based upon our belief that the development of an efficient and safe
oral delivery system for therapeutic macromolecules represents a significant commercial
opportunity. We believe that more patients will take orally delivered drugs more often, spurring
market expansion.
Leading Current Approaches to Drug Delivery
Transdermal (via the skin) and Needleless Injection
The size of most macromolecules makes penetration into or through the skin inefficient or
ineffective. Some peptides and proteins can be transported across the skin barrier into the
bloodstream using high-pressure needleless injection devices. Needleless devices, which inject
proteins through the skin into the body, have been in development for many years. We believe these
devices have not been well accepted due to patient discomfort, relatively high cost, and the
inconvenience of placing the drugs into the device.
Nasal (via the nose)
The nasal route (through the membranes of the nasal passage) of drug administration has been
limited by low and variable bioavailability for proteins and peptides. As a result, penetration
enhancers often are used with nasal delivery to increase bioavailability. These enhancers may cause
local irritation to the nasal tissue and may result in safety concerns with long-term use. A
limited number of peptides delivered nasally have been approved for marketing in the U.S. including
MIACALCIN®, developed by Novartis as an osteoporosis therapy, a therapeutic area we have
targeted.
Pulmonary (via the lung)
Pulmonary delivery (through the membranes of the lungs) of drugs is emerging as a delivery route
for large molecules. Although local delivery of respiratory drugs to the lungs is common, the
systemic delivery (i.e., delivery of the drugs to the peripheral vasculature) of macromolecular
drugs is less common because it requires new formulations and delivery technologies to achieve
efficient, safe and reproducible dosing. Only one protein using pulmonary delivery has been
approved for marketing in the U.S., which is EXUBERA®, an insulin product developed by
Pfizer and Nektar, as a Diabetes therapy, a therapeutic area we have targeted. However after market
acceptance of EXUBERA® was demonstrated to be limited, Pfizer withdrew from further
commercialization of, and terminated its license with Nektar for EXUBERA®.
Intraoral (via the membranes in the mouth)
Intraoral delivery is also emerging as a delivery route for large molecules. Buccal delivery
(through the membrane of the cheek) and sublingual delivery (through the membrane under the tongue)
are forms of intraoral delivery. Some Vitamin B12 manufactures sell and distribute sublingual
versions of their product.
Oral (via the mouth)
We believe that the oral method of administration is the most patient-friendly option, in that it
offers convenience, is a familiar method of administration that enables increased compliance and,
for some therapies, may be considered the most physiologically appropriate. We, and other drug
delivery and pharmaceutical companies, have developed or are developing technologies for oral
delivery of drugs. We believe that our Eligen® Technology provides an important
competitive advantage in the oral route of administration because it does not alter the chemical
composition of the therapeutic macromolecules. We have conducted over 140,000 human dosings and
have witnessed no serious adverse events that can be attributed to the EMISPHERE®
delivery agents dosed or the mechanism of action of the Eligen® Technology.
In general, we believe that oral administration will be preferred to other methods of
administration. However, such preference may be offset by possible negative attributes of orally
administered drugs such as the quantity or frequency of the dosage, the physical size of the
capsule or tablet being swallowed or the taste. For example, in our previous Phase III trial with
heparin as an oral liquid formulation, patient compliance was hindered by patients distaste for
the liquid being administered. In addition, patients and the marketplace will more likely respond
favorably to improvements in absorption, efficacy, safety, or other attributes of therapeutic
molecules. It is possible that greater convenience alone may not lead to success.
The Eligen® Technology
The Eligen® Technology is a broadly applicable proprietary oral drug delivery technology
based on the use of proprietary synthetic chemical compounds known as EMISPHERE®
delivery agents, or carriers. These delivery agents facilitate and enable the transport of
therapeutic macromolecules (such as proteins, peptides, and polysaccharides) and poorly absorbed
small molecules across biological membranes targeted in the stomach; enabling the therapeutic
molecules to exert their desired pharmacological effect. The delivery agents have no known
pharmacological activity themselves at the intended clinical dose levels. Emispheres
Eligen® Technology makes it possible to deliver therapeutic molecules orally without altering their chemical form or
biological integrity.
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Proposed Delivery Agent Mechanism
The Eligen® Technology facilitates absorption in the stomach and takes place through a
transcellular, not paracellular, pathway. This underscores the safety of Eligen® as the
passage of the Eligen® carrier and the molecule preserve the integrity of the tight
junctions within the cell and reduces any likelihood of inflammatory processes and autoimmune
gastrointestinal diseases. Furthermore, because Eligen® Technology carriers are rapidly
absorbed, metabolized and eliminated from the body; they do not accumulate in the organs and
tissues and are considered safe at anticipated dose and dosing regimens.
Drug molecules exist in many different shapes, or conformations. Some conformations can be
transported across the cell membranes while others are too large or too charged to do so. The
Eligen® Technology uses the bodys natural passive transcellular transport process to
enable large or highly charged molecules to cross cell membranes. Once the drug molecule crosses
the membrane, the EMISPHERE® delivery agent dissociates from the drug molecule, which
then reestablishes its natural conformation and returns to its therapeutically active state.
Studies have shown that this process does not involve chemical modification of the drug molecule
and the integrity of cell membrane and cytoskeletal structure are maintained.
We have designed and synthesized a library of approximately 4,000 delivery agents and continue to
evaluate our delivery agents for their ability to facilitate the delivery of therapeutic
macromolecules across biological membranes.
Ongoing Collaborative Agreements
We are a party to certain collaborative agreements with corporate partners to provide development
and commercialization services relating to the products under collaboration. These agreements are
in the form of research and development collaborations and licensing agreements. Under these
agreements, we have granted licenses or the rights to obtain licenses to our oral drug delivery
technology. In return, we are entitled to receive certain payments upon the achievement of
milestones and royalties on the sales of the products should a product ultimately be
commercialized. We also are entitled to be reimbursed for certain research and development costs
that we incur.
All of our collaborative agreements are subject to termination by our corporate partners, without
significant financial penalty to them. Under the terms of these agreements, upon a termination we
are entitled to reacquire all rights in our technology at no cost and are free to re-license the
technology to other collaborative partners.
Novartis Pharma AG Oral Salmon Calcitonin (sCT) Program for Osteoporosis and Osteoarthritis
During December 2009, the Company announced that an independent Data Monitoring Committee (DMC)
informed Novartis and its partner Nordic Bioscience about their recommendation to proceed with the
Osteoporosis Phase III Study 2303 and the Osteoarthritis Phase III Study 2301 exploring the safety
and efficacy of an oral formulation of salmon calcitonin to treat patients with osteoporosis and
osteoarthritis of the knee. This recommendation is based on a futility analysis of one-year data
for all patients enrolled in the study for 12 months and includes both an assessment of safety and
efficacy parameters. Based on this interim analysis, the DMC is of the opinion that there are no
major or unexpected safety concerns and recommended proceeding with the studies to evaluate the
efficacy and safety profile of oral calcitonin at two years as planned. Within the various
Phase III trials with Novartis, over 5,500 patients are using the Eligen® Technology
during 2010.
To date, we have received $12.4 million in payments from Novartis under the sCT programs. Under the
terms of the sCT agreement, we may receive up to $5 million in additional milestone payments, as
well as royalties based on sales.
Osteoporosis
In December 1997, we entered into a collaboration agreement with Novartis to develop an oral form
of sCT, currently used to treat osteoporosis. sCT is a hormone that inhibits the bone-tissue
resorbing activity of specialized bone cells called osteoclasts, enabling the bone to retain more
of its mass and functionality. sCT has demonstrated efficacy in increasing lumbar spine bone
mineral density and in reducing vertebral fractures. sCT is estimated to be about 30 times more
potent than the human version. Synthetic sCT, which is identical to the naturally occurring one,
currently is available only as a nasal spray or injectable therapy. Novartis markets synthetic sCT
in the U.S. as MIACALCIN® nasal spray, which is indicated for the treatment of
post-menopausal osteoporosis in women greater than five years post menopause with low bone mass.
Treatment with sCT has been shown to increase bone mineral density in the spine and reduce the risk
of new vertebral fractures in post-menopausal women with osteoporosis. It is also used to treat
Pagets disease, a disease that results in, among other things, bone pain and breakdown. In its
nasal spray forms, it is believed that sCTs major advantages are its efficacy resulting from a
lack of serious side effects, excellent long-term safety profile and ease of administration. Some
studies even suggest that sCT produces an analgesic effect. Worldwide market sales for products to
treat osteoporosis are forecasted to reach $10.4 billion by 2011, from approximately $5.0 billion
in 2003.
In February 2003, we announced favorable results of a Phase IIa study conducted by Novartis
evaluating the performance in post-menopausal women of an oral tablet form of sCT. The purpose of
the study was to assess the efficacy and safety of various doses of an oral tablet of sCT in
post-menopausal women and to confirm the activity of sCT when given orally, as reflected by changes
in markers of bone formation or resorption. Oral sCT was dosed for 90 days in the study, the
longest time period that the Eligen® Technology has been dosed in human testing. The
study demonstrated activity on bone markers over a three month dosing period when the peptide was
delivered in combination with the EMISPHERE® delivery agent. Only two serious adverse
events were reported, neither of which were related to the EMISPHERE® delivery agent or
to sCT. The side effects (mainly gastrointestinal in nature) seen with the highest doses of sCT
were consistent with those normally seen with high plasma levels of sCT when administered by
injection. These results were presented by Novartis at the American Society of Bone and Mineral
Research in September of 2003.
The randomized, double-blind, placebo-controlled, parallel study was conducted for three months in
OA patients to assess the efficacy of this novel form of sCT in patients suffering from knee OA.
Patients received daily either a placebo (n=16), 0.5 mg of oral sCT (n=17) or 1 mg of oral sCT
(n=18).
In February 2007, Novartis and its development partner Nordic Bioscience notified us of the
initiation of a Phase III clinical trial for the treatment of osteoporosis with an oral form of
salmon calcitonin (referred to as SMC021), a new drug candidate, using the Companys
Eligen® Technology. The Phase III program that started in 2007 is a three year trial
with enrollment of over 4,500 patients completed in June 2008. The study is exploring the safety
and efficacy of salmon calcitonin and Emispheres proprietary Eligen® Technology in the
treatment of vertebral fractures in postmenopausal women aged 60-80 with osteoporosis. It will be
conducted in North and South America, Europe and Asia. This product candidate, if successful, will
meet an unmet market need, with oral calcitonin expected to offer a safe, effective, and convenient
alternative to existing therapies.
A study conducted by Novartis and its partner Nordic Bioscience published in the December 2008
issue of BMC Clinical Pharmacology demonstrated that orally administered salmon calcitonin using
Emispheres carrier, (5-CNAC) an Eligen® oral delivery technology, is effective in
reducing bone breakdown. The randomized, double-blind, double-dummy, placebo-controlled study among
81 subjects in Copenhagen was conducted on behalf of Emispheres partner Novartis Pharma AG by
23
Nordic Bioscience by M.A. Karsdal, I. Byrjalsen, B.J. Riis and C. Christiansen. The study suggests
that orally administered 0.8 mg of salmon calcitonin was effective in suppression of Serum CTX
irrespective of time of dosing. Serum CTX-1 (Serum C-terminal telo-peptide of collagen type I) is
the biochemical marker used to measure bone resorption. There were no safety concerns with the
salmon calcitonin oral formulation using Emispheres carrier 5-CNAC, which had been previously
demonstrated in earlier studies.
A study conducted by Novartis and its partner Nordic Bioscience published in the October 2008 issue
of BMC Clinical Pharmacology demonstrated that oral salmon calcitonin using Emispheres proprietary
Eligen® Technology taken 30 to 60 minutes before meals with 50 ml of water results in
improved absorption and improved efficacy measured by the biomarker of reduced bone resorption
(sCTX-I) compared to the commonly prescribed nasal formulation. The study was a randomized,
partially-blind, placebo-controlled, single-dose exploratory crossover clinical trial using 56
healthy postmenopausal women.
According to the National Osteoporosis Foundation, 10 million people in the U.S. are estimated to
have the disease with 34 million more estimated to have low bone mass and are, therefore, at risk.
If successful, this product candidate for the treatment of osteoporosis would satisfy an unmet
market need, with oral salmon calcitonin expected to offer a safe, effective, and convenient
alternative to existing therapies.
Under the sCT agreements, Novartis has an option to an exclusive worldwide license to develop in
conjunction with us, make, have made, use and sell products developed under this program. Novartis
also had the right to exercise an option to commence a research collaboration with us on a second
compound under this agreement. Novartis rights to certain specified financial terms concerning a
license of a second compound have since expired. We have no payment obligations with respect to
this program; we are, however, obligated to collaborate with Novartis by providing access to our
technology that is relevant to this program. We are also obligated to help to manage this program
through a joint steering committee with Novartis.
Osteoarthritis
On a parallel track, Novartis is also pursuing an osteoarthritis indication for salmon calcitonin.
Approximately 21 million patients are managed for osteoarthritis in the U.S. alone, and that number
is expected to increase as the baby boomer generation continues to age. Osteoarthritis (OA) is a
clinical syndrome in which low-grade inflammation results in joint pain, caused by a wearing-away
of cartilage that cushions the joints and the destruction or decrease of synovial fluid that
lubricates those joints. As OA progresses, pain can result when the patient bears weight upon the
joints, including walking and standing. OA is the most common form of arthritis, and affects nearly
21 million people in the U.S., accounting for 25% of visits to primary care physicians, and half of
all non-steroidal anti-inflammatory drug prescriptions. It is estimated that 80% of the population
will have radiographic evidence of OA by age 65.
Novartis is engaged in two, simultaneous Phase III trials for salmon calcitonin in the treatment of
osteoarthritis. During September 2008, Novartis and Nordic Bioscience completed recruitment for a
multi-center Phase III study exploring the safety and efficacy of an oral formulation of salmon
calcitonin using Emispheres proprietary Eligen® Technology to treat patients with
osteoarthritis of the knee. This study, which will be used to support the filing with health
authorities worldwide, includes more than 1,100 patients between 51 and 80 years old with a medical
history and symptoms of knee osteoarthritis. The study will be conducted mainly in Europe and is
estimated to be completed during second half 2010.
During October 2008, Novartis and Nordic Bioscience initiated a second multi-center Phase III study
exploring the safety and efficacy of an oral formulation of salmon calcitonin using Emispheres
proprietary Eligen® Technology to treat patients with osteoarthritis of the knee. This
second study, designed to meet FDA requirements for U.S. registration, will examine patients
between 51 and 80 years old suffering from painful symptoms of knee osteoarthritis. The study will
be conducted in multiple sites, including the U.S. Enrollment is scheduled to be completed during
2009 with an estimated completion during the second half of 2011.
During September 2009, Novartis and its partner, Nordic Bioscience, issued study results in which
twice-daily oral salmon calcitonin using Emispheres proprietary Eligen® Technology
significantly suppressed markers of cartilage and bone degradation versus placebo in men and women
with osteoarthritis, the most common form of arthritis. The study, a Phase I, placebo-controlled,
double-blind, double-dummy, randomized, gender-stratified clinical trial, was conducted on behalf
of Emispheres partner Novartis Pharma AG by Nordic Bioscience, and published online in the
September 2009 issue of Osteoarthritis and Cartilage. A total of 73 male and female subjects aged
57 to 75 years with painful osteoarthritis of the knee received twice-daily 0.6 mg or 0.8 mg doses
of oral salmon calcitonin with the Eligen® Technology or placebo administered over
14 days. Doses of 0.8mg compared with 0.6mg produced significantly higher Cmax and AUC(0-4 hrs), of
calcitonin, P=0.03. This resulted in significant reductions in CTX-I and CTX-II which are
biochemical markers of bone degradation and of cartilage degradation, respectively. Gender had no
observable influence on results. Oral sCT doses were well tolerated; 44 adverse events and no
serious adverse events were reported in this study. For further details please consult the original
publication which is available online (Karsdal MA et al; The effect of oral salmon calcitonin
delivered with 5-CNAC on bone and cartilage degradation in osteoarthritic patients: a 14-day
randomized study; Osteoarthritis and Cartilage; available online September 1, 2009). Emerging data
continue to indicate oral salmon calcitonin in combination with the Companys absorption-enhancing
Eligen® Technology may be a potential therapeutic option for women and men with
osteoarthritis, which affects more than 20 million people in the United States.
During July 2010, we announced that Novartis Pharma AG and its license partner Nordic Bioscience
a/s (the Sponsor) reported the following in connection with their Phase III Study 2302 in
osteoarthritis assessing the safety and efficacy of oral calcitonin in the treatment of
osteoarthritis of the knee. This study incorporates Emispheres unique and proprietary
Eligen® Drug Delivery Technology for the improved oral absorption of salmon calcitonin.
An independent Data Monitoring Committee (DMC) conducted a futility analysis of one-year data for
all patients enrolled in this two-year study, including assessments of safety and efficacy
parameters. The DMC concluded that although there is no reason to stop Study 2302 because of safety
concerns, there is no reason to continue the study for efficacy. The DMC also concluded that the
final decision whether to continue Study 2302 rests with the Sponsor. A parallel two-year Phase III
Study 2301 in osteoarthritis assessing the safety and efficacy of oral calcitonin in the treatment
of osteoarthritis of the knee is still in progress. In December 2009, the DMC conducted a futility
analysis of one-year data for all patients enrolled in this two-year study, including assessments
of safety and efficacy parameters, and recommended to continue with such Study. The Sponsor
currently intends to continue the clinical program of oral calcitonin in osteoarthritis, including
both Phase III Study 2301 and Phase III Study 2302. Novartis and Nordic Bioscience will continue to
work together to assess next steps once the final data of Study 2301 is available. This data is
expected to be available in the fourth quarter, 2010.
In December 2005, we announced positive clinical data generated by Drs. Daniel Manicourt and
Jean-Pierre Devogelaer from the Department of Rheumatology at the University Hospital St-Luc,
Universite Catholique de Louvain, Brussels, Belgium. The results of this study, which evaluated
oral salmon calcitonin supplied by Novartis using our Eligen® Technology in treating
osteoarthritis (OA) were presented at the 10th World Congress of the Osteoarthritis Research
Society International in Boston, MA. Results of this study suggest that oral sCT (enabled by our
proprietary Eligen® Technology licensed to Novartis for use with sCT) exhibits not only
clinical efficacy but also reduces the levels of several biochemical markers of joint metabolism,
which all have been shown to have a pejorative prognostic value of the OA disease process in
longitudinal studies including large cohorts of patients.
Assuming a successful outcome of the Phase III program, this product candidate will also fulfill a
substantial unmet medical need. Pre-clinical and Phase II data indicate that oral salmon calcitonin
could become the first disease modifying osteoarthritis drug.
Other Potential Applications of Salmon Calcitonin (sCT)
During December 2009, the Company announced a meta-analysis published in the December 2009 edition
of Rheumatology Reports examining independent evidence of the analgesic action of the hormone
calcitonin. This publication restated the potential of calcitonin in filling a significant unmet
need for alternative treatments for
24
persistent musculoskeletal pain. Scientists from Nordic
Bioscience were involved in the preparation of this meta-analysis. Non-malignant musculoskeletal
pain is the most common clinical symptom that causes patients to seek medical attention and is a
major cause of disability in the world. Musculoskeletal pain can arise from a variety of common
conditions including osteoarthritis, rheumatoid arthritis, osteoporosis, surgery, low back pain and
bone fracture. The meta-analysis, conducted by researchers at the Center for Sensory-Motor
Interaction in the Department of Health Science and Technology at Aalborg University in Denmark,
examined independent pre-clinical and clinical studies spanning nearly 45 years of the possible
intrinsic analgesic properties of calcitonin, with special focus on the challenges in the
musculoskeletal system. The authors concluded that well-designed clinical trials should be
conducted to further validate evidence of calcitonins analgesic action and its promising potential
role in the management of musculoskeletal pain. The effects of calcitonin on clinical pain
conditions have received increasing attention in the past decades, although a consensus on
mechanism-of-action and potential indications has not been reached. The analgesic activity of oral
salmon calcitonin has been shown in several controlled prospective double-blind studies; besides
pain management in osteoporosis, calcitonin has shown analgesic action in painful conditions such
as phantom limb pain, diabetic neuropathy, complex regional pain syndrome, adhesive capsulitis,
rheumatoid arthritis, vertebral crush fractures, spondylitis, tumor metastasis, cancer pain,
migraine, Pagets disease of bone as well as post-operative pain. An ideal treatment with an
optimal efficacy, safety and convenience profile is not available for the musculoskeletal pain
associated with such conditions as osteoporosis and osteoarthritis. This review of the literature
highlights the clear unmet medical need that could be addressed by Emispheres oral salmon
calcitonin product.
Novartis Pharma AG Oral PTH-1-34 Program
On December 1, 2004, we entered into a Research Collaboration Option and License Agreement with
Novartis whereby Novartis obtained an option to license our existing technology to develop oral
forms of PTH-1-34. At the time we entered this new agreement, Novartis also purchased from us a
$10 million convertible note (the Novartis Note) which was originally due December 1, 2009 that
we may repay, at our option, in either stock or cash. On March 7, 2006, Novartis exercised its
option to the license. Based on the terms of the agreement, we may receive milestone payments
totaling up to a maximum of $30 million, plus royalties on sales of product developed using our
Eligen® Technology. Novartis will fund all necessary pre-clinical, clinical and
manufacturing costs for all products. The Novartis Note was originally due December 1, 2009. On
November 27, 2009, Novartis agreed to extend the maturity date to February 26, 2010. On
February 23, 2010, Novartis agreed to extend the maturity date to May 26, 2010.
Parathyroid hormone continues on a progressive clinical development path in collaboration with
Novartis. During June 2008, Novartis launched a Phase I study in postmenopausal women to determine
the safety and tolerability of oral PTH-1-34, a combination of human PTH-1-34 and the absorption
enhancer 5-CNAC using Emispheres proprietary Eligen® Technology, for the treatment of
postmenopausal osteoporosis. The study is designed to assess the bioavailability profile of
increasing doses of PTH-1-34 combined with different amounts of 5-CNAC administered orally. The
trial was conducted in Switzerland and its first interpretable results were released during
November 2008.
The results of the study demonstrated the achievement of a suitable PK profile of a new oral
formulation of Parathyroid Hormone (PTH) using Emispheres Eligen® Technology. This
initial study of 20 healthy postmenopausal female patients aged 40 to 70 years resulted in peak
concentrations (Cmax) in the range of those obtained with the commercially available subcutaneous
formulation FORTEO (teriparatide). This initial trial reported no significant adverse affects, no
hypocalcaemia, and no drug-exposure related discontinuation. The plan is to continue the
development program. Recombinant PTH, currently approved for the treatment of osteoporosis, is
available only by injection. PTH exists naturally in the body; it increases bone density and bone
strength to help prevent fractures. It may also be used to treat osteoporosis in patients at high
risk of bone fracture.
Novartis also conducted a Phase I study in postmenopausal women to determine the safety and
tolerability of oral PTH 1-34, a combination of human PTH 1-34 and Emispheres delivery agent
5-CNAC, for the treatment of postmenopausal osteoporosis. The study was designed to assess the
pharmacokinetic profile of increasing doses of PTH 1-34 combined with different amounts of 5-CNAC
administered orally. Study results demonstrated that a single dose of the novel oral parathyroid
hormone PTH 1-34, which utilizes Emispheres proprietary Eligen® Technology and
absorption-enhancer carrier molecule 5-CNAC, achieved potentially therapeutically relevant exposure
and safety profiles similar to those of the currently available injectable formulation in healthy
postmenopausal women. The results from this single-center, partially-blinded, incomplete cross-over
study conducted by Emispheres partner Novartis, were presented October 19, 2009 in a poster
session at the 73rd Annual Scientific Meeting of the American College of Rheumatology in
Philadelphia. This study, designed to assess the exposure and safety of orally administered doses
of PTH1-34 and different amounts of the absorption enhancer 5-CNAC was conducted in 32 healthy
postmenopausal women. The subjects were randomized to receive a single dose of placebo, 20 mcg of
subcutaneously injected parathyroid hormone PTH1-34 (FORTEO®), or one of several orally
administered doses of PTH1-34 formulated with either 100 or 200 mg of Emispheres
absorption-enhancer 5-CNAC. While all doses of oral PTH1-34 were rapidly absorbed and showed
appreciable blood concentrations in a dose-dependent manner, the 2.5 and 5 mg doses of oral PTH1-34
containing 200 mg 5-CNAC achieved exposure levels closest to those of 20 mcg injectable PTH1-34,
with a comparable incidence of adverse events. Ionized calcium remained within normal limits in all
treatment groups. The results of this study indicates we may be able to provide women with
postmenopausal osteoporosis a more convenient oral option for parathyroid hormone therapy, which is
now available only as an injection. There were no serious adverse events in the study. Nine
participants withdrew from the study due to treatment-related AEs. Of those, five (one on placebo,
one on FORTEO® and three on either 2.5 or 5 mg PTH1-34) withdrew because of symptomatic
hypotension. Three patients on either 2.5 or 5 mg PTH1-34 withdrew because of delayed vomiting. One
patient on 2.5mg PTH1-34 (100 mg 5-CNAC) withdrew because of symptomatic, but unconfirmed,
hypercalcemia. PTH is produced by the parathyroid glands to regulate the amount of calcium and
phosphorus in the body. When used therapeutically, it increases bone density and bone strength to
help prevent fractures. It is approved to treat osteoporosis, a disease associated with a gradual
thinning and weakening of the bones that occurs most frequently in women after menopause. Untreated
postmenopausal osteoporosis can lead to chronic back pain, disabling fractures, and lost mobility.
Novartis Pharma AG Oral Recombinant Human Growth Hormone Program
From 1998 through August 2003, we developed oral rhGH in collaboration with Eli Lilly and Company
(Lilly). As of August 2003, Lilly returned to us all rights to the oral rhGH program pursuant to
the terms of our license agreement. On September 23, 2004 we announced a new partnership with
Novartis to develop our oral rhGH program. Under this collaboration, we are working with Novartis
to initiate clinical trials of a convenient oral human growth hormone product using the
Eligen® Technology. On May 1, 2006, we announced that Novartis will initiate the
development of an oral rhGH product using Emispheres Eligen® Technology.
Under this agreement, Novartis has an exclusive worldwide license to develop, make, have made, use
and sell products developed under this program. We have no payment obligations with respect to this
program; we are, however, obligated to collaborate with Novartis by providing access to our
technology that is relevant to this program. We are also obligated to help to manage this program
through a joint steering committee with Novartis.
To date, we have received $6 million in non-refundable payments from Novartis under this program,
including the $5 million milestone payment received in 2006. We may receive up to $28 million in
additional milestone payments during the course of product development and royalties based on
sales.
Novo Nordisk AS Agreement
On June 21, 2008, we entered into an exclusive Development and License Agreement with Novo Nordisk
pursuant to which Novo Nordisk will develop and commercialize oral formulations of Novo Nordisk
proprietary products in combination with Emisphere carriers. Under such agreement Emisphere could
receive more than $87 million in contingent product development and sales milestone payments,
including a $10 million non-refundable license fee which was received in June 2008. Emisphere would
also be entitled to receive royalties in the event Novo Nordisk commercializes products developed
under such Agreement. Under the Agreement, Novo Nordisk is responsible for the development and commercialization of the products.
25
During January 2010, we announced that Novo Nordisk had initiated its first Phase I clinical trial
with a long-acting oral GLP-1 analogue (NN9924). This milestone released a $2 million payment to
Emisphere, whose proprietary Eligen® Technology is used in the formulation of NN9924.
GLP-1 (Glucagon-Like Peptide-1) is a natural hormone involved in controlling blood sugar levels. It
stimulates the release of insulin only when blood sugar levels become too high. GLP-1 secretion is
often impaired in people with Type 2 Diabetes. The aim of this trial, which is being conducted in
the UK, is to investigate the safety, tolerability and bioavailability of NN9924 in healthy
volunteers. The trial will enroll approximately 155 individuals and results from the trial are
expected in 2011. There are many challenges in developing an oral formulation of GLP-1, in
particular obtaining adequate bioavailability. NN9924 addresses some of these key challenges by
utilizing Emispheres Eligen® Technology to facilitate absorption from the
gastrointestinal tract.
Genta, Incorporated Oral Gallium Program
In March 2006, we announced that we have entered into an exclusive worldwide licensing agreement
with Genta, Incorporated (Genta) to develop an oral formulation of a gallium-containing compound.
Under the agreement, we will utilize our Eligen® Technology to supply a finished oral
dosage form to Genta. Genta will be responsible for toxicology, clinical development, regulatory
submissions, and worldwide commercialization. In addition to royalties on net sales of the product,
Genta has agreed to fund Emispheres development activities and to pay performance milestones
related to the filing and approval of regulatory applications. An Investigational New Drug
application was filed by Genta on gallium on July 31, 2007. Genta released final results from the
Companys Phase I clinical trial of G4544, a new tablet formulation of a proprietary small molecule
intended as a treatment for diseases associated with accelerated bone loss using delivery
technology developed by Emisphere Technologies, Inc. Results showed that the drug was very
well-tolerated, and that blood levels were achieved in a range that is known to be clinically
bioactive. The data were featured in a poster session at the annual meeting of the American Society
of Clinical Oncology (ASCO) in 2008.
Revenue Recognized From Significant Collaborators 2007 through 2009 (in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Collaborator |
|
2009 |
|
|
2008 |
|
|
2007 |
|
Novartis Pharma AG |
|
$ |
|
|
|
$ |
|
|
|
$ |
2,666 |
|
Roche |
|
|
|
|
|
|
|
|
|
|
73 |
|
Novo Nordisk AS |
|
|
|
|
|
|
46 |
|
|
|
|
|
Genta |
|
|
|
|
|
|
118 |
|
|
|
1,159 |
|
Research and Development Costs
We have devoted substantially all of our efforts and resources to research and development
conducted on our own behalf (self-funded) and in collaborations with corporate partners
(partnered). Generally, research and development expenditures are allocated to specific research
projects. Due to various uncertainties and risks, including those described in Item 1A. Risk
Factors below, relating to the progress of our product candidates through development stages,
clinical trials, regulatory approval, commercialization and market acceptance, it is not possible
to accurately predict future spending or time to completion by project or project category.
The following table summarizes research and development spending to date by project category:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative |
|
|
|
Year Ended December 31, |
|
|
Spending |
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2009(1) |
|
|
|
(In thousands) |
|
Research(2) |
|
$ |
70 |
|
|
$ |
1,143 |
|
|
$ |
1,954 |
|
|
$ |
51,918 |
|
Feasibility projects |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Self-funded |
|
|
1,287 |
|
|
|
1,688 |
|
|
|
457 |
|
|
|
11,044 |
|
Partnered |
|
|
38 |
|
|
|
425 |
|
|
|
178 |
|
|
|
4,224 |
|
Development projects |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oral heparin (self-funded) |
|
|
148 |
|
|
|
392 |
|
|
|
3,834 |
|
|
|
99,437 |
|
Oral insulin (self-funded) |
|
|
3 |
|
|
|
53 |
|
|
|
1,184 |
|
|
|
21,287 |
|
Partnered |
|
|
2 |
|
|
|
59 |
|
|
|
611 |
|
|
|
12,157 |
|
Other(3) |
|
|
2,498 |
|
|
|
9,025 |
|
|
|
12,858 |
|
|
|
103,956 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total all projects |
|
$ |
4,046 |
|
|
$ |
12,785 |
|
|
$ |
21,076 |
|
|
$ |
304,023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Cumulative spending from August 1, 1995 through December 31, 2009. |
|
(2) |
|
Research is classified as resources expended to expand the ability to create new carriers, to ascertain the mechanisms
of action of carriers, and to establish computer based modeling capabilities, prototype formulations, animal models,
and in vitro testing capabilities. |
|
(3) |
|
Other includes indirect costs such as rent, utilities, training, standard supplies and management salaries and benefits. |
Patents and Other Forms of Intellectual Property
Our success depends, in part, on our ability to obtain patents, maintain trade secret protection,
and operate without infringing the proprietary rights of others (see Risk Factors- Our business
will suffer if we cannot adequately protect our patent and proprietary rights). We seek patent
protection on various aspects of our proprietary chemical and pharmaceutical delivery technologies,
including the delivery agent compounds and the structures which encompass Emispheres delivery
agents, their method of preparation, the combination of our compounds with a pharmaceutical, and
use of our compounds with therapeutic molecules to treat various disease states. We have patents
and patent applications in the U.S. and certain foreign countries. As of March 25, 2010, we had 121
granted U.S. Patents as well as 109 patent families with pending patent applications.
We intend to file additional patent applications when appropriate, and to aggressively prosecute,
enforce, and defend our patents and other proprietary technology.
We have five trademarks granted by the U.S. Patent and Trademark office. They include
EMISPHERE®, Elaprin® (oral heparin), the Emisphere logo, Emigent®
and Eligen®.
26
We also rely on trade secrets, know-how, and continuing innovation in an effort to develop and
maintain our competitive position. Patent law relating to the patentability and scope of claims in
the biotechnology and pharmaceutical fields is evolving and our patent rights are subject to this
additional uncertainty. Others may independently develop similar product candidates or technologies
or, if patents are issued to us, design around any products or processes covered by our patents. We
expect to continue, when appropriate, to file product and other patent applications with respect to
our inventions. However, we may not file any such applications or, if filed, the patents may not be
issued. Patents issued to or licensed by us may be infringed by the products or processes of
others.
Defense and enforcement of our intellectual property rights can be expensive and time consuming,
even if the outcome is favorable to us. It is possible that the patents issued to or licensed to us
will be successfully challenged, that a court may find that we are infringing validly issued
patents of third parties, or that we may have to alter or discontinue the development of our
products or pay licensing fees to take into account patent rights of third parties.
Manufacturing
The primary raw materials used in making the delivery agents for our product candidates are readily
available in large quantities from multiple sources. In the past we manufactured delivery agents
internally using our own facilities on a small scale for research purposes and for early stage
clinical supplies. We believed that our manufacturing capabilities complied with the FDAs current
Good Manufacturing Practice (GMP). Beginning in 2004, we manufactured early stage clinical
supplies under GMP conditions for our oral insulin program and heparin multiple arm studies. The
FDA inspected our in-house facilities in 2003 and again in 2005. The 2003 inspection resulted in
only minor observations on Form 483 which were quickly resolved to FDAs satisfaction, while the
2005 inspection yielded no Form 483 observations.
Currently, EMISPHERE® delivery agents are manufactured by third parties in accordance
with GMP regulations. We have identified other commercial manufacturers meeting the FDAs GMP
regulations that have the capability of producing EMISPHERE® delivery agents and we do
not rely on any particular manufacturer to supply us with needed quantities.
During April 2009 we announced a strategic alliance with AAIPharma intended to expand the
application of Emispheres Eligen® Technology and AAIPharmas drug development services.
AAIPharma Inc. is a global provider of pharmaceutical product development services that enhance the
therapeutic performance of its clients drugs. AAIPharma works with many pharmaceutical and biotech
companies and currently provides drug product formulation development services to Emisphere. This
relationship expands our access to new therapeutic candidates for the Eligen®
Technology, which potentially could lead to new products and to new alliance agreements as well. We
are also pleased that a global provider of pharmaceutical product development services with the
stature of AAI has chosen to combine with Emisphere in a synergistic alliance that will benefit
both organizations. This strategic alliance supports AAIs strategy to offer drug delivery options
to its pharmaceutical and biotech customers.
Competition
Our success depends in part upon maintaining a competitive position in the development of product
candidates and technologies in an evolving field in which developments are expected to continue at
a rapid pace. We compete with other drug delivery, biotechnology and pharmaceutical companies,
research organizations, individual scientists and non-profit organizations engaged in the
development of alternative drug delivery technologies or new drug research and testing, and with
entities developing new drugs that may be orally active. Our product candidates compete against
alternative therapies or alternative delivery systems for each of the medical conditions our
product candidates address, independent of the means of delivery. Many of our competitors have
substantially greater research and development capabilities, experience, marketing, financial and
managerial resources than we have. In many cases we rely on our development partners to develop and
market our product candidates.
Oral Osteoporosis Competition
An injectable form of PTH-1-34 is manufactured and sold by Eli Lilly, as FORTEO®.
Unigene Laboratories, Inc. (Unigene) has reported that, in collaboration with GlaxoSmithKline
plce (GSK), it is developing an oral form of PTH-1-34. Unigene also reported that it is
developing an oral form of sCT. Both candidates are in early stage clinical testing.
Novartis currently offers a nasal dosage form of sCT, MIACALCIN®. Other companies are
currently developing pulmonary forms of PTH-1-34. Other osteoporosis therapies include estrogen
replacement therapy, selective estrogen receptor modulators, bisphosphonates and several new
biologics that are under development.
Oral Osteoarthritis Competition
There has been no cure for osteoarthritis, as cartilage has not been induced to regenerate. Current
treatment is with NSAIDs, local injections of glucocorticoid or hyaluronan, and in severe cases,
with joint replacement surgery. Future potential treatments might include Autologous Chondrocyte
Implantation and cartilage regeneration.
If Novartis succeeds in developing its oral treatment for osteoarthritis, we believe it could face
competition from existing and potentially future products and treatment regimens under development.
Oral Diabetes Competition Type 2 Diabetes
In diabetes, there are a number of unmet needs which amplify the need for further product
development in the area. There are three main areas of drug therapy, oral anti-diabetes, Insulin,
and Injectable in which companies are attempting to develop innovative products for the treatment
of patients.
The need for new medicines due to unmet treatment needs recently resulted in two new products;
Amylins Byetta and Symlin. These products initially performed exceedingly well in the market
place. However due to pancreatitis associated with Byetta, the trajectory for the Amylins
franchise has leveled off as of the third quarter 2008.
There are four leading classes for new product development in the area of diabetes. All four seek
to take advantage of the potential to improve upon currently available products:
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GLP-1 Agonists |
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Pulmonary Insulin |
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DPP-IV Inhibitors |
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PPAR modulators. |
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The objective of our collaboration with Novo Nordisk is to develop an orally available GLP-1
agonist for the treatment of Type 2 diabetes and potentially obesity. A product with the benefits
of glucose control, promotion of weight loss, low risk of hypoglycemia, and other benefits is
expected to significantly improve therapeutic options and can be expected to perform as well as or
better than the existing competition.
Oral Vitamin B12 Competition
Emispheres potential competition in the Vitamin B12 market will depend on the direction the
company takes in the development and commercialization of the product. In the event that Emisphere
pursues the nutritional supplements market, competition would include a number of companies selling
generic Vitamin B12 in a variety of dosage strengths and methods of delivery (e.g., oral,
transdermal, nasal, sublingual) many of which have substantial distribution and marketing
capabilities that exceed and will likely continue to exceed our own. In addition, our competition
is likely to include many sellers, distributors, and others who are in the business of marketing,
selling, and promoting multiple vitamins, vitamin-mineral, and specialized vitamin combinations.
Many of these competitors are engaged in low cost, high volume operations that could provide
substantial market barriers or other obstacles for a higher cost, potentially superior product that
has no prior market history.
If Emisphere pursues the Vitamin B12 medical food market, the Company would need to successfully
demonstrate to physicians, nurse-practitioners and payors that an oral dose would be safe,
efficacious, readily accessible and improve compliance. These factors will likely require the
Company to engage in a substantial educational and promotional product launch and a marketing
outreach initiative, the time, cost, and outcome of which are uncertain.
Competition Summary
Although we believe that our oral formulations, if successful, will likely compete with well
established injectable versions of the same drugs, we believe that we will enjoy a competitive
advantage because physicians and patients prefer orally delivered forms of products over injectable
forms. Oral forms of products enable improved compliance, and for many programs, the oral form of
products enable improved therapeutic regimens.
Government Regulation
Our operations and product candidates under development are subject to extensive regulation by the
FDA, other governmental authorities in the U.S. and governmental authorities in other countries.
The duration of the governmental approval process for marketing new pharmaceutical substances, from
the commencement of pre-clinical testing to receipt of governmental approval for marketing a new
product, varies with the nature of the product and with the country in which such approval is
sought. The approval process for new chemical entities could take eight to ten years or more. The
process for reformulations of existing drugs is typically shorter, although a combination of an
existing drug with a currently unapproved carrier could require extensive testing. In either case,
the procedures required to obtain governmental approval to market new drug products will be costly
and time-consuming to us, requiring rigorous testing of the new drug product. Even after such time
and effort, regulatory approval may not be obtained for our products.
The steps required before we can market or ship a new human pharmaceutical product commercially in
the U.S. include pre-clinical testing, the filing of an Investigational New Drug Application
(IND), the conduct of clinical trials and the filing with the FDA of either a New Drug
Application (NDA) for drugs or a Biologic License Application (BLA) for biologics.
In order to conduct the clinical investigations necessary to obtain regulatory approval of
marketing of new drugs in the U.S., we must file an IND with the FDA to permit the shipment and use
of the drug for investigational purposes. The IND sets forth, in part, the results of pre-clinical
(laboratory and animal) toxicology testing and the applicants initial Phase I plans for clinical
(human) testing. Unless notified that testing may not begin, the clinical testing may commence
30 days after filing an IND.
Under FDA regulations, the clinical testing program required for marketing approval of a new drug
typically involves three clinical phases. In Phase I, safety studies are generally conducted on
normal, healthy human volunteers to determine the maximum dosages and side effects associated with
increasing doses of the substance being tested. Phase II studies are conducted on small groups of
patients afflicted with a specific disease to gain preliminary evidence of efficacy, including the
range of effective doses, and to determine common short-term side effects and risks associated with
the substance being tested. Phase III involves large-scale trials conducted on disease-afflicted
patients to provide statistically significant evidence of efficacy and safety and to provide an
adequate basis for product labeling. Frequent reports are required in each phase and if unwarranted
hazards to patients are found, the FDA may request modification or discontinuance of clinical
testing until further studies have been conducted. Phase IV testing is sometimes conducted, either
to meet FDA requirements for additional information as a condition of approval. Our drug product
candidates are and will be subjected to each step of this lengthy process from conception to market
and many of those candidates are still in the early phases of testing.
Once clinical testing has been completed pursuant to an IND, the applicant files an NDA or BLA with
the FDA seeking approval for marketing the drug product. The FDA reviews the NDA or BLA to
determine whether the drug is safe and effective, and adequately labeled, and whether the applicant
can demonstrate proper and consistent manufacture of the drug. The time required for initial FDA
action on an NDA or BLA is set on the basis of user fee goals; for most NDA or BLAs the action date
is 10 months from receipt of the NDA or BLA at the FDA. The initial FDA action at the end of the
review period may be approval or a request for additional information that will be needed for
approval depending on the characteristics of the drug and whether the FDA has concerns with the
evidence submitted. Once our product candidates reach this stage, we will be subjected to these
additional costs of time and money.
The FDA has different regulations and processes governing and regulating food products, including
vitamin supplements and nutraceuticals. These products are variously referred to as dietary
supplements, food additives, dietary ingredients, medical foods, and, most broadly, food.
These foods products do not require the IND, NDA or BLA process outlined above.
The facilities of each company involved in the commercial manufacturing, processing, testing,
control and labeling of pharmaceutical products must be registered with and approved by the FDA.
Continued registration requires compliance with GMP regulations and the FDA conducts periodic
establishment inspections to confirm continued compliance with its regulations. We are subject to
various federal, state and local laws, regulations and recommendations relating to such matters as
laboratory and manufacturing practices and the use, handling and disposal of hazardous or
potentially hazardous substances used in connection with our research and development work.
While we do not currently manufacture any commercial products ourselves, if we did, we would bear
additional cost of FDA compliance.
Employees
As of August 30, 2010, we had 17 employees, 8 of whom are engaged in scientific research and
technical functions and 9 of whom are performing accounting, information technology, engineering,
facilities maintenance, legal and regulatory and administrative functions. Of the 8 scientific
employees, 4 hold Ph.D. and/or D.V.M. degrees. We believe our relations with our employees are
good.
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Available Information
Emisphere files annual, quarterly, and current reports, proxy statements, and other documents with
the SEC under the Exchange Act. The public may read and copy any materials that we file with the
SEC at the SECs Public Reference Room at 100 F Street, NE, Washington, D.C. 20549. The public may
obtain information on the operation of the Public Reference Room by calling the SEC at
1-800-SEC-0330. Also, the SEC maintains an internet website that contains reports, proxy and
information statements, and other information regarding issuers, including Emisphere, that file
electronically with the SEC. The public can obtain any documents that Emisphere files with the SEC
at www.sec.gov.
We also make available free of charge on or through our internet website (www.emisphere.com) our
Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, Section 16
filings, and, if applicable, amendments to those reports filed or furnished pursuant to
Section 13(a) or Section 16 of the Exchange Act as soon as reasonably practicable after we or the
reporting person electronically files such material with, or furnishes it to, the SEC. Our internet
website and the information contained therein or connected thereto are not intended to be
incorporated into the Annual Report or this Form 10-K.
Our Board of Directors has adopted a Code of Business Conduct and Ethics which is posted on our
website at http://ir.emisphere.com/documentdisplay.cfm?DocumentID=4947.
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LEGAL PROCEEDINGS
In April 2005, the Company entered into an amended and restated employment agreement with its
then Chief Executive Officer, Dr. Michael M. Goldberg, for services through July 31, 2007. On
January 16, 2007, the Board of Directors terminated Dr. Goldbergs services. On April 26, 2007, the
Board of Directors held a special hearing at which it determined that Dr. Goldbergs termination
was for cause. On March 22, 2007, Dr. Goldberg, through his counsel, filed a demand for arbitration
asserting that his termination was without cause and seeking $1,048,000 plus attorneys fees,
interest, arbitration costs and other relief alleged to be owed to him in connection with his
employment agreement with the Company. During the arbitration, Dr. Goldberg sought a total damage
amount of at least $9,223,646 plus interest. On February 11, 2010, the arbitrator issued the final
award in favor of Dr. Goldberg for a total amount of approximately $2,333,115 as full and final
payment for all claims, defenses, counterclaims, fees and related matters. The Company opposed Dr.
Goldbergs petition to confirm the arbitration award. On July 12, 2010 the award was confirmed by
the court. As of August 10, 2010, the Company adjusted its estimate of costs to settle this matter
to $2.6 million to account for potential additional interest costs on the settlement amount and
additional legal fees. On September 8, 2010, the court entered a
judgement in the amount of $2,591,796.
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MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITIONS AND RESULTS OF OPERATIONS
Managements Discussion and Analysis of Financial Conditions and Results of Operations (MD&A) is
provided to supplement the accompanying financial statements and notes in Item 8 to help provide an
understanding of our financial condition, changes in our financial condition and results of
operations. To supplement its audited financial statements presented in accordance with US GAAP,
the company is providing a comparison of operating results describing net income and operating
expenses which removed certain non-cash and one-time or nonrecurring charges and receipts. The
Company believes that this presentation of net income and operating expense provides useful
information to both management and investors concerning the approximate impact of the items above.
The Company also believes that considering the effect of these items allows management and
investors to better compare the Companys financial performance from period to period and to better
compare the Companys financial performance with that of its competitors. The presentation of this
additional information is not meant to be considered in isolation of, or as a substitute for,
results prepared in accordance with US GAAP.
CAUTION CONCERNING FORWARD-LOOKING STATEMENTS
The following discussion and analysis contain forward-looking statements that involve risks and
uncertainties. When used in this report, the words, intend, anticipate, believe, estimate,
plan, expect and similar expressions as they relate to us are included to identify
forward-looking statements. Our actual results could differ materially from those anticipated in
these forward-looking statements as a result of factors, including those set forth under Risk
Factors (above) and elsewhere in this report. This discussion and analysis should be read in
conjunction with the Selected Financial Data and the Financial Statements and notes thereto
included in this report.
Overview
Emisphere Technologies, Inc. is a biopharmaceutical company that focuses on a unique and improved
delivery of therapeutic molecules or nutritional supplements using its Eligen®
Technology. These molecules could be currently available or are under development. Such molecules
are usually delivered by injection; in many cases, their benefits are limited due to poor
bioavailability, slow on-set of action or variable absorption. In those cases, our technology may
increase the benefit of the therapy by improving bioavailability or absorption or by increasing the
onset of action. The Eligen® Technology can be applied to the oral route of
administration as well other delivery pathways, such as buccal, rectal, inhalation, intra-vaginal
or transdermal. The Eligen® Technology can make it possible to orally deliver certain
therapeutic molecules without altering their chemical form or biological integrity.
Eligen® delivery agents, or carriers, facilitate or enable the transport of
therapeutic molecules across the mucous membranes of the gastrointestinal tract, to reach the
tissues of the body where they can exert their intended pharmacological effect.
Since our inception in 1986, substantial efforts and resources have been devoted to understanding
the Eligen® Technology and establishing a product development pipeline that incorporated
this technology with selected molecules. Since 2007, Emisphere has undergone many positive changes.
A new senior management team, led by Michael V. Novinski, was hired; the Eligen®
Technology was reevaluated and our corporate strategy was refocused on commercializing the
Eligen® Technology as quickly as possible, building high-value partnerships and
reprioritizing the product pipeline. Spending was redirected and aggressive cost control
initiatives were implemented. These changes resulted in redeployment of resources to programs, one
of which, yielded the introduction of our first commercial product during 2009. We continue to
develop potential product candidates in-house and we demonstrated and enhanced the value of the
Eligen® Technology as evident in the progress made by our development partners Novo
Nordisk A/S (Novo Nordisk) and Novartis Pharma AG (Novartis) on their respective product
development programs. Further development, exploration and commercialization of the technology
entail risk and operational expenses. However, we have made significant progress on refocusing our
efforts on strategic development initiatives and cost control and continue to aggressively seek to
reduce non-strategic spending.
The application of the Eligen® Technology is potentially broad and may provide for a
number of opportunities across a spectrum of therapeutic modalities or nutritional supplements.
During 2010, we continued to develop our product pipeline utilizing the Eligen®
Technology with prescription and nonprescription product candidates. We prioritized our development
efforts based on overall potential returns on investment, likelihood of success, and market and
medical need. Our goal is to implement our Eligen® Technology to enhance overall
healthcare, including patient accessibility and compliance, while benefiting the commercial
pharmaceutical marketplace and driving company valuation. Investments required to continue
developing our product pipeline may be partially paid by income-generating license arrangements
whose value tends to increase as product candidates move from pre-clinical into clinical
development. It is our intention that incremental investments that may be required to fund our
research and development will be approached incrementally in order to minimize disruption or
dilution.
We plan to attempt to expand our current collaborative relationships to take advantage of the
critical knowledge that others have gained by working with our technology. We will also continue to
pursue product candidates for internal development and commercialization. We believe that these
internal candidates must be capable of development with reasonable investments in an acceptable
time period and with a reasonable risk-benefit profile.
Our product pipeline includes prescription and medical foods candidates. We reported progress on a
medical food formulation of Eligen® B12 for use by B12 deficient individuals. Our
recently completed clinical trial showed that Eligen® B12 1000mcg can efficiently and
quickly restore Vitamin B12 levels in deficient individuals compared to the current standard of
care. During July 2010, we announced that we are engaged in ongoing discussions with a potential
licensee for our oral Eligen® B12 1000mcg as a Medical Food for individuals with B12
deficiency. In addition, we are evaluating other potential licensees as well as the possibility of
marketing the product without a partner. As a medical food, Emispheres Eligen® B12
(1000 mcg) is designed as a specially formulated and processed oral formulation for the specific
dietary management of patients under medical supervision who, because of a limited or impaired
capacity to absorb Vitamin B12 , have a diagnosed Vitamin B12 deficiency. It is planned to be
available in 2011. It is estimated that as many as 10 million people in the U.S. and over 100
million people worldwide may be B12 deficient. Oral Eligen® B12 and the foregoing
statements have not been evaluated by the Food and Drug Administration. Oral Eligen® B12
is not intended to diagnose, treat, cure, or prevent any disease.
Previously, the Company had announced interim data from the recently completed study demonstrated
that its high-dose oral Eligen® B12 (1000mcg) given to individuals with low B12 levels
restores normal B12 serum concentrations. Normal levels of serum B12 were achieved by all study
participants who had taken Eligen® B12 (1000mcg) 15 days into the 90-day study when the
first blood samples were taken. These data, in Abstract Number 8370, were presented at the
Experimental Biology 2010 Conference in Anaheim, California. In this open-label, randomized, 90-day
study, serum cobalamin (B12) and holotranscobalamin (active B12) were collected and measured at
Baseline, Day 15, Day 31, Day 61 and Day 91. A total of 49 study participants were enrolled (26 on
IM injection and 23 on oral) and received either nine 1000mcg intramuscular injections of Vitamin
B12 or once daily tablets of oral Eligen® B12 (1000 mcg). The results from the interim
analysis showed that serum cobalamin and active B12 returned to the normal range with both products
and normalization was maintained. With participants in the oral Eligen® B12 (1000mcg)
group showing the ability to rapidly achieve normalized serum and active B12 levels, the study
illustrates the potential of the Eligen® Technology and of the oral Eligen®
B12 (1000mcg) formulation to offer a much needed medical food alternative to painful and
inconvenient IM injections.
On the prescription side, our licensees include Novartis, which is using our drug delivery
technology in combination with salmon calcitonin, parathyroid hormone, and human growth hormone.
During June 2010, we announced that we entered into an expanded relationship with Novartis pursuant
to which Novartis has cancelled the Companys Convertible Promissory Note (the Novartis Note).
The Novartis Note was originally issued to Novartis on December 1, 2004 in connection with the
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Research Collaboration and Option License Agreement between the parties of that date and was
originally due December 1, 2009. Previously, Novartis had agreed to
extend the maturity date to June 4, 2010. In connection with the cancellation of the Novartis Note,
the parties agreed to modify the royalty and milestone payment schedule for the Research
Collaboration and Option Agreement and License Agreement between the parties for the development of
an oral salmon calcitonin product for the treatment of osteoarthritis and osteoporosis.
Additionally, we have granted Novartis the right to evaluate the feasibility of using Emispheres
Eligen® Technology with two new compounds to assess the potential for new product
development opportunities. If Novartis chooses to develop oral formulations of these new compounds
using the Eligen® Technology, the parties will negotiate additional agreements. In that
case, Emisphere could be entitled to receive development milestone and royalty payments in
connection with the development and commercialization of these potentially new products.
Novartis most advanced program is testing an oral formulation of calcitonin to treat
osteoarthritis and osteoporosis. Novartis is conducting two Phase III clinical studies for
osteoarthritis and one Phase III clinical study for osteoporosis. Now that these Phase III studies
are fully enrolled, over 5,500 clinical study patients used the Eligen® Technology
during 2009 and continue to use it during 2010. During July 2010, we announced that Novartis Pharma
AG and its license partner Nordic Bioscience a/s (the Sponsor) reported the following in
connection with their Phase III Study 2302 in osteoarthritis assessing the safety and efficacy of
oral calcitonin in the treatment of osteoarthritis of the knee. This study incorporates Emispheres
unique and proprietary Eligen® Drug Delivery Technology for the improved oral absorption
of salmon calcitonin. An independent Data Monitoring Committee (DMC) conducted a futility
analysis of one-year data for all patients enrolled in this two-year study, including assessments
of safety and efficacy parameters. The DMC concluded that although there is no reason to stop Study
2302 because of safety concerns, there is no reason to continue the study for efficacy. The DMC
also concluded that the final decision whether to continue Study 2302 rests with the Sponsor. A
parallel two-year Phase III Study 2301 in osteoarthritis assessing the safety and efficacy of oral
calcitonin in the treatment of osteoarthritis of the knee is still in progress. In December 2009,
the DMC conducted a futility analysis of one-year data for all patients enrolled in this two-year
study, including assessments of safety and efficacy parameters, and recommended to continue with
such Study. The Sponsor currently intends to continue the clinical program of oral calcitonin in
osteoarthritis, including both Phase III Study 2301 and Phase III Study 2302. Novartis and Nordic
Bioscience will continue to work together to assess next steps once the final data of Study 2301 is
available. This data is expected to be available in the fourth quarter, 2010. Additionally, the
Sponsor currently intends to continue the clinical program of oral calcitonin in osteoporosis.
Previously, in its quarterly earnings report for the period ended June 30, 2010, Novartis stated
that oral calcitonin for the treatment of osteoporosis is planned to file with the regulatory
authorities during 2011.
During April 2010, we announced the publication of a research study entitled, Investigation of the
Direct Effect of Salmon Calcitonin on Human Osteoarthritic Chondrocytes, by Nordic Bioscience in
the April 5, 2010 edition of the publication BMC Musculoskeletal Disorders. Oral salmon calcitonin,
which uses Emispheres proprietary Eligen® Technology, is currently being studied in
osteoarthritis and osteoporosis by Novartis Pharma AG and Nordic Bioscience. The study was
conducted in vitro on cartilage samples obtained from female patients undergoing total knee
arthroplasty surgery for the treatment of osteoarthritis. The article describes the growth
promoting effects of salmon calcitonin on these cartilage samples. The study shows that treatment
with pharmacological concentrations of calcitonin increases synthesis of both proteoglycan
(proteins and sugars which interweave with collagen) and collagen type II the key components of
articular cartilage. This research is unique and significant as it represents the first work to
look chiefly at the ability of salmon calcitonin to stimulate cartilage synthesis. These findings
provide evidence to substantiate the theory that calcitonin may exert a positive effect on joint
health through its dual action of promoting both bone and cartilage formation.
During December 2009, we announced a meta-analysis published in the December 2009 edition of
Rheumatology Reports examining independent evidence of the analgesic action of the hormone
calcitonin. This publication restated the potential of calcitonin in filling a significant unmet
need for alternative treatments for persistent musculoskeletal pain. Scientists from Nordic
Bioscience were involved in the preparation of this meta-analysis. Non-malignant musculoskeletal
pain is the most common clinical symptom that causes patients to seek medical attention and is a
major cause of disability in the world. Musculoskeletal pain can arise from a variety of common
conditions including osteoarthritis, rheumatoid arthritis, osteoporosis, surgery, low back pain and
bone fracture. The meta-analysis, conducted by researchers at the Center for Sensory-Motor
Interaction in the Department of Health Science and Technology at Aalborg University in Denmark,
examined independent pre-clinical and clinical studies spanning nearly 45 years of the possible
intrinsic analgesic properties of calcitonin, with special focus on the challenges in the
musculoskeletal system. The authors concluded that well-designed clinical trials should be
conducted to further validate evidence of calcitonins analgesic action and its promising potential
role in the management of musculoskeletal pain. The effects of calcitonin on clinical pain
conditions have received increasing attention in the past decades, although a consensus on
mechanism-of-action and potential indications has not been reached. The analgesic activity of oral
salmon calcitonin has been shown in several controlled prospective double-blind studies; besides
pain management in osteoporosis, calcitonin has shown analgesic action in painful conditions such
as phantom limb pain, diabetic neuropathy, complex regional pain syndrome, adhesive capsulitis,
rheumatoid arthritis, vertebral crush fractures, spondylitis, tumor metastasis, cancer pain,
migraine, Pagets disease of bone as well as post-operative pain. An ideal treatment with an
optimal efficacy, safety and convenience profile is not available for the musculoskeletal pain
associated with such conditions as osteoporosis and osteoarthritis. This review of the literature
highlights the clear unmet medical need that could be addressed by Emispheres oral salmon
calcitonin product.
Novartis is also engaged in research using the Eligen® Technology and PTH-1-34 to
develop a safe and effective oral formulation of PTH for the treatment of postmenopausal
osteoporosis, PTH is produced by the parathyroid glands to regulate the amount of calcium and
phosphorus in the body. When used therapeutically, it increases bone density and bone strength to
help prevent fractures. It is approved to treat osteoporosis, a disease associated with a gradual
thinning and weakening of the bones that occurs most frequently in women after menopause. Untreated
postmenopausal osteoporosis can lead to chronic back pain, disabling fractures, and lost mobility.
Novartis conducted a Phase I study in postmenopausal women to determine the safety and tolerability
of oral PTH-1-34, a combination of human PTH-1-34 and Emispheres delivery agent 5-CNAC, for the
treatment of postmenopausal osteoporosis. The study was designed to assess the bioavailability
profile of increasing doses of PTH-1-34 combined with different amounts of 5-CNAC administered
orally. The results, from the single-center, partially-blinded, incomplete cross-over study were
presented October 19, 2009 in a poster session at the 73rd Annual Scientific Meeting of the
American College of Rheumatology in Philadelphia. Study results demonstrated that a single dose of
the novel oral parathyroid hormone PTH-1-34, which utilizes Emispheres proprietary
Eligen® Drug Delivery Technology and absorption-enhancing carrier molecule 5-CNAC,
achieved potentially therapeutically relevant exposure and safety profiles similar to those of the
currently available injectable formulation in healthy postmenopausal women.
During April 2010, we announced that Novartis Pharma AG initiated a second Phase I trial for an
oral PTH-1-34 which uses Emispheres Eligen® Technology, and is in development for the
treatment of postmenopausal osteoporosis. The study is a partially blinded, placebo controlled,
active comparator study to explore the safety, tolerability, pharmacokinetics and pharmacodynamics
in postmenopausal women after daily oral doses of PTH-1-34. The study has two parts (A and B) and
will enroll a total of approximately up to 120 postmenopausal women. In Part A of the trial,
ascending doses of oral PTH-1-34 using the Eligen® Technology will be tested for safety,
tolerability and pharmacokinetics and compared to Forsteo®. In Part B, in addition to
safety and tolerability of oral PTH-1-34 using the Eligen® Technology, pharmacodynamic
responses will be measured by bone biomarker levels and bone mineral density, and compared to
Forsteo®. The first patient was enrolled in April.
Research using the Eligen® Technology and GLP-1, a potential treatment for Type 2
Diabetes is being conducted by Novo Nordisk A/S (Novo Nordisk) and by Dr. Christoph Beglinger,
M.D., of the Clinical Research Center, Department of Biomedicine Division of Gastroenterology, and
Department of Clinical Pharmacology and Toxicology at University Hospital in Basel, Switzerland. We
had previously conducted extensive tests on oral insulin for Type 1 Diabetes and concluded that a
more productive pathway is to move forward with GLP-1 and its analogs, an oral form of which might
be used to treat Type 2 Diabetes and related conditions. Consequently, on June 21, 2008 we entered
into an exclusive Development and License Agreement with Novo Nordisk focused on the development of
oral formulations of Novo Nordisks proprietary GLP-1 receptor agonists.
During January 2010, we announced that Novo Nordisk had initiated its first Phase I clinical trial
with a long-acting oral GLP-1 analogue (NN9924). This milestone released a $2 million payment to
Emisphere, whose proprietary Eligen® Technology is used in the formulation of NN9924.
GLP-1 (Glucagon-Like Peptide-1) is a
32
natural hormone involved in controlling blood sugar levels. It stimulates the release of insulin
only when blood sugar levels become too high. GLP-1 secretion is often impaired in people with Type
2 Diabetes. The aim of this trial, which is being conducted in the UK, is to investigate the
safety, tolerability and bioavailability of NN9924 in healthy volunteers. The trial will enroll
approximately 155 individuals and results from the trial are expected in 2011. There are many
challenges in developing an oral formulation of GLP-1, in particular obtaining adequate
bioavailability. NN9924 addresses some of these key challenges by utilizing Emispheres
Eligen® Technology to facilitate absorption from the gastrointestinal tract.
Our other product candidates in development are in earlier or preclinical research phases, and we
continue to assess them for their compatibility with our technology and market need. Our intent is
to seek partnerships with pharmaceutical and biotechnology companies for certain of these products.
We plan to expand our pipeline with product candidates that demonstrate significant opportunities
for growth. During March 2010, Emisphere and Alchemia Ltd. (ASX:ACL) announced that they would join
efforts to develop an oral formulation of the anti-coagulant drug fondaparinux with Emispheres
Eligen® Technology. Fondaparinux, an anti-coagulant used for the prevention of deep vein
thrombosis, is marketed in injectable form as Arixtra® by GlaxoSmithKline.
Arixtra® has been off patent since 2002 but, due to the complexity of its synthesis,
there is currently no approved generic or alternative source of commercial scale active
pharmaceutical ingredient (API). Alchemia has developed a novel, patent protected, synthesis for
the manufacture of fondaparinux at commercial scale. In March 2009, Alchemias manufacturing and
U.S. marketing partner, Dr Reddys Laboratories (NYSE: RDY) submitted an ANDA to the U.S. FDA for a
generic version of the injectable form of fondaparinux. We believe an oral formulation of
fondaparinux could dramatically increase the market potential for fondaparinux. Based on what we
know from our experience with other chemically-related anti-coagulants, the profile of fondaparinux
should fit very well with the Eligen® Technology given its half life and safety profile.
Although developing an oral formulation of an injectable compound is always challenging, this
project could produce substantial benefits for the medical community. The combination of
Emispheres delivery technology and Alchemias fondaparinux may ultimately allow us to bring an
oral anti-coagulant to market in an accelerated fashion. Alchemia has already seen preclinical data
suggesting that enhanced levels of oral absorption can be achieved for fondaparinux. If the dose
formulated with the Eligen® Technology can be successfully optimized, it could open up a
host of medically and commercially compelling opportunities for fondaparinux, Alchemia plans to
evaluate a number of different formulations initially in order to optimize oral bioavailability and
pharmacokinetics, with the aim of then rapidly moving into human clinical studies.
By expanding our relationship with Novartis and settling the Novartis Note on non-dilutive terms
(see Note 8 to the June 30, 2010 Financial Statements contained in this registration statement) the
Company strengthened its Balance Sheet and enhanced the potential future value of its
Eligen® Technology through the potential future additional development and
commercialization of potentially new products by Novartis. By focusing on improving operational
efficiency, we have strengthened our financial foundation while maintaining our focus on advancing
and commercializing the Eligen® Technology. By closing our research and development
facility in Tarrytown, NY and utilizing independent contractors to conduct essential research and
development, we reduced our annual cash burn from operating activities to approximately $8 million
per year. Additionally, we have accelerated the commercialization of the Eligen®
Technology in a cost effective way and gained operational efficiencies by tapping into more
advanced scientific processes independent contractors can provide.
Results of Operations
Three Months Ended June 30, 2010 Compared to Three Months Ended June 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
Change |
|
|
|
(in thousands) |
|
Revenue |
|
$ |
39 |
|
|
$ |
|
|
|
$ |
39 |
|
Operating expenses |
|
$ |
3,156 |
|
|
$ |
2,998 |
|
|
$ |
158 |
|
Operating loss |
|
$ |
(3,117 |
) |
|
$ |
(2,998 |
) |
|
$ |
(119 |
) |
Other income (expense) |
|
$ |
(10,587 |
) |
|
$ |
(1,189 |
) |
|
$ |
(9,398 |
) |
Net loss |
|
$ |
(13,704 |
) |
|
$ |
(4,187 |
) |
|
$ |
(9,517 |
) |
Revenue increased $0.04 million for the three months ended June 30, 2010 compared to the same
period last year due to commercial sales of low dose Eligen® B-12.
Operating expenses increased $0.16 million or 5% for the three months ended June 30, 2010 in
comparison to the same period last year. Details of these changes are highlighted in the table
below:
|
|
|
|
|
|
|
(in thousands) |
|
Decrease in human resources costs |
|
$ |
(673 |
) |
Decrease in professional fees |
|
|
(13 |
) |
Increase in occupancy costs |
|
|
2 |
|
Decrease in clinical costs |
|
|
(72 |
) |
Decrease in depreciation and amortization |
|
|
(21 |
) |
Increase in other costs |
|
|
935 |
|
|
|
|
|
|
|
$ |
158 |
|
|
|
|
|
Human resource costs decreased $673 thousand, or 37%, due primarily to a $70 thousand decrease from
a reduction in personnel in 2010 and a $631 thousand reduction in non-cash compensation, partially
offset by the receipt of a refund in workers compensation insurance during 2009.
Professional fees decreased $13 thousand, or 1%, due primarily to a net decrease in legal fees.
Occupancy costs increased $2 thousand, or 2%, due to higher common area maintenance costs.
Clinical costs decreased $72 thousand, or 22%, due primarily to a decrease in clinical trial costs
related to B-12 as the trial nears completion.
Depreciation and amortization costs decreased $21 thousand, or 22%, due to the write off of certain
equipment in connection with the closure of the Tarrytown facility as a result of our fixed asset
audit in the fourth quarter of 2009.
Other costs increased $935 thousand, or 174%, due primarily to the receipt of $779 thousand
proceeds from the sale of fixed asset equipment in 2009 and an increase of $220 thousand in
estimated costs to settle outstanding lawsuits during 2010; partially offset by a $63 thousand
reduction in expenses associated with the abandonment of the Tarrytown NY facility during 2009.
33
Our principal operating costs include the following items as a percentage of total operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
June 30, |
|
|
|
2010 |
|
|
2009 |
|
Human resource costs, including benefits |
|
|
36 |
% |
|
|
61 |
% |
Professional fees for legal, intellectual property, accounting and consulting |
|
|
38 |
% |
|
|
40 |
% |
Occupancy for our laboratory and operating space |
|
|
3 |
% |
|
|
3 |
% |
Clinical costs |
|
|
8 |
% |
|
|
11 |
% |
Depreciation and amortization |
|
|
2 |
% |
|
|
3 |
% |
Other |
|
|
13 |
% |
|
|
-18 |
% |
Other expense increased $9.4 million for the three months ended June 30, 2010 in comparison to the
same period last year primarily due to a $8.2 million increase in the fair value of derivative
instruments due to relative changes in stock price during the three months ended June 30, 2010
compared to the three months period ended June 30, 2009; an increase of $0.7 million in interest
expense and a decrease of $0.5 million in other income due to the receipt of a $0.5 million
installment payment on the sale of a patent to MannKind during the three months ended June 30,
2009.
As a result of the above factors, we had a net loss of $13.7 million for the three months ended
June 30, 2010, compared to a net loss of $4.2 million for the three months ended June 30, 2009.
Six Months Ended June 30, 2010 Compared to Six Months Ended June 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
|
|
|
|
June 30, |
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
Change |
|
|
|
(in thousands) |
|
Revenue |
|
$ |
51 |
|
|
$ |
|
|
|
$ |
51 |
|
Operating expenses |
|
$ |
6,176 |
|
|
$ |
7,657 |
|
|
$ |
(1,481 |
) |
Operating loss |
|
$ |
(6,125 |
) |
|
$ |
(7,657 |
) |
|
$ |
1,532 |
|
Other income (expense) |
|
$ |
(26,045 |
) |
|
$ |
(1,947 |
) |
|
$ |
(24,098 |
) |
Net loss |
|
$ |
(32,170 |
) |
|
$ |
(9,604 |
) |
|
$ |
(22,566 |
) |
Revenue increased $0.05 million for the six months ended June 30, 2010 compared to the same period
last year due to commercial sales of low dose Eligen® B-12.
Operating expenses decreased $1.6 million or 21% for the six months ended June 30, 2010 in
comparison to the same period last year. Details of these changes are highlighted in the table
below:
|
|
|
|
|
|
|
(in thousands) |
|
Decrease in human resources costs |
|
$ |
(374 |
) |
Decrease in professional fees |
|
|
(908 |
) |
Decrease in occupancy costs |
|
|
(822 |
) |
Decrease in clinical costs |
|
|
(522 |
) |
Decrease in depreciation and amortization |
|
|
(157 |
) |
Increase in other costs |
|
|
1,302 |
|
|
|
|
|
|
|
$ |
(1,481 |
) |
|
|
|
|
Human resource costs decreased $374 thousand, or 12%, due primarily to a $460 thousand decrease in
non-cash compensation and a $79 thousand decrease from reduction in personnel, offset by the award
of a $150 thousand special bonus to the Companys CEO and a $15 thousand increase in employee
benefits.
Professional fees decreased $908 thousand, or 30%, due primarily to a $597 thousand decrease in
legal fees primarily in connection with the completion of the arbitration with the Companys former
CEO; a $252 thousand decrease in consulting costs and $59 thousand decrease from other professional
fees.
Occupancy costs decreased $822 thousand, or 82%, due to the closure of our laboratory facilities in
Tarrytown, NY.
Clinical costs decreased $522 thousand, or 57%, due primarily to a $247 thousand decrease in
clinical trial costs and a $132 thousand decrease in outside lab fees associated with the
completion of analytical testing programs related to the B-12 program; a $103 thousand decrease in
lab supplies and a $57 thousand decrease in repairs and maintenance of laboratory equipment as a
result of closure of the Tarrytown NY facility in 2009.
Depreciation and amortization costs decreased $157 thousand, or 51%, due to the sales of laboratory
equipment and the write off of certain equipment in connection with the closure of the Tarrytown
facility.
Other costs increased $1.3 million, or 194%, due primarily to the receipt of $822 thousand proceeds
from the sale of fixed asset equipment in 2009, an increase of $220 thousand in estimated costs to
settle outstanding lawsuit and a $353 thousand credit adjustment to restructuring expense taken
during the first quarter 2009 in connection with the closure of the Tarrytown facility.
Our principal operating costs include the following items as a percentage of total operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
|
2010 |
|
|
2009 |
|
Human resource costs, including benefits |
|
|
44 |
% |
|
|
41 |
% |
Professional fees for legal, intellectual property, accounting and consulting |
|
|
34 |
% |
|
|
39 |
% |
Occupancy for our laboratory and operating space |
|
|
3 |
% |
|
|
13 |
% |
Clinical costs |
|
|
6 |
% |
|
|
12 |
% |
Depreciation and amortization |
|
|
3 |
% |
|
|
4 |
% |
Other |
|
|
10 |
% |
|
|
-9 |
% |
Other expense increased $24.1 million for the six months ended June 30, 2010 in comparison to the
same period last year primarily due to a $22.3 million increase in the fair value of derivative
instruments due to the issuance of new warrants which are required to be accounted for as a
derivative instruments and to relative changes in stock price during the six months ended June 30,
2010 and June 30, 2009 respectively; an increase of $1.1 million in interest expense and a decrease
of $0.7 million in
34
other income due primarily from a $0.5 installment payment on the sale of patent to MannKind and
$0.2 million decrease in sublease income in connection with the closure of our Tarrytown facility
during 2009.
As a result of the above factors, we had a net loss of $32.2 million for the six months ended June
30, 2010, compared to a net loss of $9.6 million for the six months ended June 30, 2009.
Year Ended December 31, 2009 Compared to Year Ended December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
|
|
|
|
|
December 31, |
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
Change |
|
|
|
(In thousands) |
|
Revenue |
|
$ |
92 |
|
|
$ |
251 |
|
|
$ |
(159 |
) |
Operating expenses (including a $3.8 million
restructuring charge in 2008 and a $0.4
million reduction to the restructuring
liability in 2009 relating to the closure of
the facility in Tarrytown, NY) |
|
$ |
14,644 |
|
|
$ |
26,571 |
|
|
$ |
11,927 |
|
Operating loss |
|
$ |
(14,552 |
) |
|
$ |
(26,320 |
) |
|
$ |
11,768 |
|
Change in fair value of derivative instruments |
|
$ |
(2,473 |
) |
|
$ |
2,220 |
|
|
$ |
(4,693 |
) |
Interest Expense |
|
$ |
(5,081 |
) |
|
$ |
(2,956 |
) |
|
$ |
(2,125 |
) |
Other non-operating income (expenses) |
|
$ |
863 |
|
|
$ |
2,668 |
|
|
$ |
(1,805 |
) |
Net loss |
|
$ |
(21,243 |
) |
|
$ |
(24,388 |
) |
|
$ |
3,145 |
|
Revenue decreased $0.2 million for the year ended December 31, 2009 compared to December 31, 2008,
due to decreased receipts from development partners, the deferral of cost reimbursements received
from Novo Nordisk in connection with the development of an oral formulation of GLP-1 receptor
agonists in accordance with the Companys revenue recognition policy; offset by the receipt of $92
thousand B12 operating revenue during 2009. Revenue reported in 2009 relates to the sales of low
dose Eligen B-12 to Life Extension Foundation.
Our principal operating costs include the following items as a percentage of total expenses:
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
|
|
December 31, 2009 |
|
|
December 31, 2008 |
|
Human resource costs, including benefits |
|
|
35 |
% |
|
|
42 |
% |
Professional fees for legal, intellectual property, accounting and consulting |
|
|
35 |
% |
|
|
22 |
% |
Occupancy for our laboratory and operating space |
|
|
8 |
% |
|
|
19 |
% |
Clinical costs |
|
|
8 |
% |
|
|
5 |
% |
Depreciation and amortization |
|
|
3 |
% |
|
|
4 |
% |
Other |
|
|
11 |
% |
|
|
8 |
% |
Operating expenses, decreased by $11.9 million (45%) as a result of the following items:
|
|
|
|
|
|
|
(In thousands) |
|
Decrease in human resource costs |
|
$ |
(4,400 |
) |
Increase in clinical costs and lab fees |
|
|
400 |
|
Increase in professional and consulting fees |
|
|
200 |
|
Decrease in occupancy costs |
|
|
(3,300 |
) |
Reduction in depreciation and amortization |
|
|
(500 |
) |
All other |
|
|
(4,300 |
) |
|
|
|
|
Net decrease |
|
$ |
(11,900 |
) |
|
|
|
|
Human resource costs decreased approximately $4.4 million primarily due to an 80% reduction in
headcount from 87 as of December 31, 2008 to 17 as of December 31, 2009.
Clinical costs and lab fees increased approximately $0.4 million primarily as a result of studies
and clinical testing related to the B-12 program.
Professional and consulting fees increased approximately $0.2 million primarily due to an increase
of approximately $1.0 million in legal fees offset by a $0.5 million reduction in consulting fees
in connection with the completion of toxicology and clinical studies; $0.2 million reduction in
accounting fees; and a $0.1 million reduction in various miscellaneous professional fees.
Occupancy costs decreased $3.3 million primarily due to the closure of the Tarrytown, NY facility
and subsequent termination of our lease for that facility.
Depreciation and amortization expense decreased $0.5 million primarily due to the write-off of
leasehold improvements, laboratory equipment, abandoned furniture, fixtures and computer hardware
in connection with the closure of the Tarrytown, NY facility.
All other operating costs decreased $4.3 million primarily due to the $3.8 million restructuring
charge incurred during 2008, a $0.4 million adjustment to the restructuring liability during 2009,
an increase of $0.7 million on the gain on sale of fixed assets during 2009, and $0.7 million
decrease in insurance, travel related, software licensing, maintenance, and other operating
expenses during 2009; offset by the incremental accrual of $1.3 million expense in connection with
the final ruling of the arbitrator awarding legal fees to Dr. Goldberg.
As a result of the factors above, Emispheres operating expenses were $14.6 million for the year
ended December 31, 2009; a decrease of $11.9 million or 45% compared to operating expenses for the
year ended December 31, 2008.
Other non-operating expense increased by approximately $8.6 million for the year ended December 31,
2009 in comparison to the same period in 2008 primarily due to a $4.7 million increase in the
change in the value of derivative instruments, a $2.1 million increase in interest expense due
primarily to the adoption of FASB ASC 815-40-15-5, a $1.0 million reduction in the gain from sale
of patent to MannKind Corporation, a decrease of $0.6 million in sublease income during 2009, and a
$0.2 million decrease in investment income. Expense from the change in the fair value of
derivatives instruments for 2009 and 2008 is the result of the adoption of
35
FASB ASC 815-40-15-5, an increase in stock price from $0.79 on December 31, 2008 to $1.06 on December
31, 2009 and from the decrease in stock price from $2.73 on December 31, 2007 to $0.79 on December
31, 2008, and the addition of 4,523,755 warrants in connection with the August 2009 offering. The
change in value of derivative instruments: increases in value of the underlying shares of the
Companys common stock increase the liability with a corresponding loss recognized in the Companys
operating statement while decreases in the value of the Companys common stock decrease the value
of the liability with a corresponding gain recognized in the Companys operating statement. Future
gains and losses recognized in the Companys operating results from changes in value of the
derivative instrument liability are based in part on the fair value of the Companys common stock
which is outside the control of the Company. Gains and losses could be material.
As a result of the above factors, we reported a net loss of $21.2 million, compared to a net loss
of $24.4 million, or $3.1 million (13%) lower than the net loss for the year ended December 31,
2008.
Year Ended December 31, 2008 Compared to Year Ended December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
|
|
|
|
|
December 31, |
|
|
|
|
|
|
2008 |
|
|
2007 |
|
|
Change |
|
|
|
(In thousands) |
|
Revenue |
|
$ |
251 |
|
|
$ |
4,077 |
|
|
$ |
(3,826 |
) |
Operating expenses (excluding income from
settlement of lawsuit in 2007, net; including
the $3.8 million restructuring charge in
2008) |
|
$ |
26,571 |
|
|
$ |
36,618 |
|
|
$ |
(10,047 |
) |
Income from settlement of lawsuit, net |
|
$ |
|
|
|
$ |
11,890 |
|
|
$ |
(11,890 |
) |
Operating loss |
|
$ |
(26,320 |
) |
|
$ |
(20,651 |
) |
|
$ |
(5,669 |
) |
Change in fair value of derivative instruments |
|
$ |
2,220 |
|
|
$ |
5,057 |
|
|
$ |
(2,837 |
) |
Interest Expense |
|
$ |
(2,956 |
) |
|
$ |
(2,615 |
) |
|
$ |
(341 |
) |
Other non-operating income (expenses) |
|
$ |
2,668 |
|
|
$ |
1,281 |
|
|
$ |
1,387 |
|
Net loss |
|
$ |
(24,388 |
) |
|
$ |
(16,928 |
) |
|
$ |
(7,460 |
) |
Revenue decreased $3.8 million for the year ended December 31, 2008 compared to year ended December
31, 2007 due to the receipt of milestone payments during 2007. In connection with the development
and license agreement with Novo Nordisk to develop an oral formulation of GLP-1 receptor agonists
for Diabetes we received a $10.0 million non-refundable license fee payment and $1.2 million in
reimbursement of costs in 2008; all of which was deferred in accordance with the Companys revenue
recognition policy. Under such agreement Emisphere could receive more than $87.0 million in
contingent product development and sales milestone payments. Emisphere would also be entitled to
receive royalties in the event Novo Nordisk commercializes products developed under such agreement.
Our principal operating costs include the following items as a percentage of total expenses:
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
|
|
December 31, 2008 |
|
|
December 31, 2007 |
|
Human resource costs, including benefits |
|
|
42 |
% |
|
|
50 |
% |
Professional fees for legal, intellectual property, accounting and consulting |
|
|
22 |
% |
|
|
17 |
% |
Occupancy for our laboratory and operating space |
|
|
19 |
% |
|
|
12 |
% |
Clinical costs |
|
|
5 |
% |
|
|
8 |
% |
Depreciation and amortization |
|
|
4 |
% |
|
|
3 |
% |
Other |
|
|
8 |
% |
|
|
10 |
% |
Operating expenses, excluding income from settlement of lawsuit, net, and excluding the
restructuring charge, decreased by $13.9 million (38%) as a result of the following items:
|
|
|
|
|
|
|
(In thousands) |
|
Decrease in human resource costs |
|
$ |
(8,800 |
) |
Decrease in clinical costs and lab fees |
|
|
(2,800 |
) |
Decrease in professional and consulting fees |
|
|
(1,400 |
) |
Decrease in occupancy costs |
|
|
(100 |
) |
Reduction in depreciation and amortization |
|
|
(100 |
) |
All other |
|
|
(700 |
) |
|
|
|
|
Net decrease |
|
$ |
(13,900 |
) |
|
|
|
|
Human resource costs decreased by approximately $8.8 million primarily due to a 77% reduction in
headcount from 87 employees as of December 31, 2007 to 20 as of December 31, 2008; in addition to a
reduction in severance payments and approximately $2.0 reduction in non-cash compensation expense
due to the cancellation or expiration of employee stock options.
Clinical costs and lab fees decreased approximately $2.8 million primarily as a result of the
completion of clinical and toxicology studies in connection with the anticipated heparin trial.
The decrease of approximately $1.4 million in professional and consulting fees is primarily due to
an approximately $0.8 million reduction in legal fees in connection with the settlement of our law
suit with Eli Lilly, and streamlining corporate legal support; a $0.3 million reduction in
professional and consulting fees in connection with the completion of toxicology and clinical
studies and an $0.1 million reduction in recruiting costs.
All other operating costs decreased by $0.9 million primarily due to decreases in insurance, travel
related, software licensing and maintenance, depreciation and amortization, utilities and a gain on
the sale of fixed assets and a reduction in other operating expenses.
As a result of the factors above Emispheres operating expenses were $26.6 million for the year
ended December 31, 2008, including the $3.8 million one time restructuring charge in connection
with the closure of the research and development facility in Tarrytown, NY; an increase of $1.8
million or 7% compared to operating expenses for the year ended December 31, 2007. Total operating
expenses for the year ended December 31, 2008, excluding the one time restructuring charge of $3.8
million would have been $22.7 million, compared to $36.6 million operating costs, excluding $11.9
million net proceeds from the settlement of the lawsuit with Eli Lilly for the year ended December
31, 2007, a decrease of $13.9 million or 38%.
36
Other non-operating income decreased by approximately $1.8 million for the year ended December 31,
2008 in comparison to the same period last year primarily due to a reduction of approximately $2.8
million in the change in the value of derivative instruments, a $0.7 million decrease in investment
income, and an approximately $0.3 million increase in interest expense; offset by the $1.5 million
gain from sale of patent to MannKind Corporation and an increase of approximately $0.6 million in
sublease income during 2008, Income from the change in the fair value of derivatives instruments
for 2008 and 2007 is the result of the decrease in stock price from $2.73 on December 31, 2007 to
$0.79 on December 31, 2008 and from $5.29 on December 31, 2006 to $2.73 on December 31, 2007,
partially offset by the addition of 400,000 warrants in connection with the August 2007 offering.
The change in value of derivative instruments: increases in value of the underlying shares of the
Companys common stock increase the liability with a corresponding loss recognized in the Companys
operating statement while decreases in the value of the Companys common stock decrease the value
of the liability with a corresponding gain recognized in the Companys operating statement. Future
gains and losses recognized in the Companys operating results from changes in value of the
derivative instrument liability are based in part on the fair value of the Companys common stock
which is outside the control of the Company. Gains and losses could be material.
As a result of the above factors, we reported a net loss of $24.4 million, including the $3.8
million one-time restructuring charge in connection with the closure of its research and
development facility in Tarrytown, NY; compared to a net loss of $16.9 million, including $11.9
million net proceeds from the settlement of the lawsuit with Eli Lilly and Company. The net loss
for year ended December 31, 2008 excluding the one time restructuring charge of $3.8 million would
have been $20.6 million, compared to $28.8 million, or $8.3 million (29%) lower than the net loss
for the year ended December 31, 2007, excluding $11.9 million net proceeds from the settlement of
the lawsuit with Eli Lilly in 2007.
The $3.8 million one-time restructuring charge related to the closure of the Tarrytown facility is
comprised of $2.6 million present value in rent, net of sub-lease income through the expiration of
the lease; termination benefits of $0.2 million; and a $1.0 million charge to write down the net
book value of leasehold improvements in space no longer used by the Company as of December 8, 2008.
Liquidity and Capital Resources
Since our inception in 1986, we have generated significant losses from operations and we anticipate
that we will continue to generate significant losses from operations for the foreseeable future. As
of June 30, 2010, our accumulated deficit was approximately $468.8 million and our stockholders
deficit was approximately $73.4 million. Our net loss and operating loss was $13.7 million and $3.1
million, respectively for the three months ended June 30, 2010 compared to a net loss and net
operating loss of $4.2 million and $3.0 million, respectively for the three months ended June 30,
2009. Our net loss and net operating loss for the six months ended June 30, 2010 were $32.2 million
and $6.1 million respectively compared to $9.6 million and $7.7 million, respectively for the six
months ended June 30, 2009.
On June 4, 2010, we entered into a Master Agreement and Amendment with Novartis (the Novartis
Agreement). Pursuant to the Novartis Agreement, we were released and discharged from its
obligations under the Novartis Note in exchange for (1) the reduction of future royalty and
milestone payments up to an aggregate amount of $11.0 million due the Company under the Research
Collaboration and Option Agreement, dated as of December 3, 1997, as amended on October 20, 2000,
and the License Agreement, date as of March 8, 2000, for the development of an oral salmon
calcitonin product for the treatment of osteoarthritis and osteoporosis.; (2) the right for
Novartis to evaluate the feasibility of using Emispheres Eligen® Technology with two
new compounds to assess the potential for new product development opportunities; and (3) other
amendments to the Research Collaboration and Option Agreement and License Agreement. As of the date
of the Novartis Agreement, the outstanding principal balance and accrued interest of the Novartis
Note was approximately $13.0 million.
On July 29, 2010, we issued a promissory note (the MHR 2010 Note) to MHR Institutional Partners
IIA LP and MHR Institutional Partners II LP (together, MHR) in the principal amount of $525,000.
The MHR 2010 Note provides for an interest rate of 15% per annum, with the entire principal amount
due and payable on October 27, 2010 (the Maturity Date). The Maturity Date was accelerated per
the terms of the MHR 2010 Note upon completion of the Private Placement and MHR Private Placement.
The amount payable by the MHR Buyer to the Company in connection with the MHR Private Placement was
reduced to allow for the repayment by the Company to MHR of the aggregate principal and interest
outstanding under the MHR 2010 Note. As a result, the MHR 2010 Note is no longer outstanding.
On August 25, 2010, we entered into a Securities Purchase Agreement (the Securities Purchase
Agreement) with the selling security holders to sell an aggregate of 3,497,528 shares of our
common stock and warrants to purchase a total of 2,623,146 shares of our common stock for gross
proceeds, before deducting fees and expenses and excluding the proceeds, if any, from the exercise
of the warrants of $3,532,503 (the Private Placement). Each unit, consisting of one share of
common stock and a warrant to purchase 0.75 shares of common stock, was sold at a purchase price of
$1.01. The warrants are exercisable at an exercise price of $1.26 per share beginning immediately
after issuance and expire 5 years from the date of issuance. The exercise price of the warrants is
subject to adjustment in the case of stock splits, stock dividends, combinations of shares and
similar recapitalization transactions. The warrants also contain full-ratchet anti-dilution
protection for issuances or sales by us of securities below the exercise price of the warrants, but
only to the extent as a result of such issuances or sales the exercise or conversion price of the
MHR Securities (as defined in the warrant) is actually reduced to a price below the exercise price
of the warrants. The full ratchet anti-dilution protection contained in the warrants shall only be
effective from the date of the Securities Purchase Agreement until the six month anniversary of the
issuance date of the warrants. The Private Placement closed on August 26, 2010, after the
satisfaction of customary closing conditions, and we issued the shares of common stock and the
warrants to the selling security holders on such closing date.
In connection with the Private Placement, on August 25, 2010, we also entered into a Securities
Purchase Agreement with MHR Fund Management LLC (the MHR Buyer) to sell an aggregate of 3,497,528
shares of our common stock and warrants to purchase a total of 2,623,146 shares of our common stock
for gross proceeds, before deducting fees and expenses and excluding the proceeds, if any, from the
exercise of the warrants of $3,532,503 (the MHR Private Placement). The aggregate principal and
interest outstanding under the MHR 2010 Note was utilized, per the terms of the MHR 2010 Note, as a
portion of the payment by MHR to the Company in connection with the MHR Private Placement. Each
unit, consisting of one share of common stock and a warrant to purchase 0.75 shares of common
stock, was sold at a purchase price of $1.01. The warrants issued to the MHR Buyer had
substantially the same terms as the warrants issued to the selling security holders in the Private
Placement. The MHR Private Placement closed on August 26, 2010, after the satisfaction of
customary closing conditions, and we issued the shares of common stock and the warrants to the MHR
Buyer on such closing date.
In connection with the Private Placement and the MHR Private Placement, on August 25, 2010, we
entered into a Waiver Agreement with MHR (the Waiver Agreement), pursuant to which MHR waived
certain anti-dilution adjustment rights under the MHR Senior Secured Notes and certain warrants
issued by us to MHR that would otherwise have been triggered by the Private Placement described
above. As consideration for such waiver, on August 26, 2010, we issued to MHR a warrant to purchase
975,000 shares of our common stock and agreed to reimburse MHR for 50% of its legal fees up to a
maximum reimbursement of $50,000. Such warrant is the same form as the warrants issued in
connection with the MHR Private Placement described above.
In April 2005, the Company entered into an amended and restated employment agreement with its then
Chief Executive Officer, Dr. Michael M. Goldberg, for services through July 31, 2007. On January
16, 2007, the Board of Directors terminated Dr. Goldbergs services. On April 26, 2007, the Board
of Directors held a special hearing at which it determined that Dr. Goldbergs termination was for
cause. On March 22, 2007, Dr. Goldberg, through his counsel, filed a demand for arbitration
asserting that his termination was without cause and seeking $1,048,000 plus attorneys fees,
interest, arbitration costs and other relief alleged to be owed to him in connection with his
employment agreement with the Company. During the arbitration, Dr. Goldberg sought a total damage
amount of at least $9,223,646 plus interest.
On February 11, 2010, the arbitrator issued the final award in favor of Dr. Goldberg for a total
amount of approximately $2,333,115 as full and final payment for all
37
claims, defenses,
counterclaims, fees and related matters. The Company opposed Dr. Goldbergs petition to confirm the
arbitration award. On July 12, 2010 the award was confirmed by the court. As of August 10, 2010,
the Company adjusted its estimate of costs to settle this matter to $2.6 million to account for
potential additional interest costs on the settlement amount and
additional legal fees. On September 8, 2010, the court entered a
judgement in the amount of $2,591,796.
We anticipate that we will continue to generate significant losses from operations for the
foreseeable future, and that our business will require substantial additional investment that we
have not yet secured. As such, we anticipate that our existing cash resources, including the
amounts provided by the Private Placement and the MHR Private Placement, will enable us to continue
operations through approximately early December 2010, or earlier if unforeseen events arise that
negatively affect our liquidity. Further, we have significant future commitments and obligations.
These conditions raise substantial doubt about our ability to continue as a going concern.
Consequently, the audit opinion issued by our independent registered public accounting firm
relating to our financial statements for the year ended December 31, 2009 contained a going concern
explanatory paragraph. We are pursuing new as well as enhanced collaborations and exploring other
financing options, with the objective of minimizing dilution and disruption. If we fail to raise
additional capital or obtain substantial cash inflows from existing partners prior to early
December 2010, we could be forced to cease operations.
While our plan is to raise capital when needed and/or to pursue product partnering opportunities,
we cannot be sure how much we will need to spend in order to develop, market, and manufacture new
products and technologies in the future. We expect to continue to spend substantial amounts on
research and development, including amounts spent on conducting clinical trials for our product
candidates. Further, we will not have sufficient resources to develop fully any new products or
technologies unless we are able to raise substantial additional financing or to secure funds from
new or existing partners. We cannot assure you that financing will be available when needed, or on
favorable terms or at all. The current economic environment combined with a number of other factors
pose additional challenges to the Company in securing adequate financing under acceptable terms. If
additional capital is raised through the sale of equity or convertible debt securities, the
issuance of such securities would result in dilution to our existing stockholders. Additionally,
these conditions may increase the costs to raise capital. Our failure to raise capital when needed
would adversely affect our business, financial condition, and results of operations, and could
force us to reduce or discontinue operations.
Critical Accounting Estimates and New Accounting Pronouncements
Critical Accounting Estimates
The preparation of financial statements in accordance with accounting principles generally accepted
in the U.S. requires management to make estimates and assumptions that affect reported amounts and
related disclosures in the financial statements. Management considers an accounting estimate to be
critical if:
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It requires assumptions to be made that were uncertain at the time the estimate was made,
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Changes in the estimate or different estimates that could have been selected could have a
material impact on our results of operations or financial condition |
Share-Based Payments We recognize expense for our share-based compensation in accordance with
FASB ASC 718, compensation-stock compensation, which establishes standards for share-based
transactions in which an entity receives employees services for (a) equity instruments of the
entity, such as stock options, or (b) liabilities that are based on the fair value of the entitys
equity instruments or that may be settled by the issuance of such equity instruments. FASB ASC 718
requires that companies expense the fair value of stock options and similar awards, as measured on
the awards grant date. FASB ASC 718 applies to all awards granted after the date of adoption, and
to awards modified, repurchased or cancelled after that date.
We estimate the value of stock option awards on the date of grant using the Black-Scholes-Merton
option-pricing model (the Black-Scholes model). The determination of the fair value of
share-based payment awards on the date of grant is affected by our stock price as well as
assumptions regarding a number of complex and subjective variables. These variables include our
expected stock price volatility over the term of the awards, expected term, risk-free interest
rate, expected dividends and expected forfeiture rates.
If factors change and we employ different assumptions in the application of FASB ASC 718 in future
periods, the compensation expense that we record under FASB ASC 718 may differ significantly from
what we have recorded in the current period. There is a high degree of subjectivity involved when
using option pricing models to estimate share-based compensation under FASB ASC 718. Consequently,
there is a risk that our estimates of the fair values of our share-based compensation awards on the
grant dates may bear little resemblance to the actual values realized upon the exercise,
expiration, early termination or forfeiture of those share-based payments in the future. Employee
stock options may expire worthless or otherwise result in zero intrinsic value as compared to the
fair values originally estimated on the grant date and reported in our financial statements.
Alternatively, value may be realized from these instruments that are significantly in excess of the
fair values originally estimated on the grant date and reported in our financial statements. During
the year ended December 31, 2009, we do not believe that reasonable changes in the projections
would have had a material effect on share-based compensation expense.
Revenue Recognition Revenue includes amounts earned from sales of our oral Eligen®
B12 product to Life Extension®, collaborative agreements and feasibility studies.
Revenue earned from the sale of Eligen® B12 is recognized when products are shipped to
Life Extension®. Revenue from feasibility studies, which are typically short term in
nature, is recognized upon delivery of the study, provided that all other revenue recognition
criteria are met. Revenue from collaboration agreements are recognized using the proportional
performance method provided that we can reasonably estimate the level of effort required to
complete our performance obligations under an arrangement and such performance obligations are
provided on a best effort basis and based on expected payments. Under the proportional
performance method, periodic revenue related to nonrefundable cash payments is recognized as the
percentage of actual effort expended to date as of that period to the total effort expected for all
of our performance obligations under the arrangement. Actual effort is generally determined based
upon actual hours incurred and include research and development (R&D) activities performed by us
and time spent for joint steering committee (JSC) activities. Total expected effort is generally
based upon the total R&D and JSC hours incorporated into the project plan that is agreed to by both
parties to the collaboration. Significant management judgments and estimates are required in
determining the level of effort required under an arrangement and the period over which we expect
to complete the related performance obligations. Estimates of the total expected effort included in
each project plan are based on historical experience of similar efforts and expectations based on
the knowledge of scientists for both the Company and its collaboration partners. The Company
periodically reviews and updates the project plan for each collaborative agreement; the most recent
reviews took place in January 2010. In the event that a change in estimate occurs, the change will
be accounted for using the cumulative catch-up method which provides for an adjustment to revenue
in the current period. Estimates of our level of effort may change in the future, resulting in a
material change in the amount of revenue recognized in future periods.
Generally under collaboration arrangements, nonrefundable payments received during the period of
performance may include time- or performance-based milestones. The proportion of actual performance
to total expected performance is applied to the expected payments in determining periodic
revenue. However, revenue is limited to the sum of (1) the amount of nonrefundable cash payments
received and (2) the payments that are contractually due but have not yet been paid.
With regard to revenue recognition from collaboration agreements: the Company previously
interpreted expected payments to equate to total payments subject to each collaboration agreement.
On a prospective basis, the Company has revised its application of expected payments to equate to a
best estimate of payments. Under this application, expected payments typically include (i)
payments already received and (ii) those milestone payments not yet received but that the Company
believes are more likely than not of receiving. Our support for the assertion that the next
milestone is likely to be met is based on the (a) project status updates discussed at JSC
meetings; (b) clinical trial/development results of prior phases; (c) progress of current clinical
trial/development phases; (c) directional input of collaboration partners
38
and (d) knowledge and
experience of the Companys scientific staff. After considering the above factors, the Company
believes those payments included in expected payments are more likely than not of being received.
While this interpretation differs from that used previously by the Company, it does not result in
any change to previously recognized revenues in either timing or amount for periods through
December 31, 2009.
With regard to revenue recognition in connection with the agreement with Novo Nordisk: such
agreement includes multiple deliverables including the license grant, several versions of the
Companys Eligen® Technology (or carriers), support services and manufacturing.
Emispheres management reviewed the relevant terms of the Novo Nordisk agreement and determined
such deliverables should be accounted for as a single unit of accounting in accordance with FASB
ASC 605-25, Multiple-Element Arrangements since the delivered license and Eligen®
Technology do not have stand-alone value and Emisphere does not have objective evidence of fair
value of the undelivered Eligen® Technology or the manufacturing value of all the
undelivered items. Such conclusion will be reevaluated as each item in the arrangement is
delivered. Consequently any payments received from Novo Nordisk pursuant to such agreement,
including the initial $10 million upfront payment and any payments received for support services,
will be deferred and included in Deferred Revenue within our balance sheet. Management cannot
currently estimate when all of such deliverables will be delivered nor can they estimate when, if
ever, Emisphere will have objective evidence of the fair value for all of the undelivered items,
therefore all payments from Novo Nordisk are expected to be deferred for the foreseeable future.
As of December 31, 2009 total deferred revenue from the agreement was $11.5 million, comprised of
the $10.0 million non-refundable license fee and $1.5 million in support services.
Purchased Technology Purchased technology represents the value assigned to patents and the
rights to use, sell or license certain technology in conjunction with our proprietary carrier
technology. These assets underlie our research and development projects related to various research
and development projects.
Warrants Warrants issued in connection with the equity financing completed in March 2005 and
August 2007 and to MHR have been classified as liabilities due to certain provisions that may
require cash settlement in certain circumstances. At each balance sheet date, we adjust the
warrants to reflect their current fair value. We estimate the fair value of these instruments using
the Black-Scholes option pricing model which takes into account a variety of factors, including
historical stock price volatility, risk-free interest rates, remaining term and the closing price
of our common stock. Changes in the assumptions used to estimate the fair value of these derivative
instruments could result in a material change in the fair value of the instruments. We believe the
assumptions used to estimate the fair values of the warrants are reasonable. See Item 7A.
Quantitative and Qualitative Disclosures about Market Risk for additional information on the
volatility in market value of derivative instruments.
Equipment and Leasehold Improvements Equipment and leasehold improvements are stated at cost.
Depreciation and amortization are provided for on a straight-line basis over the estimated useful
life of the asset. Leasehold improvements are amortized over the life of the lease or of the
improvements, whichever is shorter. Expenditures for maintenance and repairs that do not materially
extend the useful lives of the respective assets are charged to expense as incurred. The cost and
accumulated depreciation or amortization of assets retired or sold are removed from the respective
accounts and any gain or loss is recognized in operations.
Impairment of Long-Lived Assets We review our long-lived assets for impairment whenever events
and circumstances indicate that the carrying value of an asset might not be recoverable. An
impairment loss, measured as the amount by which the carrying value exceeds the fair value, is
triggered if the carrying amount exceeds estimated undiscounted future cash flows. Actual results
could differ significantly from these estimates, which would result in additional impairment losses
or losses on disposal of the assets. During the years ended December 31, 2007 and 2006, we did not
recognize any significant impairment losses. During the year ended December 31, 2008 we recognized
an approximately $1.0 million charge to write down the value of leasehold improvements in
connection with the restructuring charge to estimate current and future costs to close the
laboratory and office facility located in Tarrytown, NY. In addition, with regards to the
restructuring, we accelerated the useful life of approximately $0.2 million in leasehold
improvements for a portion of the laboratory facility in Tarrytown that we continued to use through
January 29, 2009. Approximately $0.1 million in additional depreciation expense was recognized
during December 2008 and approximately $0.1 million during January 2009.
Clinical Trial Accrual Methodology Clinical trial expenses represent obligations resulting from
our contracts with various research organizations in connection with conducting clinical trials for
our product candidates. We account for those expenses on an accrual basis according to the progress
of the trial as measured by patient enrollment and the timing of the various aspects of the trial.
Accruals are recorded in accordance with the following methodology: (i) the costs for period
expenses, such as investigator meetings and initial start-up costs, are expensed as incurred based
on managements estimates, which are impacted by any change in the number of sites, number of
patients and patient start dates; (ii) direct service costs, which are primarily on-going
monitoring costs, are recognized on a straight-line basis over the life of the contract; and (iii)
principal investigator expenses that are directly associated with recruitment are recognized based
on actual patient recruitment. All changes to the contract amounts due to change orders are
analyzed and recognized in accordance with the above methodology. Change orders are triggered by
changes in the scope, time to completion and the number of sites. During the course of a trial, we
adjust our rate of clinical expense recognition if actual results differ from our estimates.
New Accounting Pronouncements
In June 2008, the Financial Accounting Standards Board (FASB) ratified the final consensuses for
ASC 815-40-15-5 Evaluating Whether an Instrument Involving a Contingency is Considered Indexed to
an Entitys Own Stock (ASC 815-40-15-5). ASC 815-40-15-5 became effective for fiscal years
beginning after December 15, 2008. The Company adopted ASC 815-40-15-5 on January 1, 2009. See Note
2 of the Financial Statements for additional information.
Effective July 1, 2009, the Company adopted the Financial Accounting Standards Board (FASB)
Accounting Standards Codification (ASC) 105-10, Generally Accepted Accounting Principles
Overall (ASC 105-10). ASC 105-10 establishes the FASB Accounting Standards Codification (the
Codification) as the source of authoritative accounting principles recognized by the FASB to be
applied by nongovernmental entities in the preparation of financial statements in conformity with
U.S. GAAP. Rules and interpretive releases of the SEC under authority of federal securities laws
are also sources of authoritative U.S. GAAP for SEC registrants. All guidance contained in the
Codification carries an equal level of authority. The Codification superseded all existing non-SEC
accounting and reporting standards. All other non-grandfathered, non-SEC accounting literature not
included in the Codification is non-authoritative. The FASB will not issue new standards in the
form of Statements, FASB Staff Positions or Emerging Issues Task Force Abstracts. Instead, it will
issue Accounting Standards Updates (ASUs). The FASB will not consider ASUs as authoritative in
their own right. ASUs will serve only to update the Codification, provide background information
about the guidance and provide the bases for conclusions on the change(s) in the Codification.
References made to FASB guidance throughout this document have been updated for the Codification.
Effective January 1, 2008, the Company adopted FASB ASC 820-10, Fair Value Measurements and
Disclosures Overall (ASC 820-10) with respect to its financial assets and liabilities. In
February 2008, the FASB issued updated guidance related to fair value measurements, which is
included in the Codification in ASC 820-10-55, Fair Value Measurements and Disclosures Overall
Implementation Guidance and Illustrations. The updated guidance provided a one year deferral of
the effective date of ASC 820-10 for non-financial assets and non-financial liabilities, except
those that are recognized or disclosed in the financial statements at fair value at least annually.
Therefore, the Company adopted the provisions of ASC 820-10 for non-financial assets and
non-financial liabilities effective January 1, 2009, and such adoption did not have a material
impact on the Companys results of operations or financial condition.
Effective April 1, 2009, the Company adopted FASB ASC 820-10-65, Fair Value Measurements and
Disclosures Overall Transition and Open Effective Date
Information (ASC 820-10-65). ASC 820-10-65 provides additional guidance for estimating fair value
in accordance with ASC 820-10 when the volume and level of activity for an asset or liability have
significantly decreased. ASC 820-10-65 also includes guidance on identifying circumstances that
indicate a transaction is not orderly. The adoption of ASC 820-10-65 did not have an impact on the
Companys consolidated results of operations or financial condition.
39
Effective April 1, 2009, the Company adopted FASB ASC 825-10-65, Financial Instruments Overall
Transition and Open Effective Date Information (ASC 825-10-65). ASC 825-10-65 amends ASC
825-10 to require disclosures about fair value of financial instruments in interim financial
statements as well as in annual financial statements and also amends ASC 270-10 to require those
disclosures in all interim financial statements. The adoption of ASC 825-10-65 did not have a
material impact on the Companys results of operations or financial condition.
Effective April 1, 2009, the Company adopted FASB ASC 855-10, Subsequent Events Overall (ASC
855-10). ASC 855-10 establishes general standards of accounting for and disclosure of events that
occur after the balance sheet date but before financial statements are issued or are available to
be issued. It requires the disclosure of the date through which an entity has evaluated subsequent
events and the basis for that date that is, whether that date represents the date the financial
statements were issued or were available to be issued. This disclosure should alert all users of
financial statements that an entity has not evaluated subsequent events after that date in the set
of financial statements being presented. Adoption of ASC 855-10 did not have a material impact on
the Companys results of operations or financial condition.
Effective July 1, 2009, the Company adopted FASB ASU No. 2009-05, Fair Value Measurements and
Disclosures (Topic 820) (ASU 2009-05). ASU 2009-05 provided amendments to ASC 820-10, Fair Value
Measurements and Disclosures Overall, for the fair value measurement of liabilities. ASU 2009-05
provides clarification that in circumstances in which a quoted price in an active market for the
identical liability is not available, a reporting entity is required to measure fair value using
certain techniques. ASU 2009-05 also clarifies that when estimating the fair value of a liability,
a reporting entity is not required to include a separate input or adjustment to other inputs
relating to the existence of a restriction that prevents the transfer of a liability. ASU 2009-05
also clarifies that both a quoted price in an active market for the identical liability at the
measurement date and the quoted price for the identical liability when traded as an asset in an
active market when no adjustments to the quoted price of the asset are required are Level 1 fair
value measurements. Adoption of ASU 2009-05 did not have a material impact on the Companys results
of operations or financial condition.
In October 2009, the FASB issued ASU 2009-13, Multiple-Deliverable Revenue Arrangements,
(amendments to FASB ASC Topic 605, Revenue Recognition ) (ASU 2009-13) and ASU 2009-14, Certain
Arrangements That Include Software Elements, (amendments to FASB ASC Topic 985, Software ) (ASU
2009-14). ASU 2009-13 requires entities to allocate revenue in an arrangement using estimated
selling prices of the delivered goods and services based on a selling price hierarchy. The
amendments eliminate the residual method of revenue allocation and require revenue to be allocated
using the relative selling price method. ASU 2009-14 removes tangible products from the scope of
software revenue guidance and provides guidance on determining whether software deliverables in an
arrangement that includes a tangible product are covered by the scope of the software revenue
guidance. ASU 2009-13 and ASU 2009-14 should be applied on a prospective basis for revenue
arrangements entered into or materially modified in fiscal years beginning on or after June 15,
2010, with early adoption permitted. The Company does not expect adoption of ASU 2009-13 or ASU
2009-14 to have a material impact on the Companys results of operations or financial condition.
In October, 2009, the FASB issued ASU 2009-15, Accounting for Own-Share Lending Arrangements
in Contemplation of Convertible Debt Issuance or Other Financing, (ASU-2009-15), which provides
guidance for accounting and reporting for own-share lending arrangements issued in contemplation of
a convertible debt issuance. At the date of issuance, a share-lending arrangement entered into on
an entitys own shares should be measured at fair value in accordance with Topic 820 and recognized
as an issuance cost, with an offset to additional paid-in capital. Loaned shares are excluded from
basic and diluted earnings per share unless default of the share-lending arrangement occurs. The
amendments also require several disclosures including a description and the terms of the
arrangement and the reason for entering into the arrangement. The effective dates of the amendments
are dependent upon the date the share-lending arrangement was entered into and include
retrospective application for arrangements outstanding as of the beginning of fiscal years
beginning on or after December 15, 2009. Management is currently evaluating the potential impact of
ASU 2009-15 on our financial statements.
In January 2010, the FASB issued ASU 2010-06, Improving Disclosures about Fair Value Measurements.
ASU 2010-06 amends ASC 820 to require a number of additional disclosures regarding fair value
measurements. The amended guidance requires entities to disclose the amounts of significant
transfers between Level 1 and Level 2 of the fair value hierarchy and the reasons for these
transfers, the reasons for any transfers in or out of Level 3, and information in the
reconciliation of recurring Level 3 measurements about purchases, sales, issuances and settlements
on a gross basis. The ASU also clarifies the requirements for entities to disclose information
about both the valuation techniques and inputs used in estimating Level 2 and Level 3 fair value
measurements. The amended guidance is effective for interim and annual financial periods beginning
after December 15, 2009. ASU 2010-06 is not expected to have a significant effect on the Companys
financial statements.
Management does not believe that any other recently issued, but not yet effective, accounting
standards if currently adopted would have a material effect on the accompanying financial
statements.
Off-Balance Sheet Arrangements
As of June 30, 2010, we had no off-balance sheet arrangements, other than operating leases. There
were no changes in significant contractual obligations during the three months ended June 30, 2010.
Contractual Arrangements
Significant contractual obligations as of December 31, 2009 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount Due in |
|
|
|
|
|
|
|
Less than |
|
|
1 to 3 |
|
|
3 to 5 |
|
|
More than |
|
Type of Obligation |
|
Total |
|
|
1 Year |
|
|
Years |
|
|
Years |
|
|
5 Years |
|
|
|
(In thousands) |
|
Notes Payable(1)(2) |
|
$ |
43,105 |
|
|
$ |
12,588 |
|
|
$ |
30,517 |
|
|
$ |
|
|
|
$ |
|
|
Derivative liabilities(3) |
|
|
10,780 |
|
|
|
6,189 |
|
|
|
4,591 |
|
|
|
|
|
|
|
|
|
Lawsuit(4) |
|
|
2,333 |
|
|
|
2,333 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating lease obligations |
|
|
1,089 |
|
|
|
345 |
|
|
|
713 |
|
|
|
31 |
|
|
|
|
|
Total |
|
$ |
57,307 |
|
|
$ |
21,455 |
|
|
$ |
35,821 |
|
|
$ |
31 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Amounts include both principal and related interest payments. |
|
(2) |
|
The Convertible Promissory Note due originally on December 1, 2009,
was issued by us to Novartis on December 1, 2004 (the Novartis
Note), in accordance with and pursuant to the terms and conditions
therein. The Novartis Note was issued in a private placement
transaction pursuant to Section 4(2) of the Securities Act in
connection with a new research collaboration option relating to the
development of PTH-1-34. The Novartis Note accrued interest at a
rate of 7%. The Novartis Note was originally due December 1, 2009. On
November 30, 2009, Novartis agreed to extend the maturity date to
February 26, 2010. On February 23, 2010, Novartis agreed to extend the
maturity date to May 26, 2010. And on May 27, 2010, Novartis agreed
to a further extension through June 4, 2010. On June 4, 2010, the
Company and Novartis entered into a Master Agreement and Amendment
(the Novartis Agreement). Pursuant to the Novartis Agreement, the |
40
|
|
|
|
|
Company was released and discharged from its obligations under the
Novartis Note in exchange for (1) the reduction of future royalty and
milestone payments up to an aggregate amount of $11.0 million due the
Company under the Research Collaboration and Option Agreement, dated
as of December 3, 1997, as amended on October 20, 2000, and the
License Agreement, date as of March 8, 2000, for the development of an
oral salmon calcitonin product for the treatment of osteoarthritis and
osteoporosis.; (2) the right for Novartis to evaluate the feasibility
of using Emispheres Eligen ® Technology with two new compounds to
assess the potential for new product development opportunities; and
(3) other amendments to the Research Collaboration and Option
Agreement and License Agreement. As of the date of the Novartis
Agreement, the outstanding principal balance and accrued interest of
the Novartis Note was approximately $13.0 million. The Company
recognized the full value of the debt released as consideration for
the transfer of the rights and other intangibles to Novartis and
deferred the related revenue in accordance with applicable accounting
guidance for the sale of rights to future revenue until the earnings
process has been completed based on achievement of certain milestones
or other deliverables. |
|
|
|
As of December 31, 2009, we had outstanding $22.6 million in
Convertible Notes payable to MHR and its affiliates (MHR) due
September 2012 and convertible at the sole discretion of MHR into
shares of our common stock at a price of $3.78. Interest at 11% is
payable in additional Convertible Notes rather than in cash and we
have the right to call the Convertible Notes after September 10, 2010
if certain conditions are satisfied. The Convertible Notes are subject
to acceleration upon the occurrence of certain events of default. Net
of discounts related to the conversion feature, warrants and lender
financing costs, the carrying value of the MHR convertible notes at
December 31, 2009 was $13.1 million. |
|
(3) |
|
We have issued warrants to purchase shares of our common stock which
contain provisions requiring us to make a cash payment to the holders
of the warrant for any gain that could have been realized if the
holders exercise the warrants and we subsequently fail to deliver a
certificate representing the shares to be issued upon such exercise by
the third trading day after such warrants have been exercised. As a
result, these warrants have been recorded at their fair value and are
classified as current liabilities. The value and timing of the actual
cash payments, if any, related to these derivative instruments could
differ materially from the amounts and periods shown. |
|
(4) |
|
In April 2005, the Company entered into an amended and restated
employment agreement with its then Chief Executive Officer, Dr.
Michael M. Goldberg, for services through July 31, 2007. On January
16, 2007, the Board of Directors terminated Dr. Goldbergs services.
On April 26, 2007, the Board of Directors held a special hearing at
which it determined that Dr. Goldbergs termination was for cause. On
March 22, 2007, Dr. Goldberg, through his counsel, filed a demand for
arbitration asserting that his termination was without cause and
seeking $1,048,000 plus attorneys fees, interest, arbitration costs
and other relief alleged to be owed to him in connection with his
employment agreement with the Company. During the arbitration, Dr.
Goldberg sought a total damage amount of at least $9,223,646 plus
interest. On February 11, 2010, the arbitrator issued the final award
in favor of Dr. Goldberg for a total amount of approximately
$2,333,115 as full and final payment for all claims, defenses,
counterclaims, fees and related matters. The Company opposed Dr.
Goldbergs petition to confirm the arbitration award. On July 12, 2010
the award was confirmed by the court. As of August 10, 2010, the
Company adjusted its estimate of costs to settle this matter to $2.6
million to account for potential additional interest costs on the
settlement amount and additional legal fees. On September 8, 2010,
the court entered a judgement in the amount of $2,591,796. |
On April 6, 2007, the Board of Directors appointed Michael V. Novinski to the position of President
and Chief Executive Officer. Pursuant to his appointment, the Company has entered into a three year
employment agreement with Mr. Novinski. If Mr. Novinskis contract is terminated without cause or
at any time by the executive for good reason as defined in his contract, we are obligated to make
severance payments to Mr. Novinski. See Certain Relationships, Related Transactions and Director
Independence Employment Agreement with Michael V. Novinski, President and Chief Executive
Officer.
Quantitative and Qualitative Disclosures About Market Risk
Fair Value of Warrants and Derivative Liabilities. At June 30, 2010, the estimated fair value of
derivative instruments was $29.2 million. We estimate the fair values of these instruments using
the Black-Scholes option pricing model which takes into account a variety of factors, including
historical stock price volatility, risk-free interest rates, remaining maturity and the closing
price of our common stock. We believe that the assumption that has the greatest impact on the
determination of fair value is the closing price of our common stock. The following table
illustrates the potential effect of changes in the assumptions used to calculate fair value:
|
|
|
|
|
|
|
Derivatives |
|
|
|
(in thousands) |
|
25% increase in stock price |
|
$ |
9,282 |
|
50% increase in stock price |
|
|
18,827 |
|
5% increase in assumed volatility |
|
|
739 |
|
25% decrease in stock price |
|
|
(8,419 |
) |
50% decrease in stock price |
|
|
(16,448 |
) |
5% decrease in assumed volatility |
|
|
(760 |
) |
41
PROPERTIES
We lease approximately 15,000 square feet of office space at 240 Cedar Knolls Road, Suite 200,
Cedar Knolls, New Jersey for use as executive offices. The lease for our executive offices is set
to expire on January 31, 2013. On December 8, 2008, we announced plans to maintain one corporate
location in Cedar Knolls, New Jersey. Emispheres former facility in Tarrytown, New York was closed
and key employees were relocated to Cedar Knolls, New Jersey.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
On January 6, 2010, the Company dismissed PricewaterhouseCoopers LLP (PwC) as the Companys
independent registered public accountants. This action was approved on January 6, 2010 by the Audit
Committee of the Board of Directors of the Company.
PwCs audit reports on the Companys financial statements as of and for the years ended December
31, 2008 and 2007 did not contain an adverse opinion or a disclaimer of opinion and were not
qualified or modified as to uncertainty, audit scope or accounting principles, except that for each
of the years ended December 31, 2008 and 2007 PwCs reports contained an explanatory paragraph
expressing substantial doubt about the Companys ability to continue as a going concern.
During the Companys two most recent fiscal years ended December 31, 2007 and 2008 and the
subsequent interim periods through January 6, 2010, there were no disagreements with PwC on any
matter of accounting principles or practices, financial statement disclosure, or auditing scope or
procedure, which disagreements, if not resolved to the satisfaction of PwC, would have caused PwC
to make reference to the matter in their reports. As noted in Item 4 of the Companys quarterly
report on Form 10-Q for the quarter ended September 30, 2009, and quarterly reports on Forms 10-Q/A
for the quarters ended June 30, 2009 and March 31, 2009, the Company identified a material weakness
in its internal controls over financial reporting and disclosure controls and procedures with
respect to ineffective controls to ensure completeness and accuracy with regard to the proper
recognition, presentation and disclosure of conversion features of certain convertible debt
instruments and warrants. The Audit Committee discussed the material weakness with PwC, and the
Company authorized PwC to respond fully to the inquiries of McGladrey & Pullen, LLP (M&P),
the successor independent registered public accounting firm, regarding the material weakness.
Except as previously noted in this paragraph, there were no other reportable events as defined in
Item 304(a)(1)(v) of Regulation S-K during the years ended December 31, 2007 and 2008 and through
January 6, 2010.
On January 6, 2010, with the approval of the Audit Committee of the Company, the Company engaged
M&P to act as its independent registered public accounting firm. During the years ended December
31, 2007, and 2008, respectively, and in the subsequent interim periods through January 6, 2010,
neither the Company nor anyone acting on its behalf has consulted with M&P on any of the matters or
events set forth in Item 304(a)(2) of Regulation S-K.
42
DIRECTOR AND OFFICER INFORMATION
Director and Executive Officer Information
Information regarding those directors serving unexpired terms and our current Executive Officers,
all of who are currently serving open-ended terms, including their respective ages, the year in
which each first joined the Company and their principal occupations or employment during the past
five years, is provided below:
|
|
|
|
|
|
|
|
|
|
|
Year |
|
|
|
|
|
|
Joined |
|
|
Name |
|
Age |
|
Emisphere |
|
Position with the Company |
Michael V. Novinski |
|
54 |
|
2007 |
|
President and Chief Executive Officer, Class III Director |
Michael R. Garone |
|
52 |
|
2007 |
|
Vice President, Chief Financial Officer and Corporate Secretary |
M. Gary I. Riley DVM, PhD |
|
67 |
|
2007 |
|
Vice President of Non-Clinical Development and Applied Biology |
Nicholas J. Hart |
|
45 |
|
2008 |
|
Vice President Strategy and Development |
John D. Harkey, Jr. |
|
50 |
|
2006 |
|
Class I Director |
Mark H. Rachesky, M.D. |
|
51 |
|
2005 |
|
Class III Director |
Timothy G. Rothwell |
|
59 |
|
2009 |
|
Class I Director |
Michael Weiser, M.D. |
|
47 |
|
2005 |
|
Class III Director |
Michael V. Novinski joined Emisphere in 2007 as President and Chief Executive Officer. Immediately
before joining the Company, Mr. Novinski was President and a member of the Board of Directors of
Organon USA Inc., a business unit of Organon BioSciences Inc. Mr. Novinski served as Organons
Director of Marketing beginning in 1992 and held several senior executive positions within Organon
BioSciences prior to becoming President of Organon USA in 2003. Mr. Novinski earned a Bachelors
degree with a major in Biology from Washington and Jefferson College in Washington, PA. He also
studied under fellowship at the University of Pittsburgh Medical School, Department of
Microbiology. Mr. Novinskis broad business and leadership experiences in the pharmaceutical and
drug development industries were the reasons he was selected to lead the Company and participate as
a member of our Board of Directors.
Michael R. Garone joined Emisphere in 2007 as Vice President and Chief Financial Officer.
Mr. Garone has also served as the Companys Corporate Secretary since October 2009. Mr. Garone
previously served as Interim Chief Executive Officer and Chief Financial Officer of Astralis, Ltd.
(OTC BB: ASTR.OB). Prior to that, Mr. Garone spent 20 years with AT&T (NYSE: T), where he held
several positions, including Chief Financial Officer of AT&T Alascom. Mr. Garone received a MBA
from Columbia University and a BA in Mathematics from Colgate University.
John D. Harkey, Jr. has been a Director of the Company since April 2006. Mr. Harkey is Chairman and
Chief Executive Officer of Consolidated Restaurant Companies, Inc. Mr. Harkey currently serves on
the Board of Directors and Audit Committees of Leap Wireless International, Inc. (NASDAQ: LEAP),
Loral Space & Communications, Inc. (NASDAQ: LORL) and Energy Transfer Equity, LP (NYSE: ETE), and
the Board of Directors for the Baylor Health Care System Foundation. Mr. Harkey also serves on the
Presidents Development Council of Howard Payne University, the Executive Board of Circle Ten
Council of the Boy Scouts of America and is a member of the Young Presidents Organization.
Mr. Harkey obtained a B.B.A. in honors and a J.D. from the University of Texas at Austin and an
M.B.A. from Stanford University School of Business. Mr. Harkeys entrepreneurial background, his
qualification as a financial expert, and his business and leadership experiences in a range of
different industries make him an asset to our Board of Directors.
Mark H. Rachesky, M.D. has been a Director of the Company since 2005. Dr. Rachesky is the
co-founder and President of MHR Fund Management LLC and affiliates, investment managers of various
private investment funds that invest in inefficient market sectors, including special situation
equities and distressed investments. From 1990 through June 1996, Dr. Rachesky was employed by Carl
C. Icahn, initially as a senior investment officer and for the last three years as sole Managing
Director of Icahn Holding Corporation, and acting chief investment advisor. Dr. Rachesky is
currently the Non-Executive Chairman of the Board of Loral Space & Communications, Inc.
(NASDAQ:LORL) and Leap Wireless International, Inc. (NASDAQ: LEAP) and is a member of the Board of
Directors of Lions Gate Entertainment Corp. (NYSE: LGF) and Nationshealth, Inc. He formerly served
on the Board of Directors of Neose Technologies, Inc (NASDAQ: NTEC). Dr. Rachesky is a graduate of
Stanford University School of Medicine and Stanford University School of Business. Dr. Rachesky
graduated from the University of Pennsylvania with a major in Molecular Aspects of Cancer.
Dr. Racheskys extensive investing and financial background, his thorough knowledge of capital
markets and his training as an M.D., make him an asset to our Board of Directors.
Timothy G. Rothwell, has been a director since November 2009. Mr. Rothwell is the former Chairman
of Sanofi-aventis U.S. From February 2007 to March 2009 Mr. Rothwell served as Chairman of
Sanofi-aventis U.S. From September 2004 to February 2007, Mr. Rothwell was President and Chief
Executive Officer of the company, overseeing all domestic commercial operations as well as
coordination of Industrial Affairs and Research and Development activities. From May 2003 to
September 2004, Mr. Rothwell was President and Chief Executive Officer of Sanofi-Synthelabo, Inc.
and was instrumental in the formation of Sanofi-aventis U.S. in 2004. Prior to that, from June 1998
to May 2003, he served in various capacities at Pharmacia, including as President of the companys
Global Prescription Business. From January 1995 to January 1998, Mr. Rothwell served as worldwide
President of Rhone-Poulenc Rorer Pharmaceuticals and President of the companys Global
Pharmaceutical Operations. In his long career, Mr. Rothwell has also served as Chief Executive
Officer of Sandoz Pharmaceuticals, Vice President, Global Marketing and Sales at Burroughs
Wellcome, and Senior Vice President of Marketing and Sales for the U.S. for Squibb Corporation.
Mr. Rothwell holds a Bachelor of Arts from Drew University and earned his J.D. from Seton Hall
University. He formerly served on the PhRMA Board of Directors, as well as the Institute of
Medicines Evidence-Based Medicine roundtable, the CEO Roundtable on Cancer, the Healthcare
Businesswomens Association Advisory Board, the Board of Trustees for the Somerset Medical Center
Foundation, the Board of Trustees for the HealthCare Institute of New Jersey, and as a Trustee of
the Corporate Council for Americas Children at the Childrens Health Fund. Presently, he serves on
the Board of Directors of Antigenics (NASDAQ: AGEN), the Board of Directors of Akrimax
Pharmaceuticals LLC, the Board of Visitors for Seton Hall Law School, and the PheoPara Alliance, a
nonprofit 501(c) 3 organization. Mr. Rothwells broad business and leadership experiences in the
pharmaceutical industry and his affiliations with industry, educational and healthcare related
organizations make him an asset to our Board of Directors.
Michael Weiser, M.D., Ph.D has been a Director of the Company since 2005. Dr. Weiser is currently
founder and co-chairman of Actin Biomed, a New York based healthcare investment firm advancing the
discovery and development of novel treatments for unmet medical needs. Prior to joining Actin
Biomed, Dr. Weiser was the Director of Research at Paramount BioCapital where he was responsible
for the scientific, medical and financial evaluation of biomedical technologies and pharmaceutical
products under consideration for development. Dr. Weiser completed his Ph.D. in Molecular
Neurobiology at Cornell University Medical College and received his M.D. from New York University
School of Medicine. He performed his post-graduate medical training in the Department of
Obstetrics and Gynecology at New York University Medical Center. Dr. Weiser also completed a
Postdoctoral Fellowship in the Department of Physiology and Neuroscience at New York University
School of Medicine and received his B.A. in Psychology from University of Vermont. Dr. Weiser is a
member of The National Medical Honor Society, Alpha Omega Alpha, American Society of Clinical
Oncology, American Society of Hematology and Association for Research in Vision and Ophthalmology.
In addition, Dr. Weiser has received awards for both academic and professional excellence and is
published extensively in both medical and scientific journals. Dr. Weiser currently serves on
43
the board of directors of Chelsea Therapeutics International, Emisphere Technologies, Inc and Ziopharm
Oncology, Inc. as well as several privately held companies.
Dr. Weiser has an M.D. and a Ph.D., and his scientific, business and financial experiences, as well
as his knowledge of the healthcare industry, capital markets, pharmaceutical products and
biomedical technology development make him an asset to our Board of Directors.
Nicholas J. Hart, joined Emisphere in July 2008 as Vice President, Strategy and Development.
Immediately before joining the Company, Mr. Hart was Leader of the Contraception Therapy Area and a
member of the Corporate Executive Leadership Team at Organon, part of Schering Plough Corporation.
While at Organon, he served as Senior Director/Executive Director of Marketing of the Womens
Healthcare Franchise; Director of CNS Marketing, and Associate Director of Specialty Products.
Prior to Organon, Mr. Hart held various marketing and sales positions with Novartis, Sankyo Parke
Davis Pharmaceuticals, and Bristol-Myers Squibb Company. After graduating from the United States
Military Academy at West Point, Mr. Hart received an MBA in Finance and International Business from
New York University, Stern School of Business. He also served as a Field Artillery Officer in the
United States Army.
M. Gary I. Riley DVM, PhD joined Emisphere in November 2007 as Vice-President of Nonclinical
Development and Applied Biology. He was previously Vice President of Toxicology and Applied Biology
at Alkermes, Inc., Cambridge, MA, where he spent 14 years working in the field of specialized drug
delivery systems. He holds board certifications in veterinary pathology and toxicology. He was
previously employed as Director of Pathobiology at Lederle Laboratories and earlier in his career
held positions as a veterinary pathologist in academia and industry.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 (the Exchange Act), and the rules of the
Securities and Exchange Commission (the SEC) require our directors, Executive Officers and
persons who own more than 10% of Common Stock to file reports of their ownership and changes in
ownership of Common Stock with the SEC. Our employees sometimes prepare these reports on the basis
of information obtained from each director and Executive Officer. Based on written representations
of the Companys directors and Executive Officers and on confirmation that no Form 5 was required
to be filed, we believe that all reports required by Section 16(a) of the Exchange Act to be filed
by its directors, Executive Officers and greater than ten (10%) percent owners during the last
fiscal year were filed on time with the exception of Form 4 filings made on behalf of Michael R.
Garone and M. Gary I. Riley on January 21, 2010.
Code of Conduct for Officers and Employees and Code of Business Conduct and Ethics for Directors
The Company has a Code of Conduct that applies to all of our officers and employees as well as a
Code of Business Conduct and Ethics that applies specifically to the members of the Board of
Directors. The directors are surveyed annually regarding their compliance with the policies as set
forth in the Code of Conduct for Directors. The Code of Conduct and the Code of Business Conduct
and Ethics for Directors are available on the Corporate Governance section of our website at
www.emisphere.com. The contents of our website are not incorporated herein by reference and the
website address provided in this Proxy Statement is intended to be an inactive textual reference
only. The Company intends to disclose on its website any amendment to, or waiver of, a provision of
the Code of Conduct that applies to the Chief Executive Officer, Chief Financial Officer, or
Controller. Our Code of Conduct contains provisions that apply to our Chief Executive Officer,
Chief Financial Officer and all other finance and accounting personnel. These provisions comply
with the requirements of a company code of ethics for financial officers that were promulgated by
the SEC pursuant to the Exchange Act.
Stockholder Communications
We have an Investor Relations Office for all stockholder inquiries and communications. The Investor
Relations Office facilitates the dissemination of accurate and timely information to our
stockholders. In addition, the Investor Relations Office ensures that outgoing information is in
compliance with applicable securities laws and regulations. All investor queries should be directed
to our internal Director of Corporate Communications or our Corporate Secretary.
Election of Directors
The Governance and Nominating Committee identifies director nominees by reviewing the desired
experience, mix of skills and other qualities to assure appropriate Board composition, taking into
consideration the current Board members and the specific needs of the Company and the Board. Among
the qualifications to be considered in the selection of candidates, the Committee considers the
following attributes and criteria of candidates: experience, knowledge, skills, expertise,
diversity, personal and professional integrity, character, business judgment and independence.
Although it has no formal policy our Board recognizes that nominees for the Board should reflect a
reasonable diversity of backgrounds and perspectives, including those backgrounds and perspectives
with respect to business experience, professional expertise, age, gender and ethnic background.
Our Board is comprised of accomplished professionals who represent diverse and key areas of
expertise including national and international business, operations, manufacturing, finance and
investing, management, entrepreneurship, higher education and science, research and technology. We
believe our directors wide range of professional experiences and backgrounds, education and skills
has proven invaluable to the Company and we intend to continue leveraging this strength.
Nominations for the election of directors may be made by the Board of Directors or the Governance
and Nominating Committee. The committee did not reject any candidates recommended within the
preceding year by a beneficial owner of, or from a group of security holders that beneficially
owned, in the aggregate, more than five percent (5%) of the Companys voting stock.
Although it has no formal policy regarding stockholder nominees, the Governance and Nominating
Committee believes that stockholder nominees should be viewed in substantially the same manner as
other nominees. Stockholders may make a recommendation for a nominee by complying with the notice
procedures set forth in our by-laws. The Governance and Nominating Committee will give nominees
recommended by stockholders in compliance with these procedures the same consideration that it
gives to any board recommendations. To date, we have not received any recommendation from
stockholders requesting that the Governance and Nominating Committee (or any predecessor) consider
a candidate for inclusion among the committees slate of nominees in the Companys proxy statement,
and the Director Nominees have been nominated by the Governance and Nominating Committee.
To be considered by the committee, a Director nominee must have broad experience at the
strategy/policy-making level in a business, government, education, technology or public interest
environment, high-level managerial experience in a relatively complex organization or experience
dealing with complex problems. In addition, the nominee must be able to exercise sound business
judgment and provide insights and practical wisdom based on experience and expertise, possess
proven ethical character, be independent of any particular constituency, and be able to represent
all stockholders of the Company.
The committee will also evaluate whether the nominees skills are complimentary to the existing
board members skills, and the boards needs for operational, management, financial, technological
or other expertise; and whether the individual has sufficient time to devote to the interests of
Emisphere. The prospective board member cannot be a board member or officer at a competing company
nor have relationships with a competing company. He/she must be clear of any investigation or
violations that would be perceived as affecting the duties and performance of a director.
The Governance and Nominating Committee identifies nominees by first evaluating the current members
of the Board of Directors willing to continue in service. Current members of the board with skills
and experience that are relevant to the business and who are willing to continue in service are
considered for re-nomination,
44
balancing the value of continuity of service by existing members of
the board with that of obtaining a new perspective. If any member of the board does not wish to
continue in service, or if the Governance and Nominating Committee or the board decides not to
nominate a member for re-election, the Governance and Nominating Committee identifies the desired skills and experience of a new nominee and discusses with the
board suggestions as to individuals that meet the criteria.
EXECUTIVE COMPENSATION
Summary Compensation Table 2009, 2008 and 2007
The following table sets forth information regarding the aggregate compensation Emisphere paid
during 2009, 2008 and 2007 to our Principal Executive Officer, our Principal Financial Officer, and
the two other highest paid Executive Officers:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option |
|
|
|
|
|
|
|
Name and Principal |
|
|
|
|
|
Salary |
|
|
Bonus |
|
|
Stock |
|
Awards |
|
|
All Other |
|
|
|
|
Position(1) |
|
Year |
|
|
($) |
|
|
($) |
|
|
Awards ($) |
|
($)(2) |
|
|
Compensation($) |
|
|
Total ($) |
|
Michael V. Novinski |
|
|
2009 |
|
|
|
550,000 |
|
|
|
|
|
|
|
|
|
239,759 |
|
|
|
18,000 |
(4) |
|
|
807,759 |
|
President and CEO |
|
|
2008 |
|
|
|
554,231 |
|
|
|
357,123 |
(3) |
|
|
|
|
|
|
|
|
18,000 |
(4) |
|
|
929,354 |
|
|
|
|
2007 |
|
|
|
359,615 |
|
|
|
|
|
|
|
|
|
2,970,000 |
|
|
|
11,077 |
(4) |
|
|
3,340,692 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael R. Garone |
|
|
2009 |
|
|
|
234,313 |
|
|
|
|
|
|
|
|
|
10,642 |
|
|
|
|
|
|
|
244,955 |
|
VP, Chief Financial Officer
and Corporate Secretary(5) |
|
|
2008 |
|
|
|
231,794 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
231,794 |
|
|
|
|
2007 |
|
|
|
78,731 |
|
|
|
|
|
|
|
|
|
258,000 |
|
|
|
|
|
|
|
336,731 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
M. Gary I. Riley |
|
|
2009 |
|
|
|
269,969 |
|
|
|
|
|
|
|
|
|
10,642 |
|
|
|
8,000 |
(7) |
|
|
279,011 |
|
VP, Non-Clinical Development |
|
|
2008 |
|
|
|
267,039 |
|
|
|
40,000 |
(6) |
|
|
|
|
|
|
|
|
14,000 |
(7) |
|
|
321,039 |
|
and Applied Biology(7) |
|
|
2007 |
|
|
|
40,769 |
|
|
|
|
|
|
|
|
|
257,250 |
|
|
|
45,060 |
(7) |
|
|
343,079 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nicholas J. Hart |
|
|
2009 |
|
|
|
242,880 |
|
|
|
|
|
|
|
|
|
10,642 |
|
|
|
|
|
|
|
253,522 |
|
VP, Strategy and Development(8) |
|
|
2008 |
|
|
|
104,308 |
|
|
|
16,872 |
(9) |
|
|
|
|
173,550 |
|
|
|
|
|
|
|
294,730 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Only two individuals other than the Principal Executive Officer and the Principal Financial Officer served as executive officers at the end
of fiscal year 2009. As a result, the named executive officers, as defined in Regulation S-K, Item 402(a)(3), of the Company are as follows:
Mr. Novinski, Mr. Garone, Mr. Riley and Mr. Hart. |
|
(2) |
|
Amounts shown in this column represent the aggregate grant date fair value of stock option awards granted during the respective year
computed in accordance with Financial Accounting Standards Board ASC Topic 718. This compares to prior years, during which amounts in these
columns have represented the expensed accounting value of such awards. The amounts for 2008 and 2007 have been recomputed (along with
amounts in the Total column for such years) using the aggregate grant date fair value of stock option awards granted during both of those
years. For assumptions used in the valuation of these awards please see Note 12 to our Financial Statements for the fiscal year ended
December 31, 2009. |
|
(3) |
|
Mr. Novinski was paid a bonus in 2008 for performance in 2007 in accordance with the terms of his employment contract. |
|
(4) |
|
All other compensation for Mr. Novinski represents an allowance for the use of a personal automobile in accordance with the terms of his
employment contract. |
|
(5) |
|
Mr. Garone was appointed Corporate Secretary effective October 24, 2008. |
|
(6) |
|
In accordance with the terms of his employment contract, Dr. Riley received a signing bonus, payable during 2008, when he joined the Company. |
|
(7) |
|
All other compensation for Mr. Riley represents payments for relocation expenses. |
|
(8) |
|
Mr. Hart accepted the position as Vice President, Strategy and Development effective July 28, 2008. |
|
(9) |
|
Mr. Hart received a signing bonus when he joined the Company. |
Compensation Discussion And Analysis
Executive Summary
The discussion that follows outlines the compensation awarded to, earned by or paid to the named
executive officers of the Company including a review of the principal elements of compensation, the
objectives of the Companys compensation program, what the program is designed to reward and why
and how each element of compensation is determined.
In general, the Company operates in a marketplace where competition for talented executives is
significant. The Company is engaged in the long-term development of its technology and of drug
candidates, without the benefit of significant current revenues, and therefore its operations
require it to raise capital in order to continue its activities. Our operations entail special
needs and risks and require that the Company attempt to implement programs that promote strong
individual and group performance and retention of excellent employees. The Companys compensation
program for named executive officers consists of cash compensation as base salary, medical, basic
life insurance, long term disability, flexible spending accounts, paid time off, and defined
contribution retirement plans as well as long term equity incentives offered through stock option
plans. This program is developed in part by benchmarking against other companies in the
biotechnology/pharmaceutical sectors, as well as by the judgment and discretion of our Board.
Employee salaries are benchmarked against Radford survey information. Radford is part of the Aon
family brands. For more than 30 years, Radford has been the leading provider of compensation market
intelligence to the high-tech and life sciences industries. Radford emphasizes data integrity and
online access to data, tools and resources, as well as client service geared towards life sciences.
Radford includes more than 2,000 participating companies globally. Their services offer full
compensation consulting, reliable, current data analysis and reporting, customized data for
competitive insight, and web access to data via the Radford Network.
45
Objectives of the compensation and reward program The biopharmaceutical marketplace is highly
competitive and includes companies with far greater resources than ours. Our work involves the
difficult, unpredictable, and often slow development of our technology and of drug candidates.
Continuity of scientific knowledge, management skills, and relationships are often critical success
factors to our business. The objectives of our compensation program for named executive officers is
to provide competitive cash compensation, competitive health, welfare and defined benefit retirement
benefits as well as long-term equity incentives that offer significant reward potential for the
risks assumed and for each individuals contribution to the long-term performance of the Company.
Individual performance is measured against long-term strategic goals, short-term business goals,
scientific innovation, regulatory compliance, new business development, development of employees,
fostering of teamwork and other Emisphere values designed to build a culture of high performance.
These policies and practices are based on the principle that total compensation should serve to
attract and retain those executives critical to the overall success of Emisphere and are designed
to reward executives for their contributions toward business performance that is designed to build
and enhance stockholder value.
Elements of compensation and how they are determined The key elements of the executive
compensation package are base salary (as determined by the competitive market and individual
performance), the executive long term disability plan and other health and welfare benefits and
long-term incentive compensation in the form of periodic stock option grants. The base salary
(excluding payment for accrued but unused vacation) for the named executive officers for 2009
ranged from $235,750 for its Vice President and Chief Financial Officer to $550,000 for its
President and Chief Executive Officer. In determining the compensation for each named executive
officer, the Company generally considers (i) data from outside studies and proxy materials
regarding compensation of executive officers at companies believed to be comparable, (ii) the input
of other directors and the President and Chief Executive Officer (other than for his own
compensation) regarding individual performance of each named executive officer and
(iii) qualitative measures of Emispheres performance, such as progress in the development of the
Companys technology, the engagement of corporate partners for the commercial development and
marketing of products, effective corporate governance, fiscal responsibility, the success of
Emisphere in raising funds necessary to conduct research and development, and the pace at which the
Company continues to advance its technologies in various clinical trials. Our board of directors
and Compensation Committees consideration of these factors is subjective and informal. However, in
general, it has determined that the compensation for executive officers should be competitive with
market data reflected within the 50th-75th percentile of biotechnology companies for corresponding
senior executive positions. 2009 compensation levels were derived from the compensation plan set in
2006 and were based in part by information received from executive compensation consultants, Pearl
Myer and Partners, based in New York, N.Y. Compensable factors benchmarked include market
capitalization, head count and location. While the Company has occasionally paid cash bonuses in
the past, there is no consistent annual cash bonus plan for named executive officers. When
considering the compensation of the Companys President and Chief Executive Officer, the Company
receives information and analysis prepared or secured by the Companys outside executive
compensation experts and survey data prepared by human resources management personnel as well as
any additional outside information it may have available.
The compensation program also includes periodic awards of stock options. The stock option element
is considered a long-term incentive that further aligns the interests of executives with those of
our stockholders and rewards long-term performance and the element of risk. Stock option awards are
made at the discretion of the Board of Directors based on its subjective assessment of the
individual contribution of the executive to the attainment of short and long-term Company goals,
such as collaborations with partners, attainment of successful milestones under such collaborations
and other corporate developments which advance the progress of our technology and drug candidates.
Option grants, including unvested grants, for our named executive officers range from 115,000 for
our current Vice President, Chief Financial Officer and Corporate Secretary; Vice President of
Non-Clinical Development and Applied Biology; and Vice President, Strategy and Development, to
1,300,000 for President and Chief Executive Officer as indicated in the accompanying tables. Stock
option grants to named executive officers in 2009 were made in connection with the annual
compensation review. With the exception of grants made to the Companys President and Chief
Executive Officer (described in Certain Relationships, Related Transactions and Director
Independence Employment Agreement with Michael V. Novinski, President and Chief Executive
Officer), the Companys policy with respect to stock options granted to executives is that grant
prices should be equal to the fair market value of the Common Stock on the date of grant, that
employee stock options should generally vest over a three to five-year period and expire in ten
years from date of grant, and that options previously granted at exercise prices higher than the
current fair market value should not be re-priced. Once performance bonuses or awards are issued,
there are currently no policies in place to reduce, restate or otherwise adjust awards if the
relevant performance measures on which they are based are restated or adjusted. The Company has no
policy to require its named executive officers to hold any specific equity interest in the Company.
The Company does not offer its named executive officers any nonqualified deferred compensation, a
defined benefit pension program or any post retirement medical or other benefits.
Section 162(m) of the Internal Revenue Code of 1986, as amended, provides that compensation in
excess of $1,000,000 paid to the Chief Executive Officer or to any of the other four most highly
compensated executive officers of a publicly held company will not be deductible for federal income
tax purposes, unless such compensation is paid pursuant to one of the enumerated exceptions set
forth in Section 162(m). The Companys primary objective in designing and administering its
compensation policies is to support and encourage the achievement of the Companys long-term
strategic goals and to enhance stockholder value. In general, stock options granted under the
Companys 2000 and 2007 Stock Option Plans are intended to qualify under and comply with the
performance based compensation exemption provided under Section 162(m) thus excluding from the
Section 162(m) compensation limitation any income recognized by executives at the time of exercise
of such stock options. Because salary and bonuses paid to our Chief Executive Officer and four most
highly compensated executive officers have been below the $1,000,000 threshold, the Compensation
Committee has elected, at this time, to retain discretion over bonus payments, rather than to
ensure that payments of salary and bonus in excess of $1,000,000 are deductible. The Compensation
Committee intends to review periodically the potential impacts of Section 162(m) in structuring and
administering the Companys compensation programs.
The Company has an employment contract with its current President and Chief Executive Officer,
Michael V. Novinski as described under Certain Relationships, Related Transactions and Director
Independence Employment Agreement with Michael V. Novinski, President and Chief Executive
Officer. Mr. Novinskis employment contract called for compensation and specific benefits that
were negotiated at the time of execution, including expenses of an automobile up to $1,500 per
month and reimbursement for life insurance up to $15,000 per year. These additional benefits are
not offered to the other named executive officers. Mr. Novinskis contract also called for an
annual cash bonus up to $550,000 (based on a full calendar year). In view of the Companys
liquidity constraints at the time, the Committee determined, and Mr. Novinski agreed, that he would
be paid a $150,000 cash bonus pursuant to his employment agreement with the Corporation in
connection with the Companys 2009 fiscal year; additionally Mr. Novinski will receive a one time
grant of options to purchase 300,000 shares in connection with his compensation for 2009. However,
given the Companys liquidity constraints at the time, the Compensation Committee, with the consent
of Mr. Novinski, agreed to defer the payment of the cash bonus until such time as the Companys
liquidity has stabilized and it has sufficient funding to pay it. On March 10, 2010, Mr. Novinski
was granted options to purchase 300,000 shares of the Companys Common Stock at an exercise price
of $1.34, the fair market value of the Common Stock on the date of such grant. On the date of
grant, options to purchase 100,000 shares were vested; option to purchase another 100,000 shares
will vest on the March 10, 2011, and the remaining options to purchase 100,000 shares will vest on
March 10, 2012. The Committee also determined that Mr. Novinski would be paid a special one-time
cash bonus of $150,000 in connection with the successful completion of a financing during 2009.
However, in light of the Companys liquidity constraints at the time, Mr. Novinski and the Company
also agreed to defer the payment of the $150,000 special cash bonus until such time as the
Companys liquidity has stabilized and it has sufficient funding to pay it. Mr. Novinskis
Employment Contract allows for severance payments to Mr. Novinski in the event of certain
terminations which call for payment of base salary plus bonus (depending on the circumstances) plus
the continuity of health and life insurance benefits for specified time periods. In addition,
certain unvested options would vest immediately upon such termination. The events which would
trigger such payment by the Company are defined in the agreement.
46
Grants of Plan-Based Awards 2009
The following table sets forth information regarding grants of plan-based awards in 2009:
|
|
|
|
|
|
|
|
|
|
|
All Other |
|
|
|
|
Option |
|
|
|
|
|
|
|
|
Awards: |
|
Exercise or |
|
|
|
|
|
|
Number of |
|
Base Price of |
|
|
|
|
|
|
Securities |
|
Option |
|
Grant Date |
|
|
|
|
Underlying |
|
Awards |
|
Fair Value of |
Name |
|
Grant Date |
|
Options (#) |
|
($/Sh) |
|
Option Awards |
Michael V. Novinski |
|
5/15/2009 |
|
300,000 |
|
$0.93 |
|
$239,759 |
President and CEO |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael R. Garone |
|
3/12/2009 |
|
20,000 |
|
0.62 |
|
10,642 |
VP, Chief
Financial Officer and
Corporate Secretary |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
M. Gary I. Riley |
|
3/12/2009 |
|
20,000 |
|
0.62 |
|
10,642 |
VP,
Non-Clinical
Development and Applied Biology |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nicholas J. Hart |
|
3/12/2009 |
|
20,000 |
|
0.62 |
|
10,642 |
VP, Strategy
and Development |
|
|
|
|
|
|
|
|
Outstanding Equity Awards at Fiscal Year-End 2009
The following table sets forth information as to the number and value of unexercised options
held by the Executive Officers named above as of December 31, 2009. There are no outstanding stock
awards with executive officers:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive |
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
|
Plan Awards: |
|
|
|
|
|
|
|
Number of |
|
|
Securities |
|
|
Number of |
|
|
|
|
|
|
|
Shares |
|
|
Underlying |
|
|
Securities |
|
|
|
|
|
|
|
Underlying |
|
|
Unexercised |
|
|
Underlying |
|
|
|
|
|
|
|
Unexercised |
|
|
Unearned |
|
|
Unexercised |
|
Option |
|
Option |
|
|
|
Options (#) |
|
|
Options (#) |
|
|
Unearned |
|
Exercise |
|
Expiration |
|
Name |
|
Exercisable |
|
|
Unexercisable |
|
|
Options (#) |
|
Price ($) |
|
Date |
|
Michael V. Novinski |
|
|
375,000 |
|
|
|
125,000 |
(1) |
|
|
|
$3.19 |
|
|
4/6/2017 |
|
President and CEO |
|
|
375,000 |
|
|
|
125,000 |
(2) |
|
|
|
$6.38 |
|
|
4/6/2017 |
|
|
|
|
200,000 |
|
|
|
100,000 |
(3) |
|
|
|
$0.93 |
|
|
5/15/2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael R. Garone |
|
|
30,000 |
|
|
|
45,000 |
(4) |
|
|
|
$4.03 |
|
|
8/29/2017 |
|
VP, Chief Financial Officer |
|
|
|
|
|
|
20,000 |
(5) |
|
|
|
$0.62 |
|
|
4/12/2019 |
|
and Corporate Secretary |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
M. Gary I. Riley |
|
|
50,000 |
|
|
|
25,000 |
(6) |
|
|
|
$4.02 |
|
|
11/6/2017 |
|
VP, Non-Clinical |
|
|
|
|
|
|
20,000 |
(5) |
|
|
|
$0.62 |
|
|
4/12/2019 |
|
Development and Applied Biology |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nicholas J. Hart |
|
|
15,000 |
|
|
|
60,000 |
(7) |
|
|
|
$2.71 |
|
|
7/14/2018 |
|
VP, Strategy |
|
|
|
|
|
|
20,000 |
(5) |
|
|
|
$0.62 |
|
|
4/12/2019 |
|
and Development |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
125,000 exercisable as of 4/6/2010 |
|
(2) |
|
125,000 exercisable as of 4/6/2010 |
|
(3) |
|
100,000 exercisable as of 12/31/2010 |
|
(4) |
|
15,000 exercisable as of 8/29/2010, 8/29/2011 and 8/29/2012, respectively |
|
(5) |
|
5,000 exercisable as of 4/12/2010 and 4/12/2011; 10,000 exercisable as of 4/12/2012 |
|
(6) |
|
25,000 exercisable as of 11/6/2010 |
|
(7) |
|
15,000 exercisable as of 7/14/2010, 7/14/2011, 7/14/2012 and 7/14/2013, respectively |
47
Option Exercises and Stock Vested 2009
There were no stock options exercised by Executive Officers during 2009.
Compensation Committee Report
The Compensation Committee operates under a written charter adopted by the Board of Directors. The
Compensation Committee charter can be found on our website at www.emisphere.com. The contents of
our website are not incorporated herein by reference and the website address provided in this Proxy
Statement is intended to be an inactive textual reference only.
The Compensation Committee is responsible for the consideration of stock plans, performance goals
and incentive awards, and the overall coverage and composition of the compensation arrangements
related to executive officers. The Compensation Committee may delegate any of the foregoing duties
and responsibilities to a subcommittee of the Compensation Committee consisting of not less than
two members of the committee. The Compensation Committee has the authority to retain, at the
expense of the Company, such outside counsel, experts and other advisors as deemed appropriate to
assist it in the full performance of its functions. The Companys Chief Executive Officer is
involved in making recommendations to the Compensation Committee for compensation of executive
officers (except for himself) as well as recommending compensation levels for directors.
Our executive compensation program is administered by the Compensation Committee of the Board of
Directors. The Compensation Committee, which is composed of non-employee independent directors, is
responsible for reviewing with Company management and approving compensation policy and all forms
of compensation for executive officers and directors in light of the Companys current business
environment and the Companys strategic objectives. In addition, the Compensation Committee acts as
the administrator of the Companys stock option plans. The Compensation Committees practices
include reviewing and establishing executive officers compensation to ensure that base pay and
incentive compensation are competitive to attract and retain qualified executive officers, and to
provide incentive systems reflecting both financial and operating performance, as well as an
alignment with stockholder interests. These policies are based on the principle that total
compensation should serve to attract and retain those executives critical to the overall success of
Emisphere and should reward executives for their contributions to the enhancement of stockholder
value.
The Compensation Committee oversees risk management as it relates to our compensation plans,
policies and practices in connection with structuring our executive compensation programs and
reviewing our incentive compensation programs for other employees. The committee considered risk
when developing our compensation programs and believes that the design of our current compensation
programs do not encourage excessive or inappropriate risk taking. Our base salaries provide
competitive fixed compensation, while annual cash bonuses and equity-based awards encourage
long-term consideration rather than short-term risk taking.
The Compensation Committee has reviewed the Compensation Discussion and Analysis presented herein
under Compensation Plans with the management of the Company. Based on that review and discussion,
the Compensation Committee recommended to the Board of Directors that the Compensation Discussion
and Analysis be included in the Form 10-K and Proxy Statement of the Company.
The Members of the Compensation Committee
Michael Weiser, M.D., Ph.D. (Chairman)
Mark H. Rachesky, M.D.
Audit Committee Report
The Audit Committee operates under a written charter adopted by the Board of Directors. The Audit
Committee has reviewed the relevant standards of the Sarbanes-Oxley Act of 2002, the rules of the
SEC, and the corporate governance listing standards of the Nasdaq regarding committee policies. The
committee intends to further amend its charter, if necessary, as the applicable rules and standards
evolve to reflect any additional requirements or changes. The updated Audit Committee charter can
be found on our website at www.emisphere.com. The contents of our website are not
incorporated herein by reference and the website address provided in this Proxy Statement is
intended to be an inactive textual reference only.
The Audit Committee is currently comprised of John D. Harkey, Jr., (chairman), Timothy G. Rothwell,
who was appointed to the Committee on January 6, 2010, and Michael Weiser, M.D. All of the members
of the Audit Committee are independent within the meaning of Rule 4200 of the Nasdaq. The Board of
Directors has determined that John D. Harkey, Jr. is an Audit Committee financial expert, within
the meaning of Item 401(h) of Regulation S-K.
On January 6, 2010, the Company dismissed PricewaterhouseCoopers LLP (PwC) as the Companys
independent registered public accountants. This action was approved on January 6, 2010 by the Audit
Committee of the Board of Directors of the Company. PwCs audit reports on the Companys
consolidated financial statements as of and for the years ended December 31, 2008 and 2007 did not
contain an adverse opinion or a disclaimer of opinion and were not qualified or modified as to
uncertainty, audit scope or accounting principles, except that for each of the years ended
December 31, 2008 and 2007 PwCs reports contained an explanatory paragraph expressing substantial
doubt about the Companys ability to continue as a going concern. During the Companys two most
recent fiscal years ended December 31, 2007 and 2008, in subsequent interim periods through
January 6, 2010, there were no disagreements with PwC on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if
not resolved to the satisfaction of PwC, would have caused PwC to make reference to the matter in
their reports, and there were no reportable events (as defined in Item 304(a)(1)(v) of
Regulation S-K).
On January 6, 2010, with the approval of the Audit Committee of the Company, the Company engaged
McGladrey & Pullen, LLP (M&P) to act as its independent registered public accounting firm. During
the years ended December 2007, and 2008, respectively, in the subsequent interim periods through
January 5, 2010, neither the Company or anyone acting on its behalf had consulted with M&P on any
of the matters or events set forth in Item 304(a)(2) of Regulation S-K.
Management has primary responsibility for the Companys financial statements and the overall
reporting process, including the Companys system of internal control over financial reporting.
M&P, the Companys independent registered public accountants, audit the annual financial statements
prepared by management, express an opinion as to whether those financial statements fairly present
the consolidated financial position, results of operations and cash flows of the Company and its
subsidiaries in conformity with accounting principles generally accepted in the United States, and
report on internal control over financial reporting. M&P reports to the Audit Committee as members
of the Board of Directors and as representatives of the Companys stockholders.
The Audit Committee meets with management periodically to consider the adequacy of the Companys
internal control over financial reporting and the objectivity of its financial reporting. The Audit
Committee discusses these matters with the appropriate Company financial personnel. In addition,
the Audit Committee has discussions with management concerning the process used to support
certifications by the Companys Chief Executive Officer and Chief Financial Officer that are
required by the SEC and the Sarbanes-Oxley Act to accompany the Companys periodic filings with the
SEC.
On an as needed basis, the Audit Committee meets privately with M&P. The Audit Committee also
appoints the independent registered public accounting firm, approves in advance their engagements
to perform audit and any non-audit services and the fee for such services, and periodically reviews
their performance and independence from management. In addition, when appropriate, the Audit
Committee discusses with M&P plans for the audit partner rotation required by the Sarbanes-Oxley Act.
48
Pursuant to its charter, the Audit Committee assists the board in, among other things, monitoring
and reviewing (i) our financial statements, (ii) our compliance with legal and regulatory
requirements and (iii) the independence, performance and oversight of our independent registered
public accounting firm. Under the Audit Committee charter, the Audit Committee is required to make
regular reports to the board.
During the 2009 Fiscal Year, the Audit Committee of the Board of Directors reviewed and
assessed:
|
|
|
the quality and integrity of the annual audited financial statements with management,
including issues relating to accounting and auditing principles and practices, as well as
the adequacy of internal controls, and compliance with regulatory and legal requirements; |
|
|
|
|
the qualifications and independence of the independent registered public accounting
firm; and |
|
|
|
|
managements, as well as the independent auditors, analysis regarding financial
reporting issues and judgments made in connection with the preparation of our financial
statements, including those prepared quarterly and annually, prior to filing our quarterly
reports on Form 10-Q and annual report on Form 10-K. |
The Audit Committee has reviewed the audited financial statements and has discussed them with both
management and M&P, the independent registered public accounting firm. The Audit Committee has
discussed with the independent auditors matters required to be discussed by the applicable Auditing
Standards as periodically amended (including significant accounting policies, alternative
accounting treatments and estimates, judgments and uncertainties). In addition, the independent
auditors provided to the Audit Committee the written disclosures required by the applicable
requirements of the Public Company Accounting Oversight Board regarding the independent auditors
communications with the Audit Committee concerning independence, and the Audit Committee and the
independent auditors have discussed the auditors independence from the Company and its management,
including the matters in those written disclosures. The Audit Committee also received reports from
M&P regarding all critical accounting policies and practices used by the Company, any alternative
treatments of financial information used, generally accepted accounting principles that have been
discussed with management, ramifications of the use of alternative treatments and the treatment
preferred by M&P and other material written communications between M&P and management, including
management letters and schedules of adjusted differences.
In making its decision to select M&P as Emispheres independent registered public accounting firm
for 2010, the Audit Committee considers whether the non-audit services provided by M&P are
compatible with maintaining the independence of M&P.
Based upon the review and discussions referenced above, the Audit Committee, as comprised at the
time of the review and with the assistance of the Companys Chief Financial Officer, recommended to
the Board of Directors that the audited financial statements be included in our Annual Report on
Form 10-K for the fiscal year ended December 31, 2009 and be filed with the SEC.
The Members of the Audit Committee
John D. Harkey, Jr. (Chairman)
Timothy G. Rothwell
Michael Weiser, M.D.
Compensation of Non-Employee Directors
A director who is a full-time employee of the Company receives no additional compensation for
services provided as a director. It is the Companys policy to provide competitive compensation and
benefits necessary to attract and retain high quality non-employee directors and to encourage
ownership of Company stock to further align their interests with those of stockholders. The
following represents the compensation of the non-employee members of the Board of Directors:
|
|
|
Prior to June 24, 2009, each non-employee director received, on the date of each regular
annual stockholders meeting, a stock option to purchase 7,000 shares of our Common Stock
under the 2007 Stock Award and Incentive Plan. The stock options vest on the six month
anniversary of the grant date provided the director continuously serves as a director from
the grant date through such vesting date. Notwithstanding the foregoing, any director who
holds any stock options granted before April 1, 2004 which remain unvested was ineligible to
receive the annual 7,000-share stock option grant described in this paragraph unless and
until all such prior options had vested. Stock options granted in 2009 have a stated
expiration date of ten years after the date of grant, and are subject to accelerated vesting
upon a change in control of Emisphere. If the holder of an option ceases to serve as a
director, all previously granted options may be exercised to the extent vested within six
months after termination of directorship (one year if the termination is by reason of
death), except that, after April 1, 2004 (unless otherwise provided in an option agreement),
if a director becomes an emeritus director of Emisphere immediately following his Board
service, the vested options may be exercised for six months after termination of service as
an emeritus director. All unvested options expire upon termination of Board service. |
|
|
|
|
On May 15, 2009, in recognition of the roles and responsibilities of the Board of
Directors and current market data, the non-employees members of the Board of Directors
compensation was revised to include a special one-time grant of
50,000 options to purchase shares of Common Stock granted on May 15, 2009, an annual retainer of $35,000, payable
quarterly in cash, and an annual stock option grant of 40,000 options to purchase shares of
Common Stock. The annual stock option grants are granted each year on the date of the annual
meeting of stockholders of the Company. The director must be an eligible director on the
dates the retainers are paid and the stock options are granted. The options subject to the
special one-time stock option grant and annual stock option grant would vest over three
years in equal amounts on each anniversary of the grant date provided the director
continuously serves as a director from the grant date through such vesting date, subject to
accelerated vesting upon a change in control of Emisphere. Such options, once vested, remain
exercisable through the period of the option term. |
|
|
|
|
All newly appointed directors shall receive an initial stock option grant on the date of
appointment of 50,000 options to purchase shares of Common Stock. The options subject to
such initial stock option grant vest over three years in equal amounts on each anniversary
of the grant date provided the director continuously serves as a director from the grant
date through such vesting date, subject to accelerated vesting upon a change in control of
Emisphere. Such options, once vested, remain exercisable through the period of the option
term. |
|
|
|
|
On May 15, 2009, Messrs. Kenneth Moch and Franklin Berger, who at such time comprised the
Special Committee of the Board of Directors, each received a one-time special stock option
grant of 25,000 shares of Common Stock and a one-time fee of $10,000. Also on May 15, 2009,
Messrs. Weiser, Harkey and Rachesky received a one-time special stock option grant of
25,000 shares of Common Stock and a one-time fee of $10,000 in recognition for their length
of service on the Board of Directors. The options subject to these one-time stock option
grants vest over three years in equal amounts on each anniversary of the grant date provided
the director continuously serves as a director from the grant date through such vesting
date, subject to accelerated vesting upon a change in control of Emisphere. Such options,
once vested, remain exercisable through the period of the option term. |
49
|
|
|
Additional committee and chairperson fees are paid as follows: |
|
|
|
$10,000 audit committee chairperson fee; |
|
|
|
|
$2,500 audit committee member fee; |
|
|
|
|
$5,000 compensation committee chairperson fee; |
|
|
|
|
$1,000 compensation committee member fee; |
|
|
|
|
$2,500 governance and nominating committee chairperson fee; and |
|
|
|
|
$500 governance and nominating committee member fee. |
The director must be an eligible director on the dates such fees are paid.
Director Compensation Table 2009
The table below represents the compensation paid to our non-employee directors during the year
ended December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees Earned |
|
|
Stock |
|
Option |
|
|
All Other |
|
|
|
|
|
or Paid |
|
|
Awards |
|
Awards |
|
|
Compensation |
|
Total |
|
Name |
|
in Cash ($) |
|
|
($)(1) |
|
($)(1) |
|
|
($) |
|
($) |
|
Franklin M. Berger(2) |
|
|
23,918 |
|
|
|
|
|
|
|
|
|
|
|
23,918 |
|
Stephen K. Carter, M.D.(3) |
|
|
5,000 |
|
|
|
|
|
|
|
|
|
|
|
5,000 |
|
Kenneth I. Moch(4) |
|
|
39,980 |
|
|
|
|
|
|
|
|
|
|
|
39,980 |
|
John D. Harkey, Jr. |
|
|
31,365 |
|
|
|
|
|
16,941 |
|
|
|
|
|
48,306 |
|
Mark H. Rachesky, M.D. |
|
|
31,519 |
|
|
|
|
|
19,756 |
|
|
|
|
|
51,275 |
|
Timothy G. Rothwell |
|
|
|
|
|
|
|
|
1,466 |
|
|
|
|
|
1,466 |
|
Michael Weiser, M.D. |
|
|
39,250 |
|
|
|
|
|
16,941 |
|
|
|
|
|
56,191 |
|
|
|
|
(1) |
|
The value listed in the above table represents the fair value of the
options recognized as expense under FASB ASC Topic 718 during 2009,
including unvested options granted before 2009 and those granted in 2009.
Fair value is calculated as of the grant date using a Black-Scholes-Merton
(Black-Scholes) option-pricing model. The determination of the fair
value of share-based payment awards made on the date of grant is affected
by our stock price as well as assumptions regarding a number of complex
and subjective variables. Our assumptions in determining fair value are
described in note 12 to our audited financial statements for the year
ended December 31, 2009, included in our Annual Report on Form 10-K. |
|
(2) |
|
Mr. Berger resigned from the Board of Directors effective October 23, 2009. |
|
(3) |
|
Dr. Carter resigned from the Board of Directors effective April 30, 2009. |
|
(4) |
|
Mr. Moch resigned from the Board of Directors effective November 10, 2009. |
The following table summarizes the aggregate number of option awards and stock awards held by
each non-employee director at December 31, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards |
|
|
Stock Awards |
|
|
|
|
|
|
|
|
|
|
Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive Plan |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Awards: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
|
Number of |
|
|
|
|
|
|
|
Number of |
|
Market |
|
|
Number of |
|
|
Securities |
|
|
Securities |
|
|
|
|
|
|
|
Shares of |
|
Value of |
|
|
Securities |
|
|
Underlying |
|
|
Underlying |
|
|
|
|
|
|
|
Units of |
|
Shares or |
|
|
Underlying |
|
|
Unexercised |
|
|
Unexercised |
|
|
|
|
|
|
|
Stock That |
|
Units of |
|
|
Unexercised |
|
|
Unearned |
|
|
Unearned |
|
Option |
|
Option |
|
|
Have not |
|
Stock That |
|
|
Options (#) |
|
|
Options (#) |
|
|
Options |
|
Exercise |
|
Expiration |
|
|
Vested |
|
Have not |
Name |
|
Exercisable |
|
|
Unexercisable |
|
|
(#) |
|
Price ($) |
|
Date |
|
|
(#) |
|
Vested ($) |
John D. Harkey, Jr. |
|
|
7,000 |
|
|
|
|
|
|
|
|
8.97 |
|
|
5/26/2016 |
|
|
|
|
|
|
|
|
7,000 |
|
|
|
|
|
|
|
|
3.76 |
|
|
4/20/2017 |
|
|
|
|
|
|
|
|
7,000 |
|
|
|
|
|
|
|
|
3.79 |
|
|
8/8/2018 |
|
|
|
|
|
|
|
|
|
|
|
|
75,000 |
|
|
|
|
0.93 |
|
|
5/15/2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mark H. Rachesky, M.D. |
|
|
7,000 |
|
|
|
|
|
|
|
|
3.76 |
|
|
4/20/2017 |
|
|
|
|
|
|
|
|
7,000 |
|
|
|
|
|
|
|
|
3.79 |
|
|
8/13/2018 |
|
|
|
|
|
|
|
|
|
|
|
|
75,000 |
|
|
|
|
0.93 |
|
|
5/15/2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael Weiser, M.D. |
|
|
7,000 |
|
|
|
|
|
|
|
|
8.97 |
|
|
5/26/2016 |
|
|
|
|
|
|
|
|
7,000 |
|
|
|
|
|
|
|
|
3.76 |
|
|
4/20/2017 |
|
|
|
|
|
|
|
|
7,000 |
|
|
|
|
|
|
|
|
3.79 |
|
|
8/8/2018 |
|
|
|
|
|
|
|
|
|
|
|
|
75,000 |
|
|
|
|
0.93 |
|
|
5/15/2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Timothy G. Rothwell |
|
|
|
|
|
|
50,000 |
|
|
|
|
0.70 |
|
|
11/5/2019 |
|
|
|
|
|
50
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Securities Available For Future Issuance Under Equity Plans
The following table provides information as of August 30, 2010 about the Common Stock that may be
issued upon the exercise of options granted to employees, consultants or members of our Board of
Directors under our existing equity compensation plans, including the 1991 Stock Option Plan, 1995
Stock Option Plan, 2000 Stock Option Plan, the 2002 Broad Based Plan, the 2007 Stock Award and
Incentive Plan (collectively the Plans) the Stock Incentive Plan for Outside Directors and the
Directors Deferred Compensation Plan:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
|
|
|
|
|
(c) |
|
|
|
Number of |
|
|
|
|
|
|
Number of Securities |
|
|
|
Securities to be |
|
|
(b) |
|
|
Remaining Available for |
|
|
|
Issued Upon |
|
|
Weighted Average |
|
|
Future Issuance Under |
|
|
|
Exercise of |
|
|
Exercise Price |
|
|
Equity Compensation Plans |
|
|
|
Outstanding |
|
|
of Outstanding |
|
|
(Excluding Securities |
|
Plan Category |
|
Options |
|
|
Options |
|
|
Reflected in Column (a)) |
|
Equity Compensation Plans Approved by Security Holders |
|
|
|
|
|
|
|
|
|
|
|
|
The Plans |
|
|
2,955,466 |
|
|
$ |
3.68 |
|
|
|
1,535,048 |
|
Stock Incentive Plan for Outside Directors |
|
|
100,000 |
|
|
|
10.24 |
|
|
|
|
|
Directors Deferred Compensation Plan |
|
|
|
|
|
|
|
|
|
|
|
|
Equity Compensation Plans not approved by Security Holders(1) |
|
|
10,000 |
|
|
|
3.64 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
3,065,466 |
|
|
$ |
3.68 |
|
|
|
1,535,048 |
|
|
|
|
(1) |
|
Our Board of Directors has granted options which are currently
outstanding for a former consultant. The Board of Directors determines
the number and terms of each grant (option exercise price, vesting and
expiration date). These grants were made on 7/12/2002 and 7/14/2003. |
Common Stock Ownership by Directors and Executive Officers and Principal Holders
Directors, Executive Officers and Principal Holder of Common Stock
The following table sets forth certain information, as of August 30, 2010, regarding the beneficial
ownership of the Common Stock by (i) each director, including the Director Nominees; (ii) each
Executive Officer; (iii) all of our directors and Executive Officers as a group; and
(iv) information regarding beneficial owners of more than five (5%) percent of the outstanding
shares of Common Stock as of August 30, 2010. The number of shares beneficially owned by each
director or Executive Officer is determined under the rules of the SEC, and the information is not
necessarily indicative of beneficial ownership for any other purpose. Under these rules, beneficial
ownership includes any shares as to which the individual has the sole or shared voting power (which
includes power to vote, or direct the voting of, such security) or investment power (which includes
power to dispose of, or direct the disposition of, such security). In computing the number of
shares beneficially owned by a person and the percentage ownership of that person, shares of Common
Stock subject to options, warrants or convertible notes held by that person that are currently
exercisable or convertible into Common Stock or will become exercisable or convertible into Common
Stock within 60 days after August 30, 2010 are deemed outstanding, while such shares are not deemed
outstanding for purposes of computing percentage ownership of any other person. Unless otherwise
indicated, all persons named as beneficial owners of Common Stock have sole voting power and sole
investment power with respect to the shares indicated as beneficially owned:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Shares |
|
|
|
|
|
|
|
|
|
Beneficially Owned |
|
|
Common Shares |
|
|
Percent |
|
Name and Address(a) |
|
(b) |
|
|
Underlying Options |
|
|
Of Class |
|
Michael V. Novinski |
|
|
1,340,000 |
|
|
|
1,300,000 |
|
|
|
2.5 |
% |
Michael R. Garone |
|
|
35,000 |
|
|
|
35,000 |
|
|
|
* |
|
Gary Riley, DVM, Ph.D. |
|
|
75,500 |
|
|
|
55,000 |
|
|
|
* |
|
Nicholas Hart |
|
|
20,000 |
|
|
|
20,000 |
|
|
|
* |
|
Mark H. Rachesky, M.D. |
|
|
29,492,831 |
(c) |
|
|
15,309,606 |
(d) |
|
|
43.9 |
% |
Timothy Rothwell |
|
|
|
|
|
|
|
|
|
|
* |
|
Michael Weiser, M.D. |
|
|
24,775 |
|
|
|
21,000 |
|
|
|
* |
|
John D. Harkey, Jr. |
|
|
24,775 |
|
|
|
21,000 |
|
|
|
* |
|
All directors and executive officers as a group |
|
|
31,012,881 |
|
|
|
16,761,606 |
|
|
|
45.2 |
% |
|
|
|
* |
|
Less than 1% |
|
(a) |
|
Unless otherwise specified, the address of each beneficial owner is
c/o Emisphere Technologies, Inc., 240 Cedar Knolls Road, Suite 200,
Cedar Knolls, New Jersey 07927. |
|
(b) |
|
The number of shares set forth for each Director and Executive Officer
consists of direct and indirect ownership of shares, including stock
options, deferred common share units, restricted stock and, in the
case of Dr. Rachesky, shares of Common Stock that can be obtained upon
conversion of convertible notes and exercise of warrants, as further
described in footnotes (c) and (d) below. |
|
(c) |
|
This number consists of: |
|
|
|
14,183,225 shares of Common Stock held for the accounts of the following entities: |
|
|
|
5,006,013 shares held for the account of MHR Capital Partners Master Account LP
(Master Account) |
|
|
|
|
680,826 shares held for the account of MHR Capital Partners (100) LP (Capital
Partners (100)) |
|
|
|
|
2,412,718 shares held for the account of MHR Institutional Partners II LP
(Institutional Partners II) |
51
|
|
|
6,078,370 shares held for the account of MHR Institutional Partners IIA LP
(Institutional Partners IIA) |
|
|
|
|
5,298 shares held directly by Mark H. Rachesky, M.D. |
|
|
|
6,319,853 shares of Common Stock that can be obtained by the following entities upon
conversion of the Convertible Notes: |
|
|
|
1,272,613 shares held by Master Account |
|
|
|
|
174,032 shares held by Capital Partners (100) |
|
|
|
|
1,384,707 shares held by Institutional Partners II |
|
|
|
|
3,488,501 shares held by Institutional Partners IIA |
|
|
|
8,900,753 shares of Common Stock that can be obtained by the following entities upon
exercise of warrants: |
|
|
|
2,122,000 shares held by Master Account |
|
|
|
|
290,135 shares held by Capital Partners (100) |
|
|
|
|
1,843,722 shares held by Institutional Partners II |
|
|
|
|
4,644,896 shares held by Institutional Partners IIA |
|
|
|
7,000 shares of Common Stock that can be obtained by Dr. Rachesky upon the exercise of
currently vested stock options at a price of $3.76 per share |
|
|
|
|
7,000 shares of Common Stock that can be obtained by Dr. Rachesky upon the exercise of
currently vested stock options at a price of $3.79 per share |
|
|
|
|
75,000 shares of Common Stock that can be obtained by Dr. Rachesky upon the exercise of
currently vested stock options at a price of $0.93 per share |
|
|
|
|
|
MHR Advisors LLC (Advisors) is the general partner of each of Master Account and Capital
Partners (100), and, in such capacity, may be deemed to beneficially own the shares of Common
Stock held for the accounts of each of Master Account and Capital Partners (100). MHR
Institutional Advisors II LLC (Institutional Advisors II) is the general partner of each of
Institutional Partners II and Institutional Partners IIA, and, in such capacity, may be deemed
to beneficially own the shares of Common Stock held for the accounts of each of Institutional
Partners II and Institutional Partners IIA. MHR Fund Management LLC (Fund Management) is a
Delaware limited liability company that is an affiliate of and has an investment management
agreement with Master Account, Capital Partners (100), Institutional Partners II and
Institutional Partners IIA, and other affiliated entities, pursuant to which it has the power to
vote or direct the vote and to dispose or to direct the disposition of the shares of Common
Stock held by such entities and, accordingly, Fund Management may be deemed to beneficially own
the shares of Common Stock held for the account of each of Master Account, Capital Partners
(100), Institutional Partners II and Institutional Partners IIA. Dr. Rachesky is the managing
member of Advisors, Institutional Advisors II, and Fund Management, and, in such capacity, may
be deemed to beneficially own the shares of Common Stock held for the accounts of each of Master
Account, Capital Partners (100), Institutional Partners II and Institutional Partners IIA. |
|
(d) |
|
This number consists of (i) 6,319,853 shares of Common Stock that can
be obtained by Master Account, Capital Partners (100), Institutional
Partners II and Institutional Partners IIA upon conversion of the
Convertible Notes, (ii) 8,900,753 shares of Common Stock that can be
obtained by Master Account, Capital Partners (100), Institutional
Partners II and Institutional Partners IIA upon exercise of warrants,
(iii) 89,000 shares of Common Stock that can be obtained by
Dr. Rachesky upon the exercise of currently vested stock options. |
CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
Related Party Transaction Approval Policy
In February 2007, our Board of Directors adopted a written related party transaction approval
policy, which sets forth our Companys polices and procedures for the review, approval or
ratification of any transaction required to be reported in our filings with the Securities and
Exchange Commission. The Companys policy with regard to related party transactions is that all
material transactions non-compensation related are to be reviewed by the Audit Committee for any
possible conflicts of interest. The Compensation Committee will review all material transactions
that are related to compensation. All related party transactions approved by either the Audit
Committee or Compensation Committee shall be disclosed to the Board of Directors at the next
meeting.
Employment Agreement with Michael V. Novinski, President and Chief Executive Officer
On April 6, 2007, the Company entered into an Employment Agreement with Michael V. Novinski,
setting forth the terms and conditions of his employment as President and Chief Executive of the
Company. The Agreement is for a term of three years, renewable annually thereafter. Under the
Agreement, Mr. Novinski will receive a base salary of $550,000 per year, less applicable local,
state and federal withholding taxes. Mr. Novinski was also granted options to purchase
1,000,000 shares of the Companys Common Stock; the exercise price for 500,000 of the shares was
$3.19, the fair market value of the Common Stock on the date of grant, and the exercise price for
the remaining 500,000 shares is equal to two times the fair market value of the Common Stock on the
date of grant. At December 31, 2009, options to purchase 750,000 shares were vested; another
twenty-five percent (250,000 shares) will vest on the third anniversary of the date of grant. In
addition, he will be eligible for an annual cash bonus up to $550,000 (based on a full calendar
year). In view of the Companys liquidity constraints at the time, the Committee determined, and
Mr. Novinski agreed, that he would be paid a $150,000 cash bonus pursuant to his employment
agreement with the Corporation in respect of the Companys 2009 fiscal year; additionally
Mr. Novinski will receive a one time grant of options to purchase 300,000 shares in connection with
his compensation for 2009. However, given of the Companys liquidity constraints at the time, the
Compensation Committee, with the consent of Mr. Novinski, agreed to defer the payment of the cash
bonus until such time as the Companys liquidity has stabilized and it has sufficient funding to
pay it. On March 10, 2010, Mr. Novinski was granted options to purchase 300,000 shares of the
Companys Common Stock at an exercise price of $1.34, the fair market value of the Common Stock on
the date of such grant. On the date of grant, options to purchase 100,000 shares were vested;
option to purchase another 100,000 shares will vest on the March 10, 2011, and the
remaining options to purchase 100,000 shares will vest on March 10, 2012. The Committee also
determined that Mr. Novinski would be paid a special one-time cash bonus of $150,000 in connection
with the successful completion of a financing during 2009. However, in light of the Companys
liquidity constraints at the time, Mr. Novinski and the Company also agreed to defer the payment of
the $150,000 special cash bonus until such time as the Companys liquidity has stabilized and it
has sufficient funding to pay it. Mr. Novinskis Employment Contract allows for severance payments
to Mr. Novinski in the event of certain terminations which call for
52
payment of base salary plus
bonus (depending on the circumstances) plus the continuity of health and life insurance benefits
for specified time periods. In addition, certain unvested options would vest immediately upon such
termination. The events which would trigger such payment by the Company are defined in the
agreement.
In addition, Mr. Novinskis Employment Agreement provides that he will be provided (a) four weeks
paid vacation, a car allowance of $18,000 per year (up to $1,500 per month), and reimbursement of
up to $15,000 of life insurance payments per year. If Emisphere terminates Mr. Novinski without
Cause or if Mr. Novinski terminates his employment for Good Reason (each capitalized term as
defined in the Employment Agreement), subject to certain conditions, Mr. Novinski will be entitled
to (a) payment of salary through the termination date, (b) payment of pro-rata bonus based on the
target bonus for the year of termination, (c) payment equal to nine months of salary,
(d) acceleration of the next two scheduled vesting dates of the above option grants, (all options
will be accelerated in the event of a Change in Control as defined in the Employment Agreement),
(e) continued participation in Emispheres health benefit plan for up to 12 months, and (f) payment
of benefits or other amounts earned, accrued, or owning under Emispheres plans or programs.
If Emisphere terminates Mr. Novinskis employment due to Death or Long-Term Disability (each
capitalized term as defined in the Employment Agreement), subject to certain conditions,
Mr. Novinski will be entitled to (a) payment of salary through the termination date, (b) payment of
pro-rata bonus based on the target bonus for the year of termination, (c) acceleration of the
scheduled vesting dates of the above option grants, (d) continued participation in Emispheres
health benefit plan for up to 12 months, and (e) payment of benefits or other amounts earned,
accrued or owning under Emispheres plans or programs.
Agreement with M. Gary I. Riley, Vice President on Non-Clinical Development and Applied Biology
The Company has an agreement with M. Gary I. Riley by which, in the event that there is a Change in
Control during Mr. Rileys first twenty-four months of employment at Emisphere resulting in
termination of employment during such twenty-four month period, a severance amount, equivalent to
one years base salary (excluding bonus and relocation assistance), will be provided to the
executive. In the event there is a Change in Control after Mr. Rileys first twenty-four months of
employment, a severance amount, equivalent to six months base salary, will be provided to him.
In addition, in the event that there is a Change in Control during Mr. Rileys employment at
Emisphere resulting in termination of employment, he shall receive, in addition to the options
already vested and subject to approval by the Board of Directors, immediate vesting of all
remaining options as set forth in the Plan.
Agreement with Nicholas J. Hart, Vice President, Strategy and Development
The Company has an agreement with Nicholas J. Hart by which, in the event that there is a Change in
Control during Mr. Harts term of employment at Emisphere resulting in termination of employment, a
severance amount, equivalent to six months base salary (excluding bonus) will be provided to
Mr. Hart.
In addition, in the event that there is a Change in Control during his employment at Emisphere
resulting in termination of employment, he shall receive, in addition to the options already vested
and subject to approval by the Board of Directors, immediate vesting of all remaining options as
set forth in the Plan.
Information about Board of Directors
Our business is overseen by the Board of Directors. It is the duty of the Board of Directors to
oversee the Chief Executive Officer and other senior management in the competent and ethical
operation of the Company on a day-to-day basis and to assure that the long-term interests of the
stockholders are being served. To satisfy this duty, our directors take a proactive, focused
approach to their position, and set standards to ensure that the Company is committed to business
success through maintenance of the highest standards of responsibility and ethics. The Board of
Directors is kept advised of our business through regular verbal or written reports, Board of
Directors meetings, and analysis and discussions with the Chief Executive Officer and other
officers of the Company.
Members of the Board of Directors bring to us a wide range of experience, knowledge and judgment.
Our governance organization is designed to be a working structure for principled actions, effective
decision-making and appropriate monitoring of both compliance and performance.
The Board of Directors has affirmatively determined that Mr. John D. Harkey, Jr., Dr. Mark H.
Rachesky, Mr. Timothy G. Rothwell and Dr. Michael Weiser are independent directors within the
meaning of Rule 4200 of the Marketplace Rules of the Nasdaq Stock Market, Inc. (Nasdaq). The
independent directors meet in separate sessions at the conclusion of board meetings and at other
times as deemed necessary by the independent directors, in the absence of Mr. Michael V. Novinski,
the sole non-independent director. None of the members of the Board of Directors currently serve as
Chairman; leadership of the Board is provided through consensus of the Directors. Matters are
explored in Committee and brought to the full Board for discussion or action.
Committees of the Board of Directors
The Board of Directors has established an Audit Committee, a Compensation Committee and a
Governance and Nominating Committee. Each of the committees of the Board of Directors acts pursuant
to a separate written charter adopted by the Board of Directors.
The Audit Committee is currently comprised of Mr. Harkey (chairman), Mr. Rothwell and Dr. Weiser.
All members of the Audit Committee are independent within the meaning of Rule 4200 of the Nasdaq.
The Board of Directors has determined that Mr. Harkey is an Audit Committee financial expert,
within the meaning of Item 401(h) of Regulation S-K. The Audit Committees responsibilities and
duties are summarized in the report of the Audit Committee and in the Audit Committee charter which
is available on our website (www.emisphere.com).
The Compensation Committee is currently comprised of Dr. Weiser (chairman) and Dr. Rachesky. All
members of the Compensation Committee are independent within the meaning of Rule 4200 of the
Nasdaq, non-employee directors within the meaning of the rules of the Securities and Exchange
Commission and outside directors within the meaning set forth under Internal Revenue Code
Section 162(m). The Compensation Committees responsibilities and duties are summarized in the
report of the Compensation Committee and in the Compensation Committee charter also available on
our website.
The Governance and Nominating Committee is currently comprised of Dr. Weiser (chairman) and
Dr. Rachesky. All members of the Governance and Nominating Committee are independent within the
meaning of Rule 4200 of the Nasdaq. The Governance and Nominating Committees responsibilities and
duties are set forth in the Governance and Nominating Committee charter on our website. Among other
things, the Governance and Nominating Committee is responsible for recommending to the board the
nominees for election to our Board of Directors and the identification and recommendation of
candidates to fill vacancies occurring between annual stockholder meetings.
53
The table below provides membership information for each committee of the Board of Directors during
2009:
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Governance |
|
Name |
|
Board |
|
|
Audit |
|
|
Compensation |
|
|
and Nominating |
|
Kenneth I. Moch(1) |
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
Michael V. Novinski(2) |
|
|
X |
|
|
|
|
|
|
|
|
|
|
|
|
|
Mark H. Rachesky, M.D.(2) |
|
|
X |
|
|
|
|
|
|
|
X |
|
|
|
X |
|
Michael Weiser, M.D.(2)(4) |
|
|
X |
|
|
|
X |
|
|
|
X |
* |
|
|
X |
* |
Franklin M. Berger(3)(5) |
|
|
X |
|
|
|
|
|
|
|
|
|
|
|
|
|
Stephen K. Carter, M.D.(3)(6) |
|
|
X |
|
|
|
|
|
|
|
X |
|
|
|
X |
|
John D. Harkey, Jr.(3) |
|
|
X |
|
|
|
X |
* |
|
|
|
|
|
|
|
|
Timothy G. Rothwell(3) |
|
|
X |
|
|
|
X |
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Chair |
|
(1) |
|
Class II directors: Term as director was expected to expire in 2010. However, Mr. Moch resigned from the Board of Directors effective November 10, 2009. |
|
(2) |
|
Class III directors: Term as director is expected to expire in 2011. |
|
(3) |
|
Class I directors: Term as director is expected to expire in 2012. |
|
(4) |
|
On February 12, 2009, Dr. Weiser was appointed to the Compensation and Governance and Nominating committees and assumed the role of chairman of both
committees. |
|
(5) |
|
Mr. Berger resigned from the Board of Directors effective October 23, 2009. |
|
(6) |
|
Dr. Carter resigned from the Board of Directors effective April 30, 2009. |
Board Involvement in Risk Oversight
Our Board of Directors is responsible for oversight of the Companys risk assessment and management
process. We believe risk can arise in every decision and action taken by the Company, whether
strategic or operational. Our comprehensive approach is reflected in the reporting processes by
which our management provides timely and fulsome information to the Board of Directors to support
its role in oversight, approval and decision-making.
The Board of Directors closely monitors the information it receives from management and provides
oversight and guidance to our management team concerning the assessment and management of risk. The
Board of Directors approves the Companys high level goals, strategies and policies to set the tone
and direction for appropriate risk taking within the business.
The Board of Directors delegated to the Compensation Committee basic responsibility for oversight
of managements compensation risk assessment, and that committee reports to the board on its
review. Our Board of Directors also delegated tasks related to risk process oversight to our Audit
Committee, which reports the results of its review process to the Board of Directors. The Audit
Committees process includes a review, at least annually, of our internal audit process, including
the organizational structure, as well as the scope and methodology of the internal audit process.
The Governance and Nominating Committee oversees risks related to our corporate governance,
including director performance, director succession, director education and governance documents.
In addition to the reports from the Board committees, our Board periodically discusses risk
oversight.
Meetings Attendance
During the 2009 fiscal year, our Board of Directors held 11 meetings. With the exception of
Dr. Carter, who did not attend meetings during 2009, each director attended 100 percent of the
aggregate number of Board of Directors meetings and committees of which he was a member that were
held during the period of his service as a director.
The Audit Committee met 5 times during the 2009 fiscal year.
The Compensation Committee met 1 time during the 2009 fiscal year.
The Governance and Nominating Committee 1 time during the 2009 fiscal year.
The Company does not have a formal policy regarding attendance by members of the Board of Directors
at the Companys annual meeting of stockholders, although it does encourage attendance by the
directors.
54
DESCRIPTION OF SECURITIES TO BE REGISTERED
The following summary of certain provisions of our common stock does not purport to be complete.
You should refer to our amended and restated certificate of incorporation, as amended, and our
by-laws, as amended, both of which are incorporated by reference as an exhibit to the registration
statement of which this prospectus is a part. The summary below is also qualified by provisions of
applicable law.
Our authorized capital stock consists of 100,000,000 shares of common stock, par value $.01 per
share, and 1,000,000 shares of preferred stock, par value $.01 per share, of which 200,000 shares
have been designated Series A Junior Participating Cumulative Preferred Stock. As of August 30,
2010, there were 51,889,102 shares of common stock outstanding and no shares of preferred stock
outstanding.
Common Stock
Holders of common stock are entitled to one vote for each share held on all matters submitted to a
vote of stockholders, and do not have cumulative voting rights. Holders of common stock are
entitled to receive ratably such dividends, if any, as may be declared by our board of directors
out of legally available funds, and subject to any preferential dividend rights of any then
outstanding preferred stock. Upon our liquidation, dissolution or winding-up, the holders of common
stock are entitled to receive ratably our net assets available after the payment of all debts and
other liabilities and subject to any liquidation preference of any then outstanding preferred
stock. Holders of common stock have no preemptive, subscription or conversion rights. There are no
redemption or sinking fund provisions applicable to the common stock. The outstanding shares of
common stock are, and the shares offered by us in this offering will be when issued and paid for,
fully paid and non-assessable.
Preferred Stock
We are authorized to issue 1,000,000 shares of preferred stock, par value $.01 per share, of which
200,000 have been designated Series A Junior Participating Cumulative Preferred Stock. As of
August 30, 2010, there were no shares of preferred stock outstanding. Our board of directors has
the authority, subject to certain restrictions, without further stockholder approval, to issue, at
any time and from time to time, shares of preferred stock in one or more series. Each such series
shall have such number of shares, designations, preferences, voting powers, qualifications, and
special or relative rights or privileges as shall be determined by our board of directors, which
may include, among others, dividend rights, voting rights, redemption and sinking fund provisions,
liquidation preferences, conversion rights and preemptive rights, to the full extent now or
hereafter permitted by the laws of the State of Delaware.
The rights of the holders of common stock will be subject to, and may be adversely affected by, the
rights of holders of any preferred stock that may be issued in the future. Such rights may include
voting and conversion rights which could adversely affect the holders of the common stock.
Satisfaction of any dividend preferences of outstanding preferred stock would reduce the amount of
funds available, if any, for the payment of dividends on common stock. Holders of preferred stock
would typically be entitled to receive a preference payment.
Warrants
Warrants to purchase shares of our common stock have been issued in conjunction with various
financing transactions. The following table summarizes warrants outstanding as of August 30, 2010:
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Number of shares |
|
|
|
|
|
|
|
|
|
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of common stock |
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|
|
|
|
|
|
|
|
|
issuable upon |
|
|
|
|
|
|
|
|
|
|
exercise of the |
|
|
|
|
|
|
Exercise price |
|
Related Transaction |
|
warrants (1) |
|
|
Exercise period |
|
|
(1) (2) |
|
Warrants issued to MHR September 2006 |
|
|
617,211 |
|
|
|
9/21/06 9/26/11 |
|
|
$ |
3.760 |
|
August 2007 Offering |
|
|
400,000 |
|
|
|
8/22/07 8/21/12 |
|
|
$ |
3.948 |
|
August 2009 Offering |
|
|
3,729,323 |
|
|
|
8/21/09 8/21/14 |
|
|
$ |
0.713 |
(3) |
Warrants issued to MHR June 2010 |
|
|
865,000 |
|
|
|
6/8/10 8/21/14 |
|
|
$ |
2.900 |
|
August 2010 Offering |
|
|
5,246,292 |
|
|
|
8/26/10 8/26/15 |
|
|
$ |
1.26 |
|
Warrants issued to MHR August 2010 |
|
|
975,000 |
|
|
|
8/26/10 8/26/15 |
|
|
$ |
1.26 |
|
|
|
|
(1) |
|
The exercise price and the number of shares of common stock purchasable upon
the exercise of the warrants are subject to adjustment upon the occurrence of specific events,
including stock dividends, stock splits, and combinations of our common stock. |
|
(2) |
|
The exercise price of the warrants is subject to adjustment upon the
occurrence of certain events, including the issuance by Emisphere of common stock or common stock
equivalents that have an effective price that is less than the exercise price of the warrants. |
|
(3) |
|
Reflects the weighted average exercise price of the August 2009 Offering warrants. |
Before exercising their warrants, holders of warrants do not have any of the rights of holders of
the securities purchasable upon such exercise, including, any right to receive dividends or
payments upon our liquidation, dissolution or winding up or to exercise voting rights.
Stockholder Rights Plan
The Companys board of directors has adopted a stockholder rights plan. The stockholder rights
plan was adopted to give the board of directors increased power to negotiate in our best interests
and to discourage appropriation of control of our Company at a price that is unfair to our
stockholders. The stockholder rights plan is not applicable to MHR. It is not intended to prevent
fair offers for acquisition of control determined by our board of directors to be in our best
interests and the best interests of our Companys stockholders, nor is it intended to prevent a
person or group from obtaining representation on or control of our board of directors through a
proxy contest, or to relieve our board of directors of its fiduciary duty concerning any proposal
for our acquisition in good faith.
55
The stockholder rights plan involves the distribution of one right as a dividend on each
outstanding share of our common stock to all holders of record on April 7,
2006, and an ongoing distribution of one right with respect to each share of our common stock
issued subsequently. Each right shall entitle the holder to purchase one one-hundredth of a share
of Series A Junior Participating Cumulative Preferred Stock. The rights trade in tandem with the
common stock until, and become exercisable upon, the occurrence of certain triggering events, and
the exercise price is based on the estimated long-term value of our common stock. The exercise of
these rights becomes economically attractive upon the triggering of certain flip-in or
flip-over rights which work in conjunction with the stockholder rights plans basic provisions.
The flip-in rights will permit the preferred stocks holders to purchase shares of common stock at
a discounted rate, resulting in substantial dilution of an acquirers voting and economic interests
in our company. The flip-over element of the stockholder rights plan involves certain mergers or
significant asset purchases, which trigger certain rights to purchase shares of the acquiring or
surviving company at a discount. The stockholder rights plan contains a permitted offer
exception which allows offers determined by our board of directors to be in our best interests and
the best interests of our stockholders to take place free of the diluting effects of the
stockholder rights plans mechanisms.
The board of directors retains the right, at all times prior to acquisition of 20% of the Companys
voting common stock by an acquirer, to discontinue the stockholder rights plan through the
redemption of all rights, or to amend the stockholder rights plan in any respect.
Delaware Law and Certain By-Law Provisions
Certain provisions of our by-laws are intended to strengthen our board of directors position in
the event of a hostile takeover attempt. These by-law provisions have the following effects:
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they provide that only persons who are nominated in accordance with the procedures
set forth in the by-laws shall be eligible for election as directors, except as may be
otherwise provided in the by-laws; |
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|
they provide that only business brought before the annual meeting by our board of
directors or by a stockholder who complies with the procedures set forth in the by-laws
may be transacted at an annual meeting of stockholders; and |
|
|
|
|
they establish a procedure for our board of directors to fix the record date whenever
stockholder action by written consent is undertaken. |
Furthermore, our Company is subject to the provisions of Section 203 of the Delaware General
Corporation Law, an anti-takeover law. In general, the statute prohibits a publicly held Delaware
corporation from engaging in a business combination with an interested stockholder for a period
of three years after the date of the transaction in which the person became an interested
stockholder, unless the business combination is approved in a prescribed manner. For purposes of
Section 203, a business combination includes a merger, asset sale or other transaction resulting
in a financial benefit to the interested stockholder, and an interested stockholder is a person
who, together with affiliates and associates, owns, or within three years prior, did own, 15% or
more of the corporations voting stock.
In connection with the transactions contemplated by the Senior Secured Loan Agreement and the
Investment and Exchange Agreement, on September 29, 2005, the Board of Directors approved
amendments to our By-Laws, which became effective as of such date in order to provide that:
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|
The MHR Director may be nominated for election to the Board by MHR for so long as MHR
shall continue to hold at least 2% of the shares of our outstanding Common Stock, warrants
or other equity securities convertible into, or exchangeable for, any Common Stock at a
conversion price or exchange rate that is equal to or less than the closing price per share
of Common Stock on the trading date immediately prior to such calculation, and that the MHR
Director shall, to the extent permitted by law or any applicable rule or listing standard
of any applicable securities exchange or market, be a member of each committee of the Board
and shall be entitled to attend a meeting of any such committee; |
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MHR and the Board shall promptly select the Mutual Director, the Mutual Director shall
be nominated for election to the Board and the Board shall elect the Mutual Director; |
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|
MHR shall have the right to appoint the MHR Observer and the MHR Observer shall have the
right to attend meetings of the Board and any committees thereof, solely in a non-voting
capacity, and to receive all notices, written materials and other information given to
directors in connection with such meetings, subject only to attorney-client privilege
considerations; |
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The number of directors on the Board may only be increased upon the unanimous vote or
unanimous written consent of the Board; |
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Any vacancy on the Board created by the resignation, removal or other discontinuation of
service as a member of the Board of the MHR Director shall be filled by an individual who
shall have been (i) designated by the MHR Director prior to the effectiveness of such
vacancy, other than in the case of removal of the MHR Director for cause, or (ii)
nominated or approved in writing by both a majority of the Board of Directors and MHR, in
the case of removal of the MHR Nominee for cause; |
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|
Any vacancy on the Board created by the resignation, removal or other discontinuation of
service as a member of the Board of the Mutual Director shall only be filled by an
individual who shall have been nominated or approved in writing by both a majority of the
Board and MHR; |
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|
The existing removal provisions of the By-Laws be deleted in their entirety and replaced
with provisions providing that any director, other than the MHR Director and the Mutual
Director, may be removed, with or without cause, by the affirmative vote of the holders of
a majority of the shares of common stock outstanding and entitled to vote at the election
of directors and that the MHR Director and the Mutual Director, may be removed, with or
without cause, by the affirmative vote of the holders of at least 85% of the shares of
common stock outstanding and entitled to vote at the election of directors, provided that
the stockholder vote requirement shall cease to have any force or effect after MHR shall
cease to hold at least 2% of the shares of the Companys outstanding common stock, warrants
or other equity securities convertible into, or exchangeable for, any Common Stock at a
conversion price or exchange rate that is equal to or less than the closing price per share
of Common Stock on the trading date immediately prior to such calculation; |
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A quorum for the transaction of business must include the MHR Director and the Mutual
Director while in office instead of a mere majority of the Board; |
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The rights in the By-Laws appurtenant to MHR may only be altered, amended or repealed
with the unanimous vote or unanimous written consent of the Board or the affirmative vote
of the holders of at least 85% of the shares of common stock outstanding and entitled to
vote at the election of directors, provided that the stockholder vote requirement shall
cease to have any force or effect after MHR shall cease to hold at least 2% of the shares
of fully diluted Common Stock; and |
56
|
|
|
The Board may not adopt any resolution setting forth, or call any meeting of
stockholders for the purpose of approving, any amendment to the By-Laws that would
adversely affect the rights of MHR set forth therein without a vote in favor of such
resolution by the MHR Director for so long as MHR continues to hold at least 2% of the
shares of fully diluted Common Stock. |
Transfer Agent and Registrar
The transfer agent and registrar for our common stock and rights is The Bank of New York Mellon,
111 Founders Plaza-Suite 1100, East Hartford, CT 06108.
SHARES ELIGIBLE FOR FUTURE SALE
Future sales of a substantial number of shares of our common stock in the public market, or the
perception that such sales may occur, could adversely affect trading prices of our common stock
from time to time. As of August 30, 2010, 51,889,102 shares of our common stock were issued and
outstanding. 4,651,712 of such shares and an additional 3,488,784 shares of common stock issuable
upon exercise of the warrants covered by this registration statement will, upon effectiveness, be
freely tradable without restriction or further registration under the Securities Act.
As of August 30, 2010, there are a total of 4,600,514 available shares of Common Stock to be issued
upon the exercise of options that have been or may be granted to employees, consultants or members
of our Board of Directors under our existing equity compensation plans, including the 1991 Stock
Option Plan, 1995 Stock Option Plan, 2000 Stock Option Plan, the 2002 Broad Based Plan, the 2007
Stock Award and Incentive Plan, the Stock Incentive Plan for Outside Directors and the Directors
Deferred Compensation Plan. Such shares of Common Stock are covered by the Form S-8 registration
statements filed by us with the SEC and generally may be resold in the public market without
restriction or limitation, except in the case of our affiliates who generally may only resell such
shares in accordance with the provisions of Rule 144 under the Securities Act.
Rule 144
In general, under Rule 144 under the Securities Act, a person (or persons whose shares are
aggregated) who is not deemed to have been an affiliate of ours at any time during the three months
preceding a sale, and who has beneficially owned restricted securities within the meaning of Rule
144 for at least six months (including any period of consecutive ownership of preceding
non-affiliated holders) would be entitled to sell those shares, subject only to the availability of
current public information about us. A non-affiliated person who has beneficially owned restricted
securities within the meaning of Rule 144 for at least one year would be entitled to sell those
shares without regard to the provisions of Rule 144.
A person (or persons whose shares are aggregated) who is deemed to be an affiliate of ours and who
has beneficially owned restricted securities within the meaning of Rule 144 for at least six months
would be entitled to sell within any three-month period a number of shares that does not exceed the
greater of one percent of the then outstanding shares of our common stock or the average weekly
trading volume of our common stock during the four calendar weeks preceding such sale. Such sales
are also subject to certain manner of sale provisions, notice requirements and the availability of
current public information about us.
INTERESTS OF NAMED EXPERTS AND COUNSEL
None.
CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
The Companys senior management is responsible for establishing and maintaining a system of
disclosure controls and procedures (as defined in Rule 13a-15 and 15d-15 under the Securities
Exchange Act of 1934 (the Exchange Act)) designed to ensure that information required to be
disclosed by the Company in the reports that it files or submits under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified in the Securities
and Exchange Commissions rules and forms. Disclosure controls and procedures include, without
limitation, controls and procedures designed to ensure that information required to be disclosed by
an issuer in the reports that it files or submits under the Exchange Act is accumulated and
communicated to the issuers management, including its principal executive officer or officers and
principal financial officer or officers, or persons performing similar functions, as appropriate to
allow timely decisions regarding required disclosure.
The Company has evaluated the effectiveness of the design and operation of its disclosure controls
and procedures under the supervision of and with the participation of management, including the
Chief Executive Officer and Chief Financial Officer, as of June 30, 2010. Based on that evaluation,
our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls
and procedures are effective.
Managements Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over
financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange
Act. Our management conducted an evaluation of the effectiveness of our internal control over
financial reporting based on the framework established in Internal Control Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on that
evaluation, our management has concluded that our internal control over financial reporting was
effective as of June 30, 2010.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Projections of any evaluation of effectiveness to future periods are subject
to the risk that controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may deteriorate.
This registration statement does not include an attestation report of the Companys registered
public accounting firm regarding internal control over financial reporting. Managements report was
not subject to attestation by the companys registered public accounting firm pursuant to temporary
rules of the Securities and Exchange Commission that permit the Company to provide only
managements report in this registration statement.
57
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting since the changes
described above that materially affected, or are reasonably likely to materially affect, our
internal control over financial reporting.
LEGAL MATTERS
The validity of the shares of common stock being offered by this prospectus has been passed upon
for Emisphere Technologies, Inc. by Brown Rudnick LLP, Boston, Massachusetts.
EXPERTS
The financial statements as of December 31, 2009 and for year ended December 31, 2009 included in
this Prospectus have been so included in reliance on the report (which contains and explanatory
paragraph related to the Companys ability to continue as a going concern as described in Note 1 to
the financial statements for the year ending December 31, 2009 contained herein) of McGladrey &
Pullen, LLP, an independent registered public accounting firm, given on the authority of said firm
as experts in auditing and accounting.
The financial statements as of December 31, 2008 and for each of the two years in the period ended
December 31, 2008, included in this Prospectus have been so included in reliance on the report,
which contains an explanatory paragraph relating to the Companys ability to continue as a going
concern as described in Note 1 to the financial statements, of PricewaterhouseCoopers LLP, an
independent registered public accounting firm, given on the authority of said firm as experts in
auditing and accounting.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly, and current reports, proxy statements, and other documents with the SEC
under the Exchange Act. The public may read and copy any materials that we file with the SEC at the
SECs Public Reference Room at 100 F Street, NE, Washington, D.C. 20549. The public may obtain
information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.
Also, the SEC maintains an Internet website that contains reports, proxy and information
statements, and other information regarding issuers, including Emisphere, that file electronically
with the SEC. The public can obtain any documents that Emisphere files with the SEC at www.sec.gov.
We also make available free of charge on or through our Internet website (www.emisphere.com) our
Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, Section 16
filings, and, if applicable, amendments to those reports filed or furnished pursuant to
Section 13(a) or Section 16 of the Exchange Act as soon as reasonably practicable after we or the
reporting person electronically files such material with, or furnishes it to, the SEC. Our Internet
website and the information contained therein or connected thereto are not intended to be
incorporated into the Annual Report or this Form 10-K.
Our Board of Directors has adopted a Code of Business Conduct and Ethics which is posted on our
website at http://ir.emisphere.com/documentdisplay.cfm?DocumentID=4947.
58
EMISPHERE TECHNOLOGIES, INC.
FINANCIAL STATEMENTS
INDEX
|
|
|
|
|
Page |
Emisphere Technologies, Inc. |
|
|
|
|
|
AUDITED FINANCIAL STATEMENTS |
|
|
|
|
|
Report
of Independent Registered Public Accounting Firm: McGladrey & Pullen,
LLP
|
|
F-2 |
Report
of Independent Registered Public Accounting Firm:
PricewaterhouseCoopers LLP
|
|
F-3 |
Balance Sheets as of December 31, 2009 and 2008
|
|
F-4 |
Statements of Operations for the years ended December 31, 2009, 2008 and 2007
|
|
F-5 |
Statements of Cash Flows for the years ended December 31, 2009, 2008 and 2007
|
|
F-6 |
Statements of Stockholders (Deficit) Equity for the years ended December 31, 2009, 2008 and 2007
|
|
F-7 |
Notes to the Financial Statements
|
|
F-8 |
|
|
|
UNAUDITED INTERIM FINANCIAL STATEMENTS |
|
|
|
|
|
Condensed Balance Sheets as of June 30, 2010 and December 31, 2009
|
|
F-35 |
Condensed Statements of Operations for the three and six months ended June 30, 2010 and 2009
|
|
F-36 |
Condensed Statements of Cash Flows for the six months ended June 30, 2010 and 2009
|
|
F-37 |
Notes to the Condensed Financial Statements
|
|
F-38 |
F-1
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
Emisphere Technologies, Inc.
We have audited the accompanying balance sheet of Emisphere
Technologies, Inc. as of December 31, 2009, and the related
statements of operations, cash flows and stockholders
(deficit) equity for the year then ended. These financial
statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of Emisphere Technologies, Inc. as of December 31, 2009,
and the results of its operations and its cash flows for the
year then ended, in conformity with U.S. generally accepted
accounting principles.
The accompanying financial statements have been prepared
assuming that the Company will continue as a going concern. As
discussed in Note 1 to the financial statements, the
Company has suffered recurring losses from operations and its
total liabilities exceeds its total assets. This raises
substantial doubt about the Companys ability to continue
as a going concern. Managements plans in regard to these
matters are also described in Note 1. The financial
statements do not include any adjustments that might result from
the outcome of this uncertainty.
As discussed in Note 3 to the financial statements,
Emisphere Technologies, Inc. has changed its method of
accounting for derivative instruments as of January 1, 2009
due to the adoption of Financial Accounting Standards Board
Accounting Codification Topic
815-50-15,
Evaluating Whether an Instrument Involving a Contingency
is Considered Indexed to an Entitys Own Stock.
We were not engaged to examine managements assessment of
the effectiveness of Emisphere Technologies, Inc.s
internal control over financial reporting as of
December 31, 2009, included in the accompanying
Managements Report on Internal Control Over Financial
Reporting and, accordingly, we do not express an opinion thereon.
/s/ McGladrey
& Pullen, LLP
New York, New York
March 25, 2010
F-2
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Emisphere
Technologies, Inc.:
In our opinion, the balance sheet as of December 31, 2008
and the related statements of operations, of cash flows and of
stockholders (deficit) equity for each of the two years in
the period ended December 31, 2008 present fairly, in all
material respects, the financial position of Emisphere
Technologies, Inc. (the Company) at
December 31, 2008, and the results of its operations and
its cash flows for each of the two years in the period ended
December 31, 2008, in conformity with accounting principles
generally accepted in the United States of America. These
financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with the
standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant
estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
The financial statements referred to above have been prepared
assuming that the Company will continue as a going concern. As
discussed in Note 1 to the financial statements, the
Company has experienced recurring operating losses, has limited
capital resources and has significant future commitments that
raise substantial doubt about its ability to continue as a going
concern. Managements plans in regard to these matters are
also described in Note 1. The financial statements do not
include any adjustments that might result from the outcome of
this uncertainty.
/s/ PricewaterhouseCoopers
LLP
New York, New York
March 16, 2009
F-3
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands,
|
|
|
|
except share data)
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
3,566
|
|
|
$
|
7,214
|
|
Accounts receivable, net of allowance of $0 in 2009 and $9 in
2008
|
|
|
158
|
|
|
|
232
|
|
Inventories
|
|
|
20
|
|
|
|
|
|
Prepaid expenses and other current assets
|
|
|
369
|
|
|
|
273
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
4,113
|
|
|
|
7,719
|
|
Equipment and leasehold improvements, net
|
|
|
138
|
|
|
|
465
|
|
Restricted cash
|
|
|
259
|
|
|
|
255
|
|
Purchased technology, net
|
|
|
1,077
|
|
|
|
1,316
|
|
Deferred financing cost
|
|
|
346
|
|
|
|
421
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
5,933
|
|
|
$
|
10,176
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS DEFICIT
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Notes payable, including accrued interest and net of related
discount
|
|
$
|
12,588
|
|
|
$
|
12,011
|
|
Accounts payable and accrued expenses
|
|
|
4,975
|
|
|
|
2,361
|
|
Derivative instruments:
|
|
|
|
|
|
|
|
|
Related party
|
|
|
3,205
|
|
|
|
153
|
|
Others
|
|
|
2,984
|
|
|
|
114
|
|
Deferred revenue, current
|
|
|
|
|
|
|
87
|
|
Restructuring charge, current
|
|
|
750
|
|
|
|
927
|
|
Other current liabilities
|
|
|
52
|
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
24,554
|
|
|
|
15,673
|
|
Notes payable, including accrued interest and net of related
discount, related party
|
|
|
13,076
|
|
|
|
18,209
|
|
Derivative instrument, related party
|
|
|
4,591
|
|
|
|
|
|
Restructuring charge, non-current
|
|
|
|
|
|
|
1,953
|
|
Deferred revenue, non-current
|
|
|
11,494
|
|
|
|
11,240
|
|
Deferred lease liability and other liabilities, non current
|
|
|
82
|
|
|
|
129
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
53,797
|
|
|
|
47,204
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 16)
|
|
|
|
|
|
|
|
|
Stockholders deficit:
|
|
|
|
|
|
|
|
|
Preferred stock, $.01 par value; authorized
1,000,000 shares; issued and outstanding-none
|
|
|
|
|
|
|
|
|
Common stock, $.01 par value; authorized
100,000,000 shares; issued 42,360,133 shares
(42,070,401 outstanding) in 2009 and 30,630,810 shares
(30,341,078 outstanding) in 2008
|
|
|
424
|
|
|
|
306
|
|
Additional paid-in capital
|
|
|
392,335
|
|
|
|
400,306
|
|
Accumulated deficit
|
|
|
(436,671
|
)
|
|
|
(433,688
|
)
|
Common stock held in treasury, at cost; 289,732 shares
|
|
|
(3,952
|
)
|
|
|
(3,952
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders deficit
|
|
|
(47,864
|
)
|
|
|
(37,028
|
)
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders deficit
|
|
$
|
5,933
|
|
|
$
|
10,176
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the financial
statements
F-4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands, except share and per share data)
|
|
|
Revenue
|
|
$
|
92
|
|
|
$
|
251
|
|
|
$
|
4,077
|
|
Cost of goods sold
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
77
|
|
|
|
251
|
|
|
|
4,077
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs, expenses and income from settlement of lawsuit:
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
4,046
|
|
|
|
12,785
|
|
|
|
21,076
|
|
General and administrative
|
|
|
10,068
|
|
|
|
9,176
|
|
|
|
14,459
|
|
Loss (gain) on disposal of fixed assets
|
|
|
(789
|
)
|
|
|
(135
|
)
|
|
|
35
|
|
Restructuring charge
|
|
|
(356
|
)
|
|
|
3,831
|
|
|
|
|
|
Depreciation and amortization
|
|
|
367
|
|
|
|
914
|
|
|
|
1,048
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from settlement of lawsuit:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from settlement of lawsuit
|
|
|
|
|
|
|
|
|
|
|
(18,000
|
)
|
Expense from settlement of lawsuit
|
|
|
1,293
|
|
|
|
|
|
|
|
6,110
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Income) expense from settlement of lawsuit, net
|
|
|
1,293
|
|
|
|
|
|
|
|
(11,890
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs, expenses and income from settlement of lawsuit
|
|
|
14,629
|
|
|
|
26,571
|
|
|
|
24,728
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(14,552
|
)
|
|
|
(26,320
|
)
|
|
|
(20,651
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other non-operating income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale of patent
|
|
|
500
|
|
|
|
1,500
|
|
|
|
|
|
Sublease income
|
|
|
232
|
|
|
|
797
|
|
|
|
215
|
|
Investment and other income
|
|
|
131
|
|
|
|
371
|
|
|
|
1,066
|
|
Change in fair value of derivative instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Related party
|
|
|
(1,853
|
)
|
|
|
1,085
|
|
|
|
2,561
|
|
Others
|
|
|
(620
|
)
|
|
|
1,135
|
|
|
|
2,496
|
|
Interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Related party
|
|
|
(4,504
|
)
|
|
|
(2,428
|
)
|
|
|
(2,111
|
)
|
Others
|
|
|
(577
|
)
|
|
|
(528
|
)
|
|
|
(504
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense)
|
|
|
(6,691
|
)
|
|
|
1,932
|
|
|
|
3,723
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(21,243
|
)
|
|
$
|
(24,388
|
)
|
|
$
|
(16,928
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share, basic
|
|
$
|
(0.61
|
)
|
|
$
|
(0.80
|
)
|
|
$
|
(0.58
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share, diluted
|
|
$
|
(0.61
|
)
|
|
$
|
(0.80
|
)
|
|
$
|
(0.76
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding, basic
|
|
|
34,679,321
|
|
|
|
30,337,442
|
|
|
|
29,039,101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding, diluted
|
|
|
34,679,321
|
|
|
|
30,337,442
|
|
|
|
29,128,013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the financial
statements
F-5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(21,243
|
)
|
|
$
|
(24,388
|
)
|
|
$
|
(16,928
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
367
|
|
|
|
914
|
|
|
|
1,048
|
|
Non-cash interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Related party
|
|
|
4,504
|
|
|
|
2,428
|
|
|
|
2,111
|
|
Others
|
|
|
577
|
|
|
|
528
|
|
|
|
504
|
|
Changes in the fair value of derivative instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Related party
|
|
|
1,853
|
|
|
|
(1,085
|
)
|
|
|
(2,561
|
)
|
Others
|
|
|
620
|
|
|
|
(1,135
|
)
|
|
|
(2,496
|
)
|
Non-cash restructuring charge
|
|
|
|
|
|
|
1,040
|
|
|
|
|
|
Non-cash compensation
|
|
|
1,587
|
|
|
|
1,011
|
|
|
|
3,068
|
|
Loss (gain) on disposal of fixed assets
|
|
|
(789
|
)
|
|
|
(135
|
)
|
|
|
35
|
|
Impairment of intangible and fixed assets and other
|
|
|
|
|
|
|
|
|
|
|
86
|
|
Changes in assets and liabilities excluding non-cash charges:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Increase) decrease in accounts receivable
|
|
|
73
|
|
|
|
60
|
|
|
|
(76
|
)
|
(Increase) decrease in inventories
|
|
|
(20
|
)
|
|
|
|
|
|
|
|
|
(Increase) decrease in prepaid expenses and other current assets
|
|
|
(95
|
)
|
|
|
710
|
|
|
|
400
|
|
Increase (decrease) in accounts payable, accrued expenses and
other
|
|
|
2,613
|
|
|
|
(513
|
)
|
|
|
225
|
|
Increase (decrease) in deferred revenue
|
|
|
166
|
|
|
|
11,254
|
|
|
|
43
|
|
Increase (decrease) in deferred lease and other liabilities
|
|
|
(14
|
)
|
|
|
(253
|
)
|
|
|
137
|
|
Restructuring charge
|
|
|
(2,130
|
)
|
|
|
2,880
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total adjustments
|
|
|
9,312
|
|
|
|
17,704
|
|
|
|
2,524
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(11,931
|
)
|
|
|
(6,684
|
)
|
|
|
(14,404
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sale and maturity of investments
|
|
|
|
|
|
|
9,927
|
|
|
|
15,650
|
|
Purchases investments and short term instruments
|
|
|
|
|
|
|
|
|
|
|
(12,084
|
)
|
Equipment purchases
|
|
|
|
|
|
|
(109
|
)
|
|
|
(293
|
)
|
(Increase) decrease in restricted cash
|
|
|
(4
|
)
|
|
|
(9
|
)
|
|
|
(246
|
)
|
Proceeds from sale of fixed assets
|
|
|
989
|
|
|
|
138
|
|
|
|
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by investing activities
|
|
|
985
|
|
|
|
9,947
|
|
|
|
3,055
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from exercise of stock options and warrants
|
|
|
|
|
|
|
13
|
|
|
|
346
|
|
Net proceeds from issuance of common stock and warrants
|
|
|
7,298
|
|
|
|
|
|
|
|
5,954
|
|
Proceeds from issuance of warrants
|
|
|
|
|
|
|
|
|
|
|
952
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
7,298
|
|
|
|
13
|
|
|
|
7,252
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) cash and cash equivalents
|
|
|
(3,648
|
)
|
|
|
3,276
|
|
|
|
(4,097
|
)
|
Cash and cash equivalents, beginning of year
|
|
|
7,214
|
|
|
|
3,938
|
|
|
|
8,035
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year
|
|
$
|
3,566
|
|
|
$
|
7,214
|
|
|
$
|
3,938
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of stock options to consultants
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(6
|
)
|
The accompanying notes are an integral part of the financial
statements
F-6
EMISPHERE
TECHNOLOGIES, INC.
For the
years ended December 31, 2009, 2008 and 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Comprehensive
|
|
|
Common Stock
|
|
|
|
|
|
|
Common Stock
|
|
|
Paid-in
|
|
|
Accumulated
|
|
|
(Loss)
|
|
|
Held in Treasury
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Income
|
|
|
Shares
|
|
|
Amount
|
|
|
Total
|
|
|
|
(In thousands, except share data)
|
|
|
Balance, December 31, 2006
|
|
|
28,528,677
|
|
|
$
|
285
|
|
|
$
|
389,935
|
|
|
$
|
(392,372
|
)
|
|
$
|
(2
|
)
|
|
|
289,732
|
|
|
$
|
(3,952
|
)
|
|
$
|
(6,106
|
)
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(16,928
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(16,928
|
)
|
Unrealized gain on investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(16,936
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity proceeds from issuance of common stock, net of share
issuance expenses
|
|
|
2,000,000
|
|
|
|
20
|
|
|
|
5,934
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,954
|
|
Sale of common stock under employee stock purchase plans and
exercise of options
|
|
|
82,023
|
|
|
|
1
|
|
|
|
345
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
346
|
|
Stock based compensation expense for employees
|
|
|
|
|
|
|
|
|
|
|
3,014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,014
|
|
Stock based compensation expense for directors
|
|
|
15,960
|
|
|
|
|
|
|
|
60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60
|
|
Issuance of stock options for consulting services
|
|
|
|
|
|
|
|
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2007
|
|
|
30,626,660
|
|
|
|
306
|
|
|
|
399,282
|
|
|
|
(409,300
|
)
|
|
|
(10
|
)
|
|
|
289,732
|
|
|
|
(3,952
|
)
|
|
|
(13,674
|
)
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(24,388
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(24,388
|
)
|
Unrealized loss on investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(24,378
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale of common stock under exercise of options
|
|
|
4,150
|
|
|
|
|
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13
|
|
Stock based compensation expense for employees
|
|
|
|
|
|
|
|
|
|
|
1,011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2008
|
|
|
30,630,810
|
|
|
|
306
|
|
|
|
400,306
|
|
|
|
(433,688
|
)
|
|
|
|
|
|
|
289,732
|
|
|
|
(3,952
|
)
|
|
|
(37,028
|
)
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(21,243
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(21,243
|
)
|
Cumulative effect of change in accounting principle
implementation of ASC
815-40-15-5
|
|
|
|
|
|
|
|
|
|
|
(12,215
|
)
|
|
|
18,260
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,045
|
|
Equity proceeds from issuance of common stock, net of share
issuance expenses
|
|
|
11,729,323
|
|
|
|
118
|
|
|
|
2,657
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,775
|
|
Stock based compensation expense for employees
|
|
|
|
|
|
|
|
|
|
|
1,532
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,532
|
|
Stock based compensation expense for directors
|
|
|
|
|
|
|
|
|
|
|
55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2009
|
|
|
42,360,133
|
|
|
$
|
424
|
|
|
$
|
392,335
|
|
|
$
|
(436,671
|
)
|
|
|
|
|
|
|
289,732
|
|
|
$
|
(3,952
|
)
|
|
$
|
(47,864
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the financial
statements
F-7
EMISPHERE
TECHNOLOGIES, INC.
|
|
1.
|
Nature of
Operations, Risks and Uncertainties and Liquidity
|
Nature of Operations. Emisphere Technologies,
Inc. (Emisphere, our, us,
the company or we) is a
biopharmaceutical company that focuses on our improved delivery
of therapeutic molecules and pharmaceutical compounds using its
Eligen®
Technology. These molecules and compounds could be currently
available or are in pre-clinical or clinical development.
Our core business strategy is to develop oral forms of drugs
that are not currently available or have poor bioavailability in
oral form, either alone or with corporate partners, by applying
the
Eligen®
Technology to those drugs. Typically, the drugs that we target
have received regulatory approval, have demonstrated safety and
efficacy, and are currently available on the market. In November
2009 the Company launched its first commercially available
product, oral
Eligen®
B12 (100 mcg), which had been specifically developed to help
improve Vitamin B12 absorption and bioavailability with a
patented formulation, in partnership with Life
Extension®.
Risks and Uncertainties. We have no
prescription products currently approved for sale by the
U.S. FDA. Our oral
Eligen®
Vitamin B12 products may not achieve anticipated sales targets.
There can be no assurance that our research and development will
be successfully completed, that any products developed will
obtain necessary government regulatory approval or that any
approved products will be commercially viable. In addition, we
operate in an environment of rapid change in technology and are
dependent upon the continued services of our current employees,
consultants and subcontractors.
Liquidity. As of December 31, 2009, we
had approximately $3.8 million in cash and restricted cash,
approximately $20.4 million in working capital deficiency,
a stockholders deficit of approximately $47.9 million
and an accumulated deficit of approximately $436.7 million.
Our net loss and operating loss for the year ended
December 31, 2009 was approximately $21.2 million and
$14.6 million, respectively. Since our inception in 1986,
we have generated significant losses from operations. However,
during 2009 we introduced our first commercial product and
anticipate introducing our second commercial product during
2010. Although we cannot assure the commercial success of these
products, at some point in the future, potential combined sales
or partnerships may generate sufficient net proceeds to offset a
part of continuing losses from operations for the foreseeable
future. However, until those potential net proceeds are
realized, we anticipate that we will continue to generate
significant losses from operations for the foreseeable future,
and that our business will require substantial additional
investment that we have not yet secured. As such, we anticipate
that our existing cash resources will enable us to continue
operations only through approximately June 2010 or earlier if
unforeseen events arise that negatively affect our liquidity.
Further, we have significant future commitments and obligations.
These conditions raise substantial doubt about our ability to
continue as a going concern.
Our plan is to raise capital when needed
and/or to
pursue product partnering opportunities. We expect to continue
to spend substantial amounts on research and development,
including amounts spent on conducting clinical trials for our
product candidates. Expenses will be partially offset with
income-generating license agreements, if possible. Further, we
will not have sufficient resources to develop fully any new
products or technologies unless we are able to raise substantial
additional financing on acceptable terms or secure funds from
new or existing partners. We cannot assure that financing will
be available when needed, or on favorable terms or at all. If
additional capital is raised through the sale of equity or
convertible debt securities, the issuance of such securities
would result in dilution to our existing stockholders. Our
failure to raise capital before June 2010 will adversely affect
our business, financial condition and results of operations, and
could force us to reduce or cease our operations. No adjustment
has been made in the accompanying financial statements to the
carrying amount and classification of recorded assets and
liabilities should we be unable to continue operations.
F-8
EMISPHERE
TECHNOLOGIES, INC.
NOTES TO
THE FINANCIAL STATEMENTS (Continued)
|
|
2.
|
Summary
of Significant Accounting Policies
|
Use of Estimates. The preparation of financial
statements in accordance with accounting principles generally
accepted in the U.S. involves the use of estimates and
assumptions that affect the recorded amounts of assets and
liabilities as of the date of the financial statements and the
reported amounts of revenue and expenses and performance period
for revenue recognition. Actual results may differ substantially
from these estimates. Significant estimates include the fair
value and recoverability of the carrying value of purchased
technology, recognition of on-going clinical trial costs,
estimated costs to complete research collaboration projects,
accrued expenses, the variables and method used to calculate
stock-based compensation, derivative instruments and deferred
taxes.
Concentration of Credit Risk. Financial
instruments, which potentially subject us to concentrations of
credit risk, consist of cash, cash equivalents, restricted cash
and investments. We invest excess funds in accordance with a
policy objective seeking to preserve both liquidity and safety
of principal. We generally invest our excess funds in
obligations of the U.S. government and its agencies, bank
deposits, money market funds, and investment grade debt
securities issued by corporations and financial institutions. We
hold no collateral for these financial instruments.
Cash, Cash Equivalents, and Investments. We
consider all highly liquid, interest-bearing instruments with
original maturity of three months or less when purchased to be
cash equivalents. Cash and cash equivalents may include demand
deposits held in banks and interest bearing money market funds.
Our investment policy requires that commercial paper be rated
A-1,
P-1 or
better by either Standard and Poors Corporation or
Moodys Investor Services or another nationally recognized
agency and that securities of issuers with a long-term credit
rating must be rated at least A (or equivalent). As
of December 31, 2009 we held no investments.
Inventory. Inventories are stated at the lower
of cost or market determined by the first in, first out method.
Equipment and Leasehold
Improvements. Equipment and leasehold
improvements are stated at cost. Depreciation and amortization
are provided on a straight-line basis over the estimated useful
life of the asset. Leasehold improvements are amortized over the
term of the lease or useful life of the improvements, whichever
is shorter. Expenditures for maintenance and repairs that do not
materially extend the useful lives of the respective assets are
charged to expense as incurred. The cost and accumulated
depreciation or amortization of assets retired or sold are
removed from the respective accounts and any gain or loss is
recognized in operations.
Purchased Technology. Purchased technology
represents the value assigned to patents and the right to use,
sell or license certain technology in conjunction with our
proprietary carrier technology that were acquired from Ebbisham
Ltd. These assets are utilized in various research and
development projects. Such purchased technology is being
amortized over 15 years, until 2014, which represents the
average life of the patents acquired.
Impairment of Long-Lived Assets. In accordance
with FASB ASC
360-10-35,
we review our long-lived assets including purchased technology,
for impairment whenever events and circumstances indicate that
the carrying value of an asset might not be recoverable. An
impairment loss, measured as the amount by which the carrying
value exceeds the fair value, is recognized if the carrying
amount exceeds estimated undiscounted future cash flows.
Deferred Lease Liability. Our leases provide
for rental holidays and escalations of the minimum rent during
the lease term, as well as additional rent based upon increases
in real estate taxes and common maintenance charges. We record
rent expense from leases with rental holidays and escalations
using the straight-line method, thereby prorating the total
rental commitment over the term of the lease. Under this
F-9
EMISPHERE
TECHNOLOGIES, INC.
NOTES TO
THE FINANCIAL STATEMENTS (Continued)
method, the deferred lease liability represents the difference
between the minimum cash rental payments and the rent expense
computed on a straight-line basis.
Revenue Recognition. We recognize revenue in
accordance with FASB ASC
605-10-S99 ,
Revenue Recognition. Revenue includes amounts
earned from sales of our oral
Eligen®
B12 product to Life
Extension®,
collaborative agreements and feasibility studies. Revenue earned
from the sale of oral
Eligen®
B12 is recognized when products are shipped to Life
Extension®.
Revenue earned from collaborative agreements and feasibility
studies is comprised of reimbursed research and development
costs, as well as upfront and research and development milestone
payments. Deferred revenue represents payments received which
are related to future performance. Revenue from feasibility
studies, which are typically short term in nature, is recognized
upon delivery of the study, provided that all other revenue
recognition criteria are met.
Revenue from collaboration agreements are recognized using the
proportional performance method provided that we can reasonably
estimate the level of effort required to complete our
performance obligations under an arrangement and such
performance obligations are provided on a best effort basis and
based on expected payments. Under the proportional
performance method, periodic revenue related to nonrefundable
cash payments is recognized as the percentage of actual effort
expended to date as of that period to the total effort expected
for all of our performance obligations under the arrangement.
Actual effort is generally determined based upon actual hours
incurred and include research and development
(R&D) activities performed by us and time spent
for joint steering committee (JSC) activities. Total
expected effort is generally based upon the total R&D and
JSC hours incorporated into the project plan that is agreed to
by both parties to the collaboration. Significant management
judgments and estimates are required in determining the level of
effort required under an arrangement and the period over which
we expect to complete the related performance obligations.
Estimates of the total expected effort included in each project
plan are based on historical experience of similar efforts and
expectations based on the knowledge of scientists for both the
Company and its collaboration partners. The Company periodically
reviews and updates the project plan for each collaborative
agreement; the most recent reviews took place in January 2010.
In the event that a change in estimate occurs, the change will
be accounted for using the cumulative
catch-up
method which provides for an adjustment to revenue in the
current period. Estimates of our level of effort may change in
the future, resulting in a material change in the amount of
revenue recognized in future periods.
Generally under collaboration arrangements, nonrefundable
payments received during the period of performance may include
time- or performance-based milestones. The proportion of actual
performance to total expected performance is applied to the
expected payments in determining periodic revenue.
However, revenue is limited to the sum of (i.) the amount of
nonrefundable cash payments received and (ii.) the payments that
are contractually due but have not yet been paid.
Research and Development and Clinical Trial
Expenses. Research and development expenses
include costs directly attributable to the conduct of research
and development programs, including the cost of salaries,
payroll taxes, employee benefits, materials, supplies,
maintenance of research equipment, costs related to research
collaboration and licensing agreements, the cost of services
provided by outside contractors, including services related to
our clinical trials, clinical trial expenses, the full cost of
manufacturing drug for use in research, pre-clinical
development, and clinical trials. All costs associated with
research and development are expensed as incurred.
Clinical research expenses represent obligations resulting from
our contracts with various research organizations in connection
with conducting clinical trials for our product candidates. We
account for those expenses on an accrual basis according to the
progress of the trial as measured by patient enrollment and the
timing of the various aspects of the trial. Accruals are
recorded in accordance with the following methodology:
(i) the costs for period expenses, such as investigator
meetings and initial
start-up
costs, are expensed as incurred based on managements
estimates, which are impacted by any change in the number of
sites, number of patients and patient start dates;
(ii) direct service costs, which are primarily ongoing
monitoring costs, are
F-10
EMISPHERE
TECHNOLOGIES, INC.
NOTES TO
THE FINANCIAL STATEMENTS (Continued)
recognized on a straight-line basis over the life of the
contract; and (iii) principal investigator expenses that
are directly associated with recruitment are recognized based on
actual patient recruitment. All changes to the contract amounts
due to change orders are analyzed and recognized in accordance
with the above methodology. Change orders are triggered by
changes in the scope, time to completion and the number of
sites. During the course of a trial, we adjust our rate of
clinical expense recognition if actual results differ from our
estimates.
Income Taxes. Deferred tax liabilities and
assets are recognized for the expected future tax consequences
of events that have been included in the financial statements or
tax returns. These liabilities and assets are determined based
on differences between the financial reporting and tax basis of
assets and liabilities measured using the enacted tax rates and
laws that will be in effect when the differences are expected to
reverse. A valuation allowance is recognized to reduce deferred
tax assets to the amount that is more likely than not to be
realized. In assessing the likelihood of realization, management
considered estimates of future taxable income.
Effective January 1, 2007, the Company adopted the
provisions of FASB ASC
740-10-05
Income Taxes. The implementation had no impact on the
Companys financial statements as the Company has not
recognized any uncertain income tax positions.
Stock-Based Employee Compensation. We
recognize expense for our share-based compensation based on the
fair value of the awards at the time they are granted. We
estimate the value of stock option awards on the date of grant
using the Black-Scholes-Merton option-pricing model (the
Black-Scholes model). The determination of the fair
value of share-based payment awards on the date of grant is
affected by our stock price as well as assumptions regarding a
number of complex and subjective variables. These variables
include our expected stock price volatility over the term of the
awards, expected term, risk-free interest rate, expected
dividends and expected forfeiture rates. The forfeiture rate is
estimated using historical option cancellation information,
adjusted for anticipated changes in expected exercise and
employment termination behavior. Our outstanding awards do not
contain market or performance conditions therefore we have
elected to recognize share-based employee compensation expense
on a straight-line basis over the requisite service period.
Fair Value of Financial Instruments. The
carrying amounts for cash, cash equivalents, accounts payable,
and accrued expenses approximate fair value because of their
short-term nature. We have determined that it is not practical
to estimate the fair value of our notes payable because of their
unique nature and the costs that would be incurred to obtain an
independent valuation. We do not have comparable outstanding
debt on which to base an estimated current borrowing rate or
other discount rate for purposes of estimating the fair value of
the notes payable and we have not yet obtained or developed a
valuation model. Additionally, we are engaged in research and
development activities and have not yet developed products for
sale. Accordingly, at this stage of our development, a credit
risk assessment is highly judgmental. These factors all
contribute to the impracticability of estimating the fair value
of the notes payable. At December 31, 2009, the carrying
value of the notes payable and accrued interest was
$25.7 million. The MHR Convertible Notes, which are due on
September 26, 2012, yield an effective interest rate of
14.2%. The Novartis Note was originally due December 1,
2009. On November 27, 2009, Novartis agreed to extend the
maturity date of the Novartis Note to February 26, 2010.
Subsequently, on February 23, 2010, Novartis agreed to
further extend the maturity date of the Novartis Note to
May 26, 2010. See Note 8 for further discussion of the
notes payable.
Derivative Instruments. Derivative instruments
consist of common stock warrants, and certain instruments
embedded in the certain Notes payable and related agreements.
These financial instruments are recorded in the balance sheets
at fair value as liabilities. Changes in fair value are
recognized in earnings in the period of change.
Effective January 1, 2009, the Company adopted the
provisions of the Financial Accounting Standards Board
Accounting Codification Topic
815-40-15-5,
Evaluating Whether an Instrument Involving a
Contingency is Considered Indexed to an Entitys Own
Stock (FASB ASC
815-40-15-5).
FASB ASC
815-40-15-5
F-11
EMISPHERE
TECHNOLOGIES, INC.
NOTES TO
THE FINANCIAL STATEMENTS (Continued)
provides guidance in assessing whether an equity-linked
financial instrument (or embedded feature) is indexed to an
entitys own stock for purposes of determining whether the
equity linked instrument (or embedded feature) qualifies as a
derivative instrument. We have determined that our MHR
convertible notes and certain of our warrants contain features
that that are not indexed to our own stock and therefore, were
classified as a derivative instrument. Upon adoption, we
recognized and recorded a cumulative effect of a change in
accounting principle of $18.3 million. The cumulative
adjustment included a decrease in Notes payable of approximately
$9.6 million, an increase in Derivative instruments of
approximately $3.5 million and the balance was a reduction
in Stockholders Deficit.
For comparability purposes, the following table sets forth the
effects of the adoption of FASB ASC
815-40-15-5
on net loss and loss per share for the years ended
December 31, 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As Reported
|
|
|
Pro Forma (unaudited)
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands, except per share amounts)
|
|
|
(In thousands, except per share amounts)
|
|
|
Net loss
|
|
$
|
(24,388
|
)
|
|
$
|
(16,928
|
)
|
|
$
|
(20,135
|
)
|
|
$
|
(6,766
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share, basic
|
|
$
|
(0.80
|
)
|
|
$
|
(0.58
|
)
|
|
$
|
(0.66
|
)
|
|
$
|
(0.23
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share, dilutive
|
|
$
|
(0.80
|
)
|
|
$
|
(0.76
|
)
|
|
$
|
(0.66
|
)
|
|
$
|
(0.41
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Loss. Comprehensive loss
represents the change in net assets of a business enterprise
during a period from transactions and other events and
circumstances from non-owner sources. Comprehensive loss
includes net loss adjusted for the change in net unrealized gain
or loss on marketable securities. The disclosures required by
FASB ASC
220-10-45,
Reporting Comprehensive Income for the years
ended December 31, 2009, 2008 and 2007 have been included
in the statements of stockholders equity (deficit).
Exit activities. We have adopted FASB ASC
420-10-05,
Exit or Disposal Cost Obligations. This
Standard addresses financial accounting and reporting for costs
associated with exit or disposal activities. This Standard
requires that a liability for a cost associated with an exit or
disposal activity be recognized when the liability is incurred.
This Standard also establishes that fair value is the objective
for initial measurement of the liability. This Standard
specifies that a liability for a cost associated with an exit or
disposal activity is incurred when the definition of a liability
is met, and that fair value is the measurement at the exit,
disposal or cease use date.
Fair Value Measurements. The authoritative
guidance for fair value measurements defines fair value as the
exchange price that would be received an asset or paid to
transfer a liability (an exit price) in the principal or the
most advantageous market for the asset or liability in an
orderly transaction between market participants on the
measurement date. Market participants are buyers and sellers in
the principal market that are (i) independent,
(ii) knowledgeable, (iii) able to transact, and
(iv) willing to transact. The guidance describes a fair
value hierarchy based on the levels of inputs, of which the
first two are considered observable and the last unobservable,
that may be used to measure fair value which are the following:
|
|
|
|
|
Level 1 Quoted prices in active markets for
identical assets or liabilities
|
|
|
|
Level 2 Inputs other than Level 1 that are
observable, either directly or indirectly, such as quoted prices
for similar assets or liabilities; quoted prices in markets that
are not active; or other inputs that are observable or
corroborated by observable market data or substantially the full
term of the assets or liabilities
|
|
|
|
Level 3 Unobservable inputs that are supported
by little or no market activity and that are significant to the
value of the assets or liabilities
|
F-12
EMISPHERE
TECHNOLOGIES, INC.
NOTES TO
THE FINANCIAL STATEMENTS (Continued)
Future
Impact of Recently Issued Accounting Standards
In October 2009, the FASB issued ASU
2009-13,
Multiple-Deliverable Revenue Arrangements, (amendments to
FASB ASC Topic 605, Revenue Recognition ) (ASU
2009-13).
ASU 2009-13
requires entities to allocate revenue in an arrangement using
estimated selling prices of the delivered goods and services
based on a selling price hierarchy. The amendments eliminate the
residual method of revenue allocation and require revenue to be
allocated using the relative selling price method. ASU
2009-13
should be applied on a prospective basis for revenue
arrangements entered into or materially modified in fiscal years
beginning on or after June 15, 2010, with early adoption
permitted. The Company does not expect adoption of ASU
2009-13 to
have a material impact on the Companys results of
operations or financial condition.
In October, 2009, the FASB issued ASU
2009-15,
Accounting for Own-Share Lending Arrangements in
Contemplation of Convertible Debt Issuance or Other
Financing, (ASU-2009-15), which provides
guidance for accounting and reporting for own-share lending
arrangements issued in contemplation of a convertible debt
issuance. At the date of issuance, a share-lending arrangement
entered into on an entitys own shares should be measured
at fair value in accordance with Topic 820 and recognized as an
issuance cost, with an offset to additional paid-in capital.
Loaned shares are excluded from basic and diluted earnings per
share unless default of the share-lending arrangement occurs.
The amendments also require several disclosures including a
description and the terms of the arrangement and the reason for
entering into the arrangement. The effective dates of the
amendments are dependent upon the date the share-lending
arrangement was entered into and include retrospective
application for arrangements outstanding as of the beginning of
fiscal years beginning on or after December 15, 2009.
Management is currently evaluating the potential impact of ASU
2009-15 on
our financial statements.
In January 2010, the FASB issued ASU
2010-06,
Improving Disclosures about Fair Value Measurements. ASU
2010-06
amends ASC 820 to require a number of additional disclosures
regarding fair value measurements. The amended guidance requires
entities to disclose the amounts of significant transfers
between Level 1 and Level 2 of the fair value
hierarchy and the reasons for these transfers, the reasons for
any transfers in or out of Level 3, and information in the
reconciliation of recurring Level 3 measurements about
purchases, sales, issuances and settlements on a gross basis.
The ASU also clarifies the requirements for entities to disclose
information about both the valuation techniques and inputs used
in estimating Level 2 and Level 3 fair value
measurements. The amended guidance is effective for interim and
annual financial periods beginning after December 15, 2009.
ASU 2010-06
is not expected to have a significant effect on the
Companys financial statements.
Management does not believe that any other recently issued, but
not yet effective, accounting standards if currently adopted
would have a material effect on the accompanying financial
statements.
Inventories consist of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Work in process
|
|
$
|
5
|
|
|
$
|
|
|
Finished goods
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
20
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
F-13
EMISPHERE
TECHNOLOGIES, INC.
NOTES TO
THE FINANCIAL STATEMENTS (Continued)
|
|
4.
|
Prepaid
Expenses and Other Current Assets
|
Prepaid expenses and other current assets consist of the
following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Prepaid corporate insurance
|
|
$
|
44
|
|
|
$
|
50
|
|
Deposit on inventory
|
|
|
215
|
|
|
|
|
|
Prepaid expenses and other current assets
|
|
|
110
|
|
|
|
223
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
369
|
|
|
$
|
273
|
|
|
|
|
|
|
|
|
|
|
Tarrytown Facility. On December 8, 2008,
we decided to close our research and development facilities in
Tarrytown, NY to reduce costs and improve operating efficiency.
As of December 8, 2008 we ceased using approximately 85% of
the facilities which resulted in a restructuring charge of
approximately $3.8 million in the fourth quarter, 2008. As
a result, the Company wrote down the value of approximately
$1.0 million (net) in leasehold improvements related to the
Tarrytown facility no longer in use as of December 31,
2008. In addition, the useful lives of approximately
$0.2 million in leasehold improvements were shortened
because we ceased using the facilities on January 29, 2009
resulting in an accelerated charge to amortization expense for
2008 of approximately $0.1 million. Please refer to
Footnote 16 Commitments and Contingencies for more
information on this subject.
Fixed Assets. Equipment and leasehold
improvements, net, consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
Useful Lives In Years
|
|
2009
|
|
|
2008
|
|
|
|
|
|
(In thousands)
|
|
|
Equipment
|
|
3-7
|
|
$
|
1,370
|
|
|
$
|
9,080
|
|
Leasehold improvements
|
|
Term of lease
|
|
|
61
|
|
|
|
3,013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,431
|
|
|
|
12,093
|
|
Less, accumulated depreciation and amortization
|
|
|
|
|
1,293
|
|
|
|
11,628
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
138
|
|
|
$
|
465
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense for the years ended December 31, 2009,
2008 and 2007, was $0.1 million, $0.7 million and
$0.8 million, respectively.
In 2009, in connection with the closure of our Tarrytown
facility we abandoned leasehold improvements with a historical
cost of $2.95 million and accumulated amortization of
$2.85 million. We also abandoned equipment with a
historical cost of $2.86 million and accumulated
depreciation of $2.84. Additionally, during 2009 we sold
equipment with a historical cost of $4.84 million and
accumulated depreciation of $4.76 million for
$0.99 million, The effect of these abandonments and sales
was a gain of $0.79 million.
F-14
EMISPHERE
TECHNOLOGIES, INC.
NOTES TO
THE FINANCIAL STATEMENTS (Continued)
The carrying value of the purchased technology is comprised as
follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Gross carrying amount
|
|
$
|
4,533
|
|
|
$
|
4,533
|
|
Less, accumulated amortization
|
|
|
3,456
|
|
|
|
3,217
|
|
|
|
|
|
|
|
|
|
|
Net book value
|
|
$
|
1,077
|
|
|
$
|
1,316
|
|
|
|
|
|
|
|
|
|
|
Annual amortization of purchased technology was
$0.2 million for 2009, 2008 and 2007 and is estimated to be
$0.2 million for the years ended 2010 through 2013 and
$0.1 million in 2014.
|
|
7.
|
Accounts
Payable and Accrued Expenses
|
Accounts payable and accrued expenses consist of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Accounts payable
|
|
$
|
1,979
|
|
|
$
|
1,539
|
|
Accrued cost of lawsuit
|
|
|
2,333
|
|
|
|
|
|
Accrued bonus
|
|
|
150
|
|
|
|
|
|
Accrued legal, professional fees and other
|
|
|
302
|
|
|
|
636
|
|
Accrued vacation
|
|
|
81
|
|
|
|
132
|
|
Clinical trial expenses and contract research
|
|
|
130
|
|
|
|
54
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,975
|
|
|
$
|
2,361
|
|
|
|
|
|
|
|
|
|
|
|
|
8.
|
Notes
Payable and Restructuring of Debt
|
Notes payable consist of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
MHR Note
|
|
$
|
13,076
|
|
|
$
|
18,209
|
|
Novartis Note
|
|
|
12,588
|
|
|
|
12,011
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
25,664
|
|
|
$
|
30,220
|
|
|
|
|
|
|
|
|
|
|
MHR Note. On September 26, 2005, we
received net proceeds of approximately $12.9 million under
a $15 million secured loan agreement (the Loan
Agreement) executed with MHR Institutional Partners IIA LP
(together with its affiliates, MHR). Under the Loan
Agreement, MHR requested, and on May 16, 2006, we effected,
the exchange of the loan from MHR for senior secured convertible
notes (the Convertible Notes) with substantially the
same terms as the Loan Agreement, except that the Convertible
Notes are convertible, at the sole discretion of MHR, into
shares of our common stock at a price per share of $3.78. At
December 31, 2009, the Convertible Notes were convertible
into 5,983,146 shares of our common stock. The Convertible
Notes are due on September 26, 2012, bear interest at 11%
and are collateralized by a first priority lien in favor of MHR
on substantially all of our assets. Interest is payable in the
form of additional Convertible Notes rather than in cash and we
have the right to call the Convertible Notes after
September 26, 2010 if certain conditions are satisfied.
F-15
EMISPHERE
TECHNOLOGIES, INC.
NOTES TO
THE FINANCIAL STATEMENTS (Continued)
In connection with the Loan Agreement, we amended MHRs
previously existing warrants to purchase 387,374 shares of
common stock (MHR 2005 Warrants) to provide
additional anti-dilution protection. We also granted MHR the
option (MHR Option) to purchase warrants for up to
617,211 shares of our common stock. The MHR Option was
exercised during April 2006 whereby MHR acquired 617,211
warrants (MHR 2006 Warrants) to acquire an equal
number of shares of common stock. The exercise price for the MHR
Option was $0.01 per warrant for the first 67,084 warrants and
$1.00 per warrant for each additional warrant. See Note 9
for a further discussion of the liability related to these
warrants.
Total issuance costs associated with the Loan Agreement were
$2.1 million, of which $1.9 million were allocated to
the MHR Note and $0.2 million were allocated to the related
derivative instruments. Of the $1.9 million allocated to
the MHR Note, $1.4 million represents reimbursement of
MHRs legal fees and $0.5 million represents our legal
and other transaction costs. The $1.4 million paid on
behalf of the lender has been recorded as a reduction of the
face value of the note, while the $0.5 million of our costs
has been recorded as deferred financing costs, which is included
in other assets on the balance sheet.
The Convertible Notes provide MHR with the right to require us
to redeem the Loan in the event of a change in control. The
change in control redemption feature has been determined to be
an embedded derivative instrument which must be separated from
the host contract. For the year ended December 31, 2006,
the fair value of the change in control redemption feature was
estimated using a combination of a put option model for the
penalties and the Black-Scholes option pricing model for the
conversion option that would exist under the Convertible Note.
The estimate resulted in a value that was de minimis and
therefore, no separate liability was recorded. Changes in the
assumptions used to estimate the fair value of this derivative
instrument, in particular the probability that a change in
control will occur, could result in a material change to the
fair value of the instrument. For the years ended
December 31, 2009, 2008 and 2007, management determined the
probability of exercise of the right due to change in control to
be remote. The fair value of the change in control redemption
feature is de minimis.
Effective January 1, 2009, the Company adopted the
provisions of the Financial Accounting Standards Board
Accounting Codification Topic
815-40-15-5,
Evaluating Whether an Instrument Involving a Contingency
is Considered Indexed to an Entitys Own Stock
(FASB ASC
815-40-15-5).
Under FASB ASC
815-40-15-5,
the conversion feature embedded in the MHR note has been
bifurcated from the host contract and accounted for separately
as a derivative. The bifurcation of the embedded derivative
increased the amount of debt discount thereby reducing the book
value of the MHR Note and increasing prospectively the amount of
interest expense to be recognized over the life of the MHR Note.
At December 31, 2009, the Convertible Notes were
convertible into 5,983,146 shares of our common stock.
The book value of the MHR Note is comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Face value of the note (including accrued interest)
|
|
$
|
22,616
|
|
|
$
|
20,270
|
|
Discount (related to the embedded conversion feature)
|
|
|
(793
|
)
|
|
|
|
|
Discount (related to the warrant purchase option)
|
|
|
(7,848
|
)
|
|
|
(966
|
)
|
Lenders financing costs
|
|
|
(899
|
)
|
|
|
(1,095
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
13,076
|
|
|
$
|
18,209
|
|
|
|
|
|
|
|
|
|
|
The debt discount, lenders financing costs, deferred financing
costs and amounts attributed to derivative instruments are being
amortized to interest expense over the life of the Convertible
Notes using an effective interest method to yield an effective
interest rate of 14.2%.
F-16
EMISPHERE
TECHNOLOGIES, INC.
NOTES TO
THE FINANCIAL STATEMENTS (Continued)
In connection with the MHR financing, the Company agreed to
appoint a representative of MHR (MHR Nominee) and
another person (the Mutual Director) to its Board of
Directors. Further, the Company agreed to amend, and in January
2006 did amend, its certificate of incorporation to provide for
continuity of the MHR Nominee and the Mutual Nominee on the
Board, as described therein, so long as MHR holds at least 2% of
the outstanding common stock of the Company.
The Convertible Notes provide for various events of default
including for failure to perfect any of the liens in favor of
MHR, failure to observe any covenant or agreement, failure to
maintain the listing and trading of our common stock, sale of a
substantial portion of our assets, merger with another entity
without the prior consent of MHR, or any governmental action
renders us unable to honor or perform our obligations under the
Loan Agreement or results in a material adverse effect on our
operations. If an event of default occurs, the Convertible Notes
provide for the immediate repayment and certain additional
amounts as set forth in the Convertible Notes. We have received
a waiver from MHR, through April 1, 2011 for certain
defaults under the agreement.
Novartis Note. On December 1, 2004 we
received $10.0 million in exchange for issuance of a
convertible note to Novartis (the Novartis Note) in
connection with a new research collaboration option relating to
the development of PTH-1-34. The Novartis Note is convertible,
at our option, at any time prior to maturity into a number of
shares of our common stock equal to the principal and accrued
and unpaid interest thereon divided by the conversion price,
which conversion price is equal to the average of the highest
bid and lowest ask prices of our common stock as quoted on the
Over-The-Counter
Bulletin Board (OTCBB) averaged over a period
of twenty (20) days, consisting of the day on which the
conversion price is being determined and the nineteen
(19) consecutive business days prior to such day, provided
certain conditions contained in the Novartis Note are met. Those
conditions include that, at the time of such conversion, no
event of default under the Novartis Note has occurred and is
continuing and that there is either an effective registration
statement in effect covering the resale of the shares issued in
connection with such conversion or the shares may be resold by
Novartis pursuant to SEC Rule 144. Based on the price per
share of our common stock on December 31, 2009, the
Novartis Note was convertible into 14,944,980 shares of our
common stock, assuming Novartis does not exercise their right to
limit the number of shares issued to it upon conversion of the
Novartis Note such that the shares of common stock they receive
upon conversion do not exceed 19.9% of the total shares of our
common stock outstanding.
The Novartis Note was originally due December 1, 2009. On
November 30, 2009, Novartis agreed to extend the maturity
date to February 26, 2010. On February 23, 2010,
Novartis agreed to extend the maturity date to May 26,
2010. The Company continues to accrue interest at 7%.
Until December 1, 2008, the Novartis Note initially accrued
interest at a rate of 3% -5%. From that date through maturity it
bears interest at a rate of 7%. We have the option to pay
interest in cash on a current basis or accrue the periodic
interest as an addition to the principal amount of the Novartis
Note. We are accruing interest which is being recorded using the
effective interest rate method, which results in an effective
interest rate of 4.6%.
The Novartis Note contains customary events of default including
our failure to timely cure a default in the payment of certain
other indebtedness, acceleration of certain indebtedness, we
become entitled to terminate the registration of our securities
or the filing of reports under the Securities Exchange Act of
1934, our common stock is no longer listed, we experience a
change of control (including by, among other things, a change in
the composition of a majority of our board (other than as
approved by the board) in any one-year period, a merger which
results in our stockholders holding shares that represent less
than a majority of the voting power of the merged entity, and
any other acquisition by a third party of shares that represent
a majority of the voting power of the company), we sell
substantially all of our assets, or we are effectively unable to
honor or perform our obligations under the new research
collaboration option relating to the development of PTH-1-34.
Upon the occurrence of an event of default prior to conversion,
any unpaid
F-17
EMISPHERE
TECHNOLOGIES, INC.
NOTES TO
THE FINANCIAL STATEMENTS (Continued)
principal and accrued interest on the Novartis Note would become
immediately due and payable. If the Novartis Note is converted
into our common stock, Novartis would have the right to require
us to repurchase the shares of common stock within six months
after an event of default under the Novartis Note, for an
aggregate purchase price equal to the principal and interest
that was converted, plus interest from the date of conversion,
as if no conversion had occurred.
For as long as any portion of the principal amount of this Note
or any accrued and unpaid interest thereon remains outstanding,
the Issuer shall not (i) pay any dividend or otherwise make
any distribution, directly or indirectly, in respect of any
shares of its capital stock, other than such dividends or
distributions payable solely in shares of its capital stock or
(ii) except to any employee or former employee of the
Issuer upon the death, disability or termination of such
employee pursuant any employee stock incentive plan of the
issuer or employment agreement with such employee of the Issuer,
in each case as in effect on the date hereof and in an aggregate
amount not to exceed $2.0 million , make any payment,
directly or indirectly, on account of the purchase, redemption,
retirement or acquisition of any shares of its capital stock, or
any option, warrant or other convertible or exchangeable
security or other right to acquire shares of its capital stock.
The scheduled repayments of all debt outstanding as of
December 31, 2009 are as follows:
|
|
|
|
|
|
|
Debt
|
|
|
|
(In thousands)
|
|
|
2010
|
|
$
|
12,588
|
|
2011
|
|
|
|
|
2012
|
|
|
22,616
|
|
|
|
|
|
|
|
|
$
|
35,204
|
|
|
|
|
|
|
Restructuring of Debt. Ebbisham was an Irish
corporation formed by Elan Corporation, plc (Elan)
and us to develop and market heparin products using technologies
contributed by both parties. In July 1999, we acquired from Elan
its ownership interest in Ebbisham in exchange for a seven year,
$20 million zero coupon note due July 2006 carrying a 15%
interest rate, compounding semi-annually (the Original
Elan Note), plus royalties on oral heparin product sales,
subject to an annual maximum and certain milestone payments. On
February 28, 2002 Ebbisham was voluntarily liquidated.
On December 27, 2004, we entered into a Security Purchase
Agreement with Elan, providing for our purchase of our
indebtedness to Elan under the Original Elan Note. The value of
the Original Elan Note plus accrued interest on
December 27, 2004 was $44.2 million. Pursuant to the
Security Purchase Agreement, we paid Elan $13 million and
issued to Elan 600,000 shares of our common stock with a
market value of $2 million. Also, we issued to Elan a new
zero coupon note with an issue price of $29.2 million (the
Modified Elan Note), representing the accrued value
of the Original Elan Note minus the sum of the cash payment and
the value of the 600,000 shares.
As of March 31, 2005, we issued to Elan a warrant to
purchase up to 600,000 shares of our common stock at an
exercise price of $3.88. The warrants provide for certain
anti-dilution protection. On April 1, 2005, we made a
$13 million payment to Elan, which completed the repurchase
of our indebtedness to Elan. This transaction was accounted for
as a troubled debt restructuring. The carrying amount of the
debt was reduced to an amount equal to the total cash payments,
or $13 million. The fair value of the warrant issued,
estimated using the Black-Scholes option pricing model, was
$1.6 million at the date of issuance. As such, a gain of
$14.7 million, calculated as the difference between the
carrying value of approximately $29 million and the fair
value of cash paid and warrants issued, was recognized in our
consolidated statement of operations for 2005. Under the
accounting for a restructuring of debt, no interest expense was
recorded during 2005. As of December 31, 2009 the 600,000
warrants remain outstanding and expire on September 30,
2010.
F-18
EMISPHERE
TECHNOLOGIES, INC.
NOTES TO
THE FINANCIAL STATEMENTS (Continued)
|
|
9.
|
Derivative
Instruments
|
Derivative instruments consist of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Elan warrant
|
|
$
|
394
|
|
|
$
|
|
|
MHR Convertible Note
|
|
|
4,591
|
|
|
|
|
|
March 2005 equity financing warrants
|
|
|
|
|
|
|
31
|
|
MHR 2006 warrants
|
|
|
213
|
|
|
|
115
|
|
August 2007 equity financing warrants
|
|
|
141
|
|
|
|
121
|
|
August 2009 equity financing warrants
|
|
|
5,092
|
|
|
|
|
|
August 2009 equity financing warrants to placement agent
|
|
|
349
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
10,780
|
|
|
$
|
267
|
|
|
|
|
|
|
|
|
|
|
Elan Warrant. In connection with a
restructuring of debt in March 2005, we issued to Elan a warrant
to purchase up to 600,000 shares of our common stock at an
exercise price of $3.88. The warrant provides for adjustment of
the exercise price upon the occurrence of certain events,
including the issuance by Emisphere of common stock or common
stock equivalents that have an effective price that is less than
the exercise price of the warrant. The anti-dilution feature of
the warrant was triggered in connection with the August 2007
financing, resulting in an adjustment to the exercise price to
$3.76. The anti-dilution feature of the warrant was triggered
again in connection with the August 2009 financing, resulting in
an adjustment to the exercise price to $0.4635. As of
December 31, 2009 the warrant remains outstanding and
expires on August 31, 2010. The Company adopted the
provisions of FASB ASC
815-40-15-5
effective January 1, 2009. Under FASB
ASC 815-40-15-5
the warrant is not considered indexed to the Companys own
stock and, therefore, does not meet the scope exception in FASB
ASC
815-10-15
and thus needs to be accounted for as a derivative liability.
The adoption of FASB ASC
815-40-15-5
requires recognition of the cumulative effect of a change in
accounting principle to the opening balance of our accumulated
deficit, additional paid in capital, and liability for
derivative financial instruments. The fair value of the warrant
is estimated at the end of each quarterly reporting period,
using the Black-Scholes option pricing model. The assumptions
used in computing the fair value as of December 31, 2009
are a closing stock price of $1.06, expected volatility of
111.43% over the remaining term of nine months and a risk-free
rate of 0.47%. The fair value of the warrant increased by
$0.3 million during the year ended December 31, 2009
which has been recognized in the accompanying statements of
operations. The warrants will be adjusted to estimated fair
value for each future period they remain outstanding.
Embedded Conversion Feature of MHR Convertible
Note. The Companys convertible notes due to
MHR contain a provision whereby, the conversion price is
adjustable upon the occurrence of certain events, including the
issuance by Emisphere of common stock or common stock
equivalents at a price which is lower than the current
conversion price of the convertible note and lower than the
current market price. However, the adjustment provision does not
become effective until after the Company raises $10 million
through the issuance of common stock or common stock equivalents
at a price which is lower than the current conversion price of
the convertible note and lower than the current market price
during any consecutive 24 month period. The Company adopted
the provisions of FASB ASC
815-40-15-5
effective January 1, 2009. Under FASB
ASC 815-40-15-5,
the embedded conversion feature is not considered indexed to the
Companys own stock and, therefore, does not meet the scope
exception in FASB ASC
815-10-15
and thus needs to be accounted for as a derivative liability.
The adoption of FASB ASC
815-40-15-5
requires recognition of the cumulative effect of a change in
accounting principle to the opening balance of our accumulated
deficit, additional paid in capital, and liability for
derivative financial instruments. The liability has been
presented as a non-current
F-19
EMISPHERE
TECHNOLOGIES, INC.
NOTES TO
THE FINANCIAL STATEMENTS (Continued)
liability to correspond with its host contract, the MHR
convertible note. The fair value of the embedded conversion
feature is estimated, at the end of each quarterly reporting
period, using the Black-Scholes option pricing model. The
assumptions used in computing the fair value as of
December 31, 2009 are a closing stock price of $1.06,
expected volatility of 103.09% over the remaining term of two
years and nine months and a risk-free rate of 1.70%. The fair
value of the embedded conversion feature increased by
$1.3 million during the year ended December 31, 2009
which has been recognized in the accompanying statements of
operations. The embedded conversion feature will be adjusted to
estimated fair value for each future period they remain
outstanding. See Note 8 for a further discussion of the MHR
Note.
March 2005 Equity Financing Warrants. In
connection with the March 2005 offering, Emisphere sold warrants
to purchase 1.5 million shares of common stock to MHR and
other unrelated investors. The warrants were originally issued
with an exercise price of $4.00 and expire on March 31,
2010. The warrants provide for certain anti-dilution protection
as provided therein. Warrants to purchase up to
1,010,631 shares of common stock provide that under no
circumstances will the adjusted exercise price be less than
$3.81. The remaining warrants do not limit adjustments to the
exercise price. The anti-dilution feature of the warrants was
triggered in connection with the August 2007 financing,
resulting in an increase to the warrant shares of 4,838, as well
as an adjustment to the exercise price. The anti-dilution
feature of was triggered again in connection with the August
2009 financing, resulting in an increase to the warrant shares
of 43,167 and a further adjustment to the exercise price. At
December 31, 2009, we have outstanding warrants to purchase
up to 1,398,005 shares of common stock. The adjusted
exercise price for 1,010,631 of the warrants is $3.81 and for
the 387,374 warrants held by MHR (MHR 2005 Warrants)
is $3.76. Under the terms of the warrants, we have an obligation
to make a cash payment to the holders of the warrants for any
gain that could have been realized if the holders exercise the
warrants and we subsequently fail to deliver a certificate
representing the shares to be issued upon such exercise by the
third trading day after such warrants have been exercised.
Accordingly, the warrants have been accounted for as a
liability. The fair value of the warrants is estimated, at the
end of each quarterly reporting period, using the Black-Scholes
option pricing model. The assumptions used in computing the fair
value as of December 31, 2009 are a closing stock price of
$1.06, expected volatility of 85.08% over the remaining term of
three months and a risk-free rate of 0.06%. The fair value of
the warrants decreased by $0.2 million and
$1.1 million and increased $3.0 million for the years
ended December 31, 2009, 2008 and 2007, respectively, and
the fluctuation has been recorded in the statement of operations.
MHR 2006 Warrants (MHR 2006
Warrants). In connection with the exercise in
April 2006 of the MHR Option discussed in Note 8 above, the
Company issued warrants for 617,211 shares to MHR for
proceeds of $0.6 million. The MHR 2006 Warrants have an
original exercise price of $4.00 and are exercisable through
September 26, 2011. The MHR 2006 Warrants have the same
terms as the August 2007 equity financing warrants (see below),
with no limit upon adjustments to the exercise price. The
anti-dilution feature of the MHR 2006 Warrants was triggered in
connection with the August 2007 equity financing, resulting in
an adjusted exercise price of $3.76. Based on the provisions of
FASB ASC 815, Derivatives and Hedging ,, the MHR
2006 Warrants have been determined to be an embedded derivative
instrument which must be separated from the host contract. The
MHR 2006 Warrants contain the same potential cash settlement
provisions as the August 2007 equity financing warrants and
therefore they have been accounted for as a separate liability.
The fair value of the warrants is estimated, at the end of each
quarterly period, using the Black-Scholes option pricing model.
The assumptions used in computing the fair value as of
December 31, 2009 are a closing stock price of $1.06,
expected volatility of 113.65% over the remaining term of one
year and nine months and a risk-free rate of 1.14%. The fair
value of the MHR 2006 Warrants increased by $0.1 million
for the year ended December 31, 2009 and decreased by
$0.7 million and $1.6 million for the years ended
December 31, 2008 and 2007, respectively. and the
fluctuation has been recorded in the statement of operations.
The MHR 2006 Warrants will be adjusted to estimated fair value
for each future period they remain outstanding.
August 2007 Equity Financing Warrants. In
connection with the August 2007 offering, Emisphere sold
warrants to purchase up to 400,000 shares of common stock.
Of these 400,000 warrants, 91,073 were sold to
F-20
EMISPHERE
TECHNOLOGIES, INC.
NOTES TO
THE FINANCIAL STATEMENTS (Continued)
MHR. Each of the warrants were issued with an exercise price of
$3.948 and expire on August 21, 2012. The warrants provide
for certain anti-dilution protection as provided therein. Under
the terms of the warrants, we have an obligation to make a cash
payment to the holders of the warrants for any gain that could
have been realized if the holders exercise the warrants and we
subsequently fail to deliver a certificate representing the
shares to be issued upon such exercise by the third trading day
after such warrants have been exercised. Accordingly, the
warrants have been accounted for as a liability. The fair value
of the warrants is estimated, at the end of each quarterly
reporting period, using the Black-Scholes option pricing model.
The warrants were accounted for with an initial value of
$1.0 million on August 22, 2007. The assumptions used
in computing the fair value as of December 31, 2009 are a
closing stock price of $1.06, expected volatility of 102.67%
over the remaining term of two years and eight months and a
risk-free rate of 1.7%.
The fair value of the warrants increased $0.02 million for
the year ended December 31, 2009 and decreased by
$0.4 million for the year ended December 31, 2008, and
decreased $0.5 million for the period between
August 22, 2007 and December 31, 2007 and the
fluctuations have been recorded in the statements of operations.
The warrants will be adjusted to estimated fair value for each
future period they remain outstanding.
August 2009 Equity Financing Investors
Warrants. In connection with the August 2009
offering, Emisphere sold warrants to purchase 6.4 million
shares of common stock to MHR (3.7 million) and other
unrelated investors (2.7 million). The warrants were issued
with an exercise price of $0.70 and expire on August 21,
2014. Under the terms of the warrants, we have an obligation to
make a cash payment to the holders of the warrants for any gain
that could have been realized if the holders exercise the
warrants and we subsequently fail to deliver a certificate
representing the shares to be issued upon such exercise by the
third trading day after such warrants have been exercised.
Accordingly, the warrants have been accounted for as a
liability. The fair value of the warrants is estimated, at the
end of each quarterly reporting period, using the Black-Scholes
option pricing model. The assumptions used in computing the fair
value as of December 31, 2009 are a closing stock price of
$1.06, expected volatility of 89.40% over the remaining term of
four years and eight months and a risk-free rate of 2.69%. The
fair value of the warrants were valued at $4.24 million at
their commitment date of August 19, 2009 and increased by
$0.85 million through December 31, 2009 and the
fluctuation has been recorded in the statements of operations.
The warrants will be adjusted to estimated fair value for each
future period they remain outstanding.
August 2009 Equity Financing Placement Agent
Warrants. In connection with the August 2009
offering, Emisphere issued to the placement agent, as part of
the compensation for acting as placement agent for the August
2009 financing, warrants to purchase 504,000 shares of
common stock. The warrants were issued with an exercise price of
$0.875 and expire on October 1, 2012. Under the terms of
the warrants, we have an obligation to make a cash payment to
the holders of the warrants for any gain that could have been
realized if the holders exercise the warrants and we
subsequently fail to deliver a certificate representing the
shares to be issued upon such exercise by the third trading day
after such warrants have been exercised. Accordingly, the
warrants have been accounted for as a liability. The fair value
of the warrants are estimated, at the end of each quarterly
reporting period, using the Black-Scholes option pricing model.
The assumptions used in computing the fair value as of
December 31, 2009 are a closing stock price of $1.06,
expected volatility of 102.88% over the remaining term of two
years and nine months and a risk-free rate of 1.70%. The fair
value of the warrants were valued at $0.29 million at their
commitment date of August 19, 2009 and increased by
$0.06 million through December 31, 2009 and the
fluctuation has been recorded in the statements of operations.
The fair value of the Placement Agent Warrants was deemed to be
a cost of the financing and accounted for as a reduction in the
proceeds. The warrants will be adjusted to estimated fair value
for each future period they remain outstanding.
Since the Company has recurring losses and a full valuation
allowance against deferred tax assets, there is no tax expense
(benefit) for all periods presented.
F-21
EMISPHERE
TECHNOLOGIES, INC.
NOTES TO
THE FINANCIAL STATEMENTS (Continued)
As of December 31, 2009, we have available unused federal
net operating loss (NOL) carry-forwards of $350 million and
New York NOL carry-forwards of $301.7 million, of which
$5.7 million, $4.4 million and $1.1 million will
expire in 2010, 2011 and 2012, respectively, with the remainder
expiring in various years from 2018 to 2029. We have New Jersey
NOL carry-forwards of $55.5 million, which will expire in
2014 through 2016. We have research and development tax credit
carryforwards which will expire in various years from 2010
through 2029.
The effective rate differs from the statutory rate of 34% for
2009 and 2008 primarily due to the following:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Statutory rate on pre-tax book loss
|
|
|
(34.00
|
)%
|
|
|
(34.00
|
)%
|
Stock option issuance
|
|
|
1.12
|
%
|
|
|
0.32
|
%
|
Disallowed interest
|
|
|
1.23
|
%
|
|
|
0.93
|
%
|
Derivatives
|
|
|
3.96
|
%
|
|
|
(3.09
|
)%
|
Research and experimentation tax credit
|
|
|
0.00
|
%
|
|
|
(0.71
|
)%
|
Expired net operating losses and credits
|
|
|
13.89
|
%
|
|
|
12.12
|
%
|
Other
|
|
|
(0.01
|
)%
|
|
|
0.04
|
%
|
Change in federal valuation allowance
|
|
|
13.81
|
%
|
|
|
24.39
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.00
|
)%
|
|
|
(0.00
|
)%
|
|
|
|
|
|
|
|
|
|
The tax effect of temporary differences, net operating loss
carry-forwards, and research and experimental tax credit
carry-forwards as of December 31, 2009 and 2008 is as
follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Deferred tax assets and valuation allowance:
|
|
|
|
|
|
|
|
|
Current deferred tax asset:
|
|
|
|
|
|
|
|
|
Accrued liabilities
|
|
$
|
1,213
|
|
|
$
|
240
|
|
Valuation Allowance
|
|
|
(1,213
|
)
|
|
|
(240
|
)
|
|
|
|
|
|
|
|
|
|
Net current deferred tax asset
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Noncurrent deferred tax assets:
|
|
|
|
|
|
|
|
|
Fixed and intangible assets
|
|
$
|
(50
|
)
|
|
$
|
5,709
|
|
Net operating loss carry-forwards
|
|
|
122,296
|
|
|
|
114,516
|
|
Capital loss and charitable carry-fowards
|
|
|
2,779
|
|
|
|
2,795
|
|
Research and experimental tax credits
|
|
|
12,188
|
|
|
|
12,559
|
|
Stock compensation
|
|
|
808
|
|
|
|
462
|
|
Deferred Revenue
|
|
|
4,591
|
|
|
|
4,551
|
|
Interest
|
|
|
2,534
|
|
|
|
1,737
|
|
Valuation allowance
|
|
|
(145,146
|
)
|
|
|
(142,329
|
)
|
|
|
|
|
|
|
|
|
|
Net noncurrent deferred tax asset
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Future ownership changes may limit the future utilization of
these net operating loss and research and development tax credit
carry-forwards as defined by the Internal Revenue Code. The
amount of any potential limitation is unknown. The net deferred
tax asset has been fully offset by a valuation allowance due to
our
F-22
EMISPHERE
TECHNOLOGIES, INC.
NOTES TO
THE FINANCIAL STATEMENTS (Continued)
history of taxable losses and uncertainty regarding our ability
to generate sufficient taxable income in the future to utilize
these deferred tax assets.
On January 1, 2007, we adopted the provisions of ASC
740-10-25.
ASC
740-10-25
provides recognition criteria and a related measurement model
for uncertain tax positions taken or expected to be taken in
income tax returns. ASC
740-10-25
requires that a position taken or expected to be taken in a tax
return be recognized in the financial statements when it is more
likely than not that the position would be sustained upon
examination by tax authorities. Tax positions that meet the more
likely than not threshold are then measured using a probability
weighted approach recognizing the largest amount of tax benefit
that is greater than 50% likely of being realized upon ultimate
settlement. The Company had no tax positions relating to open
income tax returns that were considered to be uncertain.
Accordingly, we have not recorded a liability for unrecognized
tax benefits upon adoption of ASC
740-10-25.
There continues to be no liability related to unrecognized tax
benefits at December 31, 2009.
The Companys 2006, 2007 and 2008 federal and New York tax
returns remain subject to examination by the IRS and New York,
respectively. The Companys 2007 and 2008 New Jersey tax
returns are also open to potential examination. In addition, net
operating losses and research tax credits arising from prior
years are also subject to examination at the time that they are
utilized in future years. Neither the Companys federal or
state tax returns are currently under examination.
|
|
11.
|
Stockholders
Deficit
|
On April 20, 2007, the stockholders of the Company approved
an increase in the Companys authorized common stock from
50 million to 100 million shares.
On August 22, 2007, we completed the sale of two million
registered shares of common stock at $3.785 per share. Proceeds
from this offering were $6.9 million, net of total issuance
costs of $0.7 million, which will be used for general
corporate purposes. As the shares of stock were sold in
connection with warrants, $5.9 million was allocated to the
issuance of the stock and $1.0 million was allocated to the
warrants.
Our certificate of incorporation provides for the issuance of
1,000,000 shares of preferred stock with the rights,
preferences, qualifications, and terms to be determined by our
Board of Directors. As of December 31, 2009 and 2008, there
were no shares of preferred stock outstanding.
We have a stockholder rights plan in which Preferred Stock
Purchase Rights (the Rights) have been granted at
the rate of one one-hundredth of a share of Series A Junior
Participating Cumulative Preferred Stock (A Preferred
Stock) at an exercise price of $80 for each share of our
common stock. The Rights expire on April 7, 2016.
The Rights are not exercisable, or transferable apart from the
common stock, until the earlier of (i) ten days following a
public announcement that a person or group of affiliated or
associated persons have acquired beneficial ownership of 20% or
more of our outstanding common stock or (ii) ten business
days (or such later date, as defined) following the commencement
of, or announcement of an intention to make a tender offer or
exchange offer, the consummation of which would result in the
beneficial ownership by a person, or group, of 20% or more of
our outstanding common stock. MHR is specifically excluded from
the provisions of the plan.
F-23
EMISPHERE
TECHNOLOGIES, INC.
NOTES TO
THE FINANCIAL STATEMENTS (Continued)
Furthermore, if we enter into consolidation, merger, or other
business combinations, as defined, each Right would entitle the
holder upon exercise to receive, in lieu of shares of A
Preferred Stock, a number of shares of common stock of the
acquiring company having a value of two times the exercise price
of the Right, as defined. The Rights contain anti-dilutive
provisions and are redeemable at our option, subject to certain
defined restrictions for $.01 per Right.
As a result of the Rights dividend, the Board of Directors
designated 200,000 shares of preferred stock as A Preferred
Stock. A Preferred Stockholders will be entitled to a
preferential cumulative quarterly dividend of the greater of
$1.00 per share or 100 times the per share dividend declared on
our common stock. Shares of A Preferred Stock have a liquidation
preference, as defined, and each share will have 100 votes and
will vote together with the common shares.
On August 22, 2009, we completed the sale of
5,714,286 shares of common stock and 2,685,714 warrants to
purchase shares of common stock to certain institutional
investors for gross proceeds of $4,000,000. Also, on
August 22, 2009, we completed the sale of
6,015,037 shares of common stock and 3,729,323 warrants to
purchase shares of common stock to MHR for gross proceeds of
$4,000,000. Both the investor warrants and the MHR warrants
expire on August 21, 2014 and have an exercise price of
$0.70. Proceeds from this offering were $7.30 million, net
of cash issuance costs of $0.70 million. Additional
issuance costs consisted of $0.29 million from the issuance
of 504,000 warrants issued to a placement agent (see
Note 9).
|
|
12.
|
Stock-Based
Compensation Plans
|
Total compensation expense recorded during the years ended
December 31, 2009, 2008 and 2007 for share-based payment
awards was $1.6 million, $1.0 million and
$3.1 million, respectively, of which $0.1 million,
$0.4 million and $1.4 million is recorded in research
and development and $1.5 million, $0.6 million and
$1.7 million is recorded in general and administrative
expenses in the statement of operations. Included in
compensation expense during the year ended December 31,
2007 are incremental costs of $0.8 million resulting from
the modification of previously granted stock option awards for 4
former executives. Under the terms of the separation agreements
with these executives, certain option grants received
accelerated vesting, extended exercise period or both.
At December 31, 2009, total unrecognized estimated
compensation expense related to non-vested stock options granted
prior to that date was approximately $0.9 million, which is
expected to be recognized over a weighted-average period of
2.0 years. No tax benefit was realized due to a continued
pattern of operating losses. We have a policy of issuing new
shares to satisfy share option exercises. There were no options
exercised during the year ended December 31, 2009. Cash
received from options exercised totaled $0.01 million and
$0.4 million for the years ended December 31, 2008 and
2007, respectively.
Using the Black-Scholes model, we have estimated our stock price
volatility using the historical volatility in the market price
of our common stock for the expected term of the option. The
risk-free interest rate is based on the yield curve of
U.S. Treasury STRIP securities for the expected term of the
option. We have never paid cash dividends and do not intend to
pay cash dividends in the foreseeable future. Accordingly, we
assumed a 0% dividend yield. The forfeiture rate is estimated
using historical option cancellation information, adjusted for
anticipated changes in expected exercise and employment
termination behavior. Forfeiture rates and the expected term of
options are estimated separately for groups of employees that
have similar historical exercise behavior. The ranges presented
below are the result of certain groups of employees displaying
different behavior.
F-24
EMISPHERE
TECHNOLOGIES, INC.
NOTES TO
THE FINANCIAL STATEMENTS (Continued)
The following weighted-average assumptions were used for grants
made under the stock option plans for the years ended
December 31, 2009, 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
Directors
|
|
Executives
|
|
Employees
|
|
Expected volatility
|
|
|
87.8
|
%
|
|
|
87.8
|
%
|
|
|
87.9
|
%
|
Expected term
|
|
|
6.8 years
|
|
|
|
6.8 years
|
|
|
|
6.8 years
|
|
Risk-free interest rate
|
|
|
3.19
|
%
|
|
|
3.14
|
%
|
|
|
2.90
|
%
|
Dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
Annual forfeiture rate
|
|
|
5
|
%
|
|
|
5
|
%
|
|
|
5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
Directors
|
|
Executives
|
|
Employees
|
|
Expected volatility
|
|
|
84.9
|
%
|
|
|
85.0
|
%
|
|
|
85.0
|
%
|
Expected term
|
|
|
10 years
|
|
|
|
10 years
|
|
|
|
10 years
|
|
Risk-free interest rate
|
|
|
3.89
|
%
|
|
|
3.89
|
%
|
|
|
3.89
|
%
|
Dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
Annual forfeiture rate
|
|
|
5
|
%
|
|
|
5
|
%
|
|
|
5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
Directors
|
|
Executives
|
|
Employees
|
|
Expected volatility
|
|
|
84.9
|
%
|
|
|
82.9
|
%
|
|
|
83.0
|
%
|
Expected term
|
|
|
5 years
|
|
|
|
10 years
|
|
|
|
5.5 years
|
|
Risk-free interest rate
|
|
|
4.28
|
%
|
|
|
4.82
|
%
|
|
|
4.62
|
%
|
Dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
Annual forfeiture rate
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
5
|
%
|
Stock Option Plans. On April 20, 2007,
the stockholders approved the 2007 Stock Award and Incentive
Plan (the 2007 Plan). The 2007 Plan provides for
grants of options, stock appreciation rights, restricted stock,
deferred stock, bonus stock and awards in lieu of obligations,
dividend equivalents, other stock based awards and performance
awards to executive officers and other employees of the Company,
and non-employee directors, consultants and others who provide
substantial service to us. The 2007 Plan provides for the
issuance of 3,275,334 shares as follows: 2,500,000 new
shares, 374,264 shares remaining and transferred from the
Companys 2000 Stock Option Plan (the 2000
Plan) (which was then replaced by the 2007 Plan) and
401,070 shares remaining and transferred from the
Companys Stock Option Plan for Outside Directors (the
Directors Stock Plan). In addition, shares
cancelled, expired, forfeited, settled in cash, settled by
delivery of fewer shares than the number underlying the award,
or otherwise terminated under the 2000 Plan will become
available for issuance under the 2007 Plan, once registered. As
of December 31, 2009 1,183,854 shares remain available
for issuance under the 2007 Plan. Generally, the options vest at
the rate of 20% per year and expire within a
five-to-ten-year
period, as determined by the compensation committee of the Board
of Directors and as defined by the Plans.
The Companys other active Stock Option Plan is the 2002
Broad Based Plan (the 2002 Plan). Under the 2002
Plan, a maximum of 160,000 shares are authorized for
issuance to employees in the form of either incentive stock
options (ISOs), as defined by the Internal Revenue
Code, or non-qualified stock options, which do not qualify as
ISOs. As of December 31, 2009, 143,430 shares remain
available for issuance under the 2002 Plan.
F-25
EMISPHERE
TECHNOLOGIES, INC.
NOTES TO
THE FINANCIAL STATEMENTS (Continued)
The Company also has grants outstanding under various expired
and terminated Stock Option Plans, including the 1991 Stock
Option Plan (the 1991 Plan), the 1995 Non-Qualified
Stock Option Plan (the 1995 Plan) and the 2000 Stock
Option Plan (the 2000 Plan). Under our 1991, 1995
and 2000 Plans a maximum of 2,500,000, 2,550,000 and
1,945,236 shares of our common stock, respectively, were
available for issuance. The 1991 Plan was available to employees
and consultants; the 2000 Plan was available to employees,
directors and consultants. The 1991 Plan and 2000 Plan provide
for the grant of either incentive stock options
(ISOs), as defined by the Internal Revenue Code, or
non-qualified stock options, which do not qualify as ISOs. The
1995 Plan provides for grants of non-qualified stock options to
officers and key employees. Generally, the options vest at the
rate of 20% per year and expire within a five- to ten-year
period, as determined by the compensation committee of the Board
of Directors and as defined by the Plans.
Transactions involving stock options awarded under the Stock
Option Plans described above during the years ended
December 31, 2009, 2008, 2007 and 2006 are summarized as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Remaining
|
|
|
|
|
|
|
Number of
|
|
|
Average
|
|
|
Contractual
|
|
|
Aggregate
|
|
|
|
Shares
|
|
|
Exercise Price
|
|
|
Term in Years
|
|
|
Intrinsic Value
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
Outstanding at December 31, 2006
|
|
|
3,807,012
|
|
|
$
|
16.63
|
|
|
|
4.3
|
|
|
|
|
|
Granted
|
|
|
1,514,735
|
|
|
$
|
4.55
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(2,041,125
|
)
|
|
$
|
21.29
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(381,696
|
)
|
|
$
|
4.30
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(31,050
|
)
|
|
$
|
1.56
|
|
|
|
|
|
|
$
|
89
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2007
|
|
|
2,867,876
|
|
|
$
|
8.73
|
|
|
|
6.4
|
|
|
|
|
|
Granted
|
|
|
133,600
|
|
|
$
|
2.84
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(300,087
|
)
|
|
$
|
12.72
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(664,385
|
)
|
|
$
|
8.75
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(4,150
|
)
|
|
$
|
3.04
|
|
|
|
|
|
|
$
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2008,
|
|
|
2,032,854
|
|
|
$
|
8.30
|
|
|
|
6.7
|
|
|
|
|
|
Granted
|
|
|
1,041,000
|
|
|
$
|
0.86
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(12,643
|
)
|
|
$
|
14.63
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(326,475
|
)
|
|
$
|
3.88
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2009
|
|
|
2,734,736
|
|
|
$
|
6.29
|
|
|
|
6.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and exercisable at December 31, 2009
|
|
|
1,814,982
|
|
|
$
|
8.31
|
|
|
|
5.9
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest at December 31, 2009
|
|
|
2,692,914
|
|
|
$
|
6.37
|
|
|
|
6.8
|
|
|
$
|
48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted-average grant date fair value of options granted
during the years ended December 31, 2009, 2008 and 2007 was
$0.92, $2.16 and $3.15, respectively.
Outside Directors Plan. We previously
issued options to outside directors who are neither officers nor
employees of Emisphere nor holders of more than 5% of our common
stock under the Stock Option Plan for Outside Directors (the
Outside Directors Plan). As amended, a maximum
of 725,000 shares of our common stock were available for
issuance under the Outside Directors Plan in the form of
options and restricted stock.
F-26
EMISPHERE
TECHNOLOGIES, INC.
NOTES TO
THE FINANCIAL STATEMENTS (Continued)
The outside Directors Plan expired on January 29,
2007. Options and restricted stock are now granted to directors
under the 2007 Plan discussed above.
Transactions involving stock options awarded under the Outside
Directors Plan during the years ended December 31,
2009, 2008 and 2007 are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Remaining
|
|
|
|
|
|
|
Number of
|
|
|
Average
|
|
|
Contractual
|
|
|
Aggregate
|
|
|
|
Shares
|
|
|
Exercise Price
|
|
|
Term in Years
|
|
|
Intrinsic Value
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
Outstanding at December 31, 2006
|
|
|
177,000
|
|
|
$
|
13.42
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(21,000
|
)
|
|
$
|
13.75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2007
|
|
|
156,000
|
|
|
$
|
13.38
|
|
|
|
5.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2008
|
|
|
156,000
|
|
|
$
|
13.38
|
|
|
|
4.0
|
|
|
|
|
|
Expired
|
|
|
(35,000
|
)
|
|
$
|
4.23
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2009
|
|
|
121,000
|
|
|
$
|
15.59
|
|
|
|
2.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and Exercisable at December 31, 2009
|
|
|
121,000
|
|
|
$
|
15.59
|
|
|
|
2.7
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Directors Deferred Compensation Stock
Plan. The Directors Deferred Compensation
Stock Plan (the Directors Deferred Plan)
ceased as of May 2004. Under the Directors Deferred Plan,
directors who were neither officers nor employees of Emisphere
had the option to elect to receive one half of the annual Board
of Directors retainer compensation, paid for services as a
Director, in deferred common stock. An aggregate of
25,000 shares of our common stock has been reserved for
issuance under the Directors Deferred Plan. During the
years ended December 31, 2004 and 2003, the outside
directors earned the rights to receive an aggregate of
1,775 shares and 2,144 shares, respectively. Under the
terms of the Directors Deferred Plan, shares are to be
issued to a director within six months after he or she ceases to
serve on the Board of Directors. We recorded as an expense the
fair market value of the common stock issuable under the plan.
As of December 31, 2009, there are 3,122 shares
issuable under this plan. No grants were awarded in 2009, 2008
and 2007, and none were outstanding as of December 31, 2009.
Non-Plan Options. Our Board of Directors has
granted options (Non-Plan Options) which are
currently outstanding for the accounts of two consultants. The
Board of Directors determines the number and terms of each grant
(option exercise price, vesting, and expiration date).
Transactions involving awards of Non-Plan Options during the
year ended December 31, 2009, 2008 and 2007 are summarized
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Remaining
|
|
|
|
|
|
|
Number of
|
|
|
Average
|
|
|
Contractual
|
|
|
Aggregate
|
|
|
|
Shares
|
|
|
Exercise Price
|
|
|
Term in Years
|
|
|
Intrinsic Value
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
Outstanding at December 31, 2006
|
|
|
20,000
|
|
|
$
|
14.84
|
|
|
|
5.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2007
|
|
|
20,000
|
|
|
$
|
14.84
|
|
|
|
4.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2008
|
|
|
20,000
|
|
|
$
|
14.84
|
|
|
|
3.3
|
|
|
|
|
|
Expired
|
|
|
(10,000
|
)
|
|
$
|
26.05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2009
|
|
|
10,000
|
|
|
$
|
3.64
|
|
|
|
1.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and Exercisable at December 31, 2009
|
|
|
10,000
|
|
|
$
|
3.64
|
|
|
|
1.0
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-27
EMISPHERE
TECHNOLOGIES, INC.
NOTES TO
THE FINANCIAL STATEMENTS (Continued)
|
|
13.
|
Collaborative
Research Agreements
|
We are a party to collaborative agreements with corporate
partners to provide development and commercialization services
relating to the collaborative products. These agreements are in
the form of research and development collaboration and licensing
agreements. In connection with these agreements, we have granted
licenses or the rights to obtain licenses to our oral drug
delivery technology. In return, we are entitled to receive
certain payments upon the achievement of milestones and will
receive royalties on sales of products should they be
commercialized. Under these agreements, we are entitled to also
be reimbursed for research and development costs. We also have
the right to manufacture and supply delivery agents developed
under these agreements to our corporate partners.
We also perform research and development for others pursuant to
feasibility agreements, which are of short duration and are
designed to evaluate the applicability of our drug delivery
agents to specific drugs. Under the feasibility agreements, we
are generally reimbursed for the cost of work performed.
All of our collaborative agreements are subject to termination
by our corporate partners without significant financial penalty
to them. Milestone and upfront payments received in connection
with these agreements was $0.2 million, $11.4 million
and $2.0 million in the years ended December 31, 2009,
2008 and 2007, respectively. Expense reimbursements received in
connection with these agreements was $0.2 million,
$1.3 million and $1.9 million for the years ended
December 31, 2009, 2008 and 2007, respectively. Expenses
incurred in connection with these agreements and included in
research and development were $0.2 million,
$0.1 million and $0.6 million in the years ended
December 31, 2009, 2008 and 2007, respectively. Significant
agreements are described below.
Novartis Pharma AG. In September 2004, we
entered into a licensing agreement with Novartis to develop our
oral recombinant human growth hormone (rhGH)
program. Under this collaboration, we are working with Novartis
to initiate clinical trials of a convenient oral human growth
hormone product using the
Eligen®
Technology. In November 2004, we received a non-refundable
upfront payment of $1 million. On May 3, 2006, we
received a $5 million payment from Novartis for development
commencement. We may receive up to $28 million in
additional milestone payments during the course of product
development, and royalties based on sales.
In December 2004, we entered into an agreement with Novartis
whereby Novartis obtained an option to license our existing
technology to develop oral forms of parathyroid hormone
(PTH-1-34). On March 7, 2006, Novartis
exercised its option to the license. Based on the terms of the
agreement, we are eligible for milestone payments totaling up to
a maximum of $30 million, plus royalties on sales of
product developed using our
Eligen®
Technology.
In December 1997, we entered into a collaboration agreement with
Novartis to develop an oral salmon calcitonin (sCT),
currently used to treat osteoporosis. In February 2000, Novartis
agreed to execute its option to acquire an exclusive license to
develop and commercialize oral sCT and as a result, Novartis
made a $2 million milestone payment to us. In March 2000,
Novartis paid us $2.5 million to obtain the license to our
technology for sCT, and to obtain an option to use the
Eligen®
Technology for a second compound. Novartis rights to
certain financial terms concerning the second compound have
since expired. In February 2003, we announced favorable results
of a Phase IIa study conducted by Novartis evaluating the
performance in post-menopausal women of an oral tablet form of
salmon calcitonin. Based on the data from that study, Novartis
has initiated a parallel program to develop oral salmon
calcitonin for the treatment of osteoarthritis. In February
2007, Novartis and its development partner Nordic Bioscience
notified us of the initiation of a Phase III clinical trial
for the treatment of osteoporosis with an oral form of salmon
calcitonin (referred to as SMC021), a new drug candidate, using
the Companys
Eligen®
Technology. As a result of the initiation of the trial,
Emisphere received a milestone payment from Novartis of
$2 million as well as reimbursement for approximately
$0.7 million in costs. The $2.7 million was able to be
recognized when received as we have
F-28
EMISPHERE
TECHNOLOGIES, INC.
NOTES TO
THE FINANCIAL STATEMENTS (Continued)
met the requirements under our revenue recognition policy. Under
the terms of the agreement, we may receive up to $5 million
in additional milestone payments.
Novo
Nordisk A/S Agreement
On June 21, 2008, we entered into an exclusive Development
and License Agreement with Novo Nordisk pursuant to which Novo
Nordisk will develop and commercialize oral formulations of Novo
Nordisk proprietary products in combination with Emisphere
carriers. Under such agreement Emisphere could receive more than
$87.0 million in contingent product development and sales
milestone payments including a $10.0 million non-refundable
license fee which was received during June 2008. Emisphere would
also be entitled to receive royalties in the event Novo Nordisk
commercializes products developed under such agreement. Under
the terms of the agreement, Novo Nordisk is responsible for the
development and commercialization of the products. Initially
Novo Nordisk is focusing on the development of oral formulations
of its proprietary GLP-1 receptor agonists.
The agreement with Novo Nordisk includes multiple deliverables
including the license grant, several versions of the
Companys
Eligen®
Technology (or carriers), support services and manufacturing.
Emisphere management reviewed the relevant terms of the Novo
Nordisk agreement and determined that such deliverables should
be accounted for as a single unit of accounting in accordance
with FASB ASC
605-25,
Multiple-Element Arrangements, since the delivered license and
Eligen®
Technology do not have stand-alone value and Emisphere does not
have objective evidence of fair value of the undelivered
Eligen®
Technology or the manufacturing value of all the undelivered
items. Such conclusion will be reevaluated as each item in the
arrangement is delivered. Consequently any payments received
from Novo Nordisk pursuant to such agreement, including the
initial $10 million upfront payment and any payments
received for support services, will be deferred and included in
Deferred Revenue within our balance sheet. Management cannot
currently estimate when all of such deliverables will be
delivered nor can they estimate when, if ever, Emisphere will
have objective evidence of the fair value for all of the
undelivered items, therefore all payments from Novo Nordisk are
expected to be deferred for the foreseeable future.
As of December 31, 2009 total deferred revenue from the
agreement was $11.5 million, comprised of the
$10.0 million non-refundable license fee and
$1.5 million in support services.
Genta. In March 2006, we entered into a
collaborative agreement with Genta, Incorporated
(Genta) to develop an oral formulation of a
gallium-containing compound. We currently receive reimbursements
from Genta for the work performed during the formulation phase.
We recognized $0.0, $0.1 million and $1.2 million in
revenue related to these reimbursements for the years ended
December 31, 2009, 2008 and 2007, respectively. We are
eligible for future milestone payments totaling up to a maximum
of $24.3 million under this agreement.
|
|
14.
|
Defined
Contribution Retirement Plan
|
We have a defined contribution retirement plan (the
Retirement Plan), the terms of which, as amended,
allow eligible employees who have met certain age and service
requirements to participate by electing to contribute a
percentage of their compensation to be set aside to pay their
future retirement benefits, as defined by the Retirement Plan.
We have agreed to make discretionary contributions to the
Retirement Plan. For the years ended December 31, 2009,
2008 and 2007, we made contributions to the Retirement Plan
totaling approximately $0.06 million, $0.2 million and
$0.3 million, respectively.
F-29
EMISPHERE
TECHNOLOGIES, INC.
NOTES TO
THE FINANCIAL STATEMENTS (Continued)
The following table sets forth the information needed to compute
basic and diluted earnings per share for the years ended
December 31, 2009, 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands, except per share amounts)
|
|
|
Basic net loss
|
|
$
|
(21,243
|
)
|
|
$
|
(24,388
|
)
|
|
$
|
(16,928
|
)
|
Dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
|
|
|
|
|
|
|
|
|
|
|
(5,061
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net loss
|
|
$
|
(21,243
|
)
|
|
$
|
(24,388
|
)
|
|
$
|
(21,989
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
34,679,321
|
|
|
|
30,337,442
|
|
|
|
29,039,101
|
|
Dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
|
|
|
|
|
|
|
|
|
|
|
88,911
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted average common stock equivalents outstanding
|
|
|
34,679,321
|
|
|
|
30,337,442
|
|
|
|
29,128,012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net loss per share
|
|
$
|
(0.61
|
)
|
|
$
|
(0.80
|
)
|
|
$
|
(0.58
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net loss per share
|
|
$
|
(0.61
|
)
|
|
$
|
(0.80
|
)
|
|
$
|
(0.76
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table sets forth the number of potential shares of
common stock that have been excluded from diluted net loss per
share because their effect was anti-dilutive:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Options to purchase common shares
|
|
|
2,865,736
|
|
|
|
2,208,854
|
|
|
|
3,043,876
|
|
Outstanding warrants and options to purchase warrants
|
|
|
9,934,253
|
|
|
|
2,972,049
|
|
|
|
604,838
|
|
Novartis convertible note payable
|
|
|
14,944,980
|
|
|
|
7,537,921
|
|
|
|
3,743,700
|
|
MHR note payable
|
|
|
5,983,146
|
|
|
|
5,362,596
|
|
|
|
4,806,404
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33,728,115
|
|
|
|
18,081,420
|
|
|
|
12,198,818
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16.
|
Commitments
and Contingencies
|
Commitments. At the beginning of 2009 we had
leased approximately 80,000 square feet of office space at
765 Old Saw Mill River Road, Tarrytown, NY for use as
administrative offices and laboratories. The lease for our
administrative and laboratory facilities had been set to expire
on August 31, 2012. However, on April 29, 2009, the
Company entered into a Lease Termination Agreement (the
Agreement) with
BMR-Landmark
at Eastview, LLC, a Delaware limited liability company
(BMR) pursuant to which the Company and BMR
terminated the lease of space at 765 Old Saw Mill River Road in
Tarrytown, NY. Pursuant to the Agreement, the Lease was
terminated effective as of April 1, 2009. The Agreement
provided that the Company make the following payments to BMR:
(a) $1 million, paid upon execution of the Agreement,
(b) $0.5 million, paid six months after the execution
date of the Agreement, and (c) $0.75 million, payable
twelve months after the execution date of the Agreement. Initial
and six months payments were made on schedule.
We continue to lease office space at 240 Cedar Knolls Road,
Cedar Knolls, NJ under a non-cancellable operating lease
expiring in 2013.
F-30
EMISPHERE
TECHNOLOGIES, INC.
NOTES TO
THE FINANCIAL STATEMENTS (Continued)
As of December 31, 2009, future minimum rental payments are
as follows:
|
|
|
|
|
Years Ending December 31,
|
|
|
|
|
|
(In thousands)
|
|
|
2010
|
|
|
345
|
|
2011
|
|
|
353
|
|
2012
|
|
|
360
|
|
2013
|
|
|
31
|
|
|
|
|
|
|
Total
|
|
|
1,089
|
|
Rent expense for the years ended December 31, 2009, 2008
and 2007 was $0.7 million, $2.3 million and
$2.0 million, respectively. Additional charges under this
lease for real estate taxes and common maintenance charges for
the years ended December 31, 2009, 2008 and 2007, were
$0.5 million, $0.8 million and $0.8 million,
respectively.
In accordance with the lease agreement in Cedar Knolls, NJ, the
Company has entered into a standby letter of credit in the
amount of $246 thousand as a security deposit. The standby
letter of credit is fully collateralized with a time certificate
of deposit account in the same amount. The certificate of
deposit has been recorded as a restricted cash balance in the
accompanying financials. As of December 31, 2009, there are
no amounts outstanding under the standby letter of credit.
On April 6, 2007, the Board of Directors appointed Michael
V. Novinski to the position of President and Chief Executive
Officer. Pursuant to his appointment, the Company has entered
into a three year employment agreement with Mr. Novinski.
If Mr. Novinskis contract is terminated without cause
by the Board of Directors or at any time by the executive for
good reason as defined in his contract, we are obligated to make
severance payments to Mr. Novinski.
In April 2005, the Company entered into an amended and restated
employment agreement with its then Chief Executive Officer,
Dr. Michael M. Goldberg, for services through July 31,
2007. On January 16, 2007, the Board of Directors
terminated Dr. Goldbergs services. On April 26,
2007, the Board of Directors held a special hearing at which it
determined that Dr. Goldbergs termination was for
cause. On March 22, 2007, Dr. Goldberg, through his
counsel, filed a demand for arbitration asserting that his
termination was without cause and seeking $1,048,000 plus
attorneys fees, interest, arbitration costs and other
relief alleged to be owed to him in connection with his
employment agreement with the Company. During the arbitration,
Dr. Goldberg sought a total damage amount of at least
$9,223,646 plus interest. On February 11, 2010, the
arbitrator issued the final award in favor of Dr. Goldberg
for a total amount of approximately $2,333,115 as full and final
payment for all claims, defenses, counterclaims, and related
matters. As a result of the February 11, 2010 final award,
the Company adjusted its estimate of costs to settle this matter
to $2,333,115. If the awards are upheld and confirmed in court,
the Company will be required to pay the final amount due to
Dr. Goldberg.
On August 18, 2008, Emisphere filed a complaint in the
United States District Court for the District of New Jersey
against Laura A. Kragie and Kragie BioMedWorks, Inc. seeking a
declaratory judgment affirming Emispheres sole rights to
its proprietary technology for the oral administration of
Vitamin B12, as set forth in several Emisphere United States
provisional patent applications. The complaint also includes a
claim under the Lanham Act arising from statements made by
defendants on their web site. Laura A. Kragie, M.D., is a
former consultant for Emisphere who later was employed by
Emisphere. On February 13, 2009, the defendants filed an
answer, affirmative defenses and counterclaims, adding as
counterclaim defendants current or former Emisphere executives
or employees, including Michael V. Novinski. The countersuit
against Emisphere alleged breach of contract, fraudulent
inducement, trademark infringement, false advertising, and other
claims. Emisphere believed that the counterclaims were without
merit, and litigated all claims vigorously. The litigation with
the Kragie Parties has been resolved. On February 23, 2010,
the Court entered an Order, pursuant to the parties
written settlement agreement, dismissing the case with prejudice.
F-31
EMISPHERE
TECHNOLOGIES, INC.
NOTES TO
THE FINANCIAL STATEMENTS (Continued)
The Company evaluates the financial consequences of legal
actions periodically or as facts present themselves and books
accruals to account for its best estimate of future costs
accordingly.
Contingencies. In the ordinary course of
business, we enter into agreements with third parties that
include indemnification provisions which, in our judgment, are
normal and customary for companies in our industry sector. These
agreements are typically with business partners, clinical sites,
and suppliers. Pursuant to these agreements, we generally agree
to indemnify, hold harmless, and reimburse indemnified parties
for losses suffered or incurred by the indemnified parties with
respect to our product candidates, use of such product
candidates, or other actions taken or omitted by us. The maximum
potential amount of future payments we could be required to make
under these indemnification provisions is unlimited. We have not
incurred material costs to defend lawsuits or settle claims
related to these indemnification provisions. As a result, the
estimated fair value of liabilities relating to these provisions
is minimal. Accordingly, we have no liabilities recorded for
these provisions as of December 31, 2009.
In the normal course of business, we may be confronted with
issues or events that may result in a contingent liability.
These generally relate to lawsuits, claims, environmental
actions or the action of various regulatory agencies. If
necessary, management consults with counsel and other
appropriate experts to assess any matters that arise. If, in our
opinion, we have incurred a probable loss as set forth by
accounting principles generally accepted in the U.S., an
estimate is made of the loss and the appropriate accounting
entries are reflected in our financial statements. After
consultation with legal counsel, we do not anticipate that
liabilities arising out of currently pending or threatened
lawsuits and claims will have a material adverse effect on our
financial position, results of operations or cash flows.
Restructuring
Expense
On December 8, 2008, as part of our efforts to improve
operational efficiency we decided to close our research and
development facilities in Tarrytown to reduce costs and improve
operating efficiency. As of December 8, 2008 we terminated
all research and development staff and ceased using
approximately 85% of the facilities which resulted in a
restructuring charge of approximately $3.8 million in the
fourth quarter, 2008. As part of the restructuring charge, we
wrote down the value of our leasehold improvements in Tarrytown
by approximately $1.0 million (net); additionally, the
useful life of leasehold improvements in portions of the
facility that were still in use as of December 31, 2008 was
recalculated, resulting in an accelerated charge to amortization
expense of approximately $0.1 million.
In accordance with FASB ASC
420-10-5,Exit
or Disposal Cost Obligations, we estimated our
liability for net costs associated with terminating our lease
obligation for the laboratory and office facilities in Tarrytown
and recorded a charge net of estimated sublease income. To
develop our estimate, we considered our liability under the
Tarrytown lease, and estimated costs to be incurred to satisfy
rental commitments under the lease, the lead time
necessary to sublease the space, projected sublease rental
rates, and the anticipated duration of subleases. We validated
our estimate and assumptions through consultations with
independent third parties having relevant expertise. We used a
credit adjusted risk free rate of 1.55% to discount
estimated cash flows. We intend to review our estimate and
assumptions on a quarterly basis or more frequently as
appropriate; and will make modifications to the estimated
liability as deemed appropriate, based on our judgment to
reflect changing circumstances. Any change in our estimate may
result in additional restructuring charges, and those charges
may be material.
The restructuring liability at December 31, 2008 of
$2.9 million related primarily to the portion of the
Tarrytown facility we ceased using as of December 8, 2008,
and was recorded at net present value, and included several
obligations related to the restructuring. We classified
$0.9 million as short term as of December 31, 2008 and
$2.0 million as long term.
F-32
EMISPHERE
TECHNOLOGIES, INC.
NOTES TO
THE FINANCIAL STATEMENTS (Continued)
We recorded $3.8 million in restructuring expenses
comprised of $2.6 million lease restructuring expense (net
of subleases), $0.2 million in termination benefits
(employee severance and related costs) and $1.0 million in
leasehold improvement abandonment. In December 2008, we made $47
thousand in net rental payments (calculated at net present
value) on the Tarrytown property and made termination payments
of $91 thousand which represent employee severance and benefits
charges. The restructuring liability was reduced by these
amounts.
On April 29, 2009, the Company entered into a Lease
Termination Agreement with BMR pursuant to which the Company and
BMR terminated the lease of space at 765 and 777 Old Saw Mill
River Road in Tarrytown, New York. Pursuant to the Agreement,
the Lease was terminated effective as of April 1, 2009. The
Agreement provided that the Company shall make the following
payments to BMR: (a) One Million Dollars, payable upon
execution of the Agreement, (b) Five Hundred Thousand
Dollars, payable six months after the execution date of the
Agreement, and (c) Seven Hundred Fifty Thousand Dollars,
payable twelve months after the execution date of the Agreement.
The final payment was originally due April 29, 2010.
Consequently, the restructuring liability was adjusted to
reflect the terms of the Lease Termination Agreement, resulting
in a $356 thousand reduction in the liability and restructuring
costs during the year ended December 31, 2009. We
classified the $750 thousand as short term as of
December 31, 2009. The final payment was originally due
April 29, 2010. However, on March 17, 2010 the Company
and BMR agreed to amend the Agreement (the
Amendment). According to the Amendment, the final
payment will be modified as follows: the Company will pay Eight
Hundred Thousand Dollars ($800,000), as follows: (i) Two
Hundred Thousand Dollars ($200,000) within five (5) days
after the Execution Date and (ii) One Hundred Thousand
Dollars ($100,000) on each of the following dates: July 15,
2010, August 15, 2010, September 15, 2010,
October 15, 2010, November 15, 2010, and
December 15, 2010.
The restructuring activity and related liability are as follows
($ thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts
|
|
|
Lease
|
|
|
|
|
|
|
|
|
Liability at
|
|
|
|
|
|
|
Previously
|
|
|
Termination
|
|
|
Cash
|
|
|
Non-Cash
|
|
|
December 31,
|
|
|
|
Charge
|
|
|
Accrued
|
|
|
Adjustment
|
|
|
Payments
|
|
|
Expense
|
|
|
2009
|
|
|
Lease restructuring expense
|
|
$
|
2,592
|
|
|
$
|
227
|
|
|
$
|
(353
|
)
|
|
$
|
(1,716
|
)
|
|
$
|
|
|
|
$
|
750
|
|
Employee severance and related costs
|
|
|
199
|
|
|
|
|
|
|
|
(3
|
)
|
|
|
(196
|
)
|
|
|
|
|
|
|
|
|
Leasehold improvements abandonment
|
|
|
1,040
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,040
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,831
|
|
|
$
|
227
|
|
|
$
|
(356
|
)
|
|
$
|
(1,912
|
)
|
|
$
|
(1,040
|
)
|
|
$
|
750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17.
|
Summarized
Quarterly Financial Data (Unaudited)
|
Following are summarized quarterly financial data (unaudited)
for the years ended December 31, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
March 31
|
|
June 30
|
|
September 30
|
|
December 31
|
|
|
(In thousands)
|
|
Total revenue
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
92
|
|
Operating (loss) income
|
|
|
(4,659
|
)
|
|
|
(2,998
|
)
|
|
|
(3,393
|
)
|
|
|
(3,503
|
)
|
Net (loss) income
|
|
|
(5,417
|
)
|
|
|
(4,187
|
)
|
|
|
(4,037
|
)
|
|
|
(7,602
|
)
|
Net (loss) income per share, basic
|
|
$
|
(0.18
|
)
|
|
$
|
(0.14
|
)
|
|
$
|
(0.11
|
)
|
|
$
|
(0.18
|
)
|
Net (loss) income per share, diluted
|
|
$
|
(0.18
|
)
|
|
$
|
(0.14
|
)
|
|
$
|
(0.11
|
)
|
|
$
|
(0.18
|
)
|
F-33
EMISPHERE
TECHNOLOGIES, INC.
NOTES TO
THE FINANCIAL STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
March 31
|
|
June 30
|
|
September 30
|
|
December 31
|
|
|
(In thousands)
|
|
Total revenue
|
|
$
|
154
|
|
|
$
|
14
|
|
|
$
|
77
|
|
|
$
|
5
|
|
Operating loss
|
|
|
(6,462
|
)
|
|
|
(5,895
|
)
|
|
|
(5,740
|
)
|
|
|
(8,224
|
)
|
Net income (loss)
|
|
|
(3,942
|
)
|
|
|
(7,643
|
)
|
|
|
(5,100
|
)
|
|
|
(7,704
|
)
|
Net income (loss) per share, basic
|
|
$
|
(0.13
|
)
|
|
$
|
(0.25
|
)
|
|
$
|
(0.17
|
)
|
|
$
|
(0.25
|
)
|
Net income (loss) per share, diluted
|
|
$
|
(0.13
|
)
|
|
$
|
(0.25
|
)
|
|
$
|
(0.17
|
)
|
|
$
|
(0.25
|
)
|
In accordance with FASB ASC 820, Fair Value Measurements
and Disclosures, the following table represents the
Companys fair value hierarchy for its financial
liabilities measured at fair value on a recurring basis as of
December 31, 2009:
|
|
|
|
|
|
|
Level 2
|
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Derivative instruments (short term)
|
|
$
|
6,189
|
|
Derivative instruments (long term)
|
|
|
4,591
|
|
|
|
|
|
|
Total
|
|
$
|
10,780
|
|
|
|
|
|
|
The derivative instruments were valued using the market
approach, which is considered Level 2 because it uses
inputs other than quoted prices in active markets that are
either directly or indirectly observable. Accordingly, the
derivatives were valued using the Black-Scholes model.
|
|
19.
|
Settlement
of Litigation
|
On September 25, 2007, Emisphere agreed to accept
$18 million from Eli Lilly to settle the pending litigation
between the two companies. Additional terms and conditions of
the settlement were confidential. Emisphere received
$11.9 million of the settlement, net of attorneys
fees and expenses.
On February 8, 2008, Emisphere reported that it had entered
into an agreement with MannKind Corporation to sell certain
Emisphere patents and a patent application relating to
diketopiperazine technology for a total purchase price of
$2.5 million. An initial payment of $1.5 million was
received in February 2008. An additional $0.5 million was
received in May 2009 with the remaining payment to be made no
later than October 5, 2010.
With the exception of the modification in payment terms of the
Lease Termination Agreement with BMR described in Note 16
(above), the Company has evaluated subsequent events through the
date on which financial statements were issued and has
determined that there are no additional subsequent events that
would require adjustments to the financial statements for the
year ended December 31, 2009.
F-34
PART I
ITEM 1. FINANCIAL STATEMENTS
EMISPHERE TECHNOLOGIES, INC.
CONDENSED BALANCE SHEETS
June 30, 2010 and December 31, 2009
(in thousands, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010 |
|
|
December 31, |
|
|
|
(unaudited) |
|
|
2009 |
|
Assets: |
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
418 |
|
|
$ |
3,566 |
|
Accounts receivable, net |
|
|
38 |
|
|
|
158 |
|
Inventories |
|
|
261 |
|
|
|
20 |
|
Prepaid expenses and other current assets |
|
|
683 |
|
|
|
369 |
|
|
|
|
|
|
Total current assets |
|
|
1,400 |
|
|
|
4,113 |
|
Equipment and leasehold improvements, net |
|
|
107 |
|
|
|
138 |
|
Purchased technology, net |
|
|
957 |
|
|
|
1,077 |
|
Restricted cash |
|
|
259 |
|
|
|
259 |
|
Deferred financing cost |
|
|
382 |
|
|
|
346 |
|
|
|
|
|
|
Total assets |
|
$ |
3,105 |
|
|
$ |
5,933 |
|
|
|
|
|
|
Liabilities and Stockholders Deficit: |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Notes payable, including accrued interest and net of related discount |
|
$ |
|
|
|
$ |
12,588 |
|
Accounts payable and accrued expenses |
|
|
5,852 |
|
|
|
4,975 |
|
Derivative instruments |
|
|
|
|
|
|
|
|
Related party |
|
|
12,952 |
|
|
|
3,205 |
|
Others |
|
|
4,183 |
|
|
|
2,984 |
|
Restructuring accrual, current |
|
|
600 |
|
|
|
750 |
|
Other current liabilities |
|
|
31 |
|
|
|
52 |
|
|
|
|
|
|
Total current liabilities |
|
|
23,618 |
|
|
|
24,554 |
|
Notes payable, including accrued interest and net of related
discount, related party |
|
|
14,322 |
|
|
|
13,076 |
|
Deferred revenue |
|
|
26,475 |
|
|
|
11,494 |
|
Derivative instrument related party |
|
|
12,031 |
|
|
|
4,591 |
|
Deferred lease liability and other liabilities |
|
|
65 |
|
|
|
82 |
|
|
|
|
|
|
Total liabilities |
|
|
76,511 |
|
|
|
53,797 |
|
|
|
|
|
|
Commitments and Contingencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders deficit: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock, $.01 par value; authorized 1,000,000 shares; none
issued and outstanding |
|
|
|
|
|
|
|
|
Common stock, $.01 par value; authorized 100,000,000 shares; issued
44,222,054 shares (43,932,322 outstanding) as of June 30, 2010 and
issued 42,360,133 shares (42,070,401 outstanding) as December 31,
2009 |
|
|
442 |
|
|
|
424 |
|
Additional paid-in-capital |
|
|
398,945 |
|
|
|
392,335 |
|
Accumulated deficit |
|
|
(468,841 |
) |
|
|
(436,671 |
) |
Common stock held in treasury, at cost; 289,732 shares |
|
|
(3,952 |
) |
|
|
(3,952 |
) |
|
|
|
|
|
Total stockholders deficit |
|
|
(73,406 |
) |
|
|
(47,864 |
) |
|
|
|
|
|
Total liabilities and stockholders deficit |
|
$ |
3,105 |
|
|
$ |
5,933 |
|
|
|
|
|
|
The accompanying notes are an integral part of the financial statements.
F-35
EMISPHERE TECHNOLOGIES, INC.
CONDENSED STATEMENT OF OPERATIONS
For the three months ended June 30, 2010 and 2009
(in thousands, except share and per share data)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended |
|
|
For the six months ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Net Sales |
|
$ |
39 |
|
|
$ |
|
|
|
$ |
51 |
|
|
$ |
|
|
|
|
|
|
|
|
|
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development |
|
|
732 |
|
|
|
748 |
|
|
|
1,294 |
|
|
|
2,670 |
|
General and administrative expenses |
|
|
2,129 |
|
|
|
2,933 |
|
|
|
4,463 |
|
|
|
5,855 |
|
Restructuring costs |
|
|
|
|
|
|
|
|
|
|
50 |
|
|
|
(353 |
) |
Gain on disposal of fixed assets |
|
|
|
|
|
|
(779 |
) |
|
|
(1 |
) |
|
|
(822 |
) |
Expense from settlement of lawsuit |
|
|
220 |
|
|
|
|
|
|
|
220 |
|
|
|
|
|
Depreciation and amortization |
|
|
75 |
|
|
|
96 |
|
|
|
150 |
|
|
|
307 |
|
|
|
|
|
|
|
|
Total costs and expenses |
|
|
3,156 |
|
|
|
2,998 |
|
|
|
6,176 |
|
|
|
7,657 |
|
|
|
|
|
|
|
|
Operating loss |
|
|
(3,117 |
) |
|
|
(2,998 |
) |
|
|
(6,125 |
) |
|
|
(7,657 |
) |
|
|
|
|
|
|
|
Other non-operating income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income |
|
|
2 |
|
|
|
27 |
|
|
|
5 |
|
|
|
68 |
|
Sublease income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
232 |
|
Sale of patents |
|
|
|
|
|
|
500 |
|
|
|
|
|
|
|
500 |
|
Change in fair value of derivative instruments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Related party |
|
|
(6,208 |
) |
|
|
(193 |
) |
|
|
(15,328 |
) |
|
|
(80 |
) |
Other |
|
|
(2,424 |
) |
|
|
(289 |
) |
|
|
(7,271 |
) |
|
|
(254 |
) |
Interest expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Related party |
|
|
(1,797 |
) |
|
|
(1,097 |
) |
|
|
(3,069 |
) |
|
|
(2,140 |
) |
Other |
|
|
(160 |
) |
|
|
(137 |
) |
|
|
(382 |
) |
|
|
(273 |
) |
|
|
|
|
|
|
|
Total other non-operating expense |
|
|
(10,587 |
) |
|
|
(1,189 |
) |
|
|
(26,045 |
) |
|
|
(1,947 |
) |
|
|
|
|
|
|
|
Net loss |
|
$ |
(13,704 |
) |
|
$ |
(4,187 |
) |
|
$ |
(32,170 |
) |
|
$ |
(9,604 |
) |
|
|
|
|
|
|
|
Net loss per share, basic and diluted |
|
$ |
(0.32 |
) |
|
$ |
(0.14 |
) |
|
$ |
(0.75 |
) |
|
$ |
(0.32 |
) |
Weighted average shares outstanding, basic and diluted |
|
|
43,338,432 |
|
|
|
30,341,078 |
|
|
|
42,711,367 |
|
|
|
30,341,078 |
|
The accompanying notes are an integral part of the financial statements.
F-36
EMISPHERE TECHNOLOGIES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
For the six months ended June 30, 2010 and 2009
(in thousands)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
For the six months ended |
|
|
June 30, |
|
|
2010 |
|
2009 |
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(32,170 |
) |
|
$ |
(9,604 |
) |
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
|
|
|
Depreciation |
|
|
30 |
|
|
|
187 |
|
Amortization |
|
|
120 |
|
|
|
120 |
|
Change in fair value of derivative instruments |
|
|
22,599 |
|
|
|
334 |
|
Non-cash interest expense |
|
|
3,450 |
|
|
|
2,413 |
|
Non-cash compensation expense |
|
|
547 |
|
|
|
1,007 |
|
Gain on disposal of fixed assets |
|
|
(1 |
) |
|
|
(822 |
) |
Changes in assets and liabilities excluding non-cash transactions: |
|
|
|
|
|
|
|
|
Decrease in accounts receivable |
|
|
120 |
|
|
|
160 |
|
Increase in inventory |
|
|
(24 |
) |
|
|
|
|
Increase (decrease) in prepaid expenses and other current assets |
|
|
(531 |
) |
|
|
(129 |
) |
Increase in deferred revenue |
|
|
2,012 |
|
|
|
133 |
|
Increase in accounts payable and accrued expenses |
|
|
887 |
|
|
|
1,042 |
|
Increase (decrease) in other current liabilities |
|
|
(21 |
) |
|
|
28 |
|
Decrease in deferred lease liability |
|
|
(17 |
) |
|
|
(33 |
) |
Decrease in restructuring accrual |
|
|
(150 |
) |
|
|
(1,627 |
) |
Total adjustments |
|
|
29,021 |
|
|
|
2,813 |
|
Net cash used in operating activities |
|
|
(3,149 |
) |
|
|
(6,791 |
) |
Net cash provided by investing activities proceeds from sale of fixed assets |
|
|
1 |
|
|
|
856 |
|
Net decrease in cash and cash equivalents |
|
|
(3,148 |
) |
|
|
(5,935 |
) |
Cash and cash equivalents, beginning of period |
|
|
3,566 |
|
|
|
7,214 |
|
Cash and cash equivalents, end of period |
|
$ |
418 |
|
|
$ |
1,279 |
|
Schedule of non-cash financing activities |
|
|
|
|
|
|
|
|
Common stock issued to settle accrued Directors compensation |
|
$ |
11 |
|
|
$ |
|
|
Exchange of debt as deferred revenue (Note 8) |
|
$ |
13,000 |
|
|
$ |
|
|
The accompanying notes are an integral part of the financial statements.
F-37
EMISPHERE TECHNOLOGIES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. Nature of Operations and Liquidity
Nature of Operations. Emisphere Technologies, Inc. (Emisphere, our, us, the Company or
we) is a biopharmaceutical company that focuses on our improved delivery of therapeutic molecules
and pharmaceutical compounds using its Eligen® Technology. These molecules and compounds
could be currently available or are in pre-clinical or clinical development.
Our core business strategy is to develop oral forms of drugs that are not currently available
or have poor bioavailability in oral form, either alone or with corporate partners, by applying the
Eligen® Technology to those drugs. Typically, the drugs that we target have received
regulatory approval, have demonstrated safety and efficacy, and are currently available on the
market. Since inception, we have no product sales from these product candidates. However, in
November 2009 the Company launched its first commercially available product, oral
Eligen® B12 (100mcg), which had been specifically developed to help improve Vitamin B12
absorption and bioavailability with a patented formulation.
Liquidity. As of June 30, 2010, we had approximately $0.7 million in cash and restricted cash,
approximately $22.2 million in working capital deficiency, a stockholders deficit of approximately
$73.4 million and an accumulated deficit of approximately $468.8 million. Our net loss and
operating loss for the three months ended June 30, 2010 were approximately $13.7 million and $3.1
million, respectively and $32.2 million and $6.1 million, respectively for the six months ended
June 30, 2010.
On July 29, 2010, we issued a promissory note (the July 2010 MHR Note) to MHR Institutional
Partners IIA LP and MHR Institutional Partners II LP (together, MHR) in the principal amount of
$525,000. The July 2010 MHR Note provides for an interest rate of 15% per annum, with the entire
principal amount due and payable on October 27, 2010 (the Maturity Date). The Maturity Date will
be accelerated, in certain circumstances, to the date that is two business days following the
receipt by the Issuer of at least $1,000,000 aggregate cash proceeds from third parties, whether in
connection with certain financing transactions, commercial transactions or otherwise. The
obligations under the July 2010 MHR Note are secured in accordance with the terms of the Amendment
(the Amendment) to the Pledge and Security Agreement whereby Emisphere and MHR amended that
certain Pledge and Security Agreement, dated as of September 26, 2005 (the Security Agreement) to
extend the terms of the Security Agreement other than the intellectual property licensed to
Novartis Pharma AG (Novartis) pursuant to the Master Agreement and Amendment dated June 4, 2010
by and between Emisphere and Novartis, as further described below, to include the principal,
interest and other obligations provided under the July 2010 MHR Note. In accordance with the terms
of that certain 11.00% Senior Secured Convertible Note issued by the Emisphere to MHR and due
September 26, 2012, MHR also provided a written consent to allow for the issuance of the Note and
related obligations provided under the Amendment.
In April 2005, the Company entered into an amended and restated employment agreement with its
then Chief Executive Officer, Dr. Michael M. Goldberg, for services through July 31, 2007. On
January 16, 2007, the Board of Directors terminated Dr. Goldbergs services. On April 26, 2007, the
Board of Directors held a special hearing at which it determined that Dr. Goldbergs termination
was for cause. On March 22, 2007, Dr. Goldberg, through his counsel, filed a demand for arbitration
asserting that his termination was without cause and seeking $1,048,000 plus attorneys fees,
interest, arbitration costs and other relief alleged to be owed to him in connection with his
employment agreement with the Company. During the arbitration, Dr. Goldberg sought a total damage
amount of at least $9,223,646 plus interest. On February 11, 2010, the arbitrator issued the final
award in favor of Dr. Goldberg for a total amount of approximately $2,333,115 as full and final
payment for all claims, defenses, counterclaims, fees and related matters. The Company opposed Dr.
Goldbergs petition to confirm the arbitration award. On July 12, 2010 the award was confirmed by
the court. As of August 10, 2010, the Company adjusted its estimate of costs to settle this matter
to approximately $2.6 million to account for potential additional interest costs on the settlement
amount and additional legal fees. Dr. Goldberg has proposed an order of settlement in the amount of
approximately $2.6 million and seeks to have a final order entered August 16, 2010.
F-38
On June 4, 2010, we entered into a Master Agreement and Amendment with Novartis (the Novartis
Agreement). Pursuant to the Novartis Agreement, the Company was released and discharged from its
obligations under the Novartis Note in exchange for (1) the reduction of future royalty and
milestone payments up to an aggregate amount of $11.0 million due the Company under the Research
Collaboration and Option Agreement, dated as of December 3, 1997, as amended on October 20, 2000,
and the License Agreement, date as of March 8, 2000, for the development of an oral salmon
calcitonin product for the treatment of osteoarthritis and osteoporosis.; (2) the right for
Novartis to evaluate the feasibility of using Emispheres Eligen® Technology with two new
compounds to assess the potential for new product development opportunities; and (3) other
amendments to the Research Collaboration and Option Agreement and License Agreement. As of the
date of the Novartis Agreement, the outstanding principal balance and accrued interest of the
Novartis Note was approximately $13.0 million.
We anticipate that we will continue to generate significant losses from operations for the
foreseeable future, and that our business will require substantial additional investment that we
have not yet secured. As such, we anticipate that our existing cash resources, including the
amounts provided by MHR in connection with the July 2010 MHR Note but not accounting for an approximately $2.6
million arbitration award in favor of the Companys former CEO, will enable us to continue
operations through approximately August 31, 2010 or earlier if unforeseen events arise that
negatively affect our liquidity. Further, we have significant future commitments and obligations.
These conditions raise substantial doubt about our ability to continue as a going concern.
Consequently, the audit opinion issued by our independent registered public accounting firm
relating to our financial statements for the year ended December 31, 2009 contained a going concern
explanatory paragraph. We are pursuing new as well as enhanced collaborations and exploring other
financing options, with the objective of minimizing dilution and disruption.
Our plan is to raise capital when needed and/or to pursue product partnering opportunities. We
expect to continue to spend substantial amounts on research and development, including amounts
spent on conducting clinical trials for our product candidates. Expenses will be partially offset
with income-generating license agreements or operating revenue, if possible. Further, we will not
have sufficient resources to develop fully any new products or technologies unless we are able to
raise substantial additional financing on acceptable terms or secure funds from new or existing
partners. We cannot assure that financing will be available when needed, or on favorable terms or
at all. If additional capital is raised through the sale of equity or convertible debt securities,
the issuance of such securities would result in dilution to our existing stockholders. Our failure
to raise capital before August 31, 2010 will adversely affect our business, financial condition and
results of operations, and could force us to reduce or cease our operations. No adjustment has been
made in the accompanying financial statements to the carrying amount and classification of recorded
assets and liabilities should we be unable to continue operations.
2. Basis of Presentation
The condensed balance sheet at December 31, 2009 was derived from audited financial statements
but does not include all disclosures required by accounting principles generally accepted in the
United States of America. The other information in these condensed financial statements is
unaudited but, in the opinion of management, reflects all adjustments necessary for a fair
presentation of the results for the periods covered. All such adjustments are of a normal recurring
nature unless disclosed otherwise. These condensed financial statements, including notes, have been
prepared in accordance with the applicable rules of the Securities and Exchange Commission and do
not include all of the information and disclosures required by accounting principles generally
accepted in the United States of America for complete financial statements. These condensed
financial statements should be read in conjunction with the financial statements and additional
information as contained in our Annual Report on Form 10-K for the year ended December 31, 2009.
3. Stock-Based Compensation Plans
On April 20, 2007, the stockholders of the Company approved the 2007 Stock Award and Incentive
Plan (the 2007 Plan). The 2007 Plan provides for grants of options, stock appreciation rights,
restricted stock, deferred stock, bonus stock and awards in lieu of obligations, dividend
equivalents, other stock-based awards and performance awards to executive officers and other
employees of the Company, and non-employee directors, consultants and others who provide
substantial service to us. The 2007 Plan provides for the issuance of an aggregate 3,275,334 shares
as follows: 2,500,000 new shares, 374,264 shares remaining and transferred from the Companys 2000
Stock Option Plan (the 2000 Plan) (which was then replaced by the 2007 Plan) and 401,070 shares
remaining and transferred from the Companys Stock Option Plan for Outside Directors (the
Directors Stock
F-39
Plan). In addition, shares canceled, expired, forfeited, settled in cash, settled by delivery
of fewer shares than the number underlying the award, or otherwise terminated under the 2000 Plan
will become available for issuance under the 2007 Plan.
Prior to the adoption of the 2007 Plan, the Company granted stock-based compensation to
employees under the 2000 Plan and the 2002 Broad Based Plan (the 2002 Plan), and to non-employee
directors under the Directors Stock Plan. The Company also has grants outstanding under various
expired and terminated stock plans, including the 1991 Stock Option Plan, the 1995 Non-Qualified
Stock Option Plan, the Deferred Directors Compensation Stock Plan and Non-Plan Options. In January
2007, the Directors Stock Plan expired.
As of June 30, 2010, shares available for future grants under the Plans amounted to 1,533,398.
Total compensation expense recorded during the six months ended June 30, 2010 for share-based
payment awards was $0.55 million, of which $0.06 million is included in research and development
and $0.49 million is included in general and administrative expenses in the condensed statement of
operations for the six months ended June 30, 2010. Total compensation expense recorded during the
six months ended June 30, 2009 for share-based payment awards was $1.01 million, of which $0.06
million is included in research and development and $0.95 million is included in general and
administrative expenses in the condensed statement of operations for the six months ended June 30,
2009. At June 30, 2010, total unrecognized estimated compensation expense related to non-vested
stock options granted prior to that date was $0.7 million, which is expected to be recognized over
a weighted-average period of approximately two years. No options were exercised in the six months
ended June 30, 2010 or 2009. No tax benefit was realized due to a continued pattern of operating
losses.
During the six months ended June 30, 2010, the Company granted options for 502,750 shares with
a weighted average exercise price of $1.48.
4. Inventories
Inventories are stated at the lower of cost or market determined by the first in, first out
method. Inventories consist principally of finished goods at June 30, 2010 and December 31, 2009.
5. Fixed Assets
Equipment and leasehold improvements, net, consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Useful Lives |
|
|
June 30, |
|
|
December 31, |
|
|
|
in Years |
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
(in thousands) |
|
Equipment |
|
|
3-7 |
|
|
$ |
1,370 |
|
|
$ |
1,370 |
|
Leasehold improvements |
|
Term of lease |
|
|
61 |
|
|
|
61 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,431 |
|
|
|
1,431 |
|
Less, accumulated depreciation and amortization |
|
|
|
|
|
|
1,324 |
|
|
|
1,293 |
|
|
|
|
|
|
|
|
Equipment and leasehold improvements, net |
|
|
|
|
|
$ |
107 |
|
|
$ |
138 |
|
|
|
|
|
|
|
|
6. Purchased Technology
Purchased technology represents the value assigned to patents and the rights to utilize, sell
or license certain technology in conjunction with our proprietary carrier technology. These assets
are utilized in various research and development projects. Purchased technology is amortized over a
period of 15 years, which represents the average life of the patents.
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(in thousands) |
|
Gross carrying amount |
|
$ |
4,533 |
|
|
$ |
4,533 |
|
Less, accumulated amortization |
|
|
3,576 |
|
|
|
3,456 |
|
|
|
|
Net book value |
|
$ |
957 |
|
|
$ |
1,077 |
|
|
|
|
F-40
Amortization expense for the purchased technology is approximately $60 thousand per quarter in
2010 and in the remaining years through 2014.
7. Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consist of the following:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(In thousands) |
|
Accounts payable and other accrued expenses |
|
$ |
2,133 |
|
|
$ |
1,979 |
|
Accrued cost of lawsuit |
|
|
2,553 |
|
|
|
2,333 |
|
Accrued bonus |
|
|
575 |
|
|
|
150 |
|
Accrued legal, professional fees and other |
|
|
433 |
|
|
|
302 |
|
Accrued vacation |
|
|
150 |
|
|
|
81 |
|
Clinical trial expenses and contract research |
|
|
8 |
|
|
|
130 |
|
|
|
|
|
|
|
|
|
|
$ |
5,852 |
|
|
$ |
4,975 |
|
|
|
|
|
|
|
|
8. Notes Payable
Notes payable consist of the following:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(in thousands) |
|
MHR Convertible Notes |
|
$ |
13,826 |
|
|
$ |
13,076 |
|
MHR Promissory Notes |
|
|
496 |
|
|
|
|
|
Novartis Note |
|
|
|
|
|
|
12,588 |
|
|
|
|
|
|
$ |
14,322 |
|
|
$ |
25,664 |
|
|
|
|
MHR Convertible Notes. The MHR Convertible Notes are due on September 26, 2012, bear interest at
11% and are secured by a first priority lien in favor of MHR Institutional Partners IIA L.P.
(together with its affiliates, MHR) on substantially all of our assets (the MHR Notes).
Interest is payable in the form of additional Convertible Notes issued monthly through March 31,
2007 and then semi-annually beginning June 30, 2008, rather than in cash and we would have the
right to call the MHR Notes after September 26, 2010 if certain conditions are satisfied. If those
conditions are not satisfied; the Company will forfeit the right to call the MHR Notes after
September 26, 2010. The MHR Notes are convertible, at the sole discretion of MHR or any assignee
thereof through September 25, 2010, into shares of our common stock at a price per share of $3.78.
If certain conditions are not met and the Company subsequently forfeits its right to call the MHR
Notes after September 26, 2010, the MHR Notes will continue to be convertible, at the sole
discretion of MHR or any assignee thereof through September 25, 2012. At June 30, 2010, the MHR
Notes were convertible into 6,319,856 shares of our common stock. In connection with the
convertible note transaction, we amended MHRs then existing warrants to purchase 387,374 shares of
our common stock to provide for additional anti-dilution protection. MHR was also granted the
option to purchase warrants for up to an additional 617,211 shares of our common stock (the
Warrant Purchase Option) at a price per warrant equal to $0.01 per warrant for each of the first
67,084 warrants and $1.00 per warrant for each additional warrant. This option was exercised by MHR
in April 2006. See Note 8 for a further discussion of the liability related to these warrants.
The book value of the MHR Notes is comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(in thousands) |
|
Face Value of the notes |
|
$ |
23,889 |
|
|
$ |
22,616 |
|
Discount (related to the embedded conversion feature) |
|
|
(686 |
) |
|
|
(793 |
) |
Discount (related to the warrant purchase option) |
|
|
(6,791 |
) |
|
|
(7,848 |
) |
Discount (related to 2010 debt modification) |
|
|
(1,808 |
) |
|
|
|
|
Lenders financing costs |
|
|
(778 |
) |
|
|
(899 |
) |
|
|
|
|
|
$ |
13,826 |
|
|
$ |
13,076 |
|
|
|
|
F-41
The debt discount, lenders finance costs, deferred financing costs and amounts attributed to
derivative instruments are being amortized to interest expense over the life of the MHR Notes using
an interest method to yield an effective interest rate of 43.5%.
In connection with the MHR financing, the Company agreed to appoint a representative of MHR (the
MHR Nominee) and another person (the Mutual Director) to its Board of Directors. Further, the
Company amended its certificate of incorporation to provide for continuity of the MHR Nominee and
the Mutual Nominee on the Board, as described therein, so long as MHR holds at least 2% of the
outstanding common stock of the Company.
The MHR Notes provide for various events of default. On May 5, 2006, we received an executed waiver
from MHR providing for a temporary waiver of defaults, which were not payment-related, under the
Loan Agreement. We have received extensions of such waiver from time to time, the latest being
received August 12, 2010 and is in effect through August 17, 2011; as such the MHR Notes have been
classified as long-term. Effective January 1, 2009, the Company adopted the provisions of the
Financial Accounting Standards Board Accounting Codification Topic 815-40-15-5, Evaluating Whether
an Instrument Involving a Contingency is Considered Indexed to an Entitys Own Stock (FASB ASC
815-40-15-5). Under FASB ASC 85-40-15-5, the conversion feature embedded in the MHR notes have
been bifurcated from the host contract and accounted for separately as a derivative. The
bifurcation of the embedded derivative increased the amount of debt discount thereby reducing the
book value of the MHR Notes and increasing prospectively the amount of interest expense to be
recognized over the life of the MHR Notes.
Novartis Note. The Convertible Promissory Note due originally on December 1, 2009, was issued by us
to Novartis on December 1, 2004 (the Novartis Note), in accordance with and pursuant to the terms
and conditions therein. The Novartis Note was issued in a private placement transaction pursuant to
Section 4(2) of the Securities Act in connection with a new research collaboration option relating
to the development of PTH-1-34. The Novartis Note accrued interest at a rate of 7%. The Novartis
Note was originally due December 1, 2009. On November 30, 2009, Novartis agreed to extend the
maturity date to February 26, 2010. On February 23, 2010, Novartis agreed to extend the maturity
date to May 26, 2010. And on May 27, 2010, Novartis agreed to a further extension through June 4,
2010. On June 4, 2010, the Company and Novartis entered into a Master Agreement and Amendment (the
Novartis Agreement). Pursuant to the Novartis Agreement, the Company was released and discharged
from its obligations under the Novartis Note in exchange for (1) the reduction of future royalty
and milestone payments up to an aggregate amount of $11.0 million due the Company under the
Research Collaboration and Option Agreement, dated as of December 3, 1997, as amended on October
20, 2000, and the License Agreement, date as of March 8, 2000, for the development of an oral
salmon calcitonin product for the treatment of osteoarthritis and osteoporosis.; (2) the right for
Novartis to evaluate the feasibility of using Emispheres Eligen ® Technology with two new
compounds to assess the potential for new product development opportunities; and (3) other
amendments to the Research Collaboration and Option Agreement and License Agreement. As of the
date of the Novartis Agreement, the outstanding principal balance and accrued interest of the
Novartis Note was approximately $13.0 million. The Company recognized the full value of the debt
released as consideration for the transfer of the rights and other intangibles to Novartis and
deferred the related revenue in accordance with applicable accounting guidance for the sale of
rights to future revenue until the earnings process has been completed based on achievement of
certain milestones or other deliverables.
June 2010 MHR Promissory Notes. In connection with the Novartis Agreement, the Company and MHR
Institutional Partners IIA, LP (together with its affiliates, as applicable, MHR) entered into a
Letter Agreement (the MHR Letter Agreement) and MHR, the Company and Novartis entered into an
agreement (the Non-Disturbance Agreement), which Non-Disturbance Agreement was a condition to
Novartis execution of the Novartis Agreement. Pursuant to the MHR Letter Agreement, MHR agreed to
the limit certain rights and courses of action that it would have available to it as a secured
party under the Senior Secured Term Loan Agreement and Pledge and Security Agreement (Loan and
Security Agreement between MHR and the Company. MHR also consented to the Novartis Agreement,
which consent is required under the Loan and Security Agreement, and MHR also agreed to enter into
a comparable agreement at some point in the future in connection with another potential Company
transaction (the Future Transaction Agreement). The MHR Letter Agreement also provides for the
Company to reimburse MHR for its legal fess incurred in connection with the Non-Disturbance
Agreement for up to $500,000 and up to $100,000 in legal expenses incurred by MHR in connection the
Future Transaction Agreement. The reimbursements are to be paid in the form of non-interest
bearing promissory notes issued on the effective date of the MHR Letter Agreement. As such, the
Company issued to MHR non-interest promissory notes for $500,000 and $100,000 on June 8, 2010.
The Company received documentation that MHR expended more than the $500,000
F-42
of legal fees in connection with the Non-Disturbance Agreement and consequently recorded the
issuance of the $500,000 promissory note and a corresponding charge to financing expenses. The
Company has not yet received any documentation or communication that indicates MHR has spent any
legal fees in connection with the Future Transaction Agreement. Therefore, the issuance of the
$100,000 promissory note was recorded as a prepaid expense. The promissory notes are due June 4,
2012. The Company imputed interest at its incremental borrowing rate of 10%, and discounted the
face amounts of the $500,000 and $100,000 promissory notes by $87,000 and $18,000, respectively.
Additionally, as consideration for its consent, limitation of rights, and pledge to enter into the
Future Transaction Agreement, the Company granted MHR warrants to purchase 865,000 shares of its
Common Stock. See Note 9 for more information on the MHR Novartis Note Warrants. The Company
determined that the modification of the MHR Convertible Debt agreement was not a substantial
modification in accordance with ASC 470-50, Modifications and Extinguishments. As such, the
warrants issued to MHR were recorded as a debt discount to the MHR Convertible Debt and are being
amortized to interest expense over the remaining term of the debt.
9. Derivative Instruments
Derivative instruments consist of the following:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(in thousands) |
|
Elan Warrants |
|
$ |
|
|
|
$ |
394 |
|
MHR Convertible Note |
|
|
12,031 |
|
|
|
4,591 |
|
MHR warrants |
|
|
761 |
|
|
|
213 |
|
August 2007 Equity financing warrants |
|
|
666 |
|
|
|
141 |
|
August 2009 equity financing warrants |
|
|
13,857 |
|
|
|
5,092 |
|
August 2009 equity financing warrants to placement agent |
|
|
|
|
|
|
349 |
|
June 2010 MHR Warrants |
|
|
1,851 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
29,166 |
|
|
$ |
10,780 |
|
|
|
|
|
|
|
|
Elan Warrant. In connection with a restructuring of debt in March 2005, we issued to Elan
Corporation, plc (Elan) a warrant to purchase up to 600,000 shares of our common stock at an
exercise price of $3.88 (the Elan Warrant). The Elan Warrant provides for adjustment of the
exercise price upon the occurrence of certain events, including the issuance by Emisphere of common
stock or common stock equivalents that have an effective price that is less than the exercise price
of the warrant. The anti-dilution feature of the Elan Warrant was triggered in connection with the
August 2007 financing, resulting in an adjustment to the exercise price to $3.76. The anti-dilution
feature of the Elan Warrant was triggered again in connection with the August 2009 financing,
resulting in an adjustment to the exercise price to $0.4635. The Company adopted the provisions of
FASB ASC 815-40-15-5 effective January 1, 2009. Under FASB ASC 815-40-15-5, the Elan Warrant is not
considered indexed to the Companys own stock and, therefore, does not meet the scope exception in
FASB ASC 815-10-15 and thus needs to be accounted for as a derivative liability. On April 20, 2010,
Elan notified the Company of its intention to exercise the Elan Warrant using the cashless
exercise provision. The Company issued 518,206 shares of common stock to Elan in accordance with
the terms of the cashless exercise provision on April 21, 2010. After the cashless exercise, the
Elan Warrant is no longer outstanding. The Company calculated the fair value of the Elan warrants
on April 21, 2010 using the Black-Scholes option pricing model. The assumptions used in computing
the fair value as of April 21, 2010 are a closing stock price of $3.40, expected volatility of
89.91% over the remaining contractual life of four months and a risk-free rate of 0.16%. The fair
value of the Elan warrants increased by $0.6 million and $1.4 million during the three and six
months ended June 30, 2010, respectively, which has been recognized in the accompanying statements
of operations. The fair value of the derivative liability at April 21, 2010 of $1.8 million was
reclassified to additional paid-in-capital.
Embedded Conversion Feature of MHR Convertible Notes. The MHR Convertible Notes contain a provision
whereby, the conversion price is adjustable upon the occurrence of certain events, including the
issuance by Emisphere of common stock or common stock equivalents at a price which is lower than
the current conversion price of the MHR Notes and lower than the current market price. However, the
adjustment provision does not
F-43
become effective until after the Company raises $10 million through the issuance of common stock or
common stock equivalents at a price which is lower than the current conversion price of the MHR
Notes and lower than the current market price during any consecutive 24 month period. The Company
adopted the provisions of FASB ASC 815-40-15-5 effective January 1, 2009. Under FASB ASC
815-40-15-5, the embedded conversion feature is not considered indexed to the Companys own stock
and, therefore, does not meet the scope exception in FASB ASC 815-10-15 and thus needs to be
accounted for as a derivative liability. The liability has been presented as a non-current
liability to correspond with its host contract, the MHR Notes. The fair value of the embedded
conversion feature is estimated, at the end of each quarterly reporting period, using the
Black-Scholes option pricing model. The assumptions used in computing the fair value as of June 30,
2010 are a closing stock price of $3.14, expected volatility 107.56% over the remaining term of two
years and three months and a risk-free rate of 0.61%. The fair value of the embedded conversion
feature increased by $3.4 million and $7.4 million during the three and six months ended June 30,
2010, respectively, which has been recognized in the accompanying statements of operations. The
embedded conversion feature will be adjusted to fair value for each future period it remains
outstanding.
MHR Warrants. In connection with the exercise in April 2006 of the Warrant Purchase Option
discussed in Note 8 above, the Company issued warrants for 617,211 shares to MHR for proceeds of
$0.6 million. The MHR 2006 Warrants have an original exercise price of $4.00 and are exercisable
through September 26, 2011. The MHR 2006 Warrants have the same terms as the August 2007 equity
financing warrants (see below), with no limit upon adjustments to the exercise price. The
anti-dilution feature of the MHR 2006 Warrants was triggered in connection with the August 2007
equity financing, resulting in an adjusted exercise price of $3.76. Based on the provisions of FASB
ASC 815, Derivatives and Hedging, the MHR 2006 Warrants have been determined to be an embedded
derivative instrument which must be separated from the host contract. The MHR 2006 Warrants contain
the same potential cash settlement provisions as the August 2007 equity financing warrants and
therefore they have been accounted for as a separate liability. The fair value of the warrants is
estimated, at the end of each quarterly period, using the Black-Scholes option pricing model. The
assumptions used in computing the fair value as of June 30, 2010 are a closing stock price of
$3.14, expected volatility of 100% over the remaining term of one year and three months and a
risk-free rate of 0.32%. The fair value of the MHR warrants increased by $0.1 million and $0.5
million during the three and six months ended June 30, 2010, respectively, which has been
recognized in the accompanying statements of operations. The MHR warrants will be adjusted to
estimated fair value for each future period they remain outstanding. See Note 8 for a further
discussion of the MHR Note.
August 2007 Equity Financing Warrants. In connection with the August 2007 offering, Emisphere sold
warrants to purchase up to 400,000 shares of common stock (the 2007 Warrants). Of these 400,000
warrants, 91,073 were sold to MHR. Each of the 2007 Warrants were issued with an exercise price of
$3.948 and expire on August 21, 2012. The 2007 Warrants provide for certain anti-dilution
protection as provided therein. Under the terms of the 2007 Warrants, we have an obligation to make
a cash payment to the holders of the warrants for any gain that could have been realized if the
holders exercise the warrants and we subsequently fail to deliver a certificate representing the
shares to be issued upon such exercise by the third trading day after such warrants have been
exercised. Accordingly, the 2007 Warrants have been accounted for as a liability. The fair value of
the 2007 Warrants is estimated, at the end of each quarterly reporting period, using the
Black-Scholes option pricing model. The warrants were accounted for with an initial value of $1.0
million on August 22, 2007. The assumptions used in computing the fair value as of June 30, 2010
are a closing stock price of $3.14, expected volatility of 108.88% over the remaining term of two
years and two months and a risk-free rate of 1.02%. The fair value of the 2007 Warrants increased
by $0.2 million and $0.5 million during the three and six months ended June 30, 2010, respectively,
and the fluctuations have been recorded in the statements of operations. The 2007 Warrants will be
adjusted to estimated fair value for each future period they remain outstanding.
August 2009 Equity Financing Investors Warrants. In connection with the August 2009 offering,
Emisphere sold warrants to purchase 6.4 million shares of common stock (the 2009 Warrants),
consisting of warrants to purchase 3.7 million shares of common stock to MHR and warrants to
purchase 2.7 million shares of common stock to other unaffiliated investors (the 2009 Investor
Warrants). The 2009 Warrants were issued with an exercise price of $0.70 and expire on August 21,
2014. Under the terms of the 2009 Warrants, we have an obligation to make a cash payment to the
holders of the warrants for any gain that could have been realized if the holders exercise the
warrants and we subsequently fail to deliver a certificate representing the shares to be issued
upon such exercise by the third trading day after such warrants have been exercised. Accordingly,
the 2009 Warrants have been accounted for as a liability. The fair value of the 2009 Warrants is
estimated, at the end of each quarterly reporting period, using the
F-44
Black-Scholes option pricing model. The assumptions used in computing the fair value as of June 30,
2010 are a closing stock price of $3.14, expected volatility of 94.03% over the remaining term of
four years and two months and a risk-free rate of 1.79%. The fair value of the 2009 Warrants
increased by $3.7 million and $9.8 million for the three and six months ended June 30, 2010,
respectively and the fluctuation has been recorded in the statements of operations. The 2009
Warrants will be adjusted to estimated fair value for each future period they remain outstanding.
On May 13, 2010, the BAM Opportunity Fund LP (BAM) notified the Company of its intention to
exercise its 2009 Investor Warrant to purchase up to 1,342,857 shares of the Companys common stock
at an exercise price of $0.70, using the cashless exercise provision. The Company issued
1,005,213 shares of common stock to BAM in accordance with the terms of the cashless exercise
provision on May 18, 2010. The Company calculated the fair value of the 1,342,857 million exercised
warrants on May 13, 2010 using the Black-Scholes option pricing model. The assumptions used in
computing the fair value as of May 13, 2010 are a closing stock price of $2.88, expected volatility
of 93.1% over the remaining contractual life of four years and four months and a risk-free rate of
2.27%. The fair value of the 1.3 exercised warrants increased by $0.6 million and $2.3 million
during the three and six months ended June 30, 2010, respectively, which has been recognized in the
accompanying statements of operations. The fair value of the derivative liability at May 13, 2010
of $3.3 million was reclassified to additional paid-in-capital. The fair value calculation for the
2009 Investor Warrants was adjusted to reflect the 2009 Investor Warrants outstanding as of June
30, 2010. Subsequent to the quarter ended June 30, 2010, MOG Capital, LLC (MOG Capital) notified
the Company of its intention to exercise its 2009 Investor Warrant to purchase up to 1,342,857
shares of the Companys common stock at an exercise price of $0.70, using the cashless exercise
provision. The Company issued an aggregate 961,724 shares to MOG Capital in accordance with the
terms of the cashless exercise provision. After this cashless exercise, 2009 Investor Warrants to
purchase up to 3,729,323 shares of common stock, in the aggregate, remain outstanding.
August 2009 Equity Financing Placement Agent Warrants. In connection with the August 2009 offering,
Emisphere issued to Rodman & Renshaw, LLC (the Placement Agent), as part of the compensation for
acting as placement agent for the August 2009 financing, warrants to purchase 504,000 shares of
common stock (the Placement Agent Warrants). The Placement Agent Warrants were issued with an
exercise price of $0.875 and expire on October 1, 2012. Under the terms of the warrants, we have an
obligation to make a cash payment to the holders of the warrants for any gain that could have been
realized if the holders exercise the warrants and we subsequently fail to deliver a certificate
representing the shares to be issued upon such exercise by the third trading day after such
warrants have been exercised. Accordingly, the Placement Agent Warrants have been accounted for as
a liability. On April 1, 2010, the Placement Agent notified the Company of its intention to
exercise a portion of the Placement Agent Warrants using the cashless exercise provision. The
Company issued 297,636 shares of common stock to the Placement Agent in accordance with the terms
of the cashless exercise provision on April 5, 2010. After this cashless exercise, Placement Agent
Warrants to purchase 37,800 share of common stock remained outstanding. On April 28, 2010, the
Placement Agent notified the Company of its intention to exercise the remaining outstanding portion
of the Placement Agent Warrants using the cashless exercise provision. The Company issued an
additional 27,192 shares of common stock to the purchase agent on April 30, 2010. After this
cashless exercise, the Placement Agent Warrants are no longer outstanding. The Company calculated
the fair value of the 466,200 Placement Agent Warrants on April 2, 2010 using the Black-Scholes
option pricing model. The assumptions used in computing the fair value as of April 2, 2010 are a
closing stock price of $2.40, expected volatility of 104.70% over the remaining contractual life of
two years and six months and a risk-free rate of 1.11%. The fair value of the 466,200 Placement
Agent Warrants increased by $32 thousand and $0.6 million during the three and six months ended
June 30, 2010, respectively, which has been recognized in the accompanying statements of
operations. The fair value of the derivative liability from the 466,200 Placement Agent Warrants
at April 2, 2010 of $0.9 million was reclassified to additional paid-in-capital. The Company
calculated the fair value of the 37,800 Placement Agent Warrants on April 29, 2010 using the
Black-Scholes option pricing model. The assumptions used in computing the fair value as of April
29, 2010 are a closing stock price of $3.05, expected volatility of 107.10% over the remaining
contractual life of two years and five months and a risk-free rate of 1.11%. The fair value of the
37,800 Placement Agent Warrants increased by $3 thousand and $46 thousand during the three and six
months June 30, 2010, respectively, which has been recognized in the accompany statements of
operations. The fair value of the derivative liability from the 37,800 Placement Agent Warrants at
April 29, 2010 of $0.1 million was reclassified to additional paid-in-capital.
June 2010 MHR Warrants. In connection with the Novartis Agreement, the Company and MHR
entered into the MHR Letter Agreement and MHR, the Company and Novartis entered into the
Non-Disturbance Agreement, which agreement was a condition to Novartis execution
of the Novartis Agreement. Pursuant to the MHR Letter
F-45
Agreement, MHR agreed to the limit certain rights and courses of action that it would have
available to it as a secured party under the Loan and Security Agreement. MHR also consented to
the Novartis Agreement, which consent is required under the Loan and Security Agreement, as well as
MHRs agreement to enter into the Future Transaction Agreement in connection with another potential
Company transaction. As consideration for its consent and limitation of rights, the Company
granted MHR warrants to purchase 865,000 shares of its Common Stock. The warrants are exercisable
at $2.90 per share and will expire on August 21, 2014. The Novartis Note warrants provide for
certain anti-dilution protection as provided therein. We have an obligation to make a cash payment
to the holders of the warrants for any gain that could have been realized if the holders exercise
the warrants and we subsequently fail to deliver a certificate representing the shares to be issued
upon such exercise by the third trading day after such warrants have been exercised. Accordingly,
the Novartis Note warrants have been accounted for as a liability. Their fair value is estimated,
at the end of each quarterly reporting period, using the Black-Scholes option pricing model. The
Company estimated the fair value of the warrants on the date of grant using the Black-Scholes
option pricing model to be $1.9 million which was recorded as a debt discount to the MHR
Convertible Notes (see Note 8).. The assumptions used in computing the fair value of the warrants
were a closing stock price of $3.15, expected volatility of 93.22% over the term of 4.2 years and a
risk free rate of 1.02%. The assumptions used in computing the fair value as of June 30, 2010 are a
closing stock price of $3.14, expected volatility of 93.95% over the remaining term of 4.2 years
and a risk-free rate of 1.02%. The three and six months change in fair value of the MHR warrants
was insignificant.
10. Net loss per share
The following table sets forth the information needed to compute basic earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
(in thousands except per share data) |
|
|
(in thousands except per share data) |
|
Basic net loss |
|
$ |
(13,704 |
) |
|
$ |
(4,187 |
) |
|
$ |
(32,170 |
) |
|
$ |
(9,604 |
) |
|
|
|
|
|
|
Weighted average common shares outstanding |
|
|
43,338,432 |
|
|
|
30,341,078 |
|
|
|
42,711,367 |
|
|
|
30,341,078 |
|
|
|
|
|
|
|
Basic net loss per share |
|
$ |
(0.32 |
) |
|
$ |
(0.14 |
) |
|
$ |
(0.75 |
) |
|
$ |
(0.32 |
) |
For the six months ended June 30, 2010 and 2009, certain potential shares of common stock have
been excluded from diluted loss per share because the exercise price was greater than the average
market price of our common stock, and therefore, the effect on diluted loss per share would have
been anti-dilutive. The following table sets forth the number of potential shares of common stock
that have been excluded from diluted net loss per share because their effect was anti-dilutive:
|
|
|
|
|
|
|
|
|
|
|
As of June 30, |
|
|
|
2010 |
|
|
2009 |
|
Options to purchase common shares |
|
|
3,187,116 |
|
|
|
3,962,139 |
|
|
|
|
|
|
|
|
|
|
Outstanding warrants |
|
|
6,954,391 |
|
|
|
2,972,049 |
|
Novartis convertible note payable |
|
|
|
|
|
|
7,537,921 |
|
MHR note payable |
|
|
6,319,856 |
|
|
|
5,664,381 |
|
|
|
|
|
|
|
|
|
|
|
16,461,363 |
|
|
|
20,136,490 |
|
|
|
|
|
|
|
|
11. Commitments and Contingencies
Commitments. At the beginning of 2009 we had leased approximately 80,000 square feet of office
space at 765 Old Saw Mill River Road, Tarrytown, NY for use as administrative offices and
laboratories. The lease for our administrative and laboratory facilities had been set to expire on
August 31, 2012. However, on April 29, 2009, the Company entered into a Lease Termination Agreement
(the Agreement) with BMR-Landmark at Eastview, LLC, a Delaware limited liability company (BMR)
pursuant to which the Company and BMR terminated the lease of space at 765 Old Saw Mill River Road
in Tarrytown, NY. Pursuant to the Agreement, the Lease was terminated effective as of April 1,
2009. The Agreement provided that the Company make the following payments to BMR: (a) $1 million,
paid upon execution of the Agreement, (b) $0.5 million, paid six months after the execution date of
the Agreement, and (c) $0.75 million, payable twelve months after the execution date of the
Agreement. Initial and six months payments were made on schedule. Although the final payment was
due originally on April 29, 2010, on
F-46
March 17, 2010 the Company and BMR agreed to amend the
Agreement (the Amendment). According to the Amendment, the final payment was modified as follows:
the Company will pay Eight Hundred Thousand Dollars ($800,000), as follows: (i) Two Hundred
Thousand Dollars ($200,000) within five (5) days after the Execution Date and (ii) One Hundred
Thousand Dollars ($100,000) on each of the following dates: July 15, 2010, August 15, 2010,
September 15, 2010, October 15, 2010, November 15, 2010, and December 15, 2010.
We continue to lease office space at 240 Cedar Knolls Road, Cedar Knolls, NJ under a
non-cancellable operating lease expiring in 2013.
On April 6, 2007, the Board of Directors appointed Michael V. Novinski to the position of
President and Chief Executive Officer. Pursuant to his appointment, the Company has entered into a
three year employment agreement with Mr. Novinski. Mr. Novinskis employment agreement renews
automatically in one year increments unless either party notifies the other at least 60 days prior
to the date of expiration of their intention to terminate. If Mr. Novinskis contract is terminated
without cause by the Board of Directors or at any time by the executive for good reason as defined
in his contract, we are obligated to make severance payments to Mr. Novinski.
In April 2005, the Company entered into an amended and restated employment agreement with its
then Chief Executive Officer, Dr. Michael M. Goldberg, for services through July 31, 2007. On
January 16, 2007, the Board of Directors terminated Dr. Goldbergs services. On April 26, 2007, the
Board of Directors held a special hearing at which it determined that Dr. Goldbergs termination
was for cause. On March 22, 2007, Dr. Goldberg, through his counsel, filed a demand for arbitration
asserting that his termination was without cause and seeking $1,048,000 plus attorneys fees,
interest, arbitration costs and other relief alleged to be owed to him in connection with his
employment agreement with the Company. During the arbitration, Dr. Goldberg sought a total damage
amount of at least $9,223,646 plus interest. On February 11, 2010, the arbitrator issued the final
award in favor of Dr. Goldberg for a total amount of approximately $2,333,115 as full and final
payment for all claims, defenses, counterclaims, fees and related matters. The Company opposed Dr.
Goldbergs petition to confirm the arbitration award. On July 12, 2010 the award was confirmed by
the court. As of August 10, 2010, the Company adjusted its estimate of costs to settle this matter
to $2.6 million to account for potential additional interest costs on the settlement amount and
additional legal fees. Dr. Goldberg has proposed an order of settlement in the amount of
approximately $2.6 million and seeks to have a final order entered August 16, 2010.
The Company evaluates the financial consequences of legal actions periodically or as facts
present themselves and books accruals to account for its best estimate of future costs accordingly.
Contingencies. In the ordinary course of business, we enter into agreements with third parties
that include indemnification provisions which, in our judgment, are normal and customary for
companies in our industry sector. These agreements are typically with business partners, clinical
sites, and suppliers. Pursuant to these agreements, we generally agree to indemnify, hold harmless,
and reimburse indemnified parties for losses suffered or incurred by the indemnified parties with
respect to our product candidates, use of such product candidates, or other actions taken or
omitted by us. The maximum potential amount of future payments we could be required to make under
these indemnification provisions is unlimited. We have not incurred material costs to defend
lawsuits or settle claims related to these indemnification provisions. As a result, the estimated
fair value of liabilities relating to these provisions is minimal. Accordingly, we have no
liabilities recorded for these provisions as of June 30, 2010.
In the normal course of business, we may be confronted with issues or events that may result
in a contingent liability. These generally relate to lawsuits, claims, environmental actions or the
action of various regulatory agencies. If necessary, management consults with counsel and other
appropriate experts to assess any matters that arise. If, in our opinion, we have incurred a
probable loss as set forth by accounting principles generally accepted in the U.S., an estimate is
made of the loss and the appropriate accounting entries are reflected in our financial statements.
After consultation with legal counsel, we do not anticipate that liabilities arising out of
currently pending or threatened lawsuits and claims will have a material adverse effect on our
financial position, results of operations or cash flows.
Restructuring Expense
On December 8, 2008, as part of our efforts to improve operational efficiency we decided to
close our research and development facilities in Tarrytown to reduce costs and improve operating
efficiency which resulted in a
F-47
restructuring charge of approximately $3.8 million in the fourth
quarter, 2008. On April 29, 2009, the Company entered into the Lease Termination Agreement with
BMR, and credited the restructuring charge $0.35 million in accordance with the terms of the
Agreement. On March 17, 2010 the Company and BMR amended the Agreement as described in this Note
(above). Consequently, the restructuring liability was readjusted to reflect the terms of the
Amendment accordingly.
Adjustments to the restructuring liability are as follows ($ thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability at |
|
|
Cash |
|
|
Adjustment to |
|
|
Liability at |
|
|
|
December 31, 2009 |
|
|
Payments |
|
|
the Liability |
|
|
June 30, 2010 |
|
Lease restructuring expense |
|
$ |
750 |
|
|
$ |
(200 |
) |
|
$ |
50 |
|
|
$ |
600 |
|
12. Income Taxes
The Company is primarily subject to United States federal and New Jersey state income tax. The
Companys policy is to recognize interest and penalties related to income tax matters in income tax
expense. As of December 31, 2009 and June 30, 2010, the Company had no accruals for interest or
penalties related to income tax matters. For the three months ended June 30, 2010 and 2009, the
effective income tax rate was 0%. The difference between the Companys effective income tax rate
and the Federal statutory rate of 35% is attributable to state tax benefits and tax credits offset
by changes in the deferred tax valuation allowance.
13. New Accounting Pronouncements
In October 2009, the FASB issued ASU 2009-13, Multiple-Deliverable Revenue Arrangements,
(amendments to FASB ASC Topic 605, Revenue Recognition ) (ASU 2009-13). ASU 2009-13 requires
entities to allocate revenue in an arrangement using estimated selling prices of the delivered
goods and services based on a selling price hierarchy. The amendments eliminate the residual method
of revenue allocation and require revenue to be allocated using the relative selling price method.
ASU 2009-13 should be applied on a prospective basis for revenue arrangements entered into or
materially modified in fiscal years beginning on or after June 15, 2010, with early adoption
permitted. The adoption of ASU 2009-13 did not have a material impact on the Companys results of
operations or financial condition.
In April 2010, the FASB issue ASU 2010-17, Revenue Recognition Milestone Method (ASU
2010-17). ASU 2010-17 provides guidance on the criteria that should be met for determining whether
the milestone method of revenue recognition is appropriate. A vendor can recognize consideration
that is contingent upon achievement of a milestone in its entirety as revenue in the period in
which the milestone is achieved only if the milestone meets all criteria to be considered
substantive. The following criteria must be met for a milestone to be considered substantive. The
consideration earned by achieving the milestone should 1. be commensurate with either the level of
effort required to achieve the milestone or the enhancement of the value of the item delivered as a
result of a specific outcome resulting from the vendors performance to achieve the milestone; 2.
be related solely to past performance; and 3. be reasonable relative to all deliverables and
payment terms in the arrangement. No bifurcation of an individual milestone is allowed and there
can be more than one milestone in an arrangement. Accordingly, an arrangement may contain both
substantive and nonsubstantive milestones. ASU 2010-17 is effective on a prospective basis for
milestones achieved in fiscal years, and interim periods within those years, beginning on or after
June 15, 2010. The adoption of ASU 2010-17 did not have a material impact on the Companys results
of operations or financial condition.
Management does not believe there would have been a material effect on the accompanying
financial statements had any other recently issued, but not yet effective, accounting standards
been adopted in the current period.
14. Fair Value
In accordance with FASB ASC 820, Fair Value Measurements and Disclosures, the following
table represents the Companys fair value hierarchy for its financial assets and liabilities
measured at fair value on a recurring basis as of June 30, 2010 and December 31, 2009:
F-48
|
|
|
|
|
|
|
|
|
|
|
Level 2 |
|
|
Level 2 |
|
|
|
June 30, 2010 |
|
|
December 31, 2009 |
|
|
|
($ thousands) |
|
|
($ thousands) |
|
Derivative instruments (short term) |
|
$ |
17,135 |
|
|
$ |
6,189 |
|
Derivative instruments (long term) |
|
|
12,031 |
|
|
|
4,591 |
|
|
|
|
|
|
|
|
Total |
|
$ |
29,166 |
|
|
$ |
10,780 |
|
|
|
|
|
|
|
|
Some of the Companys financial instruments are not measured at fair value on a recurring basis but
are recorded at amounts that approximate fair value due to their liquid or short-term nature, such
as cash and cash equivalents, receivables and payables.
We have determined that it is not practical to estimate the fair value of our notes payable
because of their unique nature and the costs that would be incurred to obtain an independent
valuation. We do not have comparable outstanding debt on which to base an estimated current
borrowing rate or other discount rate for purposes of estimating the fair value of the notes
payable and we have not been able to develop a valuation model that can be applied consistently in
a cost efficient manner. These factors all contribute to the impracticability of estimating the
fair value of the notes payable. At June 30, 2010, the carrying value of the notes payable and
accrued interest was $13.8 million. The MHR Convertible Notes, which are due on September 26, 2012,
yield an effective interest rate of 43.5%. Refer to Note 8 of these financial statements for more
information about the Companys notes payable.
15. Sale of Patents
On February 8, 2008, the Company sold to MannKind Corporation (MannKind) certain patents and
a patent application relating to diketopiperazine technology for a total purchase price of $2.5
million. An initial payment of $1.5 million was received in February 2008 and recognized as other
income. An additional $0.5 million was paid in May 2009 with the remaining $0.5 million payment to
be made no later than October 5, 2010. We will recognize as revenue the additional amounts due from
MannKind when payment becomes reasonably assured.
16. Subsequent Events
August 2010 Financing. On August 25, 2010, we entered into a Securities Purchase Agreement (the
Securities Purchase Agreement) with the selling security holders to sell an aggregate of 3,497,528 shares
of our common stock and warrants to purchase a total of 2,623,146 shares of our common stock for gross
proceeds, before deducting fees and expenses and excluding the proceeds, if any, from the exercise of the
warrants of $3,532,503 (the Private Placement). Each unit, consisting of one share of common stock and
a warrant to purchase 0.75 shares of common stock, was sold at a purchase price of $1.01. The warrants
are exercisable at an exercise price of $1.26 per share beginning immediately after issuance and expire 5
years from the date of issuance. The exercise price of the warrants is subject to adjustment in the case of
stock splits, stock dividends, combinations of shares and similar recapitalization transactions. The warrants
also contain full-ratchet anti-dilution protection for issuances or sales by us of securities below the exercise
price of the warrants, but only to the extent that, as a result of such issuances or sales, the exercise or
conversion price of the MHR Securities (as defined in the warrant) is actually reduced to a price below the
exercise price of the warrants. The full ratchet anti-dilution protection contained in the warrants shall only
be effective from the date of the Securities Purchase Agreement until the six month anniversary of the
issuance date of the warrants. The Private Placement closed on August 26, 2010, after the satisfaction of
customary closing conditions, and we issued the shares of common stock and the warrants to the selling
security holders on such closing date.
Also on August 25, 2010, we entered into a securities purchase agreement with MHR Fund Management
LLC (the MHR Buyer) to sell an aggregate of 3,497,528 shares of our common stock and warrants to
purchase a total of 2,623,146 shares of our common stock for gross proceeds, before deducting fees and
expenses and excluding the proceeds, if any, from the exercise of the warrants of $3,532,503 (the MHR
Private Placement). Each unit, consisting of one share of common stock and a warrant to purchase 0.75
shares of common stock, was sold at a purchase price of $1.01. The warrants issued to the MHR Buyer had
substantially the same terms as the warrants issued to the selling security holders in the Private Placement.
The MHR Private Placement closed on August 26, 2010, after the satisfaction of customary closing
conditions, and we issued the shares of common stock and the warrants to the MHR Buyer on such closing
date.
In connection with the Private Placement and the MHR Private Placement, on August 25, 2010, we entered
into a Waiver Agreement with MHR (the Waiver Agreement), pursuant to which MHR waived certain
anti-dilution adjustment rights under the MHR Senior Secured Notes and certain warrants issued by us to
MHR that would otherwise have been triggered by the Private Placement described above. As
consideration for such waiver, on August 26, 2010, we issued to MHR a warrant to purchase 975,000
shares of our common stock and agreed to reimburse MHR for 50% of its legal fees up to a maximum
reimbursement of $50,000. Such warrant is the same form as the warrants issued in connection with the MHR
Private Placement described above.
July 2010 MHR Promissory Note. On July 29, 2010, we issued a promissory note (the July 2010 MHR
Note) to MHR Institutional Partners IIA LP and MHR Institutional Partners II LP (together, MHR)
in the principal amount of $525,000. The July 2010 MHR Note provides for an interest rate of 15%
per annum, with the entire principal amount due and payable on October 27, 2010 (the Maturity
Date). The Maturity Date will be accelerated, in certain circumstances, to the date that is two
business days following the receipt by the Issuer of at least $1,000,000 aggregate cash proceeds
from third parties, whether in connection with certain financing transactions, commercial
transactions or otherwise. MHR may, at its option, apply the amount of any payment of principal or
interest on account of this July 2010 MHR Note as consideration for the purchase of any securities
that may, from time to time, be issued by the Company to the MHR for value. The obligations under
the July 2010 MHR Note are secured in accordance with the terms of the Amendment (the Amendment)
to the Pledge and Security Agreement whereby Emisphere and MHR amended that certain Pledge and
Security Agreement, dated as of September 26, 2005 (the Security Agreement) to extend the terms
of the Security Agreement other than the intellectual property licensed to Novartis pursuant to the
Master Agreement and Amendment dated June 4, 2010 by and between Emisphere and Novartis, to include
the principal, interest and other obligations provided under the July 2010 MHR Note. In accordance
with the terms of that certain 11.00% Senior Secured Convertible Note issued by the Emisphere to
MHR and due September 26, 2012, MHR also provided a written consent to allow for the issuance of
the Note and related obligations provided under the Amendment.
Subsequent to the quarter ended June 30, 2010, MOG Capital, LLC (MOG Capital) notified the
Company of its intention to exercise its 2009 Investor Warrant to purchase up to 1,342,857 shares
of the Companys common stock at an exercise price of $0.70, using the cashless exercise
provision. The Company issued an aggregate 961,724 shares to MOG Capital in accordance with the
terms of the cashless exercise provision. After this cashless exercise, 2009 Investor Warrants to
purchase up to 3,729,323 shares of common stock, in the aggregate, remain outstanding.
F-49
No dealer, salesperson or any other person is authorized to give any information or make any
representations in connection with this offering other than those contained in this prospectus and,
if given or made, the information or representations must not be relied upon as having been
authorized by us. This prospectus does not constitute an offer to sell or a solicitation of an
offer to buy any security other than the securities offered by this prospectus, or an offer to sell
or a solicitation of an offer to buy any securities by anyone in any jurisdiction in which the
offer or solicitation is not authorized or is unlawful.
8,140,496 Shares of Common Stock
PROSPECTUS
, 2010
You should rely only on the information contained in this prospectus. We have not authorized
any other person to provide you with different information. If anyone provides you with different
or inconsistent information, you should not rely on it. For further information, please see the
section of this prospectus entitled Where You Can Find More Information. We are not making an
offer to sell these securities in any jurisdiction where the offer or sale is not permitted.
You should not assume that the information appearing in this prospectus is accurate as of any date
other than the date on the front cover of this prospectus, regardless of the time of delivery of
this prospectus or any sale of a security. Our business, financial condition, results of operations
and prospects may have changed since those dates.
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The following table sets forth the expenses, other than underwriting discounts and commissions, if
any, payable by us in connection with the offering of securities described in this registration
statement. All amounts shown are estimates, except for the SEC filing fee. The Registrant will bear
all expenses shown below.
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SEC filing fee |
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$ |
600 |
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Accounting fees and expenses |
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$ |
12,500 |
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Legal fees and expenses |
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$ |
60,000 |
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Miscellaneous |
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$ |
25,000 |
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Total |
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$ |
98,100 |
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Item 14. Indemnification of Directors and Officers.
The registrants by-laws, as amended to date, provide for the indemnification of our officers and
directors to the fullest extent permitted by Chapter 1, Section 145 of the Delaware General
Corporation Law (DGCL) (as from time to time amended), provided such officer or director acts in
good faith and in a manner which such person reasonably believes to be in or not opposed to our
best interests, and with respect to any criminal matter, had no reasonable cause to believe such
persons conduct was unlawful.
Section 145(a) of the DGCL states:
A corporation shall have power to indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the right of the
corporation) by reason of the fact that the person is or was a director, officer, employee or agent
of the corporation, or is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by the person in connection with such action, suit or proceeding
if the person acted in good faith and in a manner the person reasonably believed to be in or not
opposed to the best interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe the persons conduct was unlawful. The termination
of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of
nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which the person reasonably believed to be in or not opposed
to the best interests of the corporation, and, with respect to any criminal action or proceeding,
had reasonable cause to believe that the persons conduct was unlawful.
The registrants by-laws, as amended, also provide that, to the fullest extent permitted by the
DGCL, the registrant will pay the expenses of the directors and officers of the Company incurred in
defending a civil or criminal action, suit or proceeding, as such expenses are incurred and in
advance of the final disposition of such matter, upon receipt of an undertaking in form and
substance acceptable to our board of directors for the repayment of such advances if it is
ultimately determined by a court of competent jurisdiction that the officer or director is not
entitled to be indemnified.
Section 145(c)-(e) of the DGCL state:
(c) To the extent that a present or former director or officer of a corporation has been successful
on the merits or otherwise in defense of any action, suit or proceeding referred to in subsections
(a) and (b) of this section, or in defense of any claim, issue or matter therein, such person shall
be indemnified against expenses (including attorneys fees) actually and reasonably incurred by
such person in connection therewith.
(d) Any indemnification under subsections (a) and (b) of this section (unless ordered by a court)
shall be made by the corporation only as authorized in the specific case upon a determination that
indemnification of the present or former director, officer, employee or agent is proper in the
circumstances because the person has met the applicable standard of conduct set forth in
subsections (a) and (b) of this section. Such determination shall be made, with respect to a person
who is a director or officer at the time of such determination, (1) by a majority vote of the
directors who are not parties to such action, suit or proceeding, even though less than a quorum,
or (2) by a committee of such directors designated by majority vote of such directors, even though
less than a quorum, or (3) if there are no such directors, or if such directors so direct, by
independent legal counsel in a written opinion, or (4) by the stockholders.
(e) Expenses (including attorneys fees) incurred by an officer or director in defending any civil,
criminal, administrative or investigative action, suit or proceeding may be paid by the corporation
in advance of the final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such amount if it shall ultimately
be determined that such person is not entitled to be indemnified by the corporation as authorized
in this section. Such expenses (including attorneys fees) incurred by former directors and
officers or other employees and agents may be so paid upon such terms and conditions, if any, as
the corporation deems appropriate.
In addition, the registrant maintains directors and officers liability insurance which insures
against liabilities that its directors and officers may incur in such capacities.
Reference is made to Undertakings in Item 17 below, for the registrants undertakings in this
registration statement with respect to indemnification of liabilities arising under the Securities
Act.
Item 15. Recent Sales of Unregistered Securities.
On August 25, 2010, we entered into a Securities Purchase Agreement (the Securities Purchase
Agreement) with the selling security holders to sell an aggregate of 3,497,528 shares of our
common stock and warrants to purchase a total of 2,623,146 shares of our common stock for gross
proceeds, before deducting fees and expenses and excluding the proceeds, if any, from the exercise
of the warrants of $3,532,503 (the Private Placement). Each unit, consisting of one share of
common stock and a warrant to purchase 0.75 shares of common stock, was sold at a purchase price of
$1.01. The warrants are exercisable at an exercise price of $1.26 per share beginning immediately
after issuance and expire 5 years from the date of issuance. The exercise price of the warrants is
subject to adjustment in the case of stock splits, stock dividends, combinations of shares and
similar recapitalization transactions. The warrants also contain full-ratchet anti-dilution
protection for issuances or sales by
us of securities below the exercise price of the warrants, but
only to the extent as a result of such issuances or sales the exercise or conversion price of the
MHR Securities (as defined in the warrant) is actually reduced to a price below the exercise price
of the warrants. The full ratchet anti-dilution protection contained in the
warrants shall only be effective from the date of the Securities Purchase Agreement until the six
month anniversary of the issuance date of the warrants. The Private Placement closed on August 26,
2010, after the satisfaction of customary closing conditions, and we issued the shares of common
stock and the warrants to the selling security holders on such closing date.
Also on August 25, 2010, we also entered into a Securities Purchase Agreement with MHR Fund
Management LLC (the MHR Buyer) to sell an aggregate of 3,497,528 shares of our common stock and
warrants to purchase a total of 2,623,146 shares of our common stock for gross proceeds, before
deducting fees and expenses and excluding the proceeds, if any, from the exercise of the warrants
of $3,532,503 (the MHR Private Placement). Each unit, consisting of one share of common stock and
a warrant to purchase 0.75 shares of common stock, was sold at a purchase price of $1.01. The
warrants issued to the MHR Buyer had substantially the same terms as the warrants issued to the
selling security holders in the Private Placement. The MHR Private Placement closed on August 26,
2010, after the satisfaction of customary closing conditions, and we issued the shares of common
stock and the warrants to the MHR Buyer on such closing date. The MHR Buyer, together with certain
of its affiliated investment funds (collectively, MHR), is the holder of our 11% Senior Secured
Convertible Notes (the MHR Senior Secured Notes) and, after giving effect to the MHR Private
Placement, will beneficially own approximately 43.89% of our common stock, assuming conversion and
exercise by MHR of all convertible securities, warrants and options held, including the warrants
issued in connection with the MHR Private Placement and the warrants issued in connection with the
Waiver Agreement (as defined below).
In connection with the Private Placement and the MHR Private Placement, on August 25, 2010, we
entered into a Waiver Agreement with MHR (the Waiver Agreement), pursuant to which MHR waived
certain anti-dilution adjustment rights under the MHR Senior Secured Notes and certain warrants
issued by us to MHR that would otherwise have been triggered by the Private Placement described
above. As consideration for such waiver, on August 26, 2010, we issued to MHR a warrant to purchase
975,000 shares of our common stock and agreed to reimburse MHR for 50% of its legal fees up to a
maximum reimbursement of $50,000. Such warrant is the same form as the warrants issued in
connection with the MHR Private Placement described above.
The shares of common stock, the warrants and the shares of common stock underlying the warrants
sold and issued in connection with the Private Placement (collectively, the Private Placement
Securities), the shares of common stock, the warrants and the shares of common stock underlying
the warrants sold and issued in connection with the MHR Private Placement (collectively, the MHR
Private Placement Securities), and the warrant and the shares of common stock underlying the
warrants issued in connection with the Waiver Agreement (collectively, the Waiver Securities)
were not registered under the Securities Act at the time of sale, and therefore, may not be offered
or sold in the United States absent registration or an applicable exemption from registration
requirements. For these issuances, we relied on the exemption from federal registration under
Section 4(2) of the Securities Act and/or Rule 506 promulgated thereunder, based on our belief that
the offer and sale of the Private Placement Securities, the MHR Private Placement Securities, the
Waiver Securities have not and will not involve a public offering, as each purchaser of such
securities was, at the time of sale, an accredited investor (as such term is defined in Rule
501(a) of Regulation D promulgated under the Securities Act) and/or a qualified institutional
buyer (as such term is defined in Rule 144A of the Securities Act), and no general solicitation
was involved in connection with the Private Placement, the MHR Private Placement or the Waiver
Agreement.
Item 16. Exhibits and Financial Statement Schedules.
(a) Exhibits.
The following exhibits are filed herewith or incorporated by reference to this Registration
Statement:
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Incorporated |
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by Reference |
Exhibit |
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(1) |
3.1
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Amended and restated Certificate of Incorporation of Emisphere Technologies, Inc., as amended by the Certificate
of Amendment of Amended and Restated Certificate of Incorporation of Emisphere Technologies, Inc., dated April
20, 2007
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R |
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3.2(a)
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By-Laws of Emisphere Technologies, Inc., as amended December 7, 1998 and September 26, 2005
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A, L |
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3.2(b)
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Amendment to the By-Laws, as amended, of Emisphere Technologies, Inc.
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V |
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4.1
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Restated Rights Agreement dated as of April 7, 2006 between Emisphere Technologies, Inc. and Mellon Investor
Services, LLC
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P |
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5.1
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Opinion of Brown Rudnick LLP
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* |
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10.1(a)
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1991 Stock Option Plan, as amended
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F
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(2 |
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10.1(b)
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Amendment to the 1991 Stock Option Plan
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Q
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(2 |
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10.2(a)
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Stock Incentive Plan for Outside Directors, as amended
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C
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(2 |
) |
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10.2(b)
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Amendment to the Amended and Restated Stock Incentive Plan for Outside Directors
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Q
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(2 |
) |
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10.3(a)
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Directors Deferred Compensation Stock Plan
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E
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(2 |
) |
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10.3(b)
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Amendment to the Directors Deferred Compensation Stock Plan
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Q
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(2 |
) |
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10.4(a)
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Employee Stock Purchase Plan, as amended
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B
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(2 |
) |
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10.4(b)
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Amendment to Emisphere Technologies, Inc. Employee Stock Purchase Plan
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H
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(2 |
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10.5
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Non-Qualified Employee Stock Purchase Plan
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B
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(2 |
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10.6(a)
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1995 Non-Qualified Stock Option Plan, as amended
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B
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(2 |
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10.6(b)
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Amendment to the 1995 Non-Qualified Stock Option Plan
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Q
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(2 |
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10.7(a)
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Emisphere Technologies, Inc. 2000 Stock Option Plan
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G
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(2 |
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10.7(b)
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Amendment to Emisphere Technologies, Inc. 2000 Stock Option Plan
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Q
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(2 |
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10.8(a)
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Emisphere Technologies, Inc. 2002 Broadbased Stock Option Plan
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H
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(2 |
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10.8(b)
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Amendment to Emisphere Technologies, Inc. 2002 Broadbased Stock Option Plan
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Q
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(2 |
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10.9
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Emisphere Technologies, Inc. 2007 Stock Award and Incentive Plan
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(2 |
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Incorporated |
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by Reference |
Exhibit |
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(1) |
10.10
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Amended and Restated Employment Agreement, dated April 28, 2005, between Michael M. Goldberg and Emisphere
Technologies, Inc.
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N
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(2 |
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10.11
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Stock Option Agreements, dated January 1, 1991, February 15, 1991, December 1, 1991, August 1, 1992 and October
6, 1995 between Michael M. Goldberg and Emisphere Technologies, Inc.
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B
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(2 |
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10.12
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Stock Option Agreement, dated July 31, 2000, between Michael M. Goldberg and Emisphere Technologies, Inc.
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G
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(2 |
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10.13
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Employment Agreement dated April 6, 2007 between Michael V. Novinski and Emisphere Technologies, Inc.
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S
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(2 |
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10.14
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Nonqualified Stock Option Agreement dated April 6, 2007 between Michael V. Novinski and Emisphere Technologies,
Inc.
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(2 |
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10.15
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Incentive Stock Option Agreement dated February 12, 2007 between Lewis H. Bender and Emisphere Technologies, Inc.
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R
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(2 |
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10.16
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Form of Nonqualified Stock Option Agreement
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R
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(2 |
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10.17
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Form of Incentive Stock Option Agreement
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(2 |
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10.18
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Form of Restricted Stock Option Agreement
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(2 |
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10.19
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Agreement and Release by and between Shepard Goldberg and Emisphere Technologies, Inc., dated June 25, 2007
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U
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(2 |
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10.20
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Agreement and Release by and between Steve Dinh and Emisphere Technologies, Inc.
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X
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(2 |
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10.21
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Agreement and Release by and between Lewis Henry Bender and Emisphere Technologies, Inc.
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X
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(2 |
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10.22(a)
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Amendment to Lease Agreement, dated as of March 31, 2000, between Emisphere Technologies, Inc. and Eastview
Holdings, LLC
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10.22(b)
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Amendment to Lease Agreement, dated as of March 31, 2000, between Emisphere Technologies, Inc. and Eastview
Holdings, LLC
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G |
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10.22(c)
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Amendment to Lease Agreement, dated as of September 23, 2003, between Emisphere Technologies, Inc. and Eastview
Holdings, LLC
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10.22(d)
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Thirteenth Amendment to Lease
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10.22(e)
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Fourteenth Amendment to Lease
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X |
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10.23
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Lease Agreement, dated as of November 1, 2007 between The Realty Associates Fund VI, L.P. and Emisphere
Technologies, Inc.
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W |
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10.24
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Research Collaboration and Option Agreement dated as of December 3, 1997 between Emisphere Technologies, Inc.
and Novartis Pharma AG
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D
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(3 |
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10.25
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Agreement, dated September 23, 2003, between Emisphere Technologies, Inc. and Progenics Pharmaceuticals, Inc
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I |
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10.26
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License Agreement dated as of September 23, 2004 between Emisphere Technologies, Inc. and Novartis Pharma AG, as
amended on November 4, 2005
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J
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(3 |
) |
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10.27(a)
|
|
Research Collaboration Option and License Agreement dated December 1, 2004 by and between Emisphere
Technologies, Inc. and Novartis Pharma AG
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J
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(3 |
) |
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10.27(b)
|
|
Convertible Promissory Note due December 1, 2009 issued to Novartis Pharma AG
|
|
J
|
|
|
(3 |
) |
|
|
|
|
|
|
|
|
|
10.27(c)
|
|
Registration Rights Agreement dated as of December 1, 2004 between Emisphere Technologies, Inc. and Novartis
Pharma AG
|
|
J |
|
|
|
|
|
|
|
|
|
|
|
|
|
10.28
|
|
Development and License Agreement between Genta Incorporated and Emisphere Technologies, Inc., dated March 22,
2006
|
|
O |
|
|
|
|
|
|
|
|
|
|
|
|
|
10.29(a)
|
|
Senior Secured Loan Agreement between Emisphere Technologies, Inc. and MHR, dated September 26, 2005, as amended
on November 11, 2005
|
|
L |
|
|
|
|
|
|
|
|
|
|
|
|
|
10.29(b)
|
|
Investment and Exchange Agreement between Emisphere Technologies, Inc. and MHR, dated September 26, 2005
|
|
L |
|
|
|
|
|
|
|
|
|
|
|
|
|
10.29(c)
|
|
Pledge and Security Agreement between Emisphere Technologies, Inc. and MHR, dated September 26, 2005
|
|
L |
|
|
|
|
|
|
|
|
|
|
|
|
|
10.29(d)
|
|
Registration Rights Agreement between Emisphere Technologies, Inc. and MHR, dated September 26, 2005
|
|
L |
|
|
|
|
|
|
|
|
|
|
|
|
|
10.29(e)
|
|
Amendment No. 1 to the Senior Secured Term Loan Agreement, dated November 11, 2005
|
|
M |
|
|
|
|
|
|
|
|
|
|
|
|
|
10.29(f)
|
|
Form of 11% Senior Secured Convertible Note
|
|
L |
|
|
|
|
|
|
|
|
|
|
|
|
|
10.29(g)
|
|
Form of Amendment to 11% Senior Secured Convertible Note
|
|
R |
|
|
|
|
|
|
|
|
|
|
|
|
|
10.30(a)
|
|
Warrant dated as of March 31, 2005 between Emisphere Technologies, Inc. and NR Securities LTD
|
|
K |
|
|
|
|
|
|
|
|
|
|
|
|
|
10.30(b)
|
|
Warrant adjustment notice between Emisphere Technologies, Inc. and NR Securities LTD
|
|
W |
|
|
|
|
|
|
|
|
|
|
|
|
|
10.31(a)
|
|
Warrant dated as of March 31, 2005 between Emisphere Technologies, Inc. and Atticus European Fund LTD
|
|
K |
|
|
|
|
|
|
|
|
|
|
|
|
|
10.31(b)
|
|
Warrant adjustment notice between Emisphere Technologies, Inc. and Atticus European Fund, LTD
|
|
W |
|
|
|
|
|
|
|
|
|
|
|
|
|
10.32(a)
|
|
Warrant dated as of March 31, 2005 between Emisphere Technologies, Inc. and Elan International Services, Ltd.
|
|
K |
|
|
|
|
|
|
|
|
|
|
|
|
|
10.32(b)
|
|
Warrant adjustment notice between Emisphere Technologies, Inc. and Elan International Services, Ltd.
|
|
W |
|
|
|
|
|
|
|
|
|
|
|
|
|
10.33
|
|
Warrant dated as of September 23, 2005 between Emisphere Technologies, Inc. and MHR Capital Partners (100) LP
|
|
Q |
|
|
|
|
|
|
|
|
|
|
|
|
|
10.34
|
|
Warrant dated as of September 23, 2005 between Emisphere Technologies, Inc. and MHR Capital Partners (500) LP
|
|
Q |
|
|
|
|
|
|
|
|
|
|
|
|
|
10.35(a)
|
|
Warrant dated as of September 23, 2005 between Emisphere Technologies, Inc. and Michael Targoff
|
|
Q |
|
|
|
|
|
|
|
|
|
|
|
|
|
10.35(b)
|
|
Warrant adjustment notice between Emisphere Technologies, Inc. and Michael B. Targoff
|
|
W |
|
|
|
|
|
|
|
|
|
|
|
|
|
10.36
|
|
Warrant dated as of September 21, 2006 between Emisphere Technologies, Inc. and MHR Institutional Partners IIA LP
|
|
Q |
|
|
|
|
|
|
|
|
|
|
|
|
|
10.37
|
|
Warrant dated as of September 21, 2006 between Emisphere Technologies, Inc. and MHR Institutional Partners II LP
|
|
Q |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incorporated |
|
|
|
|
by Reference |
Exhibit |
|
|
|
(1) |
10.38
|
|
Warrant dated as of September 21, 2006 between Emisphere Technologies, Inc. and MHR Capital Partners (100) LP
|
|
Q |
|
|
|
|
|
|
|
|
|
|
|
|
|
10.39
|
|
Warrant dated as of September 21, 2006 between Emisphere Technologies, Inc. and MHR Capital Partners Masters
Account LP
|
|
Q |
|
|
|
|
|
|
|
|
|
|
|
|
|
10.40
|
|
Warrant adjustment notice between Emisphere Technologies, Inc. and MHR Capital Partners (100) LP, MHR Capital
Partners Master Account, LP (formerly MHR Capital Partners (500) LP), MHR Institutional Partners IIA LP, MHR
Institutional Partners II LP, MHR Capital Partners (100) LP and MHR Capital Partners Master Account LP
|
|
W |
|
|
|
|
|
|
|
|
|
|
|
|
|
10.41
|
|
Warrant dated as of August 22, 2007 between Emisphere Technologies, Inc. and SF Capital Partners, Ltd.
|
|
W |
|
|
|
|
|
|
|
|
|
|
|
|
|
10.42
|
|
Warrant dated as of August 22, 2007 between Emisphere Technologies, Inc. and Montaur Capital/Platinum Life
Montaur Life Sciences Fund I LLC
|
|
W |
|
|
|
|
|
|
|
|
|
|
|
|
|
10.43
|
|
Warrant dated as of August 22, 2007 between Emisphere Technologies, Inc. and MHR Institutional Partners II LP
|
|
W |
|
|
|
|
|
|
|
|
|
|
|
|
|
10.44
|
|
Warrant dated as of August 22, 2007 between Emisphere Technologies, Inc. and MHR Institutional Partners IIA LP
|
|
W |
|
|
|
|
|
|
|
|
|
|
|
|
|
10.45
|
|
Emisphere Technologies, Inc.- Mankind Corporation Patent Purchase Agreement, dated February 8, 2008
|
|
X |
|
|
|
|
|
|
|
|
|
|
|
|
|
10.46
|
|
Development and License Agreement, dated as of June 21, 2008, between Emisphere Technologies, Inc. and Novo
Nordisk AS.
|
|
Y |
|
|
|
|
|
|
|
|
|
|
|
|
|
10.47
|
|
Lease Termination Agreement, date April 29,2009, between Emisphere Technologies, Inc. and BMR-LANDMARK AT
EASTVIEW LLC
|
|
Z |
|
|
|
|
|
|
|
|
|
|
|
|
|
10.48
|
|
Form of Non-Employee Director Non-Qualified Stock Option Agreement
|
|
AA
|
|
|
(3 |
) |
|
|
|
|
|
|
|
|
|
10.49
|
|
Placement Agency Agreement dated as of August 19, 2009, Between Emisphere Technologies, Inc. and Rodman &
Rensahw, LLC
|
|
BB |
|
|
|
|
|
|
|
|
|
|
|
|
|
10.50
|
|
Securities Purchase Agreement dated as of August 19, 2009, between Emisphere Technologies and the Purchasers
named therein
|
|
BB
|
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
10.51
|
|
Securities Purchase Agreement dated as of August 19, 2009, between Emisphere Technologies and MHR Fund
Management, LLC
|
|
BB |
|
|
|
|
|
|
|
|
|
|
|
|
|
10.52
|
|
Warrant dated as of August 21, 2009 between Emisphere Technologies, Inc. and BAM Opportunity Fund LP
|
|
CC |
|
|
|
|
|
|
|
|
|
|
|
|
|
10.53
|
|
Warrant dated as of August 21, 2009 between Emisphere Technologies, Inc. and MOG Capital, LLC
|
|
CC |
|
|
|
|
|
|
|
|
|
|
|
|
|
10.54
|
|
Warrant dated as of August 21, 2009 between Emisphere Technologies, Inc. and MHR Capital Partners Master Account
LP
|
|
CC |
|
|
|
|
|
|
|
|
|
|
|
|
|
10.55
|
|
Warrant dated as of August 21, 2009 between Emisphere Technologies, Inc. and MHR Capital Partners (100) LP
|
|
CC |
|
|
|
|
|
|
|
|
|
|
|
|
|
10.56
|
|
Warrant dated as of August 21, 2009 between Emisphere Technologies, Inc. and MHR Institutional Partners II LP
|
|
CC |
|
|
|
|
|
|
|
|
|
|
|
|
|
10.57
|
|
Warrant dated as of August 21, 2009 between Emisphere Technologies, Inc. and MHR Institutional Partners IIA LP
|
|
CC |
|
|
|
|
|
|
|
|
|
|
|
|
|
10.58
|
|
Warrant dated as of August 21, 2009 between Emisphere Technologies, Inc. and Rodman & Renshaw, LLC
|
|
CC |
|
|
|
|
|
|
|
|
|
|
|
|
|
10.59
|
|
Warrant dated as of August 21, 2009 between Emisphere Technologies, Inc. and Benjamin Bowen
|
|
CC |
|
|
|
|
|
|
|
|
|
|
|
|
|
10.60
|
|
Warrant dated as of August 21, 2009 between Emisphere Technologies, Inc. and Noam Rubinstein
|
|
CC |
|
|
|
|
|
|
|
|
|
|
|
|
|
10.61
|
|
Warrant adjustment notice between Emisphere Technologies, Inc. and Elan International Services, Ltd. dated
October 20, 2009
|
|
CC |
|
|
|
|
|
|
|
|
|
|
|
|
|
10.62
|
|
Warrant adjustment notice between Emisphere Technologies, Inc. and NR Securities LTD dated October 22, 2009
|
|
CC |
|
|
|
|
|
|
|
|
|
|
|
|
|
10.63
|
|
Warrant adjustment notice between Emisphere Technologies, Inc. and Atticus European Fund, LTD dated October 22,
2009
|
|
CC |
|
|
|
|
|
|
|
|
|
|
|
|
|
10.64
|
|
Warrant adjustment notice between Emisphere Technologies, Inc. and Michael B. Targoff dated October 22, 2009
|
|
CC |
|
|
|
|
|
|
|
|
|
|
|
|
|
10.65
|
|
Agreement to Extend the Maturity Date of the Convertible Promissory Note Due December 1, 2009, between Emisphere
Technologies and Novartis Pharma AG dated November 25, 2009
|
|
EE |
|
|
|
|
|
|
|
|
|
|
|
|
|
10.66
|
|
Agreement to Extend the Maturity Date of the Convertible Promissory Note Due December 1, 2009, between Emisphere
Technologies and Novartis Pharma AG dated February 23, 2010
|
|
EE |
|
|
|
|
|
|
|
|
|
|
|
|
|
10.67
|
|
Warrant dated as of March 3, 2010 between Emisphere Technologies, Inc. and Option Opportunities Corp.
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
10.68
|
|
Warrant dated as of March 3, 2010 between Emisphere Technologies, Inc. and Option Opportunities Corp.
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
10.69
|
|
Form of Incentive Stock Option Agreement under the Emisphere Technologies, Inc. 2007 Stock Award and Incentive
Plan.
|
|
FF |
|
|
|
|
|
|
|
|
|
|
|
|
|
10.70
|
|
Form of Non-Qualified Stock Option Agreement under the Emisphere Technologies, Inc. 2007 Stock Award and
Incentive Plan.
|
|
FF |
|
|
|
|
|
|
|
|
|
|
|
|
|
10.71
|
|
Letter Agreement by and between Emisphere Technologies, Inc. and MHR Institutional Partners IIA LP, dated June
8, 2010 (filed as Exhibit 10.1 to the and incorporated herein by reference).
|
|
GG |
|
|
|
|
|
|
|
|
|
|
|
|
|
10.72
|
|
Form of Emisphere Technologies, Inc. Reimbursement Note
|
|
GG |
|
|
|
|
|
|
|
|
|
|
|
|
|
10.73
|
|
Form of Emisphere Technologies, Inc. Second Reimbursement Note
|
|
GG |
|
|
|
|
|
|
|
|
|
|
|
|
|
10.74
|
|
Research Master Agreement and Amendment by and between Emisphere Technologies, Inc. and Novartis Pharma AG,
effective as of June 4, 2010
|
|
HH |
|
|
|
|
|
|
|
|
|
|
|
|
|
10.75
|
|
Securities Purchase Agreement, dated August 25, 2010, by and among Emisphere Technologies, Inc. and the Buyers
named therein.
|
|
II |
|
|
|
|
|
|
|
|
|
|
|
|
|
10.76
|
|
Securities Purchase Agreement, dated August 25, 2010, by and among Emisphere Technologies, Inc. and the MHR
Buyers named therein.
|
|
II |
|
|
|
|
|
|
|
|
|
|
|
|
|
10.77
|
|
Waiver Agreement, dated August 25, 2010, by and among Emisphere Technologies, Inc. and MHR.
|
|
II |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incorporated |
|
|
|
|
by Reference |
Exhibit |
|
|
|
(1) |
10.78
|
|
Registration Rights Agreement, dated August 26, 2010, by and among Emisphere Technologies, Inc. and the Buyers
named therein.
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
10.79
|
|
Warrant dated as of August 26, 2010, between Emisphere Technologies, Inc. and Bai Ye Feng
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
10.80
|
|
Warrant dated as of August 26, 2010, between Emisphere Technologies, Inc. and Anson Investments Master Fund LP
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
10.81
|
|
Warrant dated as of August 26, 2010, between Emisphere Technologies, Inc. and Iroquois Master Fund, Ltd.
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
10.82
|
|
Warrant dated as of August 26, 2010, between Emisphere Technologies, Inc. and Hudson Bay Master Fund Ltd.
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
10.83
|
|
Warrant dated as of August 26, 2010, between Emisphere Technologies, Inc. and Cranshire Capital, L.P.
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
10.84
|
|
Warrant dated as of August 26, 2010, between Emisphere Technologies, Inc. and Freestone Advantage Partners, LP
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
10.85
|
|
Warrant dated as of August 26, 2010, between Emisphere Technologies, Inc. and MHR Capital Partners Master
Account LP
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
10.86
|
|
Warrant dated as of August 26, 2010, between Emisphere Technologies, Inc. and MHR Capital Partners (100) LP
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
10.87
|
|
Warrant dated as of August 26, 2010, between Emisphere Technologies, Inc. and MHR Institutional Partners II LP
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
10.88
|
|
Warrant dated as of August 26, 2010, between Emisphere Technologies, Inc. and MHR Institutional Partners IIA LP
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
10.89
|
|
Warrant dated as of August 26, 2010, between Emisphere Technologies, Inc. and MHR Capital Partners Master
Account LP
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
10.90
|
|
Warrant dated as of August 26, 2010, between Emisphere Technologies, Inc. and MHR Capital Partners (100) LP
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
10.91
|
|
Warrant dated as of August 26, 2010, between Emisphere Technologies, Inc. and MHR Institutional Partners II LP
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
10.92
|
|
Warrant dated as of August 26, 2010, between Emisphere Technologies, Inc. and MHR Institutional Partners IIA LP
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
16.1
|
|
Letter from PricewaterhouseCoopers LLP to the Securities Exchange Commission dated January 11, 2010
|
|
DD |
|
|
|
|
|
|
|
|
|
|
|
|
|
23.1
|
|
Consent of Independent Registered Public Accounting Firm McGladrey & Pullen, LLP
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
23.2
|
|
Consent of Independent Registered Public Accounting Firm PricewaterhouseCoopers LLP
|
|
* |
|
|
|
|
|
|
|
* |
|
Filed herewith |
|
(1) |
|
If not filed herewith, filed as an exhibit to the document referred to by letter as follows: |
|
A. |
|
Quarterly Report on Form 10-Q for the quarterly period ended January 31, 1999 |
|
B. |
|
Annual Report on Form 10-K for the fiscal year ended July 31, 1995 |
|
C. |
|
Annual Report on Form 10-K for the fiscal year ended July 31, 1997 |
|
D. |
|
Quarterly Report on Form 10-Q for the quarterly period ended October 31, 1997 |
|
E. |
|
Annual Report on Form 10-K for the fiscal year ended July 31, 1998 |
|
F. |
|
Annual Report on Form 10-K for the fiscal year ended July 31, 1999 |
|
G. |
|
Annual Report on Form 10-K for the fiscal year ended July 31, 2000 |
|
H. |
|
Registration statement on Form S-8 dated and filed on November 27, 2002 |
|
I. |
|
Annual Report on Form 10-K for the year ended December 31, 2003 |
|
J. |
|
Registration on Form S-3/A dated and filed February 1, 2005 |
|
K. |
|
Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2005 |
|
L. |
|
Current Report on Form 8-K, filed September 30, 2005 |
|
M. |
|
Current Report on Form 8-K, filed November 14, 2005 |
|
N. |
|
Current Report on Form 8-K filed May 4, 2005 |
|
O. |
|
Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2006 |
|
P. |
|
Current Report on Form 8-K, filed April 10, 2006 |
|
Q. |
|
Annual Report on Form 10-K for the fiscal year ended December 31, 2006 |
|
R. |
|
Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2007 |
|
S. |
|
Current Report on Form 8-K, filed April 11, 2007 |
|
|
|
T. |
|
Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2007 |
|
U. |
|
Current Report on Form 8-K, filed June 29, 2007 |
|
V. |
|
Current Report on Form 8-K, filed September 14, 2007 |
|
W. |
|
Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2007 |
|
X. |
|
Annual Report on Form 10-K for the fiscal year ended December 31, 2007 |
|
Y. |
|
Current Report on Form 8-K, filed August 11, 2008 |
|
Z. |
|
Current Report on Form 8-K, filed May 5, 2009 |
|
AA. |
|
Current Report on Form 8-K, filed May 21, 2009 |
|
BB. |
|
Current Report on Form 8-K, filed August 20, 2009 |
|
CC. |
|
Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2009 |
|
DD. |
|
Current Report on Form 8-K, filed January 12, 2010 |
|
EE. |
|
Annual Report on Form 10-K for the fiscal year ended December 31, 2009 |
|
FF. |
|
Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2010 |
|
GG. |
|
Current Report on Form 8-K, filed on June 8, 2010 |
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HH. |
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Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2010 |
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II. |
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Current Report on Form 8-K, filed on August 26, 2010 |
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(2) |
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Management contract or compensatory plan or arrangement |
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(3) |
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Portions of this exhibit have been omitted based on a request for confidential treatment filed separately with the Securities and Exchange Commission. |
(b) Financial Statement Schedules.
A list of the financial statements filed as a part of this report appears on page F-1.
Item 17. Undertakings.
The undersigned registrant hereby undertakes that:
(1) To file, during any period in which offers or sales are being made, a post-effective
amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the Securities Act;
(ii) To reflect in the prospectus any facts or events arising after the effective date
of the registration statement (or the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed with the SEC pursuant
to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a
20% change in the maximum aggregate offering price set forth in the Calculation of
Registration Fee table in the effective registration statement; and
(iii) To include any material information with respect to the plan of distribution not
previously disclosed in the registration statement or any material change to such information
in the registration statement.
(2) That, for the purpose of determining any liability under the Securities Act, each such
post-effective amendment shall be deemed to be a new registration statement relating to the
securities offered therein, and this offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of the securities
being registered which remain unsold at the termination of this offering.
(4) That, for the purpose of determining liability under the Securities Act of 1933 to any
purchaser, each prospectus filed pursuant to Rule 424(b) as part of a registration statement
relating to an offering, other than registration statements relying on Rule 430B or other than
prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the
registration statement as of the date it is first used after effectiveness. Provided, however, that
no statement made in a registration statement or prospectus that is part of the registration
statement or made in a document incorporated or deemed incorporated by reference into the
registration statement or prospectus that is part of the registration statement will, as to a
purchaser with a time of contract of sale prior to such first use, supersede or modify any
statement that was made in the registration statement or prospectus that was part of the
registration statement or made in any such document immediately prior to such date of first use.
Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be
permitted to directors, officers and controlling persons of the registrant pursuant to the
provisions referenced in Item 14 of this registration statement, or otherwise, the registrant has
been advised that in the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable.
In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer, or controlling person of the
registrant in the successful defense of any action, suit or proceeding) is asserted by a director,
officer or controlling person in connection with the securities being registered hereunder, the
registrant will, unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether such indemnification
by it is against public policy as expressed in the Securities Act of 1933 and will be governed by
the final adjudication of such issue.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant has duly
caused this Registration Statement on Form S-1 to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Cedar Knolls, State of New Jersey, on September 15, 2010.
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EMISPHERE TECHNOLOGIES, INC.
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By: |
/s/ Michael R. Garone
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Name: |
Michael R. Garone |
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Title: |
Chief Financial Officer |
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KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and
appoints each of Michael Novinski and Michael R. Garone his true and lawful attorney-in-fact, with
full power of substitution and resubstitution for him and in his name, place and stead, in any and
all capacities to sign any and all amendments including post-effective amendments to this
registration statement, and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming
all that said attorney-in-fact or his/her substitute, each acting alone, may lawfully do or cause
to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been
signed by the following persons in the capacities and on the dates stated.
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Name and Signature |
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Title |
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Date |
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/s/ Michael V. Novinski Michael V. Novinski
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President and Chief
Executive Officer, Director
(principal executive officer)
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September 15, 2010 |
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/s/ John D. Harkey, Jr.
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Director
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September 15, 2010 |
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/s/ Timothy G. Rothwell
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Director
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September 15, 2010 |
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/s/ Mark J. Rachesky
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Director
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September 15, 2010 |
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/s/ Michael Weiser
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Director
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September 15, 2010 |
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/s/ Michael R. Garone
Michael R. Garone
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Chief Financial Officer
(principal financial and accounting officer)
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September 15, 2010 |
EXHIBIT INDEX
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Incorporated |
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by Reference |
Exhibit |
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(1) |
3.1
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|
Amended and restated Certificate of Incorporation of Emisphere Technologies, Inc., as amended by the Certificate
of Amendment of Amended and Restated Certificate of Incorporation of Emisphere Technologies, Inc., dated
April 20, 2007
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R |
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3.2(a)
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By-Laws of Emisphere Technologies, Inc., as amended December 7, 1998 and September 26, 2005
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A, L |
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3.2(b)
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Amendment to the By-Laws, as amended, of Emisphere Technologies, Inc.
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V |
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4.1
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Restated Rights Agreement dated as of April 7, 2006 between Emisphere Technologies, Inc. and Mellon Investor
Services, LLC
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P |
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5.1
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Opinion of Brown Rudnick LLP
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* |
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10.1(a)
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1991 Stock Option Plan, as amended
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F
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(2 |
) |
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10.1(b)
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Amendment to the 1991 Stock Option Plan
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Q
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(2 |
) |
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10.2(a)
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Stock Incentive Plan for Outside Directors, as amended
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C
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(2 |
) |
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10.2(b)
|
|
Amendment to the Amended and Restated Stock Incentive Plan for Outside Directors
|
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Q
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(2 |
) |
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10.3(a)
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Directors Deferred Compensation Stock Plan
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E
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(2 |
) |
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10.3(b)
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Amendment to the Directors Deferred Compensation Stock Plan
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Q
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(2 |
) |
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10.4(a)
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Employee Stock Purchase Plan, as amended
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B
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(2 |
) |
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10.4(b)
|
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Amendment to Emisphere Technologies, Inc. Employee Stock Purchase Plan
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H
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(2 |
) |
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10.5
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Non-Qualified Employee Stock Purchase Plan
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B
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(2 |
) |
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10.6(a)
|
|
1995 Non-Qualified Stock Option Plan, as amended
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|
B
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(2 |
) |
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10.6(b)
|
|
Amendment to the 1995 Non-Qualified Stock Option Plan
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|
Q
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(2 |
) |
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10.7(a)
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Emisphere Technologies, Inc. 2000 Stock Option Plan
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G
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(2 |
) |
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10.7(b)
|
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Amendment to Emisphere Technologies, Inc. 2000 Stock Option Plan
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Q
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(2 |
) |
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10.8(a)
|
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Emisphere Technologies, Inc. 2002 Broadbased Stock Option Plan
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|
H
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(2 |
) |
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10.8(b)
|
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Amendment to Emisphere Technologies, Inc. 2002 Broadbased Stock Option Plan
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|
Q
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(2 |
) |
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10.9
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Emisphere Technologies, Inc. 2007 Stock Award and Incentive Plan
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R
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(2 |
) |
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10.10
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Amended and Restated Employment Agreement, dated April 28, 2005, between Michael M. Goldberg and Emisphere
Technologies, Inc.
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N
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(2 |
) |
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10.11
|
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Stock Option Agreements, dated January 1, 1991, February 15, 1991, December 1, 1991, August 1, 1992 and
October 6, 1995 between Michael M. Goldberg and Emisphere Technologies, Inc.
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|
B
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(2 |
)(3) |
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10.12
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Stock Option Agreement, dated July 31, 2000, between Michael M. Goldberg and Emisphere Technologies, Inc.
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|
G
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(2 |
) |
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10.13
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Employment Agreement dated April 6, 2007 between Michael V. Novinski and Emisphere Technologies, Inc.
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S
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(2 |
) |
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10.14
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Nonqualified Stock Option Agreement dated April 6, 2007 between Michael V. Novinski and Emisphere Technologies,
Inc.
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|
R
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(2 |
) |
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10.15
|
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Incentive Stock Option Agreement dated February 12, 2007 between Lewis H. Bender and Emisphere Technologies, Inc.
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|
R
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(2 |
) |
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10.16
|
|
Form of Nonqualified Stock Option Agreement
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|
R
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(2 |
) |
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10.17
|
|
Form of Incentive Stock Option Agreement
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|
R
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(2 |
) |
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10.18
|
|
Form of Restricted Stock Option Agreement
|
|
R
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(2 |
) |
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10.19
|
|
Agreement and Release by and between Shepard Goldberg and Emisphere Technologies, Inc., dated June 25, 2007
|
|
U
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(2 |
) |
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|
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10.20
|
|
Agreement and Release by and between Steve Dinh and Emisphere Technologies, Inc.
|
|
X
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|
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(2 |
) |
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10.21
|
|
Agreement and Release by and between Lewis Henry Bender and Emisphere Technologies, Inc.
|
|
X
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(2 |
) |
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10.22(a)
|
|
Amendment to Lease Agreement, dated as of March 31, 2000, between Emisphere Technologies, Inc. and Eastview
Holdings, LLC
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|
G |
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10.22(b)
|
|
Amendment to Lease Agreement, dated as of March 31, 2000, between Emisphere Technologies, Inc. and Eastview
Holdings, LLC
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|
G |
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10.22(c)
|
|
Amendment to Lease Agreement, dated as of September 23, 2003, between Emisphere Technologies, Inc. and Eastview
Holdings, LLC
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|
I |
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10.22(d)
|
|
Thirteenth Amendment to Lease
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|
T |
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10.22(e)
|
|
Fourteenth Amendment to Lease
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|
X |
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10.23
|
|
Lease Agreement, dated as of November 1, 2007 between The Realty Associates Fund VI, L.P. and Emisphere
Technologies, Inc.
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|
W |
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10.24
|
|
Research Collaboration and Option Agreement dated as of December 3, 1997 between Emisphere Technologies, Inc.
and Novartis Pharma AG
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|
D
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(3 |
) |
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10.25
|
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Agreement, dated September 23, 2003, between Emisphere Technologies, Inc. and Progenics Pharmaceuticals, Inc
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|
I |
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10.26
|
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License Agreement dated as of September 23, 2004 between Emisphere Technologies, Inc. and Novartis Pharma AG, as
amended on November 4, 2005
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|
J
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(3 |
) |
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10.27(a)
|
|
Research Collaboration Option and License Agreement dated December 1, 2004 by and between Emisphere
Technologies, Inc. and Novartis Pharma AG
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|
J
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|
|
(3 |
) |
|
|
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|
|
Incorporated |
|
|
|
|
by Reference |
Exhibit |
|
|
|
(1) |
10.27(b)
|
|
Convertible Promissory Note due December 1, 2009 issued to Novartis Pharma AG
|
|
J
|
|
|
(3 |
) |
|
|
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10.27(c)
|
|
Registration Rights Agreement dated as of December 1, 2004 between Emisphere Technologies, Inc. and Novartis
Pharma AG
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|
J |
|
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10.28
|
|
Development and License Agreement between Genta Incorporated and Emisphere Technologies, Inc., dated March 22,
2006
|
|
O |
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10.29(a)
|
|
Senior Secured Loan Agreement between Emisphere Technologies, Inc. and MHR, dated September 26, 2005, as amended
on November 11, 2005
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|
L |
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10.29(b)
|
|
Investment and Exchange Agreement between Emisphere Technologies, Inc. and MHR, dated September 26, 2005
|
|
L |
|
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|
10.29(c)
|
|
Pledge and Security Agreement between Emisphere Technologies, Inc. and MHR, dated September 26, 2005
|
|
L |
|
|
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|
|
10.29(d)
|
|
Registration Rights Agreement between Emisphere Technologies, Inc. and MHR, dated September 26, 2005
|
|
L |
|
|
|
|
|
|
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|
|
10.29(e)
|
|
Amendment No. 1 to the Senior Secured Term Loan Agreement, dated November 11, 2005
|
|
M |
|
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|
|
10.29(f)
|
|
Form of 11% Senior Secured Convertible Note
|
|
L |
|
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|
|
10.29(g)
|
|
Form of Amendment to 11% Senior Secured Convertible Note
|
|
R |
|
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10.30(a)
|
|
Warrant dated as of March 31, 2005 between Emisphere Technologies, Inc. and NR Securities LTD
|
|
K |
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|
10.30(b)
|
|
Warrant adjustment notice between Emisphere Technologies, Inc. and NR Securities LTD
|
|
W |
|
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|
10.31(a)
|
|
Warrant dated as of March 31, 2005 between Emisphere Technologies, Inc. and Atticus European Fund LTD
|
|
K |
|
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|
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|
10.31(b)
|
|
Warrant adjustment notice between Emisphere Technologies, Inc. and Atticus European Fund, LTD
|
|
W |
|
|
|
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|
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10.32(a)
|
|
Warrant dated as of March 31, 2005 between Emisphere Technologies, Inc. and Elan International Services, Ltd.
|
|
K |
|
|
|
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|
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|
|
10.32(b)
|
|
Warrant adjustment notice between Emisphere Technologies, Inc. and Elan International Services, Ltd.
|
|
W |
|
|
|
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|
|
10.33
|
|
Warrant dated as of September 23, 2005 between Emisphere Technologies, Inc. and MHR Capital Partners (100) LP
|
|
Q |
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|
|
10.34
|
|
Warrant dated as of September 23, 2005 between Emisphere Technologies, Inc. and MHR Capital Partners (500) LP
|
|
Q |
|
|
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|
|
10.35(a)
|
|
Warrant dated as of September 23, 2005 between Emisphere Technologies, Inc. and Michael Targoff
|
|
Q |
|
|
|
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|
|
|
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|
|
10.35(b)
|
|
Warrant adjustment notice between Emisphere Technologies, Inc. and Michael B. Targoff
|
|
W |
|
|
|
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|
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10.36
|
|
Warrant dated as of September 21, 2006 between Emisphere Technologies, Inc. and MHR Institutional Partners IIA LP
|
|
Q |
|
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10.37
|
|
Warrant dated as of September 21, 2006 between Emisphere Technologies, Inc. and MHR Institutional Partners II LP
|
|
Q |
|
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10.38
|
|
Warrant dated as of September 21, 2006 between Emisphere Technologies, Inc. and MHR Capital Partners (100) LP
|
|
Q |
|
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10.39
|
|
Warrant dated as of September 21, 2006 between Emisphere Technologies, Inc. and MHR Capital Partners Masters
Account LP
|
|
Q |
|
|
|
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|
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|
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|
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|
10.40
|
|
Warrant adjustment notice between Emisphere Technologies, Inc. and MHR Capital Partners (100) LP, MHR Capital
Partners Master Account, LP (formerly MHR Capital Partners (500) LP), MHR Institutional Partners IIA LP, MHR
Institutional Partners II LP, MHR Capital Partners (100) LP and MHR Capital Partners Master Account LP
|
|
W |
|
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|
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|
10.41
|
|
Warrant dated as of August 22, 2007 between Emisphere Technologies, Inc. and SF Capital Partners, Ltd.
|
|
W |
|
|
|
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|
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|
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|
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|
10.42
|
|
Warrant dated as of August 22, 2007 between Emisphere Technologies, Inc. and Montaur Capital/Platinum Life
Montaur Life Sciences Fund I LLC
|
|
W |
|
|
|
|
|
|
|
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|
|
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|
10.43
|
|
Warrant dated as of August 22, 2007 between Emisphere Technologies, Inc. and MHR Institutional Partners II LP
|
|
W |
|
|
|
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|
|
|
|
|
|
|
|
|
10.44
|
|
Warrant dated as of August 22, 2007 between Emisphere Technologies, Inc. and MHR Institutional Partners IIA LP
|
|
W |
|
|
|
|
|
|
|
|
|
|
|
|
|
10.45
|
|
Emisphere Technologies, Inc.- Mankind Corporation Patent Purchase Agreement, dated February 8, 2008
|
|
X |
|
|
|
|
|
|
|
|
|
|
|
|
|
10.46
|
|
Development and License Agreement, dated as of June 21, 2008, between Emisphere Technologies, Inc. and Novo
Nordisk AS.
|
|
Y |
|
|
|
|
|
|
|
|
|
|
|
|
|
10.47
|
|
Lease Termination Agreement, date April 29,2009, between Emisphere Technologies, Inc. and BMR-LANDMARK AT
EASTVIEW LLC
|
|
Z |
|
|
|
|
|
|
|
|
|
|
|
|
|
10.48
|
|
Form of Non-Employee Director Non-Qualified Stock Option Agreement
|
|
AA
|
|
|
(3 |
) |
|
|
|
|
|
|
|
|
|
10.49
|
|
Placement Agency Agreement dated as of August 19, 2009, Between Emisphere Technologies, Inc. and Rodman &
Rensahw, LLC
|
|
BB |
|
|
|
|
|
|
|
|
|
|
|
|
|
10.50
|
|
Securities Purchase Agreement dated as of August 19, 2009, between Emisphere Technologies and the Purchasers
named therein
|
|
BB
|
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
10.51
|
|
Securities Purchase Agreement dated as of August 19, 2009, between Emisphere Technologies and MHR
Fund Management, LLC
|
|
BB |
|
|
|
|
|
|
|
|
|
|
|
|
|
10.52
|
|
Warrant dated as of August 21, 2009 between Emisphere Technologies, Inc. and BAM Opportunity Fund LP
|
|
CC |
|
|
|
|
|
|
|
|
|
|
|
|
|
10.53
|
|
Warrant dated as of August 21, 2009 between Emisphere Technologies, Inc. and MOG Capital, LLC
|
|
CC |
|
|
|
|
|
|
|
|
|
|
|
|
|
10.54
|
|
Warrant dated as of August 21, 2009 between Emisphere Technologies, Inc. and MHR Capital Partners Master Account
LP
|
|
CC |
|
|
|
|
|
|
|
|
|
|
|
|
|
10.55
|
|
Warrant dated as of August 21, 2009 between Emisphere Technologies, Inc. and MHR Capital Partners (100) LP
|
|
CC |
|
|
|
|
|
|
|
|
|
|
|
|
|
10.56
|
|
Warrant dated as of August 21, 2009 between Emisphere Technologies, Inc. and MHR Institutional Partners II LP
|
|
CC |
|
|
|
|
|
|
|
|
|
|
|
|
|
10.57
|
|
Warrant dated as of August 21, 2009 between Emisphere Technologies, Inc. and MHR Institutional Partners IIA LP
|
|
CC |
|
|
|
|
|
|
|
|
|
|
|
|
|
10.58
|
|
Warrant dated as of August 21, 2009 between Emisphere Technologies, Inc. and Rodman & Renshaw, LLC
|
|
CC |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incorporated |
|
|
|
|
by Reference |
Exhibit |
|
|
|
(1) |
10.59
|
|
Warrant dated as of August 21, 2009 between Emisphere Technologies, Inc. and Benjamin Bowen
|
|
CC |
|
|
|
|
|
|
|
|
|
|
|
|
|
10.60
|
|
Warrant dated as of August 21, 2009 between Emisphere Technologies, Inc. and Noam Rubinstein
|
|
CC |
|
|
|
|
|
|
|
|
|
|
|
|
|
10.61
|
|
Warrant adjustment notice between Emisphere Technologies, Inc. and Elan International Services, Ltd. dated
October 20, 2009
|
|
CC |
|
|
|
|
|
|
|
|
|
|
|
|
|
10.62
|
|
Warrant adjustment notice between Emisphere Technologies, Inc. and NR Securities LTD dated October 22, 2009
|
|
CC |
|
|
|
|
|
|
|
|
|
|
|
|
|
10.63
|
|
Warrant adjustment notice between Emisphere Technologies, Inc. and Atticus European Fund, LTD dated October 22,
2009
|
|
CC |
|
|
|
|
|
|
|
|
|
|
|
|
|
10.64
|
|
Warrant adjustment notice between Emisphere Technologies, Inc. and Michael B. Targoff dated October 22, 2009
|
|
CC |
|
|
|
|
|
|
|
|
|
|
|
|
|
10.65
|
|
Agreement to Extend the Maturity Date of the Convertible Promissory Note Due December 1, 2009, between Emisphere
Technologies and Novartis Pharma AG dated November 25, 2009
|
|
EE |
|
|
|
|
|
|
|
|
|
|
|
|
|
10.66
|
|
Agreement to Extend the Maturity Date of the Convertible Promissory Note Due December 1, 2009, between Emisphere
Technologies and Novartis Pharma AG dated February 23, 2010
|
|
EE |
|
|
|
|
|
|
|
|
|
|
|
|
|
10.67
|
|
Warrant dated as of March 3, 2010 between Emisphere Technologies, Inc. and Option Opportunities Corp.
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
10.68
|
|
Warrant dated as of March 3, 2010 between Emisphere Technologies, Inc. and Option Opportunities Corp.
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
10.69
|
|
Form of Incentive Stock Option Agreement under the Emisphere Technologies, Inc. 2007 Stock Award and Incentive
Plan.
|
|
FF |
|
|
|
|
|
|
|
|
|
|
|
|
|
10.70
|
|
Form of Non-Qualified Stock Option Agreement under the Emisphere Technologies, Inc. 2007 Stock Award and
Incentive Plan.
|
|
FF |
|
|
|
|
|
|
|
|
|
|
|
|
|
10.71
|
|
Letter Agreement by and between Emisphere Technologies, Inc. and MHR Institutional Partners IIA LP, dated June
8, 2010 (filed as Exhibit 10.1 to the and incorporated herein by reference).
|
|
GG |
|
|
|
|
|
|
|
|
|
|
|
|
|
10.72
|
|
Form of Emisphere Technologies, Inc. Reimbursement Note
|
|
GG |
|
|
|
|
|
|
|
|
|
|
|
|
|
10.73
|
|
Form of Emisphere Technologies, Inc. Second Reimbursement Note
|
|
GG |
|
|
|
|
|
|
|
|
|
|
|
|
|
10.74
|
|
Research Master Agreement and Amendment by and between Emisphere Technologies, Inc. and Novartis Pharma AG,
effective as of June 4, 2010
|
|
HH |
|
|
|
|
|
|
|
|
|
|
|
|
|
10.75
|
|
Securities Purchase Agreement, dated August 25, 2010, by and among Emisphere Technologies, Inc. and the Buyers
named therein.
|
|
II |
|
|
|
|
|
|
|
|
|
|
|
|
|
10.76
|
|
Securities Purchase Agreement, dated August 25, 2010, by and among Emisphere Technologies, Inc. and the MHR
Buyers named therein.
|
|
II |
|
|
|
|
|
|
|
|
|
|
|
|
|
10.77
|
|
Waiver Agreement, dated August 25, 2010, by and among Emisphere Technologies, Inc. and MHR.
|
|
II |
|
|
|
|
|
|
|
|
|
|
|
|
|
10.78
|
|
Registration Rights Agreement, dated August 26, 2010, by and among Emisphere Technologies, Inc. and the Buyers
named therein.
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
10.79
|
|
Warrant dated as of August 26, 2010, between Emisphere Technologies, Inc. and Bai Ye Feng
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
10.80
|
|
Warrant dated as of August 26, 2010, between Emisphere Technologies, Inc. and Anson Investments Master Fund LP
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
10.81
|
|
Warrant dated as of August 26, 2010, between Emisphere Technologies, Inc. and Iroquois Master Fund, Ltd.
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
10.82
|
|
Warrant dated as of August 26, 2010, between Emisphere Technologies, Inc. and Hudson Bay Master Fund Ltd.
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
10.83
|
|
Warrant dated as of August 26, 2010, between Emisphere Technologies, Inc. and Cranshire Capital, L.P.
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
10.84
|
|
Warrant dated as of August 26, 2010, between Emisphere Technologies, Inc. and Freestone Advantage Partners, LP
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
10.85
|
|
Warrant dated as of August 26, 2010, between Emisphere Technologies, Inc. and MHR Capital Partners Master
Account LP
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
10.86
|
|
Warrant dated as of August 26, 2010, between Emisphere Technologies, Inc. and MHR Capital Partners (100) LP
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
10.87
|
|
Warrant dated as of August 26, 2010, between Emisphere Technologies, Inc. and MHR Institutional Partners II LP
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
10.88
|
|
Warrant dated as of August 26, 2010, between Emisphere Technologies, Inc. and MHR Institutional Partners IIA LP
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
10.89
|
|
Warrant dated as of August 26, 2010, between Emisphere Technologies, Inc. and MHR Capital Partners Master
Account LP
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
10.90
|
|
Warrant dated as of August 26, 2010, between Emisphere Technologies, Inc. and MHR Capital Partners (100) LP
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
10.91
|
|
Warrant dated as of August 26, 2010, between Emisphere Technologies, Inc. and MHR Institutional Partners II LP
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
10.92
|
|
Warrant dated as of August 26, 2010, between Emisphere Technologies, Inc. and MHR Institutional Partners IIA LP
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
16.1
|
|
Letter from PricewaterhouseCoopers LLP to the Securities Exchange Commission dated January 11, 2010
|
|
DD |
|
|
|
|
|
|
|
|
|
|
|
|
|
23.1
|
|
Consent of Independent Registered Public Accounting Firm McGladrey & Pullen, LLP
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
23.2
|
|
Consent of Independent Registered Public Accounting Firm PricewaterhouseCoopers LLP
|
|
* |
|
|
|
|
|
|
|
* |
|
Filed herewith |
|
(1) |
|
If not filed herewith, filed as an exhibit to the document referred to by letter as follows: |
|
A. |
|
Quarterly Report on Form 10-Q for the quarterly period ended January 31, 1999 |
|
|
|
B. |
|
Annual Report on Form 10-K for the fiscal year ended July 31, 1995 |
|
C. |
|
Annual Report on Form 10-K for the fiscal year ended July 31, 1997 |
|
D. |
|
Quarterly Report on Form 10-Q for the quarterly period ended October 31, 1997 |
|
E. |
|
Annual Report on Form 10-K for the fiscal year ended July 31, 1998 |
|
F. |
|
Annual Report on Form 10-K for the fiscal year ended July 31, 1999 |
|
G. |
|
Annual Report on Form 10-K for the fiscal year ended July 31, 2000 |
|
H. |
|
Registration statement on Form S-8 dated and filed on November 27, 2002 |
|
I. |
|
Annual Report on Form 10-K for the year ended December 31, 2003 |
|
J. |
|
Registration on Form S-3/A dated and filed February 1, 2005 |
|
K. |
|
Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2005 |
|
L. |
|
Current Report on Form 8-K, filed September 30, 2005 |
|
M. |
|
Current Report on Form 8-K, filed November 14, 2005 |
|
N. |
|
Current Report on Form 8-K filed May 4, 2005 |
|
O. |
|
Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2006 |
|
P. |
|
Current Report on Form 8-K, filed April 10, 2006 |
|
Q. |
|
Annual Report on Form 10-K for the fiscal year ended December 31, 2006 |
|
R. |
|
Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2007 |
|
S. |
|
Current Report on Form 8-K, filed April 11, 2007 |
|
T. |
|
Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2007 |
|
U. |
|
Current Report on Form 8-K, filed June 29, 2007 |
|
V. |
|
Current Report on Form 8-K, filed September 14, 2007 |
|
W. |
|
Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2007 |
|
X. |
|
Annual Report on Form 10-K for the fiscal year ended December 31, 2007 |
|
Y. |
|
Current Report on Form 8-K, filed August 11, 2008 |
|
Z. |
|
Current Report on Form 8-K, filed May 5, 2009 |
|
AA. |
|
Current Report on Form 8-K, filed May 21, 2009 |
|
BB. |
|
Current Report on Form 8-K, filed August 20, 2009 |
|
CC. |
|
Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2009 |
|
DD. |
|
Current Report on Form 8-K, filed January 12, 2010 |
|
EE. |
|
Annual Report on Form 10-K for the fiscal year ended December 31, 2009 |
|
FF. |
|
Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2010 |
|
GG. |
|
Current Report on Form 8-K, filed on June 8, 2010 |
|
HH. |
|
Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2010 |
|
II. |
|
Current Report on Form 8-K, filed on August 26, 2010 |
|
(2) |
|
Management contract or compensatory plan or arrangement |
|
(3) |
|
Portions of this exhibit have been omitted based on a request for confidential treatment filed separately with the Securities and Exchange Commission. |