Attached files
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EX-32 - DYAX CORP | v200503_ex32.htm |
EX-10.1 - DYAX CORP | v200503_ex10-1.htm |
EX-31.1 - DYAX CORP | v200503_ex31-1.htm |
EX-31.2 - DYAX CORP | v200503_ex31-2.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-Q
x
|
Quarterly
Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
|
||
For
the quarterly period ended September 30, 2010
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|||
Or
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|||
¨
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Transition
Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
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||
For
the transition period
from to
.
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Commission
File No. 000-24537
DYAX
CORP.
|
(Exact
Name of Registrant as Specified in its
Charter)
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DELAWARE
|
04-3053198
|
|
(State
of Incorporation)
|
(I.R.S.
Employer Identification Number)
|
300
TECHNOLOGY SQUARE, CAMBRIDGE, MA 02139
|
(Address
of Principal Executive Offices)
|
(617)
225-2500
|
(Registrant’s
Telephone Number, including Area
Code)
|
Indicate
by check mark whether the registrant: (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
YES
x
NO ¨
Indicate
by check mark whether the registrant has submitted electronically and posted on
it corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or such shorter period that the
registrant was required to submit and post such files).
YES
¨
NO ¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting
company. See definitions of “accelerated filer”, “large accelerated
filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check
one):
Large accelerated filer ¨
|
Accelerated filer x
|
Non-accelerated filer ¨
|
Smaller reporting company ¨
|
Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
YES
¨
NO x
Number of
shares outstanding of Dyax Corp.’s Common Stock, par value $0.01, as of October
22, 2010: 98,506,451
DYAX
CORP.
TABLE OF
CONTENTS
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Page
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PART I
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FINANCIAL
INFORMATION
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2
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||
Item 1
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-
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Financial
Statements
|
3
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|
Consolidated
Balance Sheets (Unaudited) as of September 30, 2010 and December 31,
2009
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3
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|||
Consolidated
Statements of Operations and Comprehensive Income (Loss) (Unaudited) for
the three and nine months ended September 30, 2010 and 2009
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4
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|||
Consolidated Statements of Cash
Flows (Unaudited) for the nine months ended
September 30, 2010 and 2009
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5
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Notes
to Consolidated Financial Statements (Unaudited)
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6
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|||
Item 2
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-
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Management’s Discussion and
Analysis of Financial Condition and Results of
Operations
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20
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Item 3
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-
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Quantitative and Qualitative
Disclosures About Market Risk
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31
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Item 4
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-
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Controls and
Procedures
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32
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PART II
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OTHER
INFORMATION
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32
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Item
1a
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-
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Risk
Factors
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32
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Item 6
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-
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Exhibits
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51
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Signatures
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||||
Exhibit
Index
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2
PART
I – FINANCIAL INFORMATION
Item
1 – FINANCIAL STATEMENTS
Dyax
Corp. and Subsidiaries
Consolidated
Balance Sheets (Unaudited)
September 30,
2010
|
December 31,
2009
|
|||||||
(In
thousands, except share data)
|
||||||||
ASSETS
|
||||||||
Current
assets:
|
||||||||
Cash
and cash equivalents
|
$ | 32,792 | $ | 29,386 | ||||
Short-term
investments
|
54,718 | 23,009 | ||||||
Accounts
receivable, net
|
1,771 | 2,723 | ||||||
Inventory
|
1,426 | 578 | ||||||
Other
current assets
|
2,971 | 2,816 | ||||||
Total
current assets
|
93,678 | 58,512 | ||||||
Fixed
assets, net
|
2,401 | 3,508 | ||||||
Restricted
cash
|
2,188 | 2,177 | ||||||
Other
assets
|
434 | 604 | ||||||
Total
assets
|
$ | 98,701 | $ | 64,801 | ||||
LIABILITIES
AND STOCKHOLDERS' EQUITY (DEFICIT)
|
||||||||
Current
liabilities:
|
||||||||
Accounts
payable and accrued expenses
|
$ | 9,038 | $ | 11,787 | ||||
Current
portion of deferred revenue
|
7,556 | 10,345 | ||||||
Current
portion of long-term obligations
|
699 | 890 | ||||||
Other
current liabilities
|
961 | 1,364 | ||||||
Total
current liabilities
|
18,254 | 24,386 | ||||||
Deferred
revenue
|
13,132 | 19,785 | ||||||
Note
payable
|
56,345 | 58,096 | ||||||
Long-term
obligations
|
167 | 653 | ||||||
Deferred
rent and other long-term liabilities
|
300 | 483 | ||||||
Total
liabilities
|
88,198 | 103,403 | ||||||
Commitments
and contingencies (Notes 7 and 9)
|
||||||||
Stockholders'
equity (deficit):
|
||||||||
Preferred
stock, $0.01 par value; 1,000,000 shares authorized; 0 shares issued and
outstanding
|
— | — | ||||||
Common
stock, $0.01 par value; 125,000,000 shares authorized; 98,500,976 and
78,074,052 shares issued and outstanding at September 30, 2010 and
December 31, 2009, respectively
|
985 | 781 | ||||||
Additional
paid-in capital
|
442,815 | 378,421 | ||||||
Accumulated
deficit
|
(433,380 | ) | (417,819 | ) | ||||
Accumulated
other comprehensive income
|
83 | 15 | ||||||
Total
stockholders' equity (deficit)
|
10,503 | (38,602 | ) | |||||
Total
liabilities and stockholders' equity (deficit)
|
$ | 98,701 | $ | 64,801 |
The
accompanying notes are an integral part of the unaudited consolidated financial
statements.
3
Dyax
Corp. and Subsidiaries Consolidated Statements of Operations and Comprehensive
Income (Loss)
(Unaudited)
Three
Months Ended
September
30,
|
Nine
Months Ended
September
30,
|
|||||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
(In thousands, except share and
per share data)
|
||||||||||||||||
Revenues:
|
||||||||||||||||
Product
sales, net
|
$ | 2,622 | $ | — | $ | 5,796 | $ | — | ||||||||
Development
and license fee revenues
|
4,329 | 4,508 | 36,345 | 15,305 | ||||||||||||
Total
revenues
|
6,951 | 4,508 | 42,141 | 15,305 | ||||||||||||
Costs
and expenses:
|
||||||||||||||||
Cost
of product sales
|
119 | — | 247 | — | ||||||||||||
Research
and development expenses
|
7,940 | 7,095 | 23,743 | 37,787 | ||||||||||||
Selling,
general and administrative expenses
|
7,668 | 5,923 | 24,619 | 18,916 | ||||||||||||
Restructuring
costs
|
— | 395 | — | 2,331 | ||||||||||||
Impairment
of fixed assets
|
— | 955 | — | 955 | ||||||||||||
Total
costs and expenses
|
15,727 | 14,368 | 48,609 | 59,989 | ||||||||||||
Loss
from operations
|
(8,776 | ) | (9,860 | ) | (6,468 | ) | (44,684 | ) | ||||||||
Other
income (expense):
|
||||||||||||||||
Interest
income
|
62 | 379 | 137 | 558 | ||||||||||||
Interest
and other expenses
|
(2,540 | ) | (2,712 | ) | (9,230 | ) | (7,377 | ) | ||||||||
Total
other expense
|
(2,478 | ) | (2,333 | ) | (9,093 | ) | (6,819 | ) | ||||||||
Net
loss
|
(11,254 | ) | (12,193 | ) | (15,561 | ) | (51,503 | ) | ||||||||
Other
comprehensive income (loss):
|
||||||||||||||||
Foreign
currency translation adjustments
|
— | (311 | ) | — | (491 | ) | ||||||||||
Unrealized
gain (loss) on investments
|
(1 | ) | (1 | ) | 33 | (134 | ) | |||||||||
Comprehensive
loss
|
$ | (11,255 | ) | $ | (12,505 | ) | $ | (15,528 | ) | $ | (52,128 | ) | ||||
Basic
and diluted net loss per share
|
$ | (0.11 | ) | $ | (0.17 | ) | $ | (0.17 | ) | $ | (0.78 | ) | ||||
Shares
used in computing basic and diluted net loss per share
|
98,401,835 | 72,485,047 | 91,502,187 | 66,452,507 |
The
accompanying notes are an integral part of the unaudited consolidated financial
statements.
4
Dyax
Corp. and Subsidiaries Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended September 30,
|
||||||||
2010
|
2009
|
|||||||
(In thousands)
|
||||||||
Cash
flows from operating activities:
|
||||||||
Net
loss
|
$ | (15,561 | ) | $ | (51,503 | ) | ||
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
||||||||
Amortization
of purchased premium/discount
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26 | 139 | ||||||
Depreciation
and amortization of fixed assets
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1,132 | 1,770 | ||||||
Amortization
of intangibles
|
2 | 377 | ||||||
Impairment
of fixed assets
|
— | 955 | ||||||
Non-cash
interest expense
|
1,145 | 1,290 | ||||||
Compensation
expenses associated with stock-based compensation plans
|
2,935 | 4,407 | ||||||
(Gain)
loss on disposal of fixed assets
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51 | (33 | ) | |||||
Provision
for doubtful accounts
|
15 | — | ||||||
Non-cash
other income
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— | (337 | ) | |||||
Changes
in operating assets and liabilities:
|
||||||||
Accounts
receivable
|
937 | 3,617 | ||||||
Prepaid
research and development and other current assets
|
(622 | ) | 106 | |||||
Inventory
|
(752 | ) | — | |||||
Accounts
payable and accrued expenses
|
(4,307 | ) | (4,785 | ) | ||||
Deferred
revenue
|
(9,442 | ) | (944 | ) | ||||
Other
long-term liabilities and assets
|
179 | (257 | ) | |||||
Net
cash used in operating activities
|
(24,262 | ) | (45,198 | ) | ||||
Cash
flows from investing activities:
|
||||||||
Purchase
of fixed assets
|
(176 | ) | (450 | ) | ||||
Purchase
of investments
|
(53,667 | ) | (26,511 | ) | ||||
Proceeds
from maturity of investments
|
21,999 | 30,506 | ||||||
Proceeds
from sale of fixed assets
|
29 | 51 | ||||||
Restricted
cash
|
700 | — | ||||||
Net
cash (used in) provided by investing activities
|
(31,115 | ) | 3,596 | |||||
Cash
flows from financing activities:
|
||||||||
Net
proceeds from common stock offerings
|
61,133 | 17,852 | ||||||
Proceeds
from note payable
|
— | 14,820 | ||||||
Repayment
of long-term obligations
|
(2,613 | ) | (4,588 | ) | ||||
Proceeds
from the issuance of common stock under employee stock purchase plan and
exercise of stock options
|
263 | 407 | ||||||
Net
cash provided by financing activities
|
58,783 | 28,491 | ||||||
Effect
of foreign currency translation on cash balances
|
— | 29 | ||||||
Net
increase (decrease) in cash and cash equivalents
|
3,406 | (13,082 | ) | |||||
Cash
and cash equivalents at beginning of the period
|
29,386 | 27,668 | ||||||
Cash
and cash equivalents at end of the period
|
$ | 32,792 | $ | 14,586 | ||||
Supplemental disclosure of
non-cash investing and financing activities:
|
||||||||
Warrant
issued in connection with note payable
|
$ | — | $ | 477 |
The
accompanying notes are an integral part of the unaudited consolidated financial
statements.
5
DYAX
CORP.
NOTES TO
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1.
BUSINESS OVERVIEW
Dyax
Corp. (Dyax or the Company) is a biopharmaceutical company focused on the
discovery, development and commercialization of novel biotherapeutics for unmet
medical needs. The Company began commercializing KALBITOR®
(ecallantide) for treatment of acute attacks of hereditary angioedema (HAE) in
patients 16 years of age and older in February
2010.
KALBITOR
was discovered using Dyax’s proprietary drug discovery technology, known as
phage display. This technology is also used to identify other
antibody, small protein and peptide compounds with therapeutic potential and has
provided the Company an internal pipeline of drug candidates and numerous
licenses and collaborations that generate revenues through funded research,
license fees, milestone payments and royalties.
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation
The
accompanying unaudited interim consolidated financial statements have been
prepared by the Company in accordance with accounting principles generally
accepted in the United States of America (GAAP) for interim financial
information and in accordance with instructions to the Quarterly Report on Form
10-Q. It is management’s opinion that the accompanying unaudited
interim consolidated financial statements reflect all adjustments (which are
normal and recurring) necessary for a fair statement of the results for the
interim periods. The financial statements should be read in
conjunction with the consolidated financial statements included in the Company’s
Annual Report on Form 10-K for the year ended December 31, 2009. The
accompanying December 31, 2009 consolidated balance sheet was derived from
audited financial statements, but does not include all disclosures required by
GAAP.
The
preparation of financial statements in conformity with GAAP requires management
to make estimates and assumptions that affect (i) the reported amounts of assets
and liabilities, (ii) disclosure of contingent assets and liabilities at the
dates of the financial statements and (iii) the reported amounts of revenue and
expenses during the reporting periods. Actual results could differ
from those estimates. The results of operations for the three and nine
months ended September 30, 2010 are not necessarily indicative of the results
that may be expected for the year ending December 31, 2010.
Basis of
Consolidation
The
accompanying consolidated financial statements include the accounts of the
Company and the Company's European subsidiaries Dyax S.A. and
Dyax BV. All inter-company accounts and transactions have been
eliminated.
Use
of Estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
certain estimates and assumptions that affect the amounts of assets and
liabilities reported and disclosure of contingent assets and liabilities at the
dates of the financial statements and the reported amounts of revenue and
expenses during the reporting periods. The significant estimates and
assumptions in these financial statements include revenue recognition, product
sales allowances, useful lives with respect to long lived assets, valuation of
stock options, accrued expenses and tax valuation reserves. Actual results
could differ from those estimates.
6
Concentration
of Credit Risk
Financial
instruments that potentially subject the Company to concentrations of credit
risk consist principally of cash, cash equivalents, short-term investments and
trade accounts receivable. At September 30, 2010 and
December 31, 2009, approximately 93% and 81% of the Company's cash, cash
equivalents and short-term investments were invested in money market funds
backed by U.S. Treasury obligations, U.S. Treasury notes and bills, and
obligations of United States government agencies held by one financial
institution. The Company maintains balances in various operating
accounts in excess of federally insured limits.
The
Company provides most of its services and licenses its technology to
pharmaceutical and biomedical companies worldwide, and makes all product sales
to its exclusive distributor. Concentrations of credit risk with
respect to trade receivable balances are usually limited on an ongoing basis,
due to the diverse number of licensees and collaborators comprising the
Company's customer base. As of September 30, 2010, two customers
accounted for 71% and 14% of the accounts receivable balance. One
customer accounted for approximately 64% of the Company's accounts receivable
balance as of December 31, 2009, which was collected in the first quarter
of 2010.
Cash
and Cash Equivalents
All
highly liquid investments purchased with an original maturity of ninety days or
less are considered to be cash equivalents. Cash and cash equivalents
consist principally of cash and U.S. Treasury funds.
Investments
Short-term
investments primarily consist of investments with original maturities greater
than ninety days and remaining maturities less than one year when purchased.
The Company has also classified its investments with maturities beyond one
year as short-term, based on their highly liquid nature and because such
marketable securities represent the investment of cash that is available for
current operations. The Company considers its investment portfolio of
investments available-for-sale. Accordingly, these investments are
recorded at fair value, which is based on quoted market prices. As of
September 30, 2010, the Company's investments consisted of U.S.
Treasury notes and bills with an amortized cost of $54.6 million, an estimated
fair value of $54.7 million and an unrealized gain of $83,000, which is recorded
in other comprehensive income on the accompanying consolidated balance
sheets. As of December 31, 2009, the Company's investments
consisted of U.S. Treasury notes and bills with an amortized cost and estimated
fair value of $23.0 million and had an unrealized gain of $15,000, which is
recorded in other comprehensive income on the accompanying consolidated balance
sheets.
Inventories
Inventories
are stated at the lower of cost or market with cost determined under the
first-in, first-out, or FIFO, basis. The Company evaluates inventory levels and
would write-down inventory that is expected to expire prior to being sold,
inventory that has a cost basis in excess of its expected net realizable value,
inventory in excess of expected sales requirements, or inventory that fails to
meet commercial sale specifications, through a charge to cost of product sales.
Included in the cost of inventory are employee stock-based compensation costs
capitalized under Accounting Standards Codification (ASC) 718.
Fixed
Assets
Property
and equipment are recorded at cost and depreciated over the estimated useful
lives of the related assets using the straight-line method. Laboratory and
production equipment, furniture and office equipment are depreciated over a
three to seven year period. Leasehold improvements are stated at cost and are
amortized over the lesser of the non-cancelable term of the related lease or
their estimated useful lives. Leased equipment is amortized over the lesser of
the life of the lease or their estimated useful lives. Maintenance and repairs
are charged to expense as incurred. When assets are retired or otherwise
disposed of, the cost of these assets and related accumulated depreciation and
amortization are eliminated from the balance sheet and any resulting gains or
losses are included in operations in the period of disposal.
7
Impairment
of Long-Lived Assets
The
Company reviews its long-lived assets for impairment whenever events or changes
in business circumstances indicate that the carrying amount of assets may not be
fully recoverable or that the useful lives of these assets are no longer
appropriate. Each impairment test is based on a comparison of the undiscounted
cash flow to the recorded value of the asset. If impairment is indicated, the
asset is written down to its estimated fair value on a discounted cash flow
basis.
Guarantees
The
Company has determined that it is not a party to any agreements that fall within
the scope of Guarantees of indebtedness in accordance with ASC 460, Guarantees. The
Company generally does not provide indemnification with respect to the license
of its phage display technology. The Company does generally provide
indemnifications for claims of third parties that arise out of activities that
the Company performs under its collaboration, product development and
cross-licensing activities. The maximum potential amount of future payments the
Company could be required to make under the indemnification provisions in some
instances may be unlimited. The Company has not incurred any costs to defend
lawsuits or settle claims related to any indemnification obligations under its
license agreements. As a result, the Company believes the estimated fair value
of these obligations is minimal. The Company has no liabilities recorded for any
of its indemnification obligations recorded as of September 30, 2010 and
December 31, 2009.
Revenue
Recognition
The
Company’s principal sources of revenue are product sales of KALBITOR, license
fees, funding for research and development, and milestones and royalties derived
from collaboration and license agreements. In all instances, revenue
is recognized only when the price is fixed or determinable, persuasive evidence
of an arrangement exists, delivery has occurred or services have been rendered,
collectibility of the resulting receivable is reasonably assured and the Company
has no further performance obligations.
Product
Sales and Allowances
Product
Sales. All product sales
are generated from the sale of KALBITOR to ASD Specialty
Healthcare Inc. (ASD), the Company’s exclusive wholesale
distributor, and US Bioservices Corporation (US Bio), its exclusive
specialty pharmacy, both of which are wholly-owned subsidiaries of
AmerisourceBergen Specialty Group, Inc. (ABSG). Product sales are
recorded upon delivery to ASD and US Bio. These sales are recorded
net of applicable reserves for trade prompt pay discounts, government rebates, a
patient assistance program, product returns and other applicable
allowances.
Product Sales
Allowances. The Company
establishes reserves for trade prompt pay discounts, government rebates, a
patient assistance program, product returns and other applicable
allowances. Reserves established for these discounts and allowances
are classified as a reduction of accounts receivable (if the amount is payable
to the customer) or a liability (if the amount is payable to a party other than
the customer).
Allowances against receivable balances
primarily relate to prompt payment discounts and are recorded at the time of
sale, resulting in a reduction in product sales revenue. Accruals
related to government rebates, the patient financial assistance program, product
returns and other applicable allowances are recognized at the time of sale,
resulting in a reduction in product sales revenue and the recording of an
increase in accrued expenses.
8
The
Company maintains a service contract with US Bio for patient service
initiatives. Accounting standards related to consideration given by a vendor to
a customer, including a reseller of a vendor’s product, specify that each
consideration given by a vendor to a customer is presumed to be a reduction of
the selling price. Consideration should be characterized as a cost if
the company receives, or will receive, an identifiable benefit in exchange for
the consideration, and fair value of the benefit can be reasonably
estimated. The Company has established that the services are at fair
value and represent a separate and identifiable benefit related to these
services and, accordingly, has classified them as selling, general and
administrative expense.
Prompt Payment
Discounts. The Company
offers a prompt payment discount to its customers ASD and US
Bio. Since the Company expects their customers will take advantage of
this discount, the Company accrues 100% of the prompt payment discount that is
based on the gross amount of each invoice, at the time of sale. The
accrual is adjusted quarterly to reflect actual earned discounts.
Government
Rebates and Chargebacks. The Company
estimates reductions to product sales for Medicaid and Veterans’ Administration
(VA) programs, as well as with respect to certain other qualifying federal and
state government programs. The Company estimates the amount of these
reductions based on market research data related to payer mix, actual sales data
and historical experience for similar products sold by others. These
allowances are adjusted each period based on actual experience.
Medicaid
rebate reserves relate to the Company’s estimated obligations to states under
the established reimbursement arrangements of each applicable
state. Rebate accruals are recorded during the same period in which
the related product sales are recognized. Actual rebate amounts are
determined at the time of claim by the state, and the Company will generally
make cash payments for such amounts after receiving billings from the
state.
VA
rebates or chargeback reserves represent the Company’s estimated obligations
resulting from contractual commitments to sell products to qualified healthcare
providers at a price lower than the list price charged to the Company’s
distributor. The distributor will charge the Company for the
difference between what the distributor pays for the product and the ultimate
selling price to the qualified healthcare provider. Rebate accruals
are established during the same period in which the related product sales are
recognized. Actual chargeback amounts for Public Health Service are determined
at the time of resale to the qualified healthcare provider from the distributor,
and the Company will generally issue credits for such amounts after receiving
notification from the distributor.
The
Company offers a financial assistance program, which involves the use of a
patient voucher, for qualified KALBITOR patients in order to aid a patient’s
access to KALBITOR. The Company estimates its liability from this
voucher program based on actual redemption rates.
Although
allowances and accruals are recorded at the time of product sale, certain
rebates are typically paid out, on average, up to six months or longer after the
sale. Reserve estimates are evaluated quarterly and if necessary,
adjusted to reflect actual results. Any such adjustments will be
reflected in the Company’s operating results in the period of the
adjustment.
Product
Returns. Allowances for
product returns are recorded during the period in which the related product
sales are recognized, resulting in a reduction to product
revenue. The Company does not provide its customers with a general
right of product return. It permits returns if the product is damaged or
defective when received by its customers or if the product has
expired. The Company estimates product returns based upon historical
trends in the pharmaceutical industry and trends for similar products sold by
others.
9
Development
and License Fee Revenues
Collaboration
Agreements. The Company enters into collaboration agreements
with other companies for the research and development of therapeutic, diagnostic
and separations products. The terms of the agreements may include non-refundable
signing and licensing fees, funding for research and development, milestone
payments and royalties on any product sales derived from collaborations. These
multiple element arrangements are analyzed to determine whether the
deliverables, which often include a license and performance obligations such as
research and steering committee services, can be separated or whether they must
be accounted for as a single unit of accounting.
The Company recognizes
up-front license payments as revenue upon delivery of the license only if the
license has stand-alone value and the fair value of the undelivered performance
obligations, typically including research and/or steering committee
services, can be determined. If the fair value of the undelivered
performance obligations can be determined, such obligations are accounted for
separately once the obligations are fulfilled. If the license is considered to
either not have stand-alone value or have stand-alone value but the fair value
of any of the undelivered performance obligations cannot be determined, the
arrangement would then be accounted for as a single unit of accounting and the
license payments and payments for performance obligations are recognized as
revenue over the estimated period of when the performance obligations are
performed.
Steering
committee services that are not inconsequential or perfunctory and that are
determined to be performance obligations are combined with other research
services or performance obligations required under an arrangement, if any, in
determining the level of effort required in an arrangement and the period over
which the Company expects to complete its aggregate performance
obligations.
Whenever
the Company determines that an arrangement should be accounted for as a single
unit of accounting, it must determine the period over which the performance
obligations will be performed and revenue will be recognized. Revenue will be
recognized using either a proportional performance or straight-line method. The
Company recognizes revenue using the proportional performance method when the
level of effort required to complete its performance obligations under an
arrangement can be reasonably estimated and such performance obligations are
provided on a best-efforts basis. Direct labor hours or full-time equivalents
are typically used as the measurement of performance.
If the
Company cannot reasonably estimate the level of effort to complete its
performance obligations under an arrangement, then revenue under the arrangement
would be recognized on a straight-line basis over the period the Company is
expected to complete its performance obligations.
Many of
the Company's collaboration agreements entitle it to additional payments upon
the achievement of performance-based milestones. If the achievement of a
milestone is considered probable at the inception of the collaboration, the
related milestone payment is included with other collaboration consideration,
such as up-front fees and research funding, in the Company's revenue model.
Milestones that involve substantial effort on the Company's part and the
achievement of which are not considered probable at the inception of the
collaboration are considered "substantive milestones." Substantive milestones
are included in the Company's revenue model when achievement of the milestone is
considered probable. As future substantive milestones are achieved, a portion of
the milestone payment, equal to the percentage of the performance period
completed when the milestone is achieved, multiplied by the amount of the
milestone payment, will be recognized as revenue upon achievement of such
milestone. The remaining portion of the milestone will be recognized over the
remaining performance period using the proportional performance or straight-line
method. Milestones that are tied to regulatory approval are not considered
probable of being achieved until such approval is received. Milestones tied to
counter-party performance are not included in the Company's revenue model until
the performance conditions are met.
Royalty
revenue is recognized upon the sale of the related products provided the Company
has no remaining performance obligations under the arrangement.
Costs of
revenues related to product development and license fees are classified as
research and development in the consolidated statements of operations and
comprehensive loss.
10
Patent
Licenses. The Company
generally licenses its patent rights covering phage display on a non-exclusive
basis to third parties for use in connection with the research and development
of therapeutic, diagnostic, and other products.
Standard
terms of the patent rights agreements generally include non-refundable signing
fees, non-refundable license maintenance fees, development milestone payments
and royalties on product sales. Signing fees and maintenance fees are generally
recognized on a straight line basis over the term of the agreement. Perpetual
patent licenses are recognized immediately if the Company has no future
obligations and the payments are upfront.
Library
Licenses. Standard terms of
the proprietary phage display library agreements generally include
non-refundable signing fees, license maintenance fees, development milestone
payments, product license payments and royalties on product sales. Signing fees
and maintenance fees are generally recognized on a straight line basis over the
term of the agreement. As milestones are achieved under a phage display library
license, a portion of the milestone payment, equal to the percentage of the
performance period completed when the milestone is achieved, multiplied by the
amount of the milestone payment, will be recognized. The remaining portion of
the milestone will be recognized over the remaining performance period on a
straight-line basis. Milestone payments under these license arrangements are
recognized when the milestone is achieved if the Company has no future
obligations under the license. Product license payments are recognized as
revenue when the license is issued if the Company has no future obligations
under the agreement. If there are future obligations under the agreement,
product license payments are recognized as revenue only to the extent of the
fair value of the license. Amounts paid in excess of fair value are recognized
in a manner similar to milestone payments. Royalty revenue is recognized upon
the sale of the related products provided the Company has no remaining
performance obligations under the arrangement.
Payments
received that have not met the appropriate criteria for revenue recognition are
recorded as deferred revenue.
Cost of Product
Sales
Cost of
product sales includes costs to procure, manufacture and distribute KALBITOR and
manufacturing royalties. Costs associated with the manufacture of KALBITOR prior
to regulatory approval were expensed when incurred as a research and development
cost and accordingly, the majority of the costs of KALBITOR sold during the
three and nine months ended September 30, 2010 are not included in cost of
product sales.
Research and
Development
Research
and development costs include all direct costs, including salaries and benefits
for research and development personnel, outside consultants, costs of clinical
trials, sponsored research, clinical trials insurance, other outside costs,
depreciation and facility costs related to the development of drug
candidates.
Income
Taxes
The
Company utilizes the asset and liability method of accounting for income taxes
in accordance with ASC 740. Under this method, deferred tax assets and
liabilities are recognized for the expected future tax consequences of temporary
differences between the carrying amounts and the tax basis of assets and
liabilities using the current statutory tax rates. At September 30,
2010 and December 31, 2009, there were no unrecognized tax
benefits.
The
Company accounts for uncertain tax positions using a "more-likely-than-not"
threshold for recognizing and resolving uncertain tax positions. The evaluation
of uncertain tax positions is based on factors that include, but are not limited
to, changes in tax law, the measurement of tax positions taken or expected to be
taken in tax returns, the effective settlement of matters subject to audit, new
audit activity and changes in facts or circumstances related to a tax position.
The Company evaluates uncertain tax positions on a quarterly basis and adjusts
the level of the liability to reflect any subsequent changes in the relevant
facts surrounding the uncertain positions.
11
Translation
of Foreign Currencies
Assets
and liabilities of the Company's foreign subsidiaries are translated at period
end exchange rates. Amounts included in the statements of operations are
translated at the average exchange rate for the period. Beginning July 1,
2009, all currency translation adjustments are recorded to other income
(expense) in the consolidated statement of operations. Prior to the closure of
the Company’s Liege, Belgium facility, currency translation adjustments were
made directly to accumulated other comprehensive income (loss) in the
consolidated balance sheets. The change is a result of the closure of that
facility. For the
three and nine months ending September 30, 2010, the translation of foreign
currencies generated a gain of $61,000 and a loss of $33,000,
respectively. For the three and nine months ending
September 30, 2009, the translation of foreign currencies generated a gain
of $26,000 and a loss of $154,000, respectively.
Share-Based
Compensation
The
Company’s share-based compensation program consists of share-based awards
granted to employees in the form of stock options, as well as its Employee Stock
Purchase Plan (the Purchase Plan). The Company’s share-based
compensation expense is recorded in accordance with ASC 718.
Loss Per Share
The
Company presents two earnings or loss per share (EPS) amounts, basic and
diluted, in accordance with ASC 260. Basic loss per share is computed
using the weighted average number of shares of common stock outstanding. Diluted
net loss per share does not differ from basic net loss per share since
potential common shares from the exercise of stock options, warrants or
rights under the Purchase Plan are anti-dilutive for the periods ended September
30, 2010 and 2009, and therefore, are excluded from the calculation of diluted
net loss per share.
Stock
options and warrants to purchase a total of 9,932,997 and 9,136,208 shares
of common stock were outstanding at September 30, 2010 and 2009,
respectively.
Comprehensive
Loss
The
Company accounts for comprehensive loss under ASC 220, Comprehensive Income, which
established standards for reporting and displaying comprehensive loss and
its components in a full set of general purpose financial statements. The
statement required that all components of comprehensive loss be reported in
a financial statement that is displayed with the same prominence as other
financial statements.
Business
Segments
The
Company discloses business segments under ASC 280, Segment
Reporting. The statement established standards for
reporting information about operating segments and disclosures about products
and services, geographic areas and major customers. The Company
operates as one business segment within one geographic area.
Recent
Accounting Pronouncements
From time
to time, new accounting pronouncements are issued by the Financial Accounting
Standards Board (FASB) or other standard setting bodies, which are adopted by
the Company as of the specified effective date. Unless otherwise discussed, the
Company believes that the impact of recently issued standards that are not yet
effective will not have a material impact on its financial position or results
of operations upon adoption.
12
In
October 2009, the FASB issued a new accounting standard which amends existing
revenue recognition accounting pronouncements for Multiple-Deliverable Revenue
Arrangements. This new standard provides accounting principles
and application guidance on whether multiple deliverables exist, how the
arrangement should be separated, and the consideration allocated. This guidance
eliminates the requirement to establish the fair value of undelivered products
and services and instead provides for separate revenue recognition based upon
management’s estimate of the selling price for an undelivered item in
circumstances when there is no other means to determine the fair value of that
undelivered item. Multiple-deliverable revenue arrangement guidance previously
required that the fair value of the undelivered item be the price of the item
either sold in a separate transaction between unrelated third parties or the
price charged for each item when the item is sold separately by the vendor. This
was difficult to determine when the product was not individually sold because of
its unique features. Under the previous guidance, if the fair value of all of
the elements in the arrangement was not determinable, then revenue was deferred
until all of the items were delivered or fair value was determined. This new
approach is effective prospectively for revenue arrangements entered into or
materially modified in fiscal years beginning on or after June 15, 2010,
which for the Company is no later than January 1, 2011. While the
Company does not expect the adoption of this standard to have a material impact
on its financial position or results of operations, this standard may have an
impact in the event that future transactions are completed or existing
collaborations are materially modified.
In April
2010, the FASB issued Accounting Standards Update (ASU) No. 2010-17, Revenue Recognition — Milestone
Method (ASU 2010-017). ASU 2010-017 provides guidance in applying the
milestone method of revenue recognition to research or development arrangements.
Under this guidance a company may recognize revenue contingent upon the
achievement of a milestone in its entirety, in the period in which the milestone
is achieved, only if the milestone meets all the criteria within the guidance to
be considered substantive. This ASU is effective on a prospective basis for
research and development milestones achieved in fiscal years, beginning on or
after June 15, 2010, which for the Company is no later than January 1,
2011. Early adoption is permitted; however, adoption of this guidance as of a
date other than January 1, 2011 will require the Company to apply this
guidance retrospectively effective as of January 1, 2010 and will require
disclosure of the effect of this guidance as applied to all previously reported
interim periods in the fiscal year of adoption. As the Company plans to
implement ASU No. 2010-17 prospectively, the effect of this guidance will
be limited to future transactions. The Company does not expect adoption of this
standard to have a material impact on its financial position or results of
operations as it has no material research and development arrangements which
will be accounted for under the milestone method.
3.
SIGNIFICANT TRANSACTIONS
CMIC
On September
28, 2010, the Company entered into an agreement with CMIC Co., Ltd, (CMIC)
to develop and commercialize subcutaneous ecallantide for the treatment of HAE
and other angioedema indications in Japan.
Under the
terms of the agreement, the Company received a $4.0 million upfront
payment. The Company is also eligible to receive up to $102 million
in development and sales milestones for ecallantide in HAE and other angioedema
indications and royalties of 20%-24% of net product sales. CMIC is solely
responsible for all costs associated with development, regulatory activities,
and commercialization of ecallantide for all angioedema indications in Japan.
CMIC will purchase drug product from the Company on a cost-plus basis for
clinical and commercial supply.
13
The Company analyzed this multiple
element arrangement in accordance with ASC 605 and evaluated whether the
performance obligations under this agreement, including the technology license,
development of ecallantide for the treatment of HAE and other angioedema
indications in Japan, steering committee, and manufacturing services
should be accounted for as a single unit or multiple units of
accounting. The Company determined that there were two units of
accounting. The first unit of accounting includes the
technology license, the committed future development services and the steering
committee involvement. The second unit of accounting relates to the
manufacturing services. The Company has the ability to estimate the scope
and timing of their involvement in the future development of this program as the
Company’s obligations under the development period are clearly defined and
therefore are recognizing revenue related to the first unit of accounting over
this period of performance. For the three and nine months ending
September 30, 2010, no revenue was recognized related this
agreement. As of September 30, 2010, the Company has deferred
the full amount of the upfront received related to this arrangement, which is
recorded in deferred revenue on the accompanying consolidated balance
sheets.
Sigma-Tau
In June
2010, the Company entered into a strategic partnership agreement with
Defiante Farmaceutica S.A., a subsidiary of the pharmaceutical company Sigma-Tau
SpA (Sigma-Tau) to develop and commercialize subcutaneous ecallantide (formerly referred to by
Dyax as DX-88) for the treatment of HAE and other therapeutic indications
throughout Europe, North Africa, the Middle East and Russia.
Under the
terms of the agreement, Sigma-Tau made a $2.5 million upfront payment, which was
received in July 2010. In addition, Sigma-Tau purchased 636,132 shares of
the Company’s common stock at a price of $3.93 per share, which represented a
50% premium over the 20-day average closing price through June 17, 2010, for an
aggregate purchase price of $2.5 million. The Company is also eligible to
receive over $100 million in development and sales milestones related to
ecallantide and royalties equal to 41% of net sales of product, as adjusted for
product costs. Sigma-Tau will pay costs associated with regulatory
approval and commercialization in the licensed territories. In addition,
the Company and Sigma-Tau will share equally the costs for all development
activities for optional future indications developed in partnership with
Sigma-Tau.
The Company analyzed this multiple
element arrangement in accordance with ASC 605 and evaluated whether the
performance obligations under this agreement, including the technology license
and development, steering committee, and manufacturing services should be
accounted for as a single unit or multiple units of accounting. The
Company determined that there were two units of accounting. The
first unit of accounting includes the technology license, the committed future
development services and the steering committee involvement. The
second unit of accounting relates to the manufacturing services. The
Company has the ability to estimate the scope and timing of their involvement in
the future development of this program as the Company’s obligations under the
development period are clearly defined and therefore are recognizing revenue
related to the first unit of accounting utilizing a proportional performance
model based on the actual effort performed in proportion to the total estimated
level of effort. Under this model, the Company estimates
the level of effort to be expended over the term of the agreement and recognizes
revenue based on the lesser of the amount calculated based on proportional
performance of total expected revenue or the amount of non-refundable payments
earned. The second unit of accounting relates to manufacturing
services under which manufacturing revenue will be recognized as
manufacturing services are completed during commercialization of ecallantide in
the licensed territories.
The $2.5 million upfront payment,
$922,000 in equity which represented the difference between the purchase price
and the closing price of the common stock on the date of the stock purchase by
Sigma-Tau and estimated reimbursements related to the development services, are
being recorded as revenue under the proportional performance method. As
future substantive milestones are achieved, and to the extent they are within
the period of performance, milestone payments will be recognized as revenue on a
proportional performance basis over the contract’s entire performance period,
starting with the contract’s commencement. A portion of the milestone payment,
equal to the percentage of total performance completed when the milestone is
achieved, multiplied by the milestone payment, will be recognized as revenue
upon achievement of the milestone. The remaining portion of the milestone will
be recognized over the remaining performance period under the proportional
performance method.
The Company recognized revenue of
approximately $498,000 and $549,000 related to this agreement for the three and
nine months ending September 30, 2010, respectively. As of September
30, 2010, the Company has deferred $2.9 million of revenue related to this
arrangement, which is recorded in deferred revenue on the accompanying
consolidated balance sheets.
14
Sale
of Xyntha Royalty Rights
In April
2010, the Company sold its rights to royalties and other payments related to the
commercialization of the product Xyntha®, which
was developed by one of the Company’s licensees under the Company’s phage
display Licensing and Funded Research Program (LFRP). Under the terms
of this sale, the Company received an upfront cash payment of $9.8 million and
is eligible to receive milestone payments of up to $2.0 million based on 2010
and 2011 product sales. A portion of the upfront cash payment was
required to be applied to the Company’s loan with Cowen Healthcare (see Note 7 –
Note Payable), including a $1.9 million principal reduction and interest expense
of $1.3 million. The Company evaluated the guidelines of ASC 470-10
“Sale of Future Revenues” and has determined that it has no substantive future
obligations under the arrangement. The full amount of the $9.8
million upfront payment was recognized as revenue during the nine months ended
September 30, 2010.
Cubist
Pharmaceuticals Inc.
In 2008,
the Company entered into an exclusive license and collaboration agreement with
Cubist Pharmaceuticals, Inc. (Cubist), for the development and
commercialization in North America and Europe of the intravenous formulation of
ecallantide for the reduction of blood loss during surgery. Under this
agreement, Cubist assumed responsibility for all further development and costs
associated with ecallantide in the licensed indications in the Cubist territory.
The Company received $17.5 million in license and milestone fees in 2008 as
a result of the Cubist agreement. Additionally, the Company received
$3.6 million for drug product supply and reimbursement of costs incurred in
2008 related to the conduct of the Phase 2 clinical trial, known as
Kalahari 1. The Company also received $139,000 for drug product
supply in 2009.
On March
31, 2010, Cubist announced its plan to stop investing in the clinical
development of ecallantide as a therapy to reduce blood loss during surgery and
its intention to terminate the 2008 agreement with the Company. Based
upon Cubist’s decision to end clinical development of this program, $13.8
million of deferred revenue was recognized as revenue during the nine months
ended September 30, 2010, as the development period had ended. During
the three and nine months ended September 30, 2009, the Company recognized
revenue of $1.1 million and $3.2 million, respectively, related to this
agreement.
4. FAIR
VALUE MEASUREMENTS
The
following tables present information about the Company's financial assets that
have been measured at fair value as of September 30, 2010 and December 31,
2009 and indicate the fair value hierarchy of the valuation inputs utilized to
determine such fair value. In general, fair values determined by Level 1
inputs utilize quoted prices (unadjusted) in active markets for identical assets
or liabilities. Fair values determined by Level 2 inputs utilize observable
inputs other than Level 1 prices, such as quoted prices, for similar assets
or liabilities, quoted prices in markets that are not active or other inputs
that are observable or can be corroborated by observable market data for
substantially the full term of the related assets or liabilities. Fair values
determined by Level 3 inputs are unobservable data points for the asset or
liability, and includes situations where there is little, if any, market
activity for the asset or liability.
Description (in thousands)
|
September 30,
2010
|
Quoted
Prices in
Active
Markets
(Level 1)
|
Significant
Other
Observable
Inputs
(Level 2)
|
Significant
Unobservable
Inputs
(Level 3)
|
||||||||||||
Assets:
|
||||||||||||||||
Cash
equivalents
|
$ | 27,044 | $ | 27,044 | $ | — | $ | — | ||||||||
Marketable
debt securities
|
54,718 | 54,718 | — | — | ||||||||||||
Total
|
$ | 81,762 | $ | 81,762 | $ | — | $ | — |
15
Description (in thousands)
|
December 31,
2009
|
Quoted
Prices in
Active
Markets
(Level 1)
|
Significant
Other
Observable
Inputs
(Level 2)
|
Significant
Unobservable
Inputs
(Level 3)
|
||||||||||||
Assets:
|
||||||||||||||||
Cash
equivalents
|
$ | 19,638 | $ | 19,638 | $ | — | $ | — | ||||||||
Marketable
debt securities
|
23,009 | 23,009 | — | — | ||||||||||||
Total
|
$ | 42,647 | $ | 42,647 | $ | — | $ | — |
As of
September 30, 2010 and December 31, 2009, the Company's investments
consisted of U.S. Treasury notes and bills which are categorized as
Level 1. The fair values of cash equivalents and marketable debt securities
are determined through market, observable and corroborated sources. The carrying
amounts reflected in the consolidated balance sheets for cash, cash equivalents,
accounts receivable, other current assets, accounts payable and accrued expenses
and other current liabilities approximate fair value due to their short-term
maturities.
5.
INVENTORY
In
December 2009, the Company received marketing approval of KALBITOR from the FDA.
Costs associated
with the manufacture of KALBITOR prior to regulatory approval were expensed when
incurred, and therefore were not capitalized as
inventory. Subsequent to FDA approval, all costs associated
with the manufacture of KALBITOR have been recorded as inventory, which consists
of the following (in thousands):
September 30,
2010
|
December 31,
2009
|
|||||||
Raw
Materials
|
$ | 767 | $ | 472 | ||||
Work
in Progress
|
387 | 106 | ||||||
Finished
Goods
|
272 | — | ||||||
Total
|
$ | 1,426 | $ | 578 |
6.
ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts
payable and accrued expenses consist of the following (in
thousands):
September 30,
2010
|
December 31,
2009
|
|||||||
Accounts
payable
|
$ | 1,140 | $ | 686 | ||||
Accrued
employee compensation and related taxes
|
3,335 | 4,296 | ||||||
Accrued
external research and development and contract
manufacturing
|
2,509 | 2,431 | ||||||
Accrued
license fees
|
20 | 2,047 | ||||||
Other
accrued liabilities
|
2,034 | 2,327 | ||||||
Total
|
$ | 9,038 | $ | 11,787 |
16
7.
NOTE PAYABLE
In 2008,
the Company entered into an agreement with Cowen Healthcare Royalty Partners, LP
(Cowen Healthcare) for a $50.0 million loan secured by the Company's phage
display Licensing and Funded Research Program (LFRP). This loan is now known as
the Tranche A loan. In March 2009, the Company amended and restated
the loan agreement with Cowen Healthcare to include a Tranche B loan of $15.0
million. The Company used $35.1 million from the proceeds of the Tranche A
loan to pay off its remaining obligation under a then existing agreement with
Paul Royalty Fund Holdings II, LP.
The
Tranche A and Tranche B loans (collectively, the Loan) mature in August
2016. The Tranche A portion bears interest at an annual rate of 16%,
payable quarterly, and the Tranche B portion bears interest at an annual rate of
21.5%, payable quarterly. The Loan may be prepaid without penalty, in whole or
in part, beginning in August 2012. In connection with the Loan, the
Company has entered into a security agreement granting Cowen Healthcare a
security interest in the intellectual property related to the LFRP, and the
revenues generated by the Company through the license of the intellectual
property related to the LFRP. The security agreement does not apply to the
Company's internal drug development or to any of the Company's co-development
programs.
Under the
terms of the loan agreement, the Company is required to repay the Loan based on
the annual net LFRP receipts. Until June 30, 2013, required payments
are tiered as follows: 75% of the first $10.0 million in specified annual
LFRP receipts, 50% of the next $5.0 million and 25% of annual included LFRP
receipts over $15.0 million. After June 30, 2013, and until the
maturity date or the complete amortization of the Loan, Cowen Healthcare will
receive 90% of all included LFRP receipts. If the Cowen Healthcare portion
of LFRP receipts for any quarter exceeds the interest for that quarter, then the
principal balance will be reduced. Any unpaid principal will be due upon
the maturity of the Loan. If the Cowen Healthcare portion of LFRP revenues
for any quarterly period is insufficient to cover the cash interest due for that
period, the deficiency may be added to the outstanding principal or paid in cash
by the Company. After five years from the date of funding of each loan the
Company must repay to Cowen Healthcare all additional accumulated principal
above the original $50.0 million and $15.0 million loan amounts of Tranche
A and Tranche B, respectively.
In
addition, under the terms of the loan agreement, the Company is permitted to
sell or otherwise transfer collateral generating cash proceeds of up to
$25.0 million. Twenty percent of these cash proceeds will be applied to
principal and accrued interest on the Loan plus any applicable prepayment
premium and an additional 5.0% of such proceeds will be paid to Cowen Healthcare
as a cash premium. In April 2010, the Company sold its rights to
royalties and other payments related to the commercialization of a product
developed by one of the Company’s licensees under the LFRP for $9.8 million (see
Note 3, Significant Transactions - Sale of Xyntha Royalty Rights).
In
connection with the Tranche A loan, the Company issued to Cowen Healthcare a
warrant to purchase 250,000 shares of the Company's common stock at an exercise
price of $5.50 per share. The warrant expires in August 2016 and became
exercisable on August 5, 2009. The Company has estimated the relative fair
value of the warrant to be $853,000, using the Black-Scholes valuation model,
assuming a volatility factor of 83.64%, risk-free interest rate of 4.07%, an
eight-year expected term and an expected dividend yield of zero. In
conjunction with the Tranche B loan, the Company issued to Cowen Healthcare a
warrant to purchase 250,000 shares of the Company’s common stock at an exercise
price of $2.87 per share. The warrant expires in August 2016 and
became exercisable on March 27, 2010. The Company has estimated the
relative fair value of the warrant to be $477,000, using the Black-Scholes
valuation model, assuming a volatility factor of 85.98%, risk-free interest rate
of 2.77%, a seven-year, four-month expected term and an expected dividend yield
of zero. The relative fair values of the warrants are recorded in
additional paid-in capital on the Company's consolidated balance
sheets.
The cash
proceeds from the Loan were recorded as a note payable on the Company's
consolidated balance sheet. The note payable balance was reduced by
$1.3 million for the fair value of the Tranche A and Tranche B warrants, and by
$580,000 for payment of Cowen Healthcare’s legal fees in conjunction with the
Loan. Each of these amounts is being accreted over the life of the
note.
17
The
following table reflects the activity on the Loan for financial reporting
purposes for the three and nine months ended September 30, 2010 and 2009 (in
thousands):
Three Months Ended
September 30,
|
Nine Months Ended
September 30,
|
|||||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
Beginning
balance
|
$ | 56,283 | $ | 57,975 | $ | 58,096 | $ | 46,947 | ||||||||
Relative
fair value of warrant in connection with Tranche B
|
— | — | — | (477 | ) | |||||||||||
Accretion
on warrants and discount
|
62 | 62 | 184 | 165 | ||||||||||||
Loan
activity:
|
||||||||||||||||
Tranche
B (net proceeds)
|
— | — | — | 14,820 | ||||||||||||
Interest
expense
|
2,511 | 2,595 | 7,617 | 7,022 | ||||||||||||
Payments
applied to principal
|
— | — | (1,935 | ) | (3,352 | ) | ||||||||||
Payments
applied to interest
|
(1,550 | ) | (1,763 | ) | (6,656 | ) | (6,256 | ) | ||||||||
Accrued
interest payable
|
(961 | ) | (834 | ) | (961 | ) | (834 | ) | ||||||||
Ending
balance
|
$ | 56,345 | $ | 58,035 | $ | 56,345 | $ | 58,035 |
The Loan principal balance at
September 30, 2010, and December 31, 2009 was $57.8 million and $59.7
million, respectively. The estimated fair value
of the note payable was $52.9 million at September 30,
2010.
8.
STOCKHOLDER’S EQUITY (DEFICIT) AND STOCK-BASED COMPENSATION
Common
Stock
In June 2010, the Company issued
636,132 shares of its common stock for an aggregate purchase price of $2.5
million in connection with a strategic partnership transaction (see Note 3,
Significant Transactions - Sigma Tau).
In March
2010, the Company issued 17,000,000 shares of its common stock in an
underwritten public offering. In connection with this offering, in
April 2010, the underwriters exercised in full their over-allotment option to
purchase an additional 2,550,000 shares of common stock. Net proceeds
to the Company were approximately $59.6 million, after deducting underwriting
fees and offering expenses.
Equity
Incentive Plan
The Company's 1995 Equity Incentive
Plan (the Equity Plan), as amended, is an equity plan under which equity awards,
including awards of restricted stock and incentive and nonqualified stock
options to purchase shares of common stock may be granted to employees,
consultants and directors of the Company by action of the Compensation Committee
of the Board of Directors. Options are generally granted at the current fair
market value on the date of grant, generally vest ratably over a 48-month
period, and expire within ten years from date of grant. The Equity Plan is
intended to attract and retain employees and to provide an incentive for
employees, consultants and directors to assist the Company to achieve long-range
performance goals and to enable them to participate in the long-term growth of
the Company. At September 30, 2010, a total of 5,147,919
shares were
available for future grants under the Plan.
18
Employee Stock Purchase
Plan
The
Company's 1998 Employee Stock Purchase Plan (the Purchase Plan), as amended,
allows employees to purchase shares of the Company's common stock at a discount
from fair market value. Under this Plan, eligible employees may purchase shares
during six-month offering periods commencing on January 1 and July 1 of each
year at a price per share of 85% of the lower of the fair market value price per
share on the first or last day of each six-month offering period. Participating
employees may elect to have up to 10% of their base pay withheld and applied
toward the purchase of such shares, subject to the limitation of 875 shares per
participant per quarter. The rights of participating employees under the
Purchase Plan terminate upon voluntary withdrawal from the Purchase Plan at any
time or upon termination of employment. The compensation expense in connection
with the Plan was approximately $15,000 and $46,000 for the three and nine
months ended September 30, 2010, respectively, and $42,000 and $114,000, for the
three and nine months ended September 30, 2009, respectively. There were 49,962
and 49,977 shares purchased under the Plan during the three months ended
September 30, 2010 and 2009, respectively and 99,934 and 99,937 shares purchased
under the Plan during the nine months ended September 30, 2010 and 2009,
respectively. At September 30, 2010, a total of 594,080 shares were reserved and
available for issuance under this Plan.
Stock-Based
Compensation Expense
The Company measures compensation cost
for all stock awards at fair value on date of grant and recognition of
compensation over the service period for awards expected to vest. The fair
value of stock options was determined using the Black-Scholes valuation model.
Such value is recognized as expense over the service period, net of estimated
forfeitures and adjusted for actual forfeitures. The estimation of stock options
that will ultimately vest requires significant judgment. The Company considers
many factors when estimating expected forfeitures, including historical
experience. Actual results and future changes in estimates may differ
substantially from the Company's current estimates.
The
following table reflects stock compensation expense recorded, net of amounts
capitalized into inventory, during the three and nine months ended September 30,
2010 and 2009 (in thousands):
Three Months Ended
September 30,
|
Nine Months Ended
September 30,
|
|||||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
Compensation
expense related to:
|
||||||||||||||||
Equity
incentive plan
|
$ | 963 | $ | 816 | $ | 2,896 | $ | 4,294 | ||||||||
Employee
stock purchase plan
|
16 | 41 | 47 | 113 | ||||||||||||
$ | 979 | $ | 857 | $ | 2,943 | $ | 4,407 | |||||||||
Stock-based
compensation expense charged to:
|
||||||||||||||||
Research
and development expenses
|
$ | 356 | $ | 308 | $ | 1,074 | $ | 1,424 | ||||||||
General
and administrative expenses
|
$ | 623 | $ | 549 | $ | 1,869 | $ | 2,746 | ||||||||
Restructuring
charges
|
$ | — | $ | — | $ | — | $ | 237 |
Stock-based
compensation of $8,000 and $25,000 was capitalized into inventory for the three
and nine months ended September 30, 2010, respectively. Capitalized
stock-based compensation is recognized into cost of product sales when the
related product is sold. During the nine months ended September 30,
2009, amendments to the exercise and vesting schedules to certain options
resulted in additional stock-based compensation expense of $1.3 million,
inclusive of $237,000 of stock-based compensation expense recorded in relation
to restructuring activities.
9.
INCOME TAXES
Deferred
tax assets and deferred tax liabilities are recognized based on temporary
differences between the financial reporting and tax basis of assets and
liabilities using future expected enacted rates. A valuation allowance is
recorded against deferred tax assets if it is more likely than not that some or
all of the deferred tax assets will not be realized. The Company has
recorded a deferred tax asset of approximately $1.8 million at
December 31, 2009 reflecting the benefit of deductions from the exercise of
stock options which has been fully reserved until it is more likely than not
that the benefit will be realized. The benefit from this deferred tax
asset will be recorded as a credit to additional paid-in capital if and when
realized through a reduction of cash taxes.
19
As
required by ASC 740, the Company's management has evaluated the positive and
negative evidence bearing upon the realizability of its deferred tax assets, and
has determined that it is not “more likely than not” that the Company will
recognize the benefits of the deferred tax assets. Accordingly, a
valuation allowance of approximately $180.5 million was established at
December 31, 2009.
The Company accounts for uncertain tax
positions using a "more-likely-than-not" threshold for recognizing and resolving
uncertain tax positions. The evaluation of uncertain tax positions is based on
factors that include, but are not limited to, changes in tax law, the
measurement of tax positions taken or expected to be taken in tax returns, the
effective settlement of matters subject to audit, new audit activity and changes
in facts or circumstances related to a tax position. The Company evaluates
uncertain tax positions on a quarterly basis and adjusts the level of the
liability to reflect any subsequent changes in the relevant facts surrounding
the uncertain positions. As of September 30, 2010, the Company had no
unrecognized tax benefits.
The tax
years 1995 through 2009 remain open to examination by major taxing jurisdictions
to which the Company is subject, which are primarily in the United States, as
carryforward attributes generated in years past may still be adjusted upon
examination by the Internal Revenue Service or state tax authorities if they
have or will be used in a future period. The Company is currently not
under examination in any jurisdictions for any tax years.
Item
2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Note
Regarding Forward-Looking Statements
This
quarterly report on Form 10-Q contains forward-looking statements that have been
made pursuant to the provisions of the Private Securities Litigation Reform Act
of 1995. Such forward-looking statements are based on current expectations,
estimates and projections about our industry, management’s beliefs, and certain
assumptions made by our management and may include, but are not limited to,
statements about:
|
·
|
the
potential benefits and commercial potential of KALBITOR for its approved
indication and any additional
indications;
|
|
·
|
our
commercialization of KALBITOR, including revenues and cost of product
sales;
|
|
·
|
the
potential for market approval for KALBITOR in the EU, Japan and other
markets outside the United States;
|
|
·
|
plans
and anticipated timing for pursuing additional indications and uses for
ecallantide;
|
|
·
|
plans
to enter into additional collaborative and licensing arrangements for
ecallantide and for other compounds in
development;
|
|
·
|
estimates
of potential markets for our products and product
candidates;
|
|
·
|
the
sufficiency of our cash, cash equivalents and short-term investments;
and
|
|
·
|
expected
future operating results.
|
20
Statements
that are not historical facts are based on our current expectations, beliefs,
assumptions, estimates, forecasts and projections for our business and the
industry and markets in which we compete. We often use the words or phrases of
expectation or uncertainty like "believe," "anticipate," "plan," "expect,"
"intend," "project," "future," "may," "will," "could," "would" and similar words
to help identify forward-looking statements. These statements are not guarantees
of future performance and are subject to certain risks, uncertainties, and
assumptions that are difficult to predict; therefore, actual results may differ
materially from those expressed or forecasted in any such forward-looking
statements. Such risks and uncertainties include, but are not limited to, those
discussed later in this report under the section entitled “Risk Factors”. Unless
required by law, we undertake no obligation to update publicly any
forward-looking statements, whether because of new information, future events or
otherwise. However, readers should carefully review the risk factors set forth
in other reports or documents we file from time to time with the Securities and
Exchange Commission.
BUSINESS
OVERVIEW
We are a
biopharmaceutical company focused on the discovery, development and
commercialization of novel biotherapeutics for unmet medical needs. We began
commercializing KALBITOR (ecallantide) for treatment of acute attacks of
hereditary angioedema (HAE) in patients 16 years of age and older in
February 2010. We commercialize KALBITOR on our own in the United
States and intend to seek approval and commercialize KALBITOR through partners
for HAE and other angioedema indications in markets outside of the United
States.
During
2010, we entered into three agreements to develop and commercialize subcutaneous
ecallantide (formerly referred to by Dyax as DX-88) for the treatment of HAE and
other therapeutic indications in territories outside of the United
States. These include:
|
·
|
A Joint Development
and License Agreement with Defiante Farmaceutica S.A., a subsidiary
of the pharmaceutical company Sigma-Tau SpA (Sigma-Tau), to develop and
commercialize subcutaneous ecallantide for the treatment of HAE and other
therapeutic indications throughout for Europe, North
Africa, the Middle East and
Russia
|
|
·
|
A Product
Development and License Agreement with CMIC Co., Ltd. to develop
and commercialize subcutaneous ecallantide for the treatment of HAE
and other angioedema indications in
Japan
|
|
·
|
A
Supply, Distribution and Licensing Agreement with Neopharm Scientific,
Ltd. to obtain regulatory approval and commercialize ecallantide for HAE and other
angioedema indications in
Israel
|
We have
also licensed ecallantide for development through a collaboration with Fovea
Pharmaceuticals SA, a subsidiary of sanofi-aventis, for treatment of
retinal diseases. We are exploring the use of ecallantide for treatment of
drug-induced angioedema, a life threatening inflammatory response brought on by
adverse reactions to angiotensin-converting enzyme (ACE)
inhibitors.
Beyond
ecallantide, we have also developed a pipeline of drug candidates using our
proprietary drug discovery technology, known as phage display. We use phage
display to identify antibody, small protein and peptide compounds with potential
for clinical development.
Although
we use our phage display technology primarily to advance our own internal
development activities, we also leverage it through licenses and collaborations
designed to generate revenues and provide us access to co-develop and/or
co-promote drug candidates identified by other biopharmaceutical and
pharmaceutical companies. Through our LFRP, we have more than 70 ongoing license
agreements. Currently, our licensees have 17 product candidates in clinical
trials and our technology has been used in connection with the manufacturing of
one approved product.
We have incurred net
losses on an annual basis since our inception. We have
generated minimal revenue from product sales to date, and it is possible that we
will never have significant product sales revenue. Currently, we generate most
of our revenue from collaborators through license and milestone fees, research
and development funding, and maintenance fees that we receive in connection with
the licensing of our phage display technology. It is possible that we will never
have significant product sales revenue or receive significant royalties on our
licensed product candidates or licensed technology in order to achieve or
sustain future profitability.
21
KALBITOR
AND THE ECALLANTIDE FRANCHISE
Ecallantide
is a compound that we developed using our phage display technology, which we
have shown in vitro to be a high affinity, high specificity inhibitor of human
plasma kallikrein. Plasma kallikrein, an enzyme found in blood, is believed to
be a key component responsible for the regulation of the inflammation and
coagulation pathways. Excess plasma kallikrein activity is thought to play a
role in a number of inflammatory and autoimmune diseases, including
HAE.
HAE is a
rare, genetic disorder characterized by severe, debilitating and often painful
swelling, which can occur in the abdomen, face, hands, feet and airway. HAE is
caused by low or dysfunctional levels of C1-INH, a naturally occurring molecule
that inhibits plasma kallikrein, a key mediator of inflammation, and other
serine proteases in the blood. It is estimated that HAE affects between 1 in
10,000 to 1 in 50,000 people around the world. Despite the fact that 85% of
patients experience symptoms before age 20, 68% of patients are not diagnosed
until after age 20, which makes it difficult to accurately determine the size of
the HAE patient population. HAE patient association registries estimate there is
an immediately addressable target population of approximately 6,500 patients in
the United States.
KALBITOR
In
December 2009, ecallantide was approved by the FDA under the brand name KALBITOR
(ecallantide) for treatment of HAE in patients 16 years of age and older
regardless of anatomic location. KALBITOR, a potent, selective and reversible
plasma kallikrein inhibitor discovered and developed by us, is the first
subcutaneous HAE treatment approved in the United States.
As part
of product approval, we have established a Risk Evaluation and
Mitigation Strategy
(REMS) program to communicate the risk of anaphylaxis and the importance
of distinguishing between hypersensitivity reaction and HAE attack symptoms. To
communicate these risks, the REMS requires a Medication Guide be dispensed with
each dose of KALBITOR and a "Dear Healthcare Professional" letter be provided to
doctors identified as likely to prescribe KALBITOR and treat HAE patients.
We have
also initiated a Phase 4 observational study which will be conducted with
200 HAE patients to evaluate immunogenicity and hypersensitivity with exposure
to KALBITOR for treatment of acute attacks of HAE. The study is designed to
identify predictive risk factors and develop effective screening tools to
mitigate the risk of hypersensitivity and
anaphylaxis. This 4-year study was initiated in February
2010.
United
States Sales and Marketing
We have established a commercial
organization to support sales of KALBITOR in the United States. We believe that
a field-based team of approximately 25 professionals, consisting of sales
representatives, medical science liaisons and corporate account directors, is
appropriate to effectively market KALBITOR in the United States, where patients
are treated primarily by a limited number of specialty physicians, consisting
mainly of allergists and immunologists.
Distribution
In 2009, we entered into separate
agreements with three wholly-owned subsidiaries of AmerisourceBergen Specialty
Group, Inc. (ABSG) to establish an exclusive distribution network for
KALBITOR and to provide comprehensive call center services to support its
commercialization. The ABSG agreements consist of:
22
|
·
|
an
agreement with US Bioservices Corporation (US Bio), under which US Bio
serves as our exclusive specialty pharmacy for KALBITOR in the United
States, and will also manage the KALBITOR Access program for patients and
healthcare providers seeking information and access to
KALBITOR;
|
|
·
|
an
agreement with ASD Specialty Healthcare Inc. (ASD), under which ASD
serves as our exclusive wholesale distributor for KALBITOR to treating
hospitals in the United States; and
|
|
·
|
an
agreement with Integrated Commercialization Solutions, Inc. (ICS),
under which ICS provides warehousing, inventory management and other
logistical services in connection with the distribution of KALBITOR
throughout the United States.
|
All three agreements have an initial
term of three years, although each contains customary termination provisions and
may be terminated by us for any reason upon six months prior written
notice.
KALBITOR AccessSM
In furtherance of our efforts to
facilitate access to KALBITOR in the United States, we have created the KALBITOR
Access program, designed as a one-stop point of contact for information about
KALBITOR, that offers treatment support service for patients with HAE and their
healthcare providers. KALBITOR case managers provide comprehensive product and
disease information, treatment site coordination, financial assistance for
qualified patients and reimbursement facilitation services.
Manufacturing
In connection with the commercial
launch of KALBITOR in the United States, we have established a commercial supply
chain, consisting of single-source third party suppliers to manufacture, test
and distribute this product. All third party manufacturers involved in the
KALBITOR manufacturing process are required to comply with current good
manufacturing practices, or cGMPs.
To date, the ecallantide drug substance
used in the production of KALBITOR has been manufactured in the United Kingdom
by MSD Biologics (UK) Limited (formerly known as Avecia Biologics Limited),
a subsidiary of Merck & Co., Inc. (MSD). As a result of
previously completed manufacturing activities conducted at MSD, we have
significant inventories of ecallantide drug substance, which we believe are
sufficient to supply all ongoing studies relating to ecallantide and KALBITOR,
and to meet the anticipated market demand for KALBITOR through 2011. Under
existing arrangements with MSD, they have agreed to conduct additional
manufacturing campaigns, as necessary to supplement existing inventory.
Additionally, we are in the process of evaluating alternative arrangements for
long-term commercial supply of ecallantide drug substance.
Ecallantide drug substance is filled,
labeled and packaged into the final form of KALBITOR drug product by
Hollister-Steir at its facilities in Spokane, Washington under a commercial
supply agreement. This process, known in the industry as the "fill and finish"
process, is not unique to KALBITOR and alternative manufacturers are readily
available in the event that we elect, or are required, to relocate the "fill and
finish" process.
Ecallantide
Outside of the United States
In markets outside of the United
States, we intend to seek approval and commercialize ecallantide for HAE and
other angioedema indications in conjunction with multiple partners by entering
into license or collaboration agreements with companies that have
established distribution systems and direct sales forces in such
territories.
23
In June 2010, we entered into a
strategic partnership agreement with Sigma-Tau to develop and commercialize
subcutaneous ecallantide for the treatment of HAE and other therapeutic
indications throughout Europe, North Africa, the Middle East and Russia.
We retained our rights to ecallantide in all other territories. Under
the terms of the agreement, Sigma-Tau made a $2.5 million upfront payment to us
and also purchased 636,132 shares of our common stock at a price of $3.93 per
share, which represented a 50% premium over the 20-day average closing price
through June 17, 2010, for an aggregate purchase price of $2.5
million. We will also be eligible to receive over $100 million in
development and sales milestones related to ecallantide and royalties equal to
41% of net sales of product. Sigma-Tau will pay the costs associated
with regulatory approval and commercialization in the licensed
territories. In addition, we and Sigma-Tau will share equally the
costs for all development activities for future indications developed in
partnership with Sigma-Tau.
The
Marketing Authorization Application (MAA) was submitted in May 2010 to the
European Medicines Agency (EMA) for ecallantide for the treatment of
HAE. In July 2010, the EMA completed its validation process for
the MAA for potential approval to market ecallantide in the European Union
(EU). We recently received the Day 120 consolidated list of questions
from the EMA. These questions are within our
expectations. We are working with our partner, Sigma-Tau on the
response to the questions and anticipate an EMA decision by year end
2011. We also anticipate that the MAA will be transferred from us to
Sigma-Tau prior to any approval decision. If approved, KALBITOR will
receive marketing authorization in 27 EU member states.
In
September 2010, we entered in an agreement with CMIC Co., Ltd (CMIC) to develop
and commercialize subcutaneous ecallantide for the treatment of HAE and other
angioedema indications in Japan. Under the terms of the agreement, we received a
$4.0 million upfront payment. We will also be eligible to receive up
to $102 million in development and sales milestones for ecallantide in HAE and
other angioedema indications and royalties of 20%-24% of net product sales. CMIC
is solely responsible for all costs associated with development, regulatory
activities, and commercialization of ecallantide for all angioedema indications
in Japan. CMIC will purchase drug product from us on a cost-plus basis for
clinical and commercial supply.
In March
2010, we entered into an agreement with Neopharm Scientific Ltd., (Neopharm) to
obtain regulatory approval and commercialize ecallantide for HAE and other angioedema
indications in Israel. Under the terms of the agreement, we
will provide Neopharm drug supply at a price equal to 50% of net
sales.
ECALLANTIDE
FRANCHISE
Ecallantide
for Treatment of Other Angioedemas
In
addition to its approved commercial use, we are also developing ecallantide in
other angioedema indications. Another form of angioedema is induced by the use
of so-called ACE inhibitors. With an estimated 51 million prescriptions
written annually worldwide, ACE inhibitors are widely prescribed to reduce ACE
and generally reduce high blood pressure and vascular constriction. It is
estimated that up to 2% of patients treated with ACE inhibitors suffer from
angioedema attacks, which represents approximately 30% of all angioedemas
treated in emergency rooms. Research suggests the use of ACE inhibitors
increases the relative activity of bradykinin, a protein that causes blood
vessels to enlarge, or dilate, which can also cause the swelling known as
angioedema. As a specific inhibitor of plasma kallikrein, an enzyme needed to
produce bradykinin, ecallantide has the potential to be effective for treating
this condition. We are working with investigators affiliated with the University
of Cincinnati on an investigator sponsored study for drug-induced
angioedema. We also plan to initiate a Dyax-sponsored Phase 2
clinical study for this indication by early 2011.
We are
also exploring with FDA, the use of ecallantide for acquired angioedema, a
condition associated with B-cell lymphoma and autoimmune disorders, as well as
for pediatric use in HAE in an “expanded access” setting.
24
Ecallantide for On-Pump
Cardiac Surgery
On March
31, 2010, Cubist announced its plan to stop investing in the clinical
development of ecallantide as a therapy to reduce blood loss during surgery and
its intention to terminate our 2008 agreement with them and return all rights to
us. Cubist is expected to complete the data analysis of their
clinical trials and provide that information to us.
Ecallantide
for Ophthalmic Indications
We entered into a license
agreement in 2009 with Fovea Pharmaceuticals SA, a subsidiary of
sanofi-aventis, for the development of ecallantide in the EU for treatment of
retinal diseases. Under this agreement, Fovea will fully fund development for
the first indication, retinal vein occlusion-induced macular edema, for which a
Phase 1 trial was initiated in the third quarter of
2009. We retain all rights to commercialize ecallantide in
this indication outside of the EU. Under the license agreement, we do not
receive milestone payments, but are entitled to receive tiered royalties,
ranging from the high teens to mid twenties, based on sales of ecallantide by
Fovea in the EU. If we elect to commercialize ecallantide in this
indication outside of the EU, Fovea will be entitled to receive royalties from
us, ranging from the low to mid teens, based on our sales of ecallantide outside
the EU. The term of the agreement continues until the expiration of the licensed
patents or, if later, the eleventh anniversary of the first commercial sale of
ecallantide in an ophthalmic indication. The agreement may be terminated by
Fovea on prior notice to us and by either party for cause.
Three
Months Ended September 30, 2010 and 2009
Revenues. Total
revenues for the three months ended September 30, 2010 (the 2010 Quarter) was
$7.0 million, compared with $4.5 million for the three months ended September
30, 2009 (the 2009 Quarter).
Product
Sales. We began commercializing
KALBITOR in the United States for treatment of acute attacks of HAE in patients
16 years of age and older in February 2010, at which time product sales
commenced. We sell KALBITOR to ABSG, which functions as our
exclusive distributor, and we recognize revenue when title and risk of loss have
passed to ABSG, typically upon delivery. Due to the specialty nature
of KALBITOR, the limited number of patients, limited return rights and
contractual limits on inventory levels, we anticipate that ABSG will carry
limited inventory.
We record
product sales allowances and accruals related to trade prompt pay discounts,
government rebates, a patient financial assistance program, product returns and
other applicable allowances. For the 2010 Quarter,
product sales of KALBITOR were $2.6 million, net of product discounts and
allowances of $144,000.
Development
and License Fees. We derive revenues from licensing, funded
research and development fees, including milestone payments from our licensees
and collaborators. This revenue fluctuates from quarter-to-quarter due to the
timing of the clinical activities of our collaborators and
licensees. This revenue was $4.3 million in the 2010 Quarter and $4.5
million in the 2009 Quarter. The 2010 decrease was due to $1.1
million of revenue recognized in the 2009 Quarter associated with the Cubist
license, for which there was no revenue in the 2010 Quarter. This
decrease was partially offset by $498,000 in revenue recognized under our
agreement with Sigma-Tau which was executed in June 2010.
Cost of Product Sales. We incurred $119,000 of
costs associated with product sales during the 2010 Quarter. Costs
associated with the manufacture of KALBITOR prior to FDA approval were
previously expensed when incurred, and therefore are not included in the cost of
product sales during this quarter. The supply of KALBITOR produced
prior to FDA approval is expected to meet anticipated commercial needs through
2011. When this supply has been fully depleted, we expect our costs
of product sales will increase, reflecting the full manufacturing cost of
KALBITOR.
25
Research
and Development. Our research
and development expenses are summarized as follows:
Three Months
Ended September 30,
|
||||||||
2010
|
2009
|
|||||||
(In thousands)
|
||||||||
KALBITOR
development costs
|
$ | 3,948 | $ | 3,804 | ||||
Other
research and development expenses
|
3,992 | 3,291 | ||||||
Research
and development expenses
|
$ | 7,940 | $ | 7,095 |
Our
research and development expenses arise primarily from compensation and other
related costs for our personnel dedicated to research, development, medical and
pharmacovigilence activities, as well as costs of post-approval studies and
commitments and KALBITOR life cycle management, as well as fees paid and costs
reimbursed to outside parties to conduct research and clinical trials and the
cost of manufacturing drug material prior to FDA approval. In
addition, development expenses include costs associated with obtaining
regulatory approval for the treatment of HAE in Europe which are being
reimbursed by Sigma-Tau. The increase in the 2010 Quarter is due to
an increase in internal costs, as well as costs related to preclinical
activities. Costs incurred in research and development may increase
in future periods as our development programs advance.
Selling, General and
Administrative. Our
selling, general and administrative expenses consist primarily of the sales and
marketing costs of commercializing KALBITOR in 2010 and costs of our management
and administrative staff, as well as expenses related to business development,
protecting our intellectual property, administrative occupancy, professional
fees and the reporting requirements of a public company. Selling, general and
administrative expenses for the 2010 and 2009 Quarters were $7.7 million and
$5.9 million, respectively. Costs increased during the 2010 Quarter
due to additional infrastructure to support the commercialization of KALBITOR,
including the expansion of sales and marketing personnel. This
includes increases of $1.4 million in internal sales and marketing expenses and
$749,000 in external sales and marketing expenses. Selling, general
and administrative expenses may increase in future periods as the
commercialization of KALBITOR expands.
Restructuring and
Impairment. As a result of the decrease in necessary facility space
following a workforce reduction in the first quarter of 2009, we amended our
facility lease during the 2009 Quarter to reduce our leased space. In the
2009 Quarter, a one-time charge of approximately $1.4 million was recorded, of
which approximately $955,000 was a result of the write-down of leasehold
improvements.
Interest Expense. Interest
expense was $2.6 million in the 2010 Quarter compared to $2.7 million in
2009. The 2010 decrease is due to slightly lower interest on the
Cowen Healthcare loan due to a principal repayment in the second quarter of
2010.
Nine
Months Ended September 30, 2010 and 2009
Revenues. Total
revenues for the nine months ended September 30, 2010 (the 2010 Period) was
$42.1 million, compared with $15.3 million for the nine months ended September
30, 2009 (the 2009 Period).
Product
Sales. We began commercializing
KALBITOR in the United States for treatment of acute attacks of HAE in patients
16 years of age and older in February 2010, at which time product sales
commenced. We sell KALBITOR to ABSG, which functions as our
exclusive distributor, and we recognize revenue when title and risk of loss have
passed to ABSG, typically upon delivery. Due to the specialty nature
of KALBITOR, the limited number of patients, limited return rights and
contractual limits on inventory levels, we anticipate that ABSG will carry
limited inventory.
We record
product sales allowances and accruals related to trade prompt pay discounts,
government rebates, a patient financial assistance program, product returns and
other applicable allowances. For the 2010 Period,
product sales of KALBITOR were $5.8 million, net of product discounts and
allowances of $317,000.
26
Development
and License Fees. We derive revenues from licensing, funded
research and development fees, including milestone payments from our licensees
and collaborators. This revenue fluctuates from period-to-period due to the
timing of the clinical activities of our collaborators and
licensees. This revenue was $36.3 million in the 2010 Period and
$15.3 million in the 2009 Period. The 2010 increase was due to $9.8
million in revenue recognized under the sale of rights to royalties and other
payments related to Xyntha, a product developed by one of our licensees under
the LFRP and $13.8 million of previously deferred revenue associated with the
Cubist license that was fully recognized during the 2010 Period based upon
Cubist’s announcement to end its ecallantide development
program. During the 2009 Period, $3.2 million of revenue was
recognized associated with the Cubist license.
Cost of Product Sales. We incurred $247,000 of
costs associated with product sales during the 2010 Period. Costs
associated with the manufacture of KALBITOR prior to FDA approval were
previously expensed when incurred, and therefore are not included in the cost of
product sales during this period. The supply of KALBITOR produced
prior to FDA approval is expected to meet anticipated commercial needs through
2011. When this supply has been fully depleted, we expect our costs
of product sales will increase, reflecting the full manufacturing cost of
KALBITOR.
Research
and Development. Our research
and development expenses are summarized as follows):
Nine Months
Ended September 30,
|
||||||||
2010
|
2009
|
|||||||
(In thousands)
|
||||||||
KALBITOR
development costs
|
$ | 12,466 | $ | 14,082 | ||||
Ecallantide
drug manufacturing costs
|
— | 8,498 | ||||||
Other
research and development expenses
|
11,277 | 15,207 | ||||||
Research
and development expenses
|
$ | 23,743 | $ | 37,787 |
Our
research and development expenses arise primarily from compensation and other
related costs for our personnel dedicated to research, development, medical and
pharmacovigilence activities, as well as costs of post-approval studies and
commitments and KALBITOR life cycle management, as well as fees paid and costs
reimbursed to outside parties to conduct research and clinical trials and the
cost of manufacturing drug material prior to FDA approval. In
addition, development expenses include costs associated with obtaining
regulatory approval for the treatment of HAE in Europe which are being
reimbursed by Sigma-Tau. The decrease in the 2010 Period is primarily
due to an $8.5 million decrease in ecallantide drug manufacturing costs and $4.9
million in lower
personnel expenses resulting from our workforce reduction in the 2009
Period.
Selling, General and
Administrative. Our
selling, general and administrative expenses consist primarily of the sales and
marketing costs of commercializing KALBITOR in 2010, costs of our management and
administrative staff, as well as expenses related to business development,
protecting our intellectual property, administrative occupancy, professional
fees and the reporting requirements of a public company. Selling, general and
administrative expenses for the 2010 and 2009 Periods were $24.6 million and
$18.9 million, respectively. Costs increased $7.7 million during the
2010 Period due to additional infrastructure to support the commercialization of
KALBITOR, including the expansion of sales and marketing
personnel. This includes increases of $5.1 million in internal sales
and marketing expenses and $2.1 million in external sales and marketing
expenses. These increases are offset by a $1.1 million charge
for share-based compensation expense for amendments to the exercise and vesting
schedules of certain options in the 2009 Period.
Restructuring and
Impairment. In March 2009, we implemented a
workforce reduction to focus our resources on the commercialization of KALBITOR
and to support our long-term financial success. As a result, during the
2009 Period, we recorded restructuring charges related to the workforce
reduction of approximately $1.9 million.
27
As a
result of the decrease in necessary facility space following a workforce
reduction in the first quarter of 2009, we amended our facility lease during the
2009 Quarter to reduce our leased space. In the 2009 Quarter, a one-time
charge of approximately $1.4 million was recorded, of which approximately
$955,000 was a result of the write-down of leasehold improvements.
Interest Expense. Interest
expense was $9.2 million in the 2010 Period compared to $7.4 million in
2009. The 2010 increase is primarily due to additional interest
expense of approximately $1.3 million for payments due under the Cowen
Healthcare loan in connection with the sale of our rights to royalties and other
payments related to the Xyntha product.
Liquidity and Capital
Resources
September 30, 2010
|
December 31, 2009
|
|||||||
(in
thousands)
|
||||||||
Cash
and cash equivalents
|
$ | 32,792 | $ | 29,386 | ||||
Short-term
investments
|
54,718 | 23,009 | ||||||
Total
cash, cash equivalents and investments
|
$ | 87,510 | $ | 52,395 |
The
following table summarizes our cash flow activity for the nine months ended
September 30, 2010 and 2009 (in thousands):
Nine Months Ended September 30,
|
||||||||
2010
|
2009
|
|||||||
Net
cash used in operating activities
|
$ | (24,262 | ) | $ | (45,198 | ) | ||
Net
cash (used in) provided by investing activities
|
(31,115 | ) | 3,596 | |||||
Net
cash provided by financing activities
|
58,783 | 28,491 | ||||||
Effect
of foreign currency translation on cash balances
|
— | 29 | ||||||
Net
increase (decrease) in cash and cash equivalents
|
$ | 3,406 | $ | (13,082 | ) |
We
require cash to fund our operating expenses, to make capital expenditures,
acquisitions and investments, and to service debt. Through September 30,
2010, we have funded our operations principally through the sale of equity
securities, which have provided aggregate net cash proceeds since inception of
approximately $398
million. We have also borrowed funds under our loan agreement
with Cowen Healthcare, which are secured by certain assets associated with our
LFRP. In addition, we generate funds from product development and
license fees and product sales. Our excess funds are currently
invested in short-term investments primarily consisting of U.S. Treasury notes
and bills and money market funds backed by U.S. Treasury
obligations.
Operating
Activities
The
principal use of cash in our operations was to fund our net loss, which was
$15.6 million during the nine months ended September 30, 2010. Of
this net loss, certain costs were non-cash charges, such as depreciation and
amortization costs of $1.2 million and stock-based compensation expense of $2.9
million. In addition to non-cash charges, we also had a net change in
other operating assets and liabilities of $14.0 million, including a decrease in
accounts payable and accrued expenses of $4.3 million, a decrease in accounts
receivable of $937,000, and a decrease in deferred revenue of $9.4
million. The change in deferred revenue is primarily due to the
recognition of $13.8 million of revenue associated with Cubist’s announced
termination of its ecallantide development program.
28
During
October 2010, a new drug substance manufacturing campaign was initiated with MSD
to meet the demand for KALBITOR and supply clinical programs, as
needed. Costs under this manufacturing campaign are expected to
approximate $8 million.
For 2009, our net loss was
$51.5 million, of which certain costs were non-cash charges, such as
depreciation and amortization costs of $2.3 million, interest expense of $1.3
million, impairment of fixed assets totaling $1.0 million, and stock-based
compensation expense of $4.4 million. In addition to non-cash charges, we
also had a net change in other operating assets and liabilities of $2.3 million,
including a decrease in accounts payable and accrued expenses of $4.8 million,
offset by a decrease in accounts receivable of $3.6 million.
Investing
Activities
Our
investing activities for the nine months ended September 30, 2010 primarily
consisted of the purchase of securities totaling of approximately $53.7 million,
offset by investment maturities of $22.0 million, as well as a decrease of
$700,000 in restricted cash from the contractual reduction of the letter of
credit that serves as our security deposit for the lease of our facility in
Cambridge, Massachusetts.
Our investing activities
for the nine months ended September 30, 2009, consisted of investment
maturities totaling of approximately $30.5 million, offset by purchases of
additional securities of $26.5 million and the purchase of approximately
$450,000 of fixed assets.
Financing
Activities
Our
financing activities for the nine months ended September 30, 2010 consisted of
net proceeds of $61.1 million from the sale of 20,186,132 shares of our common
stock, as well as repayments of long-term debt totaling $2.6 million, including
$1.9 million to Cowen Healthcare.
Our financing activities for the nine
months ended September 30, 2009, consisted of net proceeds of $14.8 million from
the Tranche B loan with Cowen Healthcare, as well as approximately $17.6 million
of net proceeds from the sale of 9,280,570 shares of our common stock, and a
$4.6 million repayment of long-term obligations, primarily principal payments to
Cowen Healthcare. During the 2009 Period, we amended our existing
loan with Cowen Healthcare to receive an additional loan of $15
million. This Tranche B loan is secured by our LFRP on the same terms
as the initial Tranche A loan, which was executed in August 2008. The
Tranche B loan, which matures in August 2016, bears interest at an annual rate
of 21.50%, payable quarterly, resulting in a blended interest rate of 17.38% per
annum for both the Tranche A and Tranche B loans under the amended loan
agreement.
We may
seek additional funding through our collaborative arrangements and public or
private financings. We may not be able to obtain financing on
acceptable terms or at all, and we may not be able to enter into additional
collaborative arrangements. Arrangements with collaborators or others may
require us to relinquish rights to certain of our technologies, product
candidates or products. The terms of any financing may adversely affect the
holdings or the rights of our stockholders. If we need additional funds and are
unable to obtain funding on a timely basis, we would curtail significantly our
research, development or commercialization programs in an effort to provide
sufficient funds to continue our operations, which could adversely affect our
business prospects.
OFF
BALANCE SHEET ARRANGEMENTS
We have
no off-balance sheet arrangements with the exception of operating
leases.
29
COMMITMENTS
AND CONTINGENCIES
In our
Annual Report on Form 10-K for the year ended December 31, 2009, Part II, Item
7, Management’s Discussion and Analysis of Financial Conditions and Results of
Operations, under the heading “Contractual Obligations,” we described our
commitments and contingencies. There were no material changes in our commitments
and contingencies during the nine months ended September 30, 2010.
CRITICAL
ACCOUNTING POLICIES AND SIGNIFICANT JUDGMENTS AND ESTIMATES
In our
Annual Report on Form 10-K for the year ended December 31, 2009, our critical
accounting policies and estimates were identified as those relating to revenue
recognition, allowance for doubtful accounts, share-based compensation and
valuation of long-lived and intangible assets. Other than noted
below, there have been no material changes to our critical accounting policies
from the information provided in our 2009 Annual Report on Form
10-K.
Changes
in Critical Accounting Policies
As a
result of the February 2010 commercial launch of KALBITOR, we have updated our
critical accounting policies to include our product sales recognition and
related sales allowances policies. We believe that our judgment and
assumptions with respect to these significant accounting policies are critical
to the accounting estimates used in the preparation of our consolidating
financial statements.
Product
Sales. Revenue
from product sales is recognized when all four of the following criteria are
met: (1) we have persuasive evidence an arrangement exists, (2) the price is
fixed or determinable, (3) the product has been shipped and title and risk of
loss have passed to the customer and (4) collection is reasonably
assured. Our return policy includes provisions for returns of our
product when it has expired or was damaged in shipment. Product sales
are recorded net of applicable reserves for trade prompt pay discounts,
government rebates, a patient assistance program, product returns and other
applicable allowances.
Product Sales
Allowances. We establish
reserves for trade prompt pay discounts, government rebates, a patient
assistance program, product returns and other applicable
allowances. Reserves established for these discounts and allowances
are classified as a reduction of accounts receivable (if the amount is payable
to the customer) or a liability (if the amount is payable to a party other than
the customer).
Allowances against receivable balances
primarily relate to prompt payment discounts and are recorded at the time of
sale, resulting in a reduction in product sales revenue. Accruals
related to government rebates, product returns and other applicable allowances
are recognized at the time of sale, resulting in a reduction in product sales
revenue and an increase in accrued expenses.
We
maintain a service contract with our specialty pharmacy for customer service
initiatives. We have established the fair value of these services and have
classified them as selling, general and administrative expense.
Prompt Payment
Discounts. We offer a prompt
payment discount to our customer ABSG. Since we expect ABSG will take
advantage of this discount, we accrue 100% of the prompt payment discount, based
on the gross amount of each invoice, at the time of sale. The accrual
is adjusted quarterly to reflect the actual experience.
Government
Rebates and Chargebacks. We estimate
reductions to product sales for Medicaid and Veterans’ Administration (VA)
programs, as well as with respect to certain other qualifying federal and state
government programs. We estimate the amount of these reductions based
on market research data related to payer mix, actual sales data and historical
experience for similar products sold by others.
Medicaid
rebate reserves relate to our estimated obligations to states under established
reimbursement arrangements. Rebate accruals are recorded during the
same period in which the related product sales are recognized. Actual
rebate amounts are determined at the time of claim by the state, and we will
generally make cash payments for such amounts after receiving billings from the
state.
30
VA
rebates or chargeback reserves represent estimated obligations resulting from
contractual commitments to sell products to qualified healthcare providers at a
price lower than the list price charged to our distributor. The
distributor will charge us for the difference between what the distributor pays
for the product and the ultimate selling price to the qualified healthcare
provider. Rebate accruals are established during the same period in
which the related product sales are recognized. Actual chargeback amounts are
determined at the time of resale to the qualified healthcare provider from the
distributor, and we will generally issue credits for such amounts after
receiving notification from the distributor.
We offer
a financial assistance program, which involves the use of a patient voucher, for
qualified KALBITOR patients in order to aid a patient’s access to
KALBITOR. We estimate our liability from this voucher program based
on actual redemption rates.
Product
Returns. Allowances for
product returns are recorded during the period in which the related product
sales are recognized, resulting in a reduction to product revenue. We
do not provide customers with a general right of product return. We permit
returns if the product is damaged or defective when received by the customer or
if the product has expired. We estimate product returns based upon
historical trends in the pharmaceutical industry and trends for similar products
sold by others.
During the three and nine months ended
September 30, 2010, provisions for product sales allowances reduced gross
product sales as follows (in thousands):
Three months ended
September 30, 2010
|
Nine months ended
September 30, 2010
|
|||||||
Total
gross product sales
|
$ | 2,767 | $ | 6,114 | ||||
Prompt
pay and other discounts
|
$ | (56 | ) | $ | (146 | ) | ||
Government
rebates and chargebacks
|
(87 | ) | (160 | ) | ||||
Returns
|
(1 | ) | (11 | ) | ||||
Product
sales allowances
|
$ | (144 | ) | $ | (317 | ) | ||
Total
product sales, net
|
$ | 2,623 | $ | 5,797 | ||||
Total
product sales allowances as a percent of gross
product sales
|
5.2 | % | 5.2 | % |
If product sales allowances as a
percentage of total gross product sales increase up to 10%, this change would
not have a material impact on our results of operations or cash flows at this
time.
Item
3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our
exposure to market risk consists primarily of our cash and cash equivalents and
short-term investments. We place our investments in high-quality financial
instruments, primarily U.S. Treasury notes and bills, which we believe are
subject to limited credit risk. We currently do not hedge interest rate
exposure. As of September 30, 2010, we had cash, cash equivalents and
investments of approximately $87.5 million. Our investments will decline by an
immaterial amount if market interest rates increase, and therefore, our exposure
to interest rate changes is immaterial. Declines of interest rates over time
will, however, reduce our interest income from our investments.
As of
September 30, 2010, we had $58.6 million outstanding under short-term and
long-term obligations, including our note payable. Interest rates on all of
these obligations are fixed and therefore are not subject to interest rate
fluctuations.
31
Most of
our transactions are conducted in U.S. dollars. We have collaboration and
technology license agreements with parties located outside of the United States.
Transactions under certain of the agreements between us and parties located
outside of the United States are conducted in local foreign currencies. If
exchange rates undergo a change of up to 10%, we do not believe that it would
have a material impact on our results of operations or cash flows.
Item
4 - CONTROLS AND PROCEDURES
Conclusion
Regarding the Effectiveness of Disclosure Controls and Procedures
Our
management, with the participation of our principal executive officer and
principal financial officer, has evaluated the effectiveness of the design and
operation of our disclosure controls and procedures (as such term is defined in
Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934). Based on
this evaluation, our principal executive officer and principal financial officer
concluded that these disclosure controls and procedures were effective as of the
end of the period covered by this quarterly report.
Changes
in Internal Control over Financial Reporting
There was
no change in our internal control over financial reporting (as defined in Rules
13a-15(f) and 15d-15(f) under the Exchange Act) identified in connection with
the evaluation of our internal control that occurred during our fiscal quarter
ended September 30, 2010 that has materially affected, or is reasonably likely
to materially affect, our internal control over financial
reporting.
PART
II – OTHER INFORMATION
Item
1A. – RISK FACTORS
You
should carefully consider the following risk factors before you decide to invest
in our Company and our business because these risk factors may have a
significant impact on our business, operating results, financial condition, and
cash flows. The risks and uncertainties described below are not the only ones we
face. Additional risks and uncertainties not presently known to us or that we
currently deem immaterial may also impair our business operations. If any of the
following risks actually occurs, our business, financial condition and results
of operations could be materially and adversely affected.
Risks
Related To Our Business
We
have a history of net losses, expect to incur significant additional net losses
and may never achieve or sustain profitability.
We have
incurred net losses on an annual basis since our inception. As of
September 30, 2010, we had an accumulated deficit of approximately $433.4
million. We expect to incur substantial additional net losses over
the next several years as our research, development, preclinical testing,
clinical trial and commercial activities increase.
We have
generated minimal revenue from product sales to date, and it is possible that we
will never have significant product sales revenue. Currently, we
generate most of our revenue from collaborators through license and milestone
fees, research and development funding, and maintenance fees that we receive in
connection with the licensing of our phage display technology. To
become profitable, we, alone or with our collaborators, must either successfully
commercialize KALBITOR or develop and commercialize our other product candidates
or continue to leverage our phage display technology to generate significant
research funding and licensing revenue. It is possible that we will
never have significant product sales revenue or receive significant royalties on
our licensed product candidates or licensed technology in order to achieve or
sustain future profitability.
32
We
may need substantial additional capital in the future and may be unable to raise
the capital that we will need to sustain our operations.
We
require significant capital to fund our operations to commercialize KALBITOR and
to develop and commercialize other product candidates. Our future
capital requirements will depend on many factors, including:
|
·
|
future
sales levels of KALBITOR and other commercial products and the
profitability of such sales, if
any;
|
|
·
|
the
timing and cost to develop, obtain regulatory approvals for and
commercialize our pipeline
products;
|
|
·
|
maintaining
or expanding our existing collaborative and license arrangements and
entering into additional arrangements on terms that are favorable to
us;
|
|
·
|
the
amount and timing of milestone and royalty payments from our collaborators
and licensees related to their progress in developing and commercializing
products;
|
|
·
|
our
decision to manufacture, or have third parties manufacture, the materials
used in KALBITOR and other pipeline
products;
|
|
·
|
competing
technological and market
developments;
|
|
·
|
the
progress of our drug discovery and development
programs;
|
|
·
|
the
costs of prosecuting, maintaining, defending and enforcing our patents and
other intellectual property rights;
|
|
·
|
the
amount and timing of additional capital equipment purchases;
and
|
|
·
|
the
overall condition of the financial
markets.
|
We will
need additional funds if our cash requirements exceed our current expectations
or if we generate less revenue than we expect. We may seek additional
funding through collaborative arrangements, and public or private financings, or
other means. We may not be able to obtain financing on acceptable
terms or at all, and we may not be able to enter into additional collaborative
arrangements. Arrangements with collaborators or others may require
us to relinquish rights to certain of our technologies, product candidates or
products. The terms of any financing may adversely affect the
holdings or the rights of our stockholders and if we are unable to obtain
funding on a timely basis, we may be required to curtail significantly our
research, development or commercialization programs which could adversely affect
our business prospects.
Our
revenues and operating results have fluctuated significantly in the past, and we
expect this to continue in the future.
Our
revenues and operating results have fluctuated significantly on a quarter to
quarter basis. We expect these fluctuations to continue in the
future. Fluctuations in revenues and operating results will depend
on:
|
·
|
the
amount of future sales of KALBITOR and related costs to commercialize the
product;
|
|
·
|
the
cost and timing of our increased research and development, manufacturing
and commercialization activities;
|
33
|
·
|
the
establishment of new collaboration and licensing
arrangements;
|
|
·
|
the
timing and results of clinical trials, including a failure to receive the
required regulatory approvals to commercialize our product
candidates;
|
|
·
|
the
timing, receipt and amount of payments, if any, from current and
prospective collaborators, including the completion of certain milestones;
and
|
|
·
|
revenue
recognition and other accepted accounting
policies.
|
Our
revenues and costs in any period are not reliable indicators of our future
operating results. If the revenues we receive are less than the
revenues we expect for a given fiscal period, then we may be unable to reduce
our expenses quickly enough to compensate for the shortfall. In
addition, our fluctuating operating results may fail to meet the expectations of
securities analysts or investors which may cause the price of our common stock
to decline.
We
depend heavily on the success of our lead product, KALBITOR, which is approved
in the United States for treatment of acute attacks of HAE in patients 16 years
and older.
Our
ability to generate product sales will depend on commercial success of KALBITOR
in the United States and whether physicians, patients and healthcare payers view
KALBITOR as therapeutically effective relative to cost. We initiated
the commercial launch of KALBITOR in the United States in February
2010.
The
commercial success of KALBITOR and our ability to generate and increase product
sales will depend on several factors, including the following:
|
·
|
the
number of patients with HAE who are diagnosed with the disease and
identified to us;
|
|
·
|
the
number of patients with HAE who may be treated with
KALBITOR;
|
|
·
|
acceptance
of KALBITOR in the medical
community;
|
|
·
|
HAE
patients’ frequency of KALBITOR use to treat their acute attacks of
HAE;
|
|
·
|
HAE
patients’ ability to obtain and maintain sufficient coverage or
reimbursement by third-party payers for the use of
KALBITOR;
|
|
·
|
our
ability to effectively market and distribute KALBITOR in the United
States;
|
|
·
|
the
maintenance of marketing approval in the United States and the receipt and
maintenance of marketing approval from foreign regulatory authorities;
and
|
|
·
|
our
maintenance of commercial manufacturing capabilities through third-party
manufacturers.
|
If we are
unable to develop substantial sales of KALBITOR in the United States and
commercialize ecallantide in additional countries or if we are significantly
delayed or limited in doing so, our business prospects would be adversely
affected.
Because
the target patient population of KALBITOR for treatment of HAE is small and has
not been definitively determined, we must be able to successfully identify HAE
patients and achieve a significant market share in order to achieve or maintain
profitability.
The
prevalence of HAE patients which has been estimated at approximately 1 in 10,000
to 1 in 50,000 people around the world, has not been definitively
determined. There can be no guarantee that any of our programs will
be effective at identifying HAE patients and the number of HAE patients in the
United States may turn out to be lower than expected or may not otherwise
utilize treatment with KALBITOR for all or any of their acute HAE attacks, all
of which would adversely affect our results of operations and business
prospects.
34
If
HAE patients are unable to obtain and maintain reimbursement for KALBITOR from
government health administration authorities, private health insurers and other
organizations, KALBITOR may be too costly for regular use and our ability to
generate product sales would be harmed.
We may
not be able to sell KALBITOR on a profitable basis or our profitability may be
reduced if we are required to sell our product at lower than anticipated prices
or if reimbursement is unavailable or limited in scope or
amount. KALBITOR is significantly more expensive than traditional
drug treatments and most patients require some form of third party insurance
coverage in order to afford its cost. Our future revenues and
profitability will be adversely affected if HAE patients cannot depend on
governmental, private and other third-party payers, such as Medicare and
Medicaid in the United States or country specific governmental organizations, to
defray the cost of KALBITOR. If these entities refuse to provide
coverage and reimbursement with respect to KALBITOR or determine to provide a
lower level of coverage and reimbursement than anticipated, KALBITOR may be too
costly for general use, and physicians may not prescribe it.
In
addition to potential restrictions on insurance coverage, the amount of
reimbursement for KALBITOR may also reduce our ability to profitably
commercialize KALBITOR. In the United States and elsewhere, there
have been, and we expect there will continue to be, actions and proposals to
control and reduce healthcare costs. Government and other third-party
payers are challenging the prices charged for healthcare products and
increasingly limiting and attempting to limit both coverage and level of
reimbursement for prescription drugs.
It is
possible that we will never have significant KALBITOR sales revenue in order to
achieve or sustain future profitability.
We
may not be able to gain or maintain market acceptance of KALBITOR among the
medical community or patients, which would prevent us from achieving or
maintaining profitability in the future.
We cannot
be certain that KALBITOR will gain or maintain market acceptance among
physicians, patients, healthcare payers, and others. Although we have
received regulatory approval for KALBITOR in the United States, such approval
does not guarantee future revenue. We cannot predict whether
physicians, other healthcare providers, government agencies or private insurers
will determine that KALBITOR is safe and therapeutically effective relative to
cost. Medical doctors’ willingness to prescribe, and patients’
willingness to accept, KALBITOR depends on many factors, including prevalence
and severity of adverse side effects in both clinical trials and commercial use,
effectiveness of our marketing strategy and the pricing of KALBITOR, publicity
concerning our products or competing products, HAE patient’s ability to obtain
and maintain third-party coverage or reimbursement, and availability of
alternative treatments. If KALBITOR fails to achieve market
acceptance, we may not be able to market and sell it successfully, which would
limit our ability to generate revenue and adversely affect our results of
operations and business prospects.
If
we fail to comply with continuing regulations, we could lose our approvals to
market KALBITOR, and our business would be adversely affected.
We cannot
guarantee that we will be able to maintain our regulatory approval for KALBITOR
in the United States. We and our future partners, contract manufacturers and
suppliers are subject to rigorous and extensive regulation by the FDA, other
federal and state agencies, and governmental authorities in other
countries. These regulations continue to apply after product
approval, and cover, among other things, testing, manufacturing, quality
control, labeling, advertising, promotion, adverse event reporting requirements,
and export of biologics.
35
As a
condition of approval for marketing KALBITOR in the United States and other
jurisdictions, the FDA or governmental authorities in those jurisdictions may
require us to conduct additional clinical trials. For example, in
connection with the approval of KALBITOR in the United States, we have agreed to
conduct a Phase 4 clinical study to evaluate immunogenicity and hypersensitivity
with exposure to KALBITOR for treatment of acute attacks of HAE. The
FDA can propose to withdraw approval if new clinical data or information shows
that KALBITOR is not safe for use or determines that such study is
inadequate. We are required to report any serious and unexpected
adverse experiences and certain quality problems with KALBITOR to the FDA and
other health agencies. We, the FDA or another health agency may have
to notify healthcare providers of any such developments. The
discovery of any previously unknown problems with KALBITOR or its manufacturer
may result in restrictions on KALBITOR and the manufacturer or
manufacturing facility, including withdrawal of KALBITOR from the
market. Certain changes to an approved product, including the way it
is manufactured or promoted, often require prior regulatory approval before the
product as modified may be marketed.
Our
third-party manufacturing facilities were subjected to inspection prior to grant
of marketing approval and are subject to continued review and periodic
inspections by the regulatory authorities. Any third party we would
use to manufacture KALBITOR for sale must also be licensed by applicable
regulatory authorities. Although we have established a corporate
compliance program, we cannot guarantee that we are and will continue to be in
compliance with all applicable laws and regulations. Failure to comply with the
laws, including statutes and regulations, administered by the FDA or other
agencies could result in:
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administrative
and judicial sanctions, including warning
letters;
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fines
and other civil penalties;
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withdrawal
of a previously granted approval;
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interruption
of production;
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operating
restrictions;
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product
recall or seizure; injunctions; and
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criminal
prosecution.
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The
discovery of previously unknown problems with a product, including KALBITOR, or
the facility used to produce the product could result in a regulatory authority
imposing restrictions on us, or could cause us to voluntarily adopt such
restrictions, including withdrawal of KALBITOR from the market.
If we do
not maintain our regulatory approval for KALBITOR in the United States, our
results of operations and business prospects will be materially
harmed.
If
the use of KALBITOR harms people, or is perceived to harm patients even when
such harm is unrelated to KALBITOR, our regulatory approvals could be revoked or
otherwise negatively affected and we could be subject to costly and damaging
product liability claims.
The
testing, manufacturing, marketing and sale of drugs for use in humans exposes us
to product liability risks. Side effects and other problems from
using KALBITOR could:
|
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lessen
the frequency with which physicians decide to prescribe
KALBITOR;
|
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encourage
physicians to stop prescribing KALBITOR to their patients who previously
had been prescribed KALBITOR;
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cause
serious adverse events and give rise to product liability claims against
us; and
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·
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result
in our need to withdraw or recall KALBITOR from the
marketplace. Some of these risks are unknown at this
time.
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36
We have
tested KALBITOR in only a small number of patients. As more patients begin
to use KALBITOR, new risks and side effects may be discovered, and risks
previously viewed as inconsequential could be determined to be
significant. Previously unknown risks and adverse effects of KALBITOR may
also be discovered in connection with unapproved, or off-label, uses of
KALBITOR. We do not promote, or in any way support or encourage the
promotion of KALBITOR for off-label uses in violation of relevant law, but
physicians are permitted to use products for off-label uses. In addition,
we expect to study ecallantide in diseases other than HAE in controlled clinical
settings, and expect independent investigators to do so as well. In the
event of any new risks or adverse effects discovered as new patients are treated
for HAE, regulatory authorities may revoke their approvals and we may be
required to conduct additional clinical trials, make changes in labeling of
KALBITOR, reformulate KALBITOR or make changes and obtain new approvals for our
and our suppliers’ manufacturing facilities. We may also experience a
significant drop in the potential sales of KALBITOR, experience harm to our
reputation and the reputation of KALBITOR in the marketplace or become subject
to government investigations or lawsuits, including class actions. Any of
these results could decrease or prevent any sales of KALBITOR or substantially
increase the costs and expenses of commercializing and marketing
KALBITOR.
We may be
sued by people who use KALBITOR, whether as a prescribed therapy, during a
clinical trial, during an investigator initiated study, or otherwise. Any
informed consents or waivers obtained from people who enroll in our trials or
use KALBITOR may not protect us from liability or litigation. Our product
liability insurance may not cover all potential types of liabilities or may not
cover certain liabilities completely. Moreover, we may not be able to
maintain our insurance on acceptable terms. In addition, negative
publicity relating to the use of KALBITOR or a product candidate, or to a
product liability claim, may make it more difficult, or impossible, for us to
market and sell KALBITOR. As a result of these factors, a product
liability claim, even if successfully defended, could have a material adverse
effect on our business, financial condition or results of
operations.
During
the course of treatment, patients may suffer adverse events, including death,
for reasons that may or may not be related to KALBITOR. Such events could
subject us to costly litigation, require us to pay substantial amounts of money
to injured patients, delay, negatively impact or end our opportunity to receive
or maintain regulatory approval to market KALBITOR, or require us to suspend or
abandon our commercialization efforts. Even in a circumstance in which we
do not believe that an adverse event is related to KALBITOR, the investigation
into the circumstance may be time consuming or may be inconclusive. These
investigations may interrupt our sales efforts, delay our regulatory approval
process in other countries, or impact and limit the type of regulatory approvals
KALBITOR receives or maintains.
Although
we obtained regulatory approval of KALBITOR for treatment of acute attacks of
HAE in patients 16 years and older in the United States, we may be unable to
obtain regulatory approval for ecallantide in any other territory.
Governments
in countries outside the United States also regulate drugs distributed in such
countries and facilities in such countries where such drugs are manufactured,
and obtaining their approvals can also be lengthy, expensive and highly
uncertain. The approval process varies from country to country and the
requirements governing the conduct of clinical trials, product manufacturing,
product licensing, pricing and reimbursement vary greatly from country to
country. In certain jurisdictions, we are required to finalize
operational, reimbursement, price approval and funding processes prior to
marketing our products. We may not receive regulatory approval for
ecallantide in countries other than the United States on a timely basis, if
ever. Even if approval is granted in any such country, the approval may
require limitations on the indicated uses for which the drug may be
marketed. Failure to obtain regulatory approval for ecallantide in
territories outside the United States could have a material adverse affect on
our business prospects.
If
we are unable to establish and maintain effective sales, marketing and
distribution capabilities, or to enter into agreements with third parties to do
so, we will be unable to successfully commercialize KALBITOR.
We are
marketing and selling KALBITOR ourselves in the United States, and have only
limited experience with marketing, sales or distribution of drug products. If we
are unable to adequately establish the capabilities to sell, market and
distribute KALBITOR, either ourselves or by entering into agreements with
others, or to maintain such capabilities, we will not be able to successfully
sell KALBITOR. In that event, we will not be able to generate significant
product sales. We cannot guarantee that we will be able to establish and
maintain our own capabilities or enter into and maintain any marketing or
distribution agreements with third-party providers on acceptable terms, if at
all.
37
In the
United States, we sell KALBITOR to ABSG which provides an exclusive distribution
network for KALBITOR, including a call center to support its
commercialization. ABSG in turn sells KALBITOR to health-care providers
and hospitals. ABSG does not set or determine demand for KALBITOR.
We expect our exclusive distribution arrangement with ABSG to continue for the
foreseeable future. Our ability to successfully commercialize KALBITOR
will depend, in part, on the extent to which we are able to provide adequate
distribution of KALBITOR to patients through ABSG. It is possible that
ABSG could change their policies or fees, or both, at some time in the
future. This could result in their refusal to distribute smaller volume
products such as KALBITOR, or cause higher product distribution costs, lower
margins or the need to find alternative methods of distributing KALBITOR.
Although we have contractual remedies to mitigate these risks for the three-year
term of the contract with ABSG and we also believe we can find alternative
distributors on relatively short notice, our product sales during that period of
time may suffer and we may incur additional costs to replace a
distributor. A significant reduction in product sales to ABSG, any
cancellation of orders they have made with us or any failure to pay for the
products we have shipped to them could materially and adversely affect our
results of operations and financial condition.
We have
hired sales and marketing professionals for the commercialization of KALBITOR
throughout the United States. Even with these sales and marketing
personnel, we may not have the necessary size and experience of the sales and
marketing force and the appropriate distribution capabilities necessary to
successfully market and sell KALBITOR. Establishing and maintaining sales,
marketing and distribution capabilities are expensive and time-consuming.
Our expenses associated with building up and maintaining the sales force and
distribution capabilities may be disproportional compared to the revenues we may
be able to generate on sales of KALBITOR. We cannot guarantee that we will
be successful in commercializing KALBITOR and a failure to do so would adversely
affect our business prospects.
If
we market KALBITOR in a manner that violates health care fraud and abuse laws,
we may be subject to civil or criminal penalties.
In
addition to FDA and related regulatory requirements, we are subject to health
care “fraud and abuse” laws, such as the federal False Claims Act, the
anti-kickback provisions of the federal Social Security Act, and other state and
federal laws and regulations. Federal and state anti-kickback laws
prohibit, among other things, knowingly and willfully offering, paying,
soliciting or receiving remuneration to induce, or in return for purchasing,
leasing, ordering or arranging for the purchase, lease or order of any health
care item or service reimbursable under Medicare, Medicaid, or other federally
or state financed health care programs. This statute has been interpreted
to apply to arrangements between pharmaceutical manufacturers on the one hand
and prescribers, patients, purchasers and formulary managers on the other.
Although there are a number of statutory exemptions and regulatory safe harbors
protecting certain common activities from prosecution, the exemptions and safe
harbors are drawn narrowly, and practices that involve remuneration intended to
induce prescribing, purchasing, or recommending may be subject to scrutiny if
they do not qualify for an exemption or safe harbor.
Federal
false claims laws prohibit any person from knowingly presenting, or causing to
be presented, a false claim for payment to the federal government, or knowingly
making, or causing to be made, a false statement to get a false claim
paid. Pharmaceutical companies have been prosecuted under these laws for a
variety of alleged promotional and marketing activities, such as allegedly
providing free product to customers with the expectation that the customers
would bill federal programs for the product; reporting to pricing services
inflated average wholesale prices that were then used by federal programs to set
reimbursement rates; engaging in promotion for uses that the FDA has not
approved, or “off-label” uses, that caused claims to be submitted to Medicaid
for non-covered off-label uses; and submitting inflated best price information
to the Medicaid Rebate Program.
38
Although
physicians are permitted to, based on their medical judgment, prescribe products
for indications other than those cleared or approved by the FDA, manufacturers
are prohibited from promoting their products for such off-label uses. We
market KALBITOR for acute attacks of HAE in patients 16 years and older and
provide promotional materials and training programs to physicians regarding the
use of KALBITOR for this indication. Although we believe our marketing,
promotional materials and training programs for physicians do not constitute
off-label promotion of KALBITOR, the FDA may disagree. If the FDA
determines that our promotional materials, training or other activities
constitute off-label promotion of KALBITOR, it could request that we modify our
training or promotional materials or other activities or subject us to
regulatory enforcement actions, including the issuance of a warning letter,
injunction, seizure, civil fine and criminal penalties. It is also
possible that other federal, state or foreign enforcement authorities might take
action if they believe that the alleged improper promotion led to the submission
and payment of claims for an unapproved use, which could result in significant
fines or penalties under other statutory authorities, such as laws prohibiting
false claims for reimbursement. Even if it is later determined we are not
in violation of these laws, we may be faced with negative publicity, incur
significant expenses defending our position and have to divert significant
management resources from other matters.
The
majority of states also have statutes or regulations similar to the federal
anti-kickback law and false claims laws, which apply to items and services
reimbursed under Medicaid and other state programs, or, in several states, apply
regardless of the payer. Sanctions under these federal and state laws may
include civil monetary penalties, exclusion of a manufacturer’s products from
reimbursement under government programs, criminal fines, and imprisonment.
Even if we are not determined to have violated these laws, government
investigations into these issues typically require the expenditure of
significant resources and generate negative publicity, which would also harm our
financial condition. Because of the breadth of these laws and the
narrowness of the safe harbors and because government scrutiny in this area is
high, it is possible that some of our business activities could come under that
scrutiny.
In recent
years, several states and localities, including California, the District of
Columbia, Maine, Massachusetts, Minnesota, Nevada, New Mexico, Vermont, and West
Virginia, have enacted legislation requiring pharmaceutical companies to
establish marketing compliance programs, and file periodic reports with the
state or make periodic public disclosures on sales, marketing, pricing, clinical
trials, and other activities. Similar legislation is being considered in
other states. Many of these requirements are new and uncertain, and the
penalties for failure to comply with these requirements are unclear.
Nonetheless, although we have established compliance policies that comport with
the Code of Interactions with Healthcare Providers adopted by Pharmaceutical
Research Manufacturers of America (PhRMA Code) and the Office of Inspector
General’s (OIG) Compliance Program Guidance for Pharmaceutical
Manufacturers, if we are found not to be in full compliance with
these laws, we could face enforcement action and fines and other penalties, and
could receive adverse publicity.
The
FDA or similar agencies in other jurisdictions may require us to restrict the
distribution or use of KALBITOR or other future products or take other
potentially limiting or costly actions if we or others identify side effects
after the product is on the market.
The FDA
required that we implement a REMS for KALBITOR and conduct post-marketing
studies to assess a risk of hypersensitivity reactions, including
anaphylaxis. The REMS consists of a Medication Guide and a communication
plan to healthcare providers. The FDA and other regulatory agencies could
impose new requirements or change existing regulations or promulgate new ones at
any time that may affect our ability to obtain or maintain approval of KALBITOR
or future products or require significant additional costs to obtain or maintain
such approvals. For example, the FDA or similar agencies in other
jurisdictions may require us to restrict the distribution or use of
KALBITOR. If we or others identify side effects after KALBITOR is on the
market. Changes in KALBITOR’s approval or restrictions on its use could
make it difficult to achieve market acceptance, and we may not be able to market
and sell KALBITOR or continue to sell it, successfully, or at all, which would
limit our ability to generate product sales and adversely affect our results of
operations and business prospects.
39
We
rely on third-party manufacturers to produce our preclinical and clinical drug
supplies and we intend to rely on third parties to produce commercial supplies
of KALBITOR and any future approved product candidates. Any failure by a
third-party manufacturer to produce supplies for us may delay or impair our
ability to develop, obtain regulatory approval for or commercialize our product
candidates.
We have
relied upon a small number of third-party manufacturers for the manufacture of
our product candidates for preclinical and clinical testing purposes and intend
to continue to do so in the future. As a result, we depend on
collaborators, partners, licensees and other third parties to manufacture
clinical and commercial scale quantities of our biopharmaceutical candidates in
a timely and effective manner and in accordance with government
regulations. If these third party arrangements are not successful, it will
adversely affect our ability to develop, obtain regulatory approval for or
commercialize our product candidates.
We have
identified only a few facilities that are capable of producing material for
preclinical and clinical studies and we cannot assure you that they will be able
to supply sufficient clinical materials during the clinical development of our
biopharmaceutical candidates. Reliance on third-party manufacturers
entails risks to which we would not be subject if we manufactured product
candidates ourselves, including reliance on the third party for regulatory
compliance and quality assurance, the possibility of breach of the manufacturing
agreement by the third party because of factors beyond our control (including a
failure to synthesize and manufacture our product candidates in accordance with
our product specifications) and the possibility of termination or nonrenewal of
the agreement by the third party, based on its own business priorities, at a
time that is costly or damaging to us. In addition, the FDA and other
regulatory authorities require that our product candidates be manufactured
according to cGMP and similar foreign standards. Any failure by our
third-party manufacturers to comply with cGMP or failure to scale up
manufacturing processes, including any failure to deliver sufficient quantities
of product candidates in a timely manner, could lead to a delay in, or failure
to obtain, regulatory approval of any of our product candidates.
In
addition, as our drug development pipeline increases and matures, we will have a
greater need for clinical trial and commercial manufacturing capacity. We
do not own or operate manufacturing facilities for the production of clinical or
commercial quantities of our product candidates and we currently have no plans
to build our own clinical or commercial scale manufacturing capabilities.
To meet our projected needs for commercial manufacturing, third parties with
whom we currently work will need to increase their scale of production or we
will need to secure alternate suppliers.
We
are dependent on a single contract manufacturer to produce drug substance for
ecallantide, which may adversely affect our ability to commercialize KALBITOR
and other potential ecallantide products.
We
currently rely on MSD to produce the bulk drug substance used in the manufacture
of KALBITOR and other potential ecallantide products. Our business,
therefore, faces risks of difficulties with, and interruptions in, performance
by MSD, the occurrence of which could adversely impact the availability and/or
sales of KALBITOR and other potential ecallantide products in the future.
The failure of MSD to supply manufactured product on a timely basis or at all,
or to manufacture our drug substance in compliance with our specifications or
applicable quality requirements or in volumes sufficient to meet demand could
adversely affect our ability to sell KALBITOR and other potential ecallantide
products, could harm our relationships with our collaborators or customers and
could negatively affect our revenues and operating results. If the
operations of MSD are disrupted, we may be forced to secure alternative sources
of supply, which may be unavailable on commercially acceptable terms, cause
delays in our ability to deliver products to our customers, increase our costs
and negatively affect our operating results.
In
addition, failure to comply with applicable good manufacturing practices and
other governmental regulations and standards could be the basis for action by
the FDA or corresponding foreign agency to withdraw approval for KALBITOR or any
other product previously granted to us and for other regulatory action,
including recall or seizure, fines, imposition of operating restrictions, total
or partial suspension of production or injunctions.
40
We do not
currently have a long-term commercial supply agreement with MSD for the
production of ecallantide drug substance. We are working to establish a
long-term supply contract with MSD or an alternative contract
manufacturer. However, we cannot guarantee that we will be able to enter
into long-term supply contracts on commercially reasonable terms, or at
all. We believe that our current supply of the ecallantide drug substance
used to manufacture KALBITOR will be sufficient to meet market demand for
KALBITOR through 2011, but these estimates are subject to changes in market
conditions and other factors beyond our control. If we are unable to
execute a long-term supply agreement or otherwise secure a dependable source for
drug substance before our current inventory of ecallantide drug substance is
exhausted, it could adversely affect our ability to further develop and
commercialize KALBITOR and other potential ecallantide products, generate
revenue from product sales, increase our costs and negatively affect our
operating results.
Any
new biopharmaceutical product candidates we develop must undergo rigorous
clinical trials which could substantially delay or prevent its development or
marketing.
In
addition to KALBITOR, we are developing ecallantide in further indications and
other potential biopharmaceutical products. Before we can commercialize
any biopharmaceutical product candidate, we must engage in a rigorous clinical
trial and regulatory approval process mandated by the FDA and analogous foreign
regulatory agencies. This process is lengthy and expensive, and approval
is never certain. Positive results from preclinical studies and early
clinical trials do not ensure positive results in late stage clinical trials
designed to permit application for regulatory approval. We cannot
accurately predict when planned clinical trials will begin or be
completed. Many factors affect patient enrollment, including the size of
the patient population, the proximity of patients to clinical sites, the
eligibility criteria for the trial, alternative therapies, competing clinical
trials and new drugs approved for the conditions that we are
investigating. As a result of all of these factors, our future trials may
take longer to enroll patients than we anticipate. Such delays may
increase our costs and slow down our product development and the regulatory
approval process. Our product development costs will also increase if we
need to perform more or larger clinical trials than planned. The
occurrence of any of these events will delay our ability to commercialize
products, generate revenue from product sales and impair our ability to become
profitable, which may cause us to have insufficient capital resources to support
our operations.
Products
that we or our collaborators develop could take a significantly longer time to
gain regulatory approval than we expect or may never gain approval. If we
or our collaborators do not receive these necessary approvals, we will not be
able to generate substantial product or royalty revenues and may not become
profitable. We and our collaborators may encounter significant delays or
excessive costs in our efforts to secure regulatory approvals. Factors
that raise uncertainty in obtaining these regulatory approvals include the
following:
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we
must demonstrate through clinical trials that the proposed product is safe
and effective for its intended use;
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we
have limited experience in conducting the clinical trials necessary to
obtain regulatory approval; and
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data
obtained from preclinical and clinical activities are subject to varying
interpretations, which could delay, limit or prevent regulatory
approvals.
|
Regulatory
authorities may delay, suspend or terminate clinical trials at any time if they
believe that the patients participating in trials are being exposed to
unacceptable health risks or if they find deficiencies in the clinical trial
procedures. There is no guarantee that we will be able to resolve such
issues, either quickly, or at all. In addition, our or our collaborators'
failure to comply with applicable regulatory requirements may result in criminal
prosecution, civil penalties and other actions that could impair our ability to
conduct our business.
41
We
lack experience in and/or capacity for conducting clinical trials and handling
regulatory processes. This lack of experience and/or capacity may
adversely affect our ability to commercialize any biopharmaceuticals that we may
develop.
We have
hired experienced clinical development and regulatory staff to develop and
supervise our clinical trials and regulatory processes. However, we will
remain dependent upon third party contract research organizations to carry out
some of our clinical and preclinical research studies for the foreseeable
future. As a result, we have had and will continue to have less control
over the conduct of the clinical trials, the timing and completion of the
trials, the required reporting of adverse events and the management of data
developed through the trials than would be the case if we were relying entirely
upon our own staff. Communicating with outside parties can also be
challenging, potentially leading to mistakes as well as difficulties in
coordinating activities. Outside parties may have staffing difficulties,
may undergo changes in priorities or may become financially distressed,
adversely affecting their willingness or ability to conduct our trials.
For example, in 2008, the contract research organization collecting and
assembling the data from our EDEMA4 trial announced that it was terminating that
line of business, which forced us to find a new contractor and delay the filing
of our BLA for HAE by almost two months. We may also experience unexpected
cost increases that are beyond our control.
Problems
with the timeliness or quality of the work of a contract research organization
may lead us to seek to terminate the relationship and use an alternative service
provider. However, changing our service provider may be costly and may
delay our trials, and contractual restrictions may make such a change difficult
or impossible. Additionally, it may be impossible to find a replacement
organization that can conduct our trials in an acceptable manner and at an
acceptable cost.
Government
regulation of drug development is costly, time consuming and fraught with
uncertainty, and our products in development cannot be sold if we do not gain
regulatory approval.
We and
our licensees and partners conduct research, preclinical testing and clinical
trials for our product candidates. These activities are subject to
extensive regulation by numerous state and federal governmental authorities in
the United States, such as the FDA, as well as foreign countries, such as the
EMEA in European countries, Canada and Australia. Currently, we are
required in the United States and in foreign countries to obtain approval from
those countries' regulatory authorities before we can manufacture (or have our
third-party manufacturers produce), market and sell our products in those
countries. The FDA and other United States and foreign regulatory agencies
have substantial authority to fail to approve commencement of, suspend or
terminate clinical trials, require additional testing and delay or withhold
registration and marketing approval of our product candidates.
Obtaining
regulatory approval has been and continues to be increasingly difficult and
costly and takes many years, and if obtained is costly to maintain. With
the occurrence of a number of high profile safety events with certain
pharmaceutical products, regulatory authorities, and in particular the FDA,
members of Congress, the United States Government Accountability Office (GAO),
Congressional committees, private health/science foundations and organizations,
medical professionals, including physicians and investigators, and the general
public are increasingly concerned about potential or perceived safety issues
associated with pharmaceutical and biological products, whether under study for
initial approval or already marketed.
This
increasing concern has produced greater scrutiny, which may lead to fewer
treatments being approved by the FDA or other regulatory bodies, as well as
restrictive labeling of a product or a class of products for safety reasons,
potentially including a boxed warning or additional limitations on the use of
products, pharmacovigilance programs for approved products or requirement of
risk management activities related to the promotion and sale of a
product.
If
regulatory authorities determine that we or our licensees or partners conducting
research and development activities on our behalf have not complied with
regulations in the research and development of a product candidate, new
indication for an existing product or information to support a current
indication, then they may not approve the product candidate or new indication or
maintain approval of the current indication in its current form or at all, and
we will not be able to market and sell it. If we were unable to market and
sell our product candidates, our business and results of operations would be
materially and adversely affected.
42
Product
liability and other claims arising in connection with the testing our product
candidates in human clinical trials may reduce demand for our products or result
in substantial damages.
We face
an inherent risk of product liability exposure related to KALBITOR and the
testing of our product candidates in human clinical trials.
An
individual may bring a product liability claim against us if KALBITOR or one of
our product candidates causes, or merely appears to have caused, an
injury. Moreover, in some of our clinical trials, we test our product
candidates in indications where the onset of certain symptoms or "attacks" could
be fatal. Although the protocols for these trials include emergency
treatments in the event a patient appears to be suffering a potentially fatal
incident, patient deaths may nonetheless occur. As a result, we may face
additional liability if we are found or alleged to be responsible for any such
deaths.
These
types of product liability claims may result in:
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decreased
demand for KALBITOR and other product
candidates;
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injury
to our reputation;
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withdrawal
of clinical trial volunteers;
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related
litigation costs; and
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substantial
monetary awards to plaintiffs.
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Although
we currently maintain product liability insurance, we may not have sufficient
insurance coverage, and we may not be able to obtain sufficient coverage at a
reasonable cost. Our inability to obtain product liability insurance at an
acceptable cost or to otherwise protect against potential product liability
claims could prevent or inhibit the commercialization of any products that we or
our collaborators develop, including KALBITOR. If we are successfully sued
for any injury caused by our products or processes, then our liability could
exceed our product liability insurance coverage and our total
assets.
Competition
and technological change may make our potential products and technologies less
attractive or obsolete.
We
compete in industries characterized by intense competition and rapid
technological change. New developments occur and are expected to continue
to occur at a rapid pace. Discoveries or commercial developments by our
competitors may render some or all of our technologies, products or potential
products obsolete or non-competitive.
Our
principal focus is on the development of human therapeutic products. We
plan to conduct research and development programs to develop and test product
candidates and demonstrate to appropriate regulatory agencies that these
products are safe and effective for therapeutic use in particular
indications. Therefore our principal competition going forward, as further
described below, will be companies who either are already marketing products in
those indications or are developing new products for those indications.
Many of our competitors have greater financial resources and experience than we
do.
For
KALBITOR as a treatment for HAE, our principal competitors include:
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CSL
Behring— In October 2009, CSL Behring received FDA approval for its
plasma-derived C1-esterase inhibitor, known as Berinert®,
which is administered intravenously. Berinert was approved for
treatment of acute abdominal or facial attacks of HAE in adult and
adolescent patients, and has orphan drug designation from the FDA. CSL
Behring also completed a Mutual Recognition Procedure in December 2008,
allowing the sale of Berinert® in
23 European countries. Berinert®
has been sold in a subset of European countries since 1985. Additionally,
CSL Behring is conducting a clinical trial evaluating subcutaneous
administration of Berinert.
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43
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ViroPharma Inc.—
In 2008, ViroPharma received FDA approval for its plasma-derived
C1-esterase inhibitor, known as Cinryze™, which is administered
intravenously. Cinryze was approved for routine prophylaxis against
angioedema attacks in adolescent and adult patients with HAE, and has
orphan drug designation from the FDA. In June 2009, FDA approved
patient labeling for Cinryze to include self-administration for routine
prophylaxis, once patients are properly trained by their healthcare
provider. A Phase 2 trial initiated by the company in March 2010 is
evaluating Cinryze for the treatment of acute HAE attacks in children
under the age of 12. An additional Phase 2 trial evaluating subcutaneous
administration of Cinryze was completed in October 2010. ViroPharma
announced in March 2010 that it had filed an EU Marketing Authorisation
Application for the use of its C1 inhibitor for acute treatment and
prophylaxis against HAE.
|
|
·
|
Jerini
AG/Shire plc—Jerini AG received EU market approval in July 2008 for
its bradykinin receptor antagonist, known as Firazyr®
(icatibant), which is delivered by subcutaneous injection. In
April 2008, the FDA issued a Not Approvable letter for
icatibant. Icatibant has orphan drug designations from the FDA and in
Europe. In June 2009, Jerini/Shire initiated a new Phase 3 United
States trial of icatibant for acute HAE attacks. In August 2010, Shire
announced the completion of this Phase 3
study.
|
|
·
|
Pharming
Group NV— In September 2009, Pharming filed for market approval from
the EMA for its recombinant C1-esterase inhibitor, known as Ruconest in
Europe (previously referred to as Rhucin®)
which is delivered intravenously. In June 2010, Pharming announced
that it received a positive opinion from the CHMP committee. Pharming has
also reported that it will file a Biologic License Application with the
FDA no later than January 2011. Pharming’s recombinant C1-esterase
inhibitor has Fast Track status from the FDA and orphan drug designations
from the FDA and in Europe.
|
Other
competitors include companies that market or are developing corticosteroid drugs
or other anti-inflammatory compounds.
In
addition, most large pharmaceutical companies seek to develop orally available
small molecule compounds against many of the targets for which we and others are
seeking to develop antibody, peptide and/or small protein products.
Our phage
display technology is one of several technologies available to generate
libraries of compounds that can be leveraged to discover new antibody, peptide
and/or small protein products. The primary competing technology platforms that
pharmaceutical, diagnostics and biotechnology companies use to identify
antibodies that bind to a desired target are transgenic mouse technology and the
humanization of murine antibodies derived from hybridomas. Medarex (a
wholly-owned subsidiary of Bristol-Myers Squibb), Genmab A/S, and PDL Biopharma
are leaders in these technologies. Further, other companies such as BioInvent
International AB and XOMA Ltd. have access to phage display technology and
compete with us by offering licenses and research services to pharmaceutical and
biotechnology companies.
In
addition, we may experience competition from companies that have acquired or may
acquire technology from universities and other research institutions. As these
companies develop their technologies, they may develop proprietary positions
that may prevent us from successfully commercializing our products.
If
we fail to establish and maintain strategic license, research and collaborative
relationships, or if our collaborators are not able to successfully develop and
commercialize product candidates, our ability to generate revenues could be
adversely affected.
Our
business strategy includes leveraging certain product candidates, as well as our
proprietary phage display technology, through collaborations and licenses that
are structured to generate revenues through license fees, technical and clinical
milestone payments, and royalties. We have entered into, and anticipate
continuing to enter into, collaborative and other similar types of arrangements
with third parties to develop, manufacture and market drug candidates and drug
products.
44
In
addition, for us to continue to receive any significant payments from our LFRP
related licenses and collaborations and generate sufficient revenues to meet the
required payments under our agreement with Cowen Healthcare, the relevant
product candidates must advance through clinical trials, establish safety and
efficacy, and achieve regulatory approvals, obtain market acceptance and
generate revenues.
Reliance
on license and collaboration agreements involves a number of risks as our
licensees and collaborators:
|
·
|
are
not obligated to develop or market product candidates discovered using our
phage display technology;
|
|
·
|
may
not perform their obligations as expected, or may pursue alternative
technologies or develop competing
products;
|
|
·
|
control
many of the decisions with respect to research, clinical trials and
commercialization of product candidates we discover or develop with them
or have licensed to them;
|
|
·
|
may
terminate their collaborative arrangements with us under specified
circumstances, including, for example, a change of control, with short
notice; and
|
|
·
|
may
disagree with us as to whether a milestone or royalty payment is due or as
to the amount that is due under the terms of our collaborative
arrangements.
|
We cannot
assure you that we will be able to maintain our current licensing and
collaborative efforts, nor can we assure the success of any current or future
licensing and collaborative relationships. An inability to establish new
relationships on terms favorable to us, work successfully with current licensees
and collaborators, or failure of any significant portion of our LFRP related
licensing and collaborative efforts would result in a material adverse impact on
our business, operating results and financial condition.
Our
success depends significantly upon our ability to obtain and maintain
intellectual property protection for our products and technologies and upon
third parties not having or obtaining patents that would prevent us from
commercializing any of our products.
We face
risks and uncertainties related to our intellectual property rights. For
example:
|
·
|
we
may be unable to obtain or maintain patent or other intellectual property
protection for any products or processes that we may develop or have
developed;
|
|
·
|
third
parties may obtain patents covering the manufacture, use or sale of these
products or processes, which may prevent us from commercializing any of
our products under development globally or in certain regions;
or
|
|
·
|
our
patents or any future patents that we may obtain may not prevent other
companies from competing with us by designing their products or conducting
their activities so as to avoid the coverage of our
patents.
|
45
Patent
rights relating to our phage display technology are central to our LFRP.
As part of our LFRP, we generally seek to negotiate license agreements with
parties practicing technology covered by our patents. In countries where
we do not have and/or have not applied for phage display patent rights, we will
be unable to prevent others from using phage display or developing or selling
products or technologies derived using phage display. In addition, in
jurisdictions where we have phage display patent rights, we may be unable to
prevent others from selling or importing products or technologies derived
elsewhere using phage display. Any inability to protect and enforce such
phage display patent rights, whether by any inability to license or any
invalidity of our patents or otherwise, could negatively affect future licensing
opportunities and revenues from existing agreements under the LFRP.
In all of
our activities, we also rely substantially upon proprietary materials,
information, trade secrets and know-how to conduct our research and development
activities and to attract and retain collaborators, licensees and
customers. Although we take steps to protect our proprietary rights and
information, including the use of confidentiality and other agreements with our
employees and consultants and in our academic and commercial relationships,
these steps may be inadequate, these agreements may be violated, or there may be
no adequate remedy available for a violation. Also, our trade secrets or
similar technology may otherwise become known to, or be independently developed
or duplicated by, our competitors.
Before we
and our collaborators can market some of our processes or products, we and our
collaborators may need to obtain licenses from other parties who have patent or
other intellectual property rights covering those processes or products.
Third parties have patent rights related to phage display, particularly in the
area of antibodies. While we have gained access to key patents in the
antibody area through the cross licenses with Affimed Therapeutics AG, Affitech
AS, Biosite Incorporated (now owned by Inverness Medical Innovations), CAT,
Domantis Limited (a wholly-owned subsidiary of GlaxoSmithKline),
Genentech, Inc. and XOMA Ireland Limited, other third party patent owners
may contend that we need a license or other rights under their patents in order
for us to commercialize a process or product. In addition, we may choose
to license patent rights from other third parties. In order for us to
commercialize a process or product, we may need to license the patent or other
rights of other parties. If a third party does not offer us a needed
license or offers us a license only on terms that are unacceptable, we may be
unable to commercialize one or more of our products. If a third party does
not offer a needed license to our collaborators and as a result our
collaborators stop work under their agreement with us, we might lose future
milestone payments and royalties, which would adversely affect us. If we
decide not to seek a license, or if licenses are not available on reasonable
terms, we may become subject to infringement claims or other legal proceedings,
which could result in substantial legal expenses. If we are unsuccessful
in these actions, adverse decisions may prevent us from commercializing the
affected process or products and could require us to pay substantial monetary
damages.
We seek
affirmative rights of license or ownership under existing patent rights relating
to phage display technology of others. For example, through our patent
licensing program, we have secured a limited freedom to practice some of these
patent rights pursuant to our standard license agreement, which contains a
covenant by the licensee that it will not sue us under certain of the licensee's
phage display improvement patents. We cannot guarantee, however, that we
will be successful in enforcing any agreements from our licensees, including
agreements not to sue under their phage display improvement patents, or in
acquiring similar agreements in the future, or that we will be able to obtain
commercially satisfactory licenses to the technology and patents of
others. If we cannot obtain and maintain these licenses and enforce these
agreements, this could have a material adverse impact on our
business.
Proceedings
to obtain, enforce or defend patents and to defend against charges of
infringement are time consuming and expensive activities. Unfavorable
outcomes in these proceedings could limit our patent rights and our activities,
which could materially affect our business.
Obtaining,
protecting and defending against patent and proprietary rights can be
expensive. For example, if a competitor files a patent application
claiming technology also invented by us, we may have to participate in an
expensive and time-consuming interference proceeding before the United States
Patent and Trademark Office to address who was first to invent the subject
matter of the claim and whether that subject matter was patentable.
Moreover, an unfavorable outcome in an interference proceeding could require us
to cease using the technology or to attempt to license rights to it from the
prevailing party. Our business would be harmed if a prevailing third party
does not offer us a license on terms that are acceptable to us.
46
In patent
offices outside the United States, we may be forced to respond to third party
challenges to our patents. For example, our first phage display patent in
Europe, European Patent No. 436,597, known as the 597 Patent, was ultimately
revoked in 2002 in proceedings in the European Patent Office. We are not
able to prevent other parties from using certain aspects of our phage display
technology in Europe.
The
issues relating to the validity, enforceability and possible infringement of our
patents present complex factual and legal issues that we periodically
reevaluate. Third parties have patent rights related to phage display,
particularly in the area of antibodies. While we have gained access to key
patents in the antibody area through our cross-licensing agreements with
Affimed, Affitech, Biosite, Domantis, Genentech, XOMA and CAT, other third party
patent owners may contend that we need a license or other rights under their
patents in order for us to commercialize a process or product. In
addition, we may choose to license patent rights from third parties. While
we believe that we will be able to obtain any needed licenses, we cannot assure
you that these licenses, or licenses to other patent rights that we identify as
necessary in the future, will be available on reasonable terms, if at all.
If we decide not to seek a license, or if licenses are not available on
reasonable terms, we may become subject to infringement claims or other legal
proceedings, which could result in substantial legal expenses. If we are
unsuccessful in these actions, adverse decisions may prevent us from
commercializing the affected process or products. Moreover, if we are
unable to maintain the covenants with regard to phage display improvements that
we obtain from our licensees through our patent licensing program and the
licenses that we have obtained to third party phage display patent rights, it
could have a material adverse effect on our business.
We would
expect to incur substantial costs in connection with any litigation or patent
proceeding. In addition, our management's efforts would be diverted,
regardless of the results of the litigation or proceeding. An unfavorable
result could subject us to significant liabilities to third parties, require us
to cease manufacturing or selling the affected products or using the affected
processes, require us to license the disputed rights from third parties or
result in awards of substantial damages against us. Our business will be
harmed if we cannot obtain a license, can obtain a license only on terms we
consider to be unacceptable or if we are unable to redesign our products or
processes to avoid infringement.
In all of
our activities, we substantially rely on proprietary materials and information,
trade secrets and know-how to conduct research and development activities and to
attract and retain collaborative partners, licensees and customers.
Although we take steps to protect these materials and information, including the
use of confidentiality and other agreements with our employees and consultants
in both academic commercial relationships, we cannot assure you that these steps
will be adequate, that these agreements will not be violated, or that there will
be an available or sufficient remedy for any such violation, or that others will
not also develop the same or similar proprietary information.
Failure
to meet our Cowen Healthcare debt service obligations could adversely affect our
financial condition and our loan agreement obligations could impair our
operating flexibility.
We have a
loan with Cowen Healthcare which has an aggregate principal balance of $57.8
million at September 30, 2010. The loan bears interest at a rate of
16% per annum for Tranche A and 21.5% per annum for Tranche B payable quarterly,
all of which matures in August 2016. In connection with the loan, we have
entered into a security agreement granting Cowen Healthcare a security interest
in substantially all of the assets related to our LFRP. We are required to
repay the loan based on a percentage of LFRP related revenues, including
royalties, milestones, and license fees received by us under the LFRP. If
the LFRP revenues for any quarterly period are insufficient to cover the cash
interest due for that period, the deficiency may be added to the outstanding
loan principal or paid in cash by us. We may prepay the loan in whole or
in part at any time after August 2012. In the event of certain changes of
control or mergers or sales of all or substantially all of our assets, any or
all of the loan may become due and payable at Cowen Healthcare's option,
including a prepayment premium prior to August 2012. We must comply with
certain loan covenants which if not observed could make all loan principal,
interest and all other amounts payable under the loan immediately due and
payable.
47
Our
obligations under the Cowen Healthcare agreement require that we dedicate a
substantial portion of cash flow from our LFRP receipts to service the loan,
which will reduce the amount of cash flow available for other purposes. If
the LFRP fails to generate sufficient receipts to fund quarterly principal and
interest payments to Cowen, we will be required to fund such obligations from
cash on hand or from other sources, further decreasing the funds available to
operate our business. In the event that amounts due under the loan are
accelerated, payment would significantly reduce our cash, cash equivalents and
short-term investments and we may not have sufficient funds to pay the debt if
any of it is accelerated.
As a
result of the security interest granted to Cowen Healthcare, we are restricted
in our ability to sell our rights to part or all of those assets, or take
certain other actions, without first obtaining permission from Cowen. This
requirement could delay, hinder or condition our ability to enter into corporate
partnerships or strategic alliances with respect to these assets.
The
obligations and restrictions under the Cowen Healthcare agreement may limit our
operating flexibility, make it difficult to pursue our business strategy and
make us more vulnerable to economic downturns and adverse developments in our
business.
If
we lose or are unable to hire and retain qualified personnel, then we may not be
able to develop our products or processes.
We are
highly dependent on qualified scientific and management personnel, and we face
intense competition from other companies and research and academic institutions
for qualified personnel. If we lose an executive officer, a manager of one
of our principal business units or research programs, or a significant number of
any of our staff or are unable to hire and retain qualified personnel, then our
ability to develop and commercialize our products and processes may be delayed
which would have an adverse effect on our business, financial condition, and
results of operations.
We
use and generate hazardous materials in our business, and any claims relating to
the improper handling, storage, release or disposal of these materials could be
time-consuming and expensive.
Our phage
display research and development involves the controlled storage, use and
disposal of chemicals and solvents, as well as biological and radioactive
materials. We are subject to foreign, federal, state and local laws and
regulations governing the use, manufacture and storage and the handling and
disposal of materials and waste products. Although we believe that our
safety procedures for handling and disposing of these hazardous materials comply
with the standards prescribed by laws and regulations, we cannot completely
eliminate the risk of contamination or injury from hazardous materials. If
an accident occurs, an injured party could seek to hold us liable for any
damages that result and any liability could exceed the limits or fall outside
the coverage of our insurance. We may not be able to maintain insurance on
acceptable terms, or at all. We may incur significant costs to comply with
current or future environmental laws and regulations.
Our
business is subject to risks associated with international contractors and
exchange rate risk.
Since the
closing of our European subsidiary operations in 2008, none of our business is
conducted in currencies other than our reporting currency, the United
States dollar. We do, however, rely on an international contract
manufacturer for the production of our drug substance for ecallantide. We
recognize foreign currency gains or losses arising from our transactions in the
period in which we incur those gains or losses. As a result, currency
fluctuations among the United States dollar and the currencies in which we do
business have caused foreign currency transaction gains and losses in the past
and will likely do so in the future. Because of the variability of
currency exposures and the potential volatility of currency exchange rates, we
may suffer significant foreign currency transaction losses in the future due to
the effect of exchange rate fluctuations.
48
Compliance
with changing regulations relating to corporate governance and public disclosure
may result in additional expenses.
Keeping
abreast of, and in compliance with, changing laws, regulations, and standards
relating to corporate governance and public disclosure, including the
Sarbanes-Oxley Act of 2002, new SEC regulations, and NASDAQ Global Market rules,
have required an increased amount of management attention and external
resources. We intend to invest all reasonably necessary resources to
comply with evolving corporate governance and public disclosure standards, and
this investment may result in increased general and administrative expenses and
a diversion of management time and attention from revenue-generating activities
to compliance activities.
We
may not succeed in acquiring technology and integrating complementary
businesses.
We may
acquire additional technology and complementary businesses in the future.
Acquisitions involve many risks, any one of which could materially harm our
business, including:
|
·
|
the
diversion of management's attention from core business
concerns;
|
|
·
|
the
failure to exploit acquired technologies effectively or integrate
successfully the acquired
businesses;
|
|
·
|
the
loss of key employees from either our current business or any acquired
businesses; and
|
|
·
|
the
assumption of significant liabilities of acquired
businesses.
|
We may be
unable to make any future acquisitions in an effective manner. In
addition, the ownership represented by the shares of our common stock held by
our existing stockholders will be diluted if we issue equity securities in
connection with any acquisition. If we make any significant acquisitions
using cash consideration, we may be required to use a substantial portion of our
available cash. If we issue debt securities to finance acquisitions, then
the debt holders would have rights senior to the holders of shares of our common
stock to make claims on our assets and the terms of any debt could restrict our
operations, including our ability to pay dividends on our shares of common
stock. Acquisition financing may not be available on acceptable terms, or
at all. In addition, we may be required to amortize significant amounts of
intangible assets in connection with future acquisitions. We might also
have to recognize significant amounts of goodwill that will have to be tested
periodically for impairment. These amounts could be significant, which
could harm our operating results.
Risks
Related To Our Common Stock
Our
common stock may continue to have a volatile public trading price and low
trading volume.
The
market price of our common stock has been highly volatile. Since our initial
public offering in August 2000 through September 30, 2010, the price of our
common stock on the NASDAQ Global Market has ranged between $54.12 and $1.05.
The market has experienced significant price and volume fluctuations for many
reasons, some of which may be unrelated to our operating
performance.
Many
factors may have an effect on the market price of our common stock,
including:
|
·
|
public
announcements by us, our competitors or
others;
|
|
·
|
developments
concerning proprietary rights, including patents and litigation
matters;
|
|
·
|
publicity
regarding actual or potential clinical results or developments with
respect to products or compounds we or our collaborators are
developing;
|
|
·
|
regulatory
decisions in both the United States and
abroad;
|
|
·
|
public
concern about the safety or efficacy of new
technologies;
|
49
|
·
|
issuance
of new debt or equity securities;
|
|
·
|
general
market conditions and comments by securities analysts;
and
|
|
·
|
quarterly
fluctuations in our revenues and financial
results.
|
While we
cannot predict the effect that these factors may have on the price of our common
stock, these factors, either individually or in the aggregate, could result in
significant variations in price during any given period of time.
Anti-takeover
provisions in our governing documents and under Delaware law and our shareholder
rights plan may make an acquisition of us more difficult.
We are
incorporated in Delaware. We are subject to various legal and contractual
provisions that may make a change in control of us more difficult. Our board of
directors has the flexibility to adopt additional anti-takeover
measures.
Our
charter authorizes our board of directors to issue up to 1,000,000 shares of
preferred stock and to determine the terms of those shares of stock without any
further action by our stockholders. If the board of directors exercises this
power to issue preferred stock, it could be more difficult for a third party to
acquire a majority of our outstanding voting stock. Our charter also provides
staggered terms for the members of our board of directors. This may prevent
stockholders from replacing the entire board in a single proxy contest, making
it more difficult for a third party to acquire control of us without the consent
of our board of directors. Our equity incentive plans generally permit our board
of directors to provide for acceleration of vesting of options granted under
these plans in the event of certain transactions that result in a change of
control. If our board of directors used its authority to accelerate vesting of
options, then this action could make an acquisition more costly, and it could
prevent an acquisition from going forward. Our shareholder rights plan could
result in the significant dilution of the proportionate ownership of any person
that engages in an unsolicited attempt to take over our company and,
accordingly, could discourage potential acquirers.
Section 203
of the Delaware General Corporation Law prohibits a person from engaging in a
business combination with any holder of 15% or more of its capital stock until
the holder has held the stock for three years unless, among other possibilities,
the board of directors approves the transaction. This provision could have the
effect of delaying or preventing a change of control of Dyax, whether or not it
is desired by or beneficial to our stockholders.
The
provisions described above, as well as other provisions in our charter and
bylaws and under the Delaware General Corporation Law, may make it more
difficult for a third party to acquire our company, even if the acquisition
attempt was at a premium over the market value of our common stock at that
time.
50
Item 6 –
EXHIBITS
EXHIBIT
NO.
|
DESCRIPTION
|
|
3.1
|
Amended
and Restated Certificate of Incorporation of the Company. Filed as
Exhibit 3.1 to the Company's Quarterly Report on Form 10-Q (File
No. 000-24537) for the quarter ended September 30, 2008 and
incorporated herein by reference.
|
|
3.2
|
Amended
and Restated By-laws of the Company. Filed as Exhibit 3.2 to the
Company's Quarterly Report on Form 10-Q (File No. 000-24537) for
the quarter ended September 30, 2008 and incorporated herein by
reference.
|
|
10.1†
|
Product
Development and License Agreement between the Company and CMIC Co. Ltd.,
dated September 28, 2010. Filed
herewith.
|
|
31.1
|
Certification
of Chief Executive Officer Pursuant to §240.13a-14 or §240.15d-14 of the
Securities Exchange Act of 1934, as amended. Filed
herewith.
|
|
31.2
|
Certification
of Chief Financial Officer Pursuant to §240.13a-14 or §240.15d-14 of the
Securities Exchange Act of 1934, as amended. Filed
herewith.
|
|
32
|
Certification
pursuant to 18 U.S.C. Section 1350. Filed
herewith.
|
†
|
This
Exhibit has been filed separately with the Commission pursuant to an
application for confidential treatment. The confidential portions of
this Exhibit have been omitted and are marked by an
asterisk.
|
51
DYAX
CORP.
SIGNATURE
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
DYAX
CORP.
|
||
Date:
November 2, 2010
|
||
/s/ George Migausky
|
||
George
Migausky
Executive
Vice President and
Chief
Financial Officer
(Principal
Financial and Accounting
Officer)
|
52
DYAX
CORP.
EXHIBIT
INDEX
EXHIBIT
NO.
|
DESCRIPTION
|
|
3.1
|
Amended
and Restated Certificate of Incorporation of the Company. Filed as
Exhibit 3.1 to the Company's Quarterly Report on Form 10-Q (File
No. 000-24537) for the quarter ended September 30, 2008 and
incorporated herein by reference.
|
|
3.2
|
Amended
and Restated By-laws of the Company. Filed as Exhibit 3.2 to the
Company's Quarterly Report on Form 10-Q (File No. 000-24537) for
the quarter ended September 30, 2008 and incorporated herein by
reference.
|
|
10.1†
|
Product
Development and License Agreement between the Company and CMIC Co. Ltd.,
dated September 28, 2010. Filed herewith.
|
|
31.1
|
Certification
of Chief Executive Officer Pursuant to §240.13a-14 or §240.15d-14 of the
Securities Exchange Act of 1934, as amended. Filed
herewith.
|
|
31.2
|
Certification
of Chief Financial Officer Pursuant to §240.13a-14 or §240.15d-14 of the
Securities Exchange Act of 1934, as amended. Filed
herewith.
|
|
32
|
Certification
pursuant to 18 U.S.C. Section 1350. Filed
herewith.
|
†
|
This
Exhibit has been filed separately with the Commission pursuant to an
application for confidential treatment. The confidential portions of
this Exhibit have been omitted and are marked by an
asterisk.
|
53