10-K
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended:
December 31, 2008
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Or
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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 number
000-31191
(Exact name of registrant as
specified in its charter)
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Delaware (State or other jurisdiction of incorporation or organization)
8 Sylvan Way Parsippany, New Jersey (Address of principal executive offices)
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04-3324394 (I.R.S. Employer Identification No.)
07054 (Zip Code)
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Registrants telephone number, including area code:
(973) 290-6000
Securities registered pursuant to Section 12(b) of the
Act:
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Title of Each Class
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Name of Each Exchange on Which Registered
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Common Stock, $.001 Par Value Per Share
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NASDAQ Global Select Market
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Securities registered pursuant to Section 12(g) of the
Act:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes þ No o
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or 15(d) of the
Act. Yes o No þ
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or
Section 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the
past
90 days. Yes þ No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in Rule
12b-2 of the
Exchange Act. (Check one):
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Large
accelerated
filer þ
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Accelerated
filer o
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Non-accelerated
filer o
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Smaller
reporting
company o
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(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
The aggregate market value of voting Common Stock held by
non-affiliates of the registrant on June 30, 2008 was
approximately $1,030,262,528 based on the last reported sale
price of the Common Stock on the Nasdaq Global Select Market on
June 30, 2008 of $19.82 per share.
Number of shares of the registrants class of Common Stock
outstanding as of February 26, 2009: 52,637,100.
DOCUMENTS
INCORPORATED BY REFERENCE
The registrant intends to file a proxy statement pursuant to
Regulation 14A within 120 days of the end of the
fiscal year ended December 31, 2008. Portions of the proxy
statement are incorporated herein by reference into the
following parts of the
Form 10-K:
Part III, Item 10. Directors, Executive Officers and
Corporate Governance;
Part III, Item 11. Executive Compensation;
Part III, Item 12. Security Ownership of Certain
Beneficial Owners and Management and Related Stockholder Matters;
Part III, Item 13. Certain Relationships and Related
Transactions, and Director Independence; and
Part III, Item 14. Principal Accountant Fees and
Services.
THE
MEDICINES COMPANY
ANNUAL
REPORT ON
FORM 10-K
For the
Fiscal Year Ended December 31, 2008
TABLE OF
CONTENTS
The Medicines
Company®
name and logo,
Angiomax®,
Angiox®
and
Cleviprex®
are either registered trademarks or trademarks of The Medicines
Company in the United States
and/or other
countries. All other trademarks, service marks or other
tradenames appearing in this annual report on
Form 10-K
are the property of their respective owners. Except where
otherwise indicated, or where the context may otherwise require,
references to Angiomax in this annual report on
Form 10-K
mean Angiomax and Angiox, collectively. References to the
Company, we, us or
our mean The Medicines Company, a Delaware
corporation, and its subsidiaries.
This annual report on
Form 10-K
includes forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934, as
amended, and Section 27A of the Securities Act of 1933, as
amended. For this purpose, any statements contained herein
regarding our strategy, future operations, financial position,
future revenues, projected costs, prospects, plans and
objectives of management, other than statements of historical
facts, are forward-looking statements. The words
anticipates, believes,
estimates, expects, intends,
may, plans, projects,
will, would and similar expressions are
intended to identify forward-looking statements, although not
all forward-looking statements contain these identifying words.
We cannot guarantee that we actually will achieve the plans,
intentions or expectations expressed or implied in our
forward-looking statements. There are a number of important
factors that could cause actual results, levels of activity,
performance or events to differ materially from those expressed
or implied in the forward-looking statements we make. These
important factors include our critical accounting
estimates described in Item 7 in Part II of this
annual report and the factors set forth under the caption
Risk Factors in Item 1A in Part I of this
annual report. Although we may elect to update forward-looking
statements in the future, we specifically disclaim any
obligation to do so, even if our estimates change, and readers
should not rely on our forward-looking statements as
representing our views as of any date subsequent to the date of
this annual report.
1
PART I
Our
Company
We are a global pharmaceutical company focused on advancing the
treatment of critical care patients through the delivery of
innovative, cost-effective medicines to the worldwide hospital
marketplace. We have two marketed products,
Angiomax®
(bivalirudin) and
Cleviprex®
(clevidipine butyrate) injectable emulsion, two products in
late-stage development, cangrelor and oritavancin, and one
compound, CU-2010, scheduled to enter clinical development in
2009. We believe that Angiomax, Cleviprex and our three product
candidates share common features valued by hospital
practitioners, including a high level of pharmacological
specificity, potency and predictability. We believe that
Angiomax, Cleviprex and our three product candidates possess
favorable attributes that competitive products do not provide,
can satisfy unmet medical needs in the critical care hospital
product market and offer improved performance to hospital
businesses.
We market Angiomax, an intravenous direct thrombin inhibitor,
primarily in the United States and Europe (under the name
Angiox®
(bivalirudin)) to interventional cardiologist and other key
clinical decision makers in cardiac catheterization laboratories
for its approved uses in patients undergoing percutaneous
coronary intervention, or PCI, including in patients with or at
risk of heparin-induced thrombocytopenia and thrombosis
syndrome, a complication of heparin administration known as
HIT/HITTS that can result in limb amputation, multi
organ failure and death. In Europe, we also market Angiomax for
use in adult patients with acute coronary syndrome, or ACS. We
market Cleviprex to anesthesiology/surgery, critical care and
emergency department practitioners in the United States for its
approved use for the reduction of blood pressure when oral
therapy is not feasible or not desirable. Cleviprex is not
approved for use outside of the United States. We intend to
continue to develop Angiomax and Cleviprex for use in additional
patient populations.
In addition to Angiomax and Cleviprex, we are currently
developing three other pharmaceutical product candidates as
potential critical care hospital products. The first of these,
cangrelor, is an intravenous antiplatelet agent that is intended
to prevent platelet activation and aggregation, which we believe
has potential advantages in the treatment of vascular disease.
We are currently conducting Phase III clinical trials of
cangrelor. The second, oritavancin, is a novel intravenous
antibiotic, which we are developing for the treatment of serious
gram-positive bacterial infections, including complicated skin
and skin structure infections, or cSSSI, bacteremia, which is an
infection of the bloodstream, and other possible indications. We
acquired oritavancin in February 2009 in connection with our
acquisition of Targanta Therapeutics Corporation, or Targanta,
which made Targanta a wholly owned subsidiary. We plan to meet
with the Federal Drug Administration, or FDA, to discuss the
FDAs concerns regarding oritavancin and expect to commence
a Phase III trial in 2009 based on the guidance received.
We further expect to use the Phase III trial as an
opportunity to study an alternative (once only) dosing regimen
for oritavancin based upon data generated from Targantas
Phase II clinical study of oritavancin entitled,
Single or Infrequent Doses for the Treatment of
Complicated Skin and Skin Structure Infections, or
SIMPLIFI, as well as the daily dosing regimen examined in the
previous phase III trial. The third product candidate,
CU-2010, is a small molecule serine protease inhibitor that we
are developing for the prevention of blood loss during surgery.
We acquired CU-2010 in August 2008 in connection with our
acquisition of Curacyte Discovery GmbH, or Curacyte Discovery.
We expect to initiate Phase I clinical trials of CU-2010 in 2009.
We market and sell Angiomax and Cleviprex in the United States
with a joint sales force that, as of December 31, 2008,
consisted of 192 representatives and managers experienced in
selling to hospital customers. In Europe, we market and sell
Angiox with a sales force that we are currently building. We
have historically focused our commercial sales and marketing
resources on the U.S. hospital market, with revenues to
date being generated principally from sales of Angiomax in the
United States. Prior to July 1, 2007, we relied on
third-party distributors to market and distribute Angiomax
outside the United States. On July 1, 2007, we entered into
a series of agreements with Nycomed Danmark ApS, or Nycomed,
pursuant to which we terminated our distribution agreement with
Nycomed and reacquired all rights held by Nycomed with respect
to the distribution and marketing of Angiox in the European
Union (excluding Spain, Portugal and
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Greece) and the former Soviet republics, which we refer to as
the Nycomed territory. Under these arrangements, we assumed
control of the marketing of Angiox immediately and control of
the distribution of Angiox in the majority of the countries in
the Nycomed territory during the third quarter of 2008 and the
remainder of the countries in the Nycomed territory by
December 31, 2008. Our initial focus outside the United
States is on the four largest markets in Europe, Germany,
France, Italy and the United Kingdom, which, like the United
States, have a concentration of hospitals that conduct a large
percentage of critical care procedures. Prior to reacquiring the
rights to Angiox in the Nycomed territory, we initiated research
to understand the PCI market, as well as the hypertension
market, on a global basis, including profiling hospitals and
identifying key opinion leaders. Since reacquiring these rights,
we have developed a business infrastructure to conduct the
international sales and marketing of Angiox, including the
formation of subsidiaries in Switzerland, Germany, France and
Italy in addition to our pre-existing subsidiary in the United
Kingdom. We also obtained the licenses and authorizations
necessary to distribute Angiox in the various countries in
Europe, hired new personnel and entered into third-party
arrangements to provide services, such as importation,
packaging, quality control and distribution. We believe that by
establishing operations in Europe for Angiox, we will be
positioned to commercialize our pipeline of critical care
product candidates, including Cleviprex, cangrelor, oritavancin
and CU-2010, in Europe, if and when they are approved.
Our core strategy is to acquire, develop and commercialize
products that we believe will help hospitals treat patients more
efficiently by improving the effectiveness and safety of
treatment while reducing cost. We believe that our ability to
identify market needs and generate meaningful clinical data by
investing aggressively in research and development enables us to
successfully pursue this strategy. Our research and development
investments are designed to provide clinical data that measure
whether products:
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are effective, safe and predictable;
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enable shorter periods of treatment;
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are easier to use than current products;
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reduce the length of hospital stay; and
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lower hospital costs.
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We believe that products with these attributes positively impact
patient care and are attractive to the decision-makers who
comprise our current and potential customers, including hospital
management, physicians, hospital pharmacists, nurses and other
care staff. In the last twelve months, we made two strategic
acquisitions that we believe fit with our core strategy. In
August 2008, we acquired Curacyte Discovery and its lead
compound, CU-2010, which we believe has shown promising efficacy
in pre-clinical studies and expect to begin Phase I clinical
studies in 2009. In addition, with our acquisition of Targanta
in February 2009, we acquired oritavancin, which we believe has
the potential to provide significant clinical advantages,
including superior dosing options over current IV
antibiotics that treat serious infections in the hospital
setting. We expect that oritavancin will initially be used in
critical care settings within the hospital including the ICU,
surgical suite and the emergency department, where our sales
representatives promote our current products.
Angiomax
Overview
We exclusively licensed Angiomax from Biogen Idec, Inc. in 1997
and have exclusive license rights to develop, market and sell
Angiomax worldwide. We received our first marketing approval
from the FDA in December 2000 for Angiomax for use as an
anticoagulant in combination with aspirin in patients with
unstable angina undergoing percutaneous transluminal coronary
angioplasty, or PTCA. In June 2005, the FDA approved new
prescribing information for Angiomax to also include patients
undergoing PCI, in addition to those undergoing PTCA. In
November 2005, the FDA approved the expansion of the label to
include PCI patients with or at risk of heparin-induced
thrombocytopenia and thrombosis syndrome, a complication of
heparin administration known as HIT/HITTS that can result in
limb amputation, renal failure and death.
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In September 2004, we received authorization from the European
Commission to market Angiomax as Angiox in the member states of
the European Union for use as an anticoagulant in patients
undergoing PCI, and our international distributors have been
selling Angiox in countries in Europe since that time. In
December 2006, we submitted an application to the European
Agency for the Evaluation of Medical Products, or EMEA, seeking
approval of an additional indication for Angiox for the
treatment of patients with ACS based on the results of our
Phase III ACUITY trial in which we studied Angiomax in
patients presenting in the emergency department with ACS. In
January 2008, the European Commission approved our application
and authorized the use of Angiox in adult patients with ACS,
specifically patients with unstable angina or non-ST segment
elevation myocardial infarction planned for urgent or early
intervention, when used with aspirin and clopidogrel. In
December 2008, we submitted an application to the EMEA for the
approval of Angiox in the treatment of ST segment elevation
myocardial infarction, or STEMI, patients undergoing primary
PCI. This application was filed on the basis of the HORIZONS AMI
trial results. Angiomax is also approved for sale in Australia,
Canada and countries in Central America, South America and the
Middle East for PCI indications similar to those approved by the
FDA. In July 2007, Canadian health authorities approved the use
of Angiomax in Canada for the treatment of patients with
HIT/HITTS undergoing cardiac surgery.
The FDA has issued a written request for a pediatric study of
Angiomax which we have accepted. If we complete the study and
submit the study report on or before September 30, 2009,
and the FDA accepts the report, the FDA will not, in most
circumstances, approve another companys application that
relies on the FDAs finding of safety and effectiveness for
Angiomax until six months after the date Angiomaxs listed
patent expires. In the fourth quarter of 2008, we completed the
requested study and expect to file a clinical study report with
the FDA in the second quarter of 2009. The study consisted of a
single trial to establish the pediatric dose that provides a
pharmacodynamic response equivalent to the response observed in
the adult population at the approved adult dose.
In July 2007, we submitted a supplemental new drug application,
or sNDA, to the FDA seeking approval of an additional indication
for Angiomax for an additional dosing regimen in the treatment
of ACS initiated in the emergency department. This application
was based on the results of our Phase III ACUITY clinical
trial. In May 2008, we received a non-approvable letter from the
FDA with respect to the Angiomax sNDA. In its letter, the FDA
indicated that the basis of its decision involved the
appropriate use and interpretation of the non-inferiority trials
we relied on in support of our NDA, including the ACUITY trial.
We disagree with the FDA on these issues and have initiated
discussions with the FDA to address them.
We are currently developing Angiomax for use in additional
patient populations. We believe that Angiomax has the potential
to replace heparin, an anticoagulant that historically has been
used in the United States, in the treatment of arterial
thrombosis, a condition involving the formation of blood clots
in arteries. Arterial thrombosis is associated with
life-threatening conditions, such as ischemic heart disease,
peripheral vascular disease and stroke. There are three main
areas of the hospital where heparin is used for acute treatment
of arterial thrombosis: the cardiac catheterization laboratory,
where coronary angioplasties are performed; the emergency
department, where patients with ACS, including chest pain and
heart attacks, are initially treated; and the operating room,
where valve replacement surgery and coronary artery bypass graft
surgery, or CABG surgery, a procedure in which surgeons bypass a
blockage in the patients artery by grafting a vein to the
artery on both sides of the blockage to restore blood flow
around the obstruction, are performed.
We have invested significantly in the development of clinical
data on the clinical effects of Angiomax in the treatment of PCI
and ACS patients. In our investigations to date, we have
compared Angiomax to various competitive products, including
heparin and enoxaparin, a low-molecular weight heparin, which
until relatively recently were the only injectable
anticoagulants for use in coronary angioplasty, glycoprotein
IIb/IIIa, or GPIIb/IIIa, inhibitors, or combinations of drugs
including heparin. In total, we have tested Angiomax against
heparin or enoxaparin or combinations of drugs including heparin
or enoxaparin in 12 comparative PCI and ACS trials. In the
pivotal PCI and ACS trials, Angiomax use resulted in rates of
complications, such as heart attack, also known as myocardial
infarction, or MI, that were comparable to the comparator drugs
in the trials while resulting in fewer bleeding events,
including a reduction in the need for blood transfusion, as
compared to the comparator drugs in the trials. In May 2008, the
New England Journal of Medicine published the
30-day
results from the HORIZONS AMI trial, which demonstrated a
reduction in bleeding, composite
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ischemic events and mortality in patients with STEMI undergoing
PCI. The one year results from the trial were presented in
October 2008 with similar results. In addition, in these trials,
the therapeutic effects of Angiomax were shown to be more
predictable than the therapeutic effects of heparin.
To date, we have concentrated our commercial efforts on
replacing heparin in the cardiac catheterization laboratory,
where the PCI procedures for which Angiomax is approved are
performed. In evaluating our operating performance in the United
States, we focus on use of Angiomax by existing hospital
customers and penetration into new hospitals, both of which are
critical elements of our ability to increase market share and
revenue.
We market Angiomax to interventional cardiology customers for
its approved uses in PCI, including in patients with or at risk
of HIT/HITTS. We market and sell Angiomax in the United States
with a sales force, as of December 31, 2008, of 192 sales
representatives and managers. Prior to our reacquisition of all
development, commercial and distribution rights for Angiox, in
the European Union and other foreign jurisdictions, we sold
Angiomax to third-party distributors that marketed and
distributed the product to hospitals. With our reacquisition of
these rights for Angiox from Nycomed, we are continuing to build
a sales and marketing organization initially to sell Angiox in
the Nycomed territory.
The reacquisition of all development, commercial and
distribution rights for Angiox from Nycomed in 2007 was our
first step directly into international markets and gives us a
direct presence in European markets. On July 1, 2007, we
entered into a series of agreements with Nycomed pursuant to
which we terminated the prior distribution agreement with
Nycomed and re-acquired the rights to develop, distribute and
market Angiox in the Nycomed territory. Prior to entering into
the 2007 Nycomed agreements, Nycomed served as the exclusive
distributor of Angiox in the Nycomed territory pursuant to a
sales, marketing and distribution agreement, dated
March 25, 2002, as amended. Pursuant to the 2007 Nycomed
agreements, we and Nycomed agreed to transition the Angiox
rights held by Nycomed to us. Under these arrangements,
including a transitional distribution agreement, we assumed
control of the marketing of Angiox immediately and control of
the distribution of Angiox in the majority of the countries in
the Nycomed territory during the third quarter of 2008 and the
remainder of the countries in the Nycomed territory by
December 31, 2008.
Under the terms of the transitional distribution agreement with
Nycomed, upon the sale by Nycomed to third parties of vials of
Angiox purchased by Nycomed from us, which we refer to as
existing inventory, Nycomed agreed to pay us a specified
percentage of Nycomeds net sales of Angiox, less the
amount previously paid by Nycomed to us for the existing
inventory. Under the transitional distribution agreement,
Nycomed had the right to return any existing inventory for the
price paid by Nycomed to us for such inventory. We recorded a
reserve of $3.0 million in the fourth quarter of 2007 for
the existing inventory at Nycomed which we did not believe would
be sold prior to the termination of the transitional
distribution agreement and would be subject to return in
accordance with the agreement. During 2008, we reduced the
reserve by $2.2 million as Nycomed sold a portion of its
existing inventory during the year. We will reimburse Nycomed
$0.8 million for the final amount of inventory held by
Nycomed at December 31, 2008. The transitional distribution
agreement terminated on December 31, 2008.
Under the services agreement we entered into with Nycomed,
Nycomed performed detailing and other selling, sales management,
product/marketing management, medical advisor, international
marketing and certain pharmacovigilance services in accordance
with an agreed upon marketing plan through December 31,
2007. Nycomed remained responsible for safety reporting as long
as it sold Angiox in the Nycomed territory. Pursuant to the
agreement, we agreed to pay Nycomeds personnel costs, plus
an agreed upon markup, for the performance of the services, in
accordance with a budget detailed by country and function. In
addition, we have agreed to pay Nycomeds costs, in
accordance with a specified budget, for performing specified
promotional activities during the term of the services agreement.
We incurred total costs of $45.7 million in connection with
the reacquisition of the rights to develop, distribute and
market Angiox in the Nycomed territory. This total costs amount
includes transaction fees of approximately $0.7 million and
agreed upon payments of $20.0 million, $15.0 million
and $5.0 million paid to Nycomed on July 2, 2007,
January 15, 2008 and July 8, 2008, respectively, as
well as a $5.0 million payment
5
made on July 8, 2008 related to our obtaining European
Commission approval to market Angiox for ACS, which occurred in
January 2008.
Medical
Need
We are focused on developing Angiomax as an anticoagulation
therapy for the cardiac catheterization laboratory, where
coronary angioplasties are performed; the emergency department,
where patients with ACS, including chest pain and heart attacks,
are initially treated; and the operating room, where valve
replacement surgery and CABG surgery are performed.
Coronary angioplasty procedures inherently increase the risk of
clots forming in the coronary arteries or in other arteries of
the body. Clots form as the body reacts to the manipulation of
the artery as a result of, for example, the use of catheters and
other devices in connection with the angioplasty procedure.
Accordingly, anticoagulation therapy is routinely administered
to patients undergoing angioplasty to slow the clotting process
and avoid unwanted clotting in the coronary artery and the
potential growth of clots or the movement of a clot or portions
of it downstream in the blood vessels to new sites.
ACS patients are subject to chest pain that results from a range
of conditions, from unstable angina to acute myocardial
infarction, or AMI. Unstable angina is caused most often by a
rupture of plaque on an arterial wall that results in clot
formation and ultimately decreases coronary blood flow but does
not cause complete blockage of the artery, and is often
medically managed in the emergency department with
anticoagulation therapy. AMI occurs when coronary arteries,
which supply blood to the heart, become completely blocked by a
clot. AMI patients are routinely treated with anticoagulants and
are increasingly undergoing angioplasty as a primary treatment
to unblock clogged arteries.
Many of the most severe ACS patients undergo CABG surgery. A
high level of anticoagulation is necessary in on-pump cardiac
surgery during the period of cardiopulmonary bypass in order to
prevent clots from forming in the machine used in such surgery
or in the patients cardiovascular system. Anticoagulation
is also necessary in off-pump cardiac surgery to prevent clots
from forming in the patients cardiovascular system as a
result of the manipulation of coronary arteries and the heart.
Anticoagulation therapy attempts to modify actions of the
components in the blood system that lead to the formation of
blood clots and is usually started immediately after a diagnosis
of blood clots, or after risk factors for clotting are
identified. Anticoagulation therapy has typically involved the
use of drugs to inhibit one or more components of the clotting
process, thereby reducing the risk of clot formation. When
anticoagulation is insufficient in patients being treated for
ischemic heart disease, the consequences can include death, AMI,
or revascularization. Revascularization occurs when a treated
artery is blocked again and requires re-opening. In addition,
because anticoagulation therapy reduces clotting, it also may
cause excessive bleeding.
Clinical
Development
We have invested significantly in the development of clinical
data on the mode of action and clinical effects of Angiomax in
procedures including coronary angioplasty and stenting. In
almost all of our investigations to date, we have compared
Angiomax to heparin, which until relatively recently was the
only injectable anticoagulant for use in coronary angioplasty,
or combinations of drugs including heparin.
We conducted the REPLACE-2 clinical trial in 2001 and 2002 to
evaluate Angiomax as the foundation anticoagulant for
angioplasty within the context of modern therapeutic products
and technologies, including coronary stents. The trial, which
involved 6,002 patients in 233 clinical sites, was designed
to evaluate whether the use of Angiomax with provisional use of
GP IIb/IIIa inhibitors, provides clinical outcomes relating to
rates of ischemic and bleeding events that are the same as, or
non-inferior to, low-dose weight- adjusted heparin plus GP
IIb/IIIa inhibitors. These outcomes were designed to be assessed
using formal statistical tests for non-inferiority. The primary
objective of REPLACE-2 was to demonstrate non-inferiority to
heparin plus a GP IIb/IIIa inhibitor for the quadruple composite
effectiveness criteria, or endpoint, of death, MI, urgent
revascularization and major bleeding. The secondary objectives
of REPLACE-2 included non-inferiority to
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heparin plus a GP IIb/IIIa inhibitor for a triple composite
endpoint of death, MI and urgent revascularization. Based on
30-day,
6-month and
12-month
patient
follow-up
results, Angiomax met all primary and secondary objectives for
the study. In addition, major hemorrhage was reported
significantly less frequently in the Angiomax with provisional
GP IIb/IIIa inhibitor arm compared to the heparin plus a GP
IIb/IIIa inhibitor arm.
In 2004 and 2005, we conducted a 13,819 patient
Phase III trial, called ACUITY, which studied
Angiomaxs use in patients presenting to the emergency
department with ACS. In ACUITY, we were testing whether Angiomax
use is safe and effective in ACS patients when it is first
administered in the emergency department at a lower dose than
that which is currently used in PCI patients. If an emergency
department ACS patient subsequently underwent PCI, the dose was
increased to provide the usual anticoagulation during the
procedure. Outcomes were also measured among ACS patients not
undergoing PCI, namely, those medically managed or those who
underwent CABG surgery. All of these emergency department ACS
patients were randomized into one of three arms: a control arm,
Arm A, providing for the administration of heparin or enoxaparin
with GP IIb/IIIa inhibitors; a second arm, Arm B, providing for
the administration of Angiomax with planned use of GP IIb/IIIa
inhibitors; and a third arm, Arm C, providing for the
administration of Angiomax alone and permitting use of GP
IIb/IIIa inhibitors only in selected cases involving ischemic
events during PCI.
The 30-day
patient results, published in the New England Journal of
Medicine in November 2006 by the principal investigators, showed
that Angiomax met all primary and secondary pre-specified
objectives for the ACUITY study. Specifically, in Arm C, the
Angiomax monotherapy arm, Angiomax was effective and reduced the
risk of major bleeding by 47% compared to the control arm, Arm
A. In the Angiomax combination arm, Arm B, the Angiomax and GP
IIb/IIIa combination was as effective, with similar reductions
in bleeding, as the control arm. In December 2007, the Journal
of the American Medical Association published one-year ACUITY
results, which confirmed the ACUITY
30-day
results. In May 2008, the Journal of the American College of
Cardiology published a new subgroup analysis from the ACUITY
trial reporting that in the trial switching to Angiomax after
pre-treatment with heparin resulted in comparable ischemic
outcomes and an approximately 50% reduction in major bleeding
compared to consistent heparin therapy plus routine GP IIb/IIIa
inhibitor for ACS patients undergoing early invasive treatment.
Based on the results of our Phase III ACUITY trial, in
December 2006 we submitted an application to the EMEA seeking
approval of an additional indication for Angiomax for the
treatment of patients with ACS and in July 2007 we submitted an
sNDA to the FDA seeking approval of an additional indication for
Angiomax for an additional dosing regimen in the treatment of
ACS initiated in the emergency department. In January 2008, the
EMEA approved our application and authorized the use of Angiox
in adult patients with ACS, specifically patients with unstable
angina or non-ST segment elevation myocardial infarction planned
for urgent or early intervention, when used with aspirin and
clopidogrel. In May 2008, we received a non-approvable letter
from the FDA with respect to the Angiomax sNDA. In its letter,
the FDA indicated that the basis of its decision involved the
appropriate use and interpretation of the non-inferiority trials
we relied upon in support of our sNDA, including the ACUITY
trial. We disagree with the FDA on these issues and have
initiated discussions with the FDA to address them.
In December 2005, we submitted an application to the FDA for
approval to market Angiomax in patients with or at risk of
HIT/HITTS undergoing cardiac surgery after completing four
studies in our Phase III clinical development program in
cardiac surgery. In October 2006, we received a non-approvable
letter from the FDA in connection with this application. In the
letter, the FDA stated that it did not consider the data that we
submitted in support of the application adequate to support
approval for this indication because the FDA did not consider
the evidence used to qualify patients for inclusion in the
trials that formed the basis for our application as a persuasive
indicator for the risk of HIT/HITTS. We are evaluating potential
next steps. In July 2007, Canadian health authorities approved
the use of Angiomax in Canada for the treatment of patients with
HIT/HITTS undergoing cardiac surgery.
We have completed a study of Angiomax in the pediatric setting
at the written request of the FDA and expect to file a clinical
study report for the pediatric extension with the FDA in the
second quarter of 2009.
7
The study consisted of a single trial to clarify the pediatric
dose that provides a pharmacodynamic response equivalent to that
observed in the adult population at the approved adult dose.
We supported an investigator-initiated trial called HORIZONS AMI
that was conducted from 2005 to 2007 to study Angiomax use in
adult AMI patients. HORIZONS AMI, which involved more than
3,600 patients presenting with AMI to hospitals in 11
countries, was designed to evaluate whether Angiomax with
provisional use of GPIIb/IIIa inhibitors was as safe and
effective as heparin with planned use of GPIIb/IIIa inhibitors
in AMI patients. The two primary endpoints of the trial were
major bleeding and net adverse clinical events, a composite of
major adverse cardiovascular events (death, reinfarction, stroke
or ischemic target vessel revascularization) and major bleeding.
The major secondary endpoint was major adverse cardiovascular
events. As reported in the New England Journal of Medicine in
May 2008, treatment with Angiomax in the trial resulted in a
statistically significant reduction in the incidence of: net
adverse clinical events, a composite of major adverse cardiac
events or major bleeding, by 24%; major bleeding by 40%; and
cardiac-related mortality by 38%. In addition, at 30 days
Angiomax demonstrated comparable rates of major adverse cardiac
events. In the one-year
follow-up
data from the HORIZONS AMI trial Angiomax showed a statistically
significant reduction in the incidence of: cardiac-related
mortality by 43%; all-cause mortality by 31%; major bleeding by
39%; and net adverse clinical events by 16%, as well as
demonstrating no difference in rates of major adverse cardiac
events between Angiomax and the comparator drug therapies.
Cleviprex
Overview
We exclusively licensed Cleviprex in March 2003 from AstraZeneca
AB. Under the terms of the agreement, as amended, we have
exclusive license rights to develop, market and sell Cleviprex
worldwide. We received our first marketing approval for
Cleviprex from the FDA in August 2008 for the reduction of blood
pressure when oral therapy is not feasible or not desirable. To
date, we have submitted applications for approval to market in
Australia, Canada, New Zealand and Switzerland and expect to
submit applications for marketing approval in the European Union
and certain Latin American countries in 2009. In addition, we
are currently developing Cleviprex for use in additional patient
populations.
Cleviprex belongs to a well-known class of drugs, called IV
calcium channel blockers, which are used to control acute high
blood pressure. Cleviprex, a dihydropyridine calcium channel
blocker, acts by selectively relaxing the smooth muscle cells
that line small arteries, resulting in widening of the artery
and reduction of blood pressure. However, unlike most other
calcium channel blockers, Cleviprex is metabolized in the blood
and tissue and does not accumulate in the body, which results in
an ultra-short half-life. As a result, we believe that Cleviprex
addresses an unmet need as it combines rapid, reliable and
predictable blood pressure control with ease of use and a
favorable safety profile. In addition, due to its unique mode of
metabolism, Cleviprex is suitable for a wide range of patients.
We market Cleviprex to anesthesiology/surgery, critical care and
emergency department practitioners in the United States for its
approved use for the reduction of blood pressure when oral
therapy is not feasible or not desirable. We use the same sales
force that sells Angiomax in the United States to sell
Cleviprex. Cleviprex is not approved for sale outside the United
States.
Medical
Need
Increases in blood pressure, which are sometimes rapid and
acute, often occur in patients treated in a critical care
setting. Hospital physicians administer intravenous drugs to
control high blood pressure, or acute hypertension, because
prolonged severe hypertension is known to cause irreversible
damage to the brain, heart, kidneys and blood vessels.
Similarly, blood pressure that is too low is also known to cause
organ dysfunction and potential damage, particularly ischemia of
the heart and brain (stroke). As a result, physicians strive to
control blood pressure within a range to ensure safe treatment
of the patient.
During the twelve-month period ending October 31, 2008,
patients made an estimated 3.3 million hospital visits in
the United States for condition requiring treatment with an
intravenous antihypertensive. These
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patients include patients presenting to the emergency department
and patients undergoing surgery. Of these patients,
approximately:
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1.7 million medically managed patients were administered
intravenous anti-hypertensives.
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1.1 million surgical intervention patients were
administered intravenous anti-hypertensives in connection with
surgical procedures, and of these, approximately
475,000 patients were treated with intravenous
antihypertensives in cardiac and vascular surgery.
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556,000 all other patients were administered
intravenous antihypertensives.
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In 2007, we surveyed 259 cardiologists, neurologists, surgeons
and other critical care specialists to describe the features of
an intravenous antihypertensive that they value, along with the
benefits they would expect to achieve. Approximately 90% of
these physicians identified rapid onset, efficacy, few side
effects and easy titration as important features that guide
their selection of an IV antihypertensive medication.
We believe that Cleviprex is well suited for lowering blood
pressure in the critical care setting because of its rapid onset
and offset effect, its selective activity on arteries and its
ability to be cleared from the body independent of organ
function.
Clinical
Development
We developed Cleviprex in a clinical trial program comprised of
six Phase III clinical trials. The results of each of these
trials were included in our applications for marketing approval.
We completed two Phase III efficacy clinical trials of
Cleviprex, which we refer to as the ESCAPE trials. The ESCAPE
trials were designed to evaluate the effectiveness of Cleviprex
in controlling blood pressure before and after cardiac surgery
compared to a placebo control. Results in both trials met the
protocol-defined objective, as measured by rates of treatment
success, which was defined as at least 15% reduction in blood
pressure within 30 minutes without the need to use an alternate
drug.
We have also completed three Phase III clinical trials,
which we refer to as the ECLIPSE trials, to evaluate the safety
of Cleviprex in approximately 1,500 patients in comparison
to sodium nitroprusside, nicardipine and nitroglycerine, three
leading blood pressure-reducing agents, before, during and
following cardiac surgery. Results in all three trials met the
protocol-defined safety objectives, which included primary
endpoints measured by the incidences of death, stroke,
myocardial infarction and renal dysfunction, and secondary
objectives measuring blood pressure control.
Our sixth Phase III clinical trial of Cleviprex, which we
refer to as the VELOCITY trial, evaluated Cleviprex in over
100 patients with acute severe hypertension in the
emergency room and critical care unit. Cleviprex met the primary
endpoints of this study and demonstrated a rapid reduction in
blood pressure, to a specified blood pressure range, in over 90%
of patients within 30 minutes with a very low incidence of
overshoot. Subset analyses, presented at the annual meeting of
the Society of Clinical Care Medicine (SCCM) in February 2008,
further demonstrated Cleviprexs safety and efficacy in
high risk patients, such as those with heart and renal failure.
According to such subset analyses, Cleviprex rapidly achieved
and maintained blood pressure control in patients with renal
dysfunction and patients with acute heart failure.
In 2009, we plan to continue to conduct Phase IV trials of
Cleviprex in neurology and cardiology, along with health
economics analyses, and to support observational studies and
clinical surveys on treatment practices for acute severe
hypertension conducted by hospitals and third-party researchers.
Our ACCELERATE Phase IV trial evaluates the efficacy and
safety of intravenous infusion of Cleviprex for the treatment of
acute hypertension in patients with intracerebral hemorrhage
(ICH). We are currently enrolling patients in this study in
sites across the United States and Germany. Our PRONTO study is
a Phase IV trial designed to evaluate the efficacy and
safety of an intravenous infusion of Cleviprex as compared with
standard-of-care intravenous antihypertensives for blood
pressure lowering in patients with acute heart failure and
elevated blood pressure. We are currently enrolling patients in
this study in sites in the United States and Europe. Our SPRINT
study is a Phase IV trial designed to evaluate the
pharmacokinetics and pharmacodynamics of a bolus dosing regimen
of Cleviprex for the management of blood pressure in cardiac
surgery patients. This study is currently
9
enrolling patients at sites in the United States. Our MERCURY
study is an observational study of the use and impact of
Cleviprex therapy initiated in the emergency department in the
management of patients with acute blood pressure elevations,
assessed through the end of the initial hospitalization.
Cangrelor
Overview
We are developing cangrelor, a short-acting injectable
antiplatelet agent, to prevent platelet activation and
aggregation in the clotting process. Cangrelor is designed to
bind directly to the P2Y12 receptor, a receptor that has been
implicated in platelet activation. We exclusively licensed
cangrelor in December 2003 from AstraZeneca. Under the terms of
our agreement with AstraZeneca, we have exclusive license rights
to develop, market and sell cangrelor worldwide, excluding
Japan, China, Korea, Taiwan and Thailand.
We are developing cangrelor for potential use as an intravenous
antiplatelet agent in the critical care setting of the cardiac
catheterization laboratory. Based on input from our hospital
customers in the cardiac catheterization laboratory, we believe
that the critical care limitations of current oral therapy, such
as clopidogrel, the leading oral P2Y12 receptor antiplatelet
agent, which include delayed onset, prolonged effect and
unpredictable effect, have created a need for an intravenous
platelet inhibitor that acts quickly, is cleared from the
bloodstream rapidly and enables rapid recovery of platelet
function. We believe that pre-clinical studies and clinical
studies of cangrelor to date suggest that cangrelor has these
attributes. These clinical studies consist of Phase I and
Phase II clinical trials of cangrelor conducted by
AstraZeneca prior to licensing this product candidate to us, and
a 40-subject clinical trial that we conducted in healthy
volunteers to identify a dosing strategy for use of cangrelor.
Specifically, these studies suggest that cangrelor may have:
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an immediate inhibitory effect on platelets;
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an inhibitory effect on platelet activation and aggregation that
is proportional to the dose administered;
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inhibitory effects that are sustainable through the period of
infusion;
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a plasma half-life of less than five minutes; and
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platelet function recovery in less than an hour.
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Medical
Need
In the cardiac catheterization laboratory, the use of
antiplatelet agents that block platelet activation is considered
important therapy because several studies of oral platelet
inhibitors have demonstrated better patient outcomes when these
agents are administered before coronary angioplasty.
There is currently no intravenous drug that primarily inhibits
platelet activation. One of the leading oral platelet inhibitors
is clopidogrel, which, like cangrelor, blocks the adenosine
diphosphate receptor and is one of the classes of platelet
inhibitors referred to as thienopyridines. Clopidogrel is
commonly administered at a high dose by giving patients four to
eight oral tablets before the angioplasty procedure. This
practice is known as pre-loading. Although clopidogrel
pre-loading has been shown to improve ischemic outcomes in
coronary angioplasty, there are several safety and convenience
issues with the use of this agent in critical care practice:
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Clopidogrel requires liver metabolism to form the active agent;
therefore, the pre-loading dose may require up to six hours to
achieve its full effect.
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There does not appear to be a clear relationship between
increased dosage and intended effect that is consistent across
different patient groups.
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The inhibition of platelet function is irreversible, meaning the
agent remains bound to receptors for the life of the platelet,
which is typically ten days. This may impede patient management
and treatment flexibility, as well as increase the potential for
bleeding, especially if a patient needs cardiac surgery, which
is usually delayed for days awaiting the generation and release
of new platelets from the bone marrow.
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Oral agents are difficult to administer in the critical care
setting because they need to be swallowed by patients who may
have received light anesthesia. This is especially true when
there is a need to swallow multiple tablets in a restricted
period of time.
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Based on input from our hospital customers in the cardiac
catheterization laboratory, we believe that the combination of
the reduction in ischemic events through platelet inhibition and
the critical care limitations of current oral therapy have
created a need for an injectable platelet inhibitor that acts
quickly and is cleared from the bloodstream rapidly.
In the operating room, surgeons have not had an approved agent
at their disposal to control thrombosis during surgery by
inhibiting platelets. The antiplatelet agents currently approved
for use in coronary angioplasty, GP IIb/IIIa inhibitors, oral
thienopyridines and aspirin, have not demonstrated feasibility
in surgery due to bleeding concerns or the necessity of long
infusions. We believe that cangrelor has potential for use in
surgery due to its rapid effect in inhibiting platelets and the
rapid recovery of platelet function following cessation of
administration.
Clinical
Development
We are currently evaluating cangrelors effectiveness and
safety in preventing ischemic events in patients who require PCI
in two separate Phase III clinical trials. The larger
trial, which we refer to as the CHAMPION-PCI trial and for which
we commenced enrollment in March 2006, is an approximately
9,000-patient
trial designed to evaluate whether use of intravenous cangrelor
is superior to the use of eight 75 mg clopidogrel tablets
(600 mg) in patients undergoing PCI. The primary composite
endpoint of the
CHAMPION-PCI
trial will measure death, MI, or urgent revascularization at
48 hours after the procedure. Patients in this trial may be
treated with other intravenous anticoagulants, such as Angiomax,
heparin and GP IIb/IIIa inhibitors, at the
investigators discretion.
The second trial, which we refer to as the CHAMPION-PLATFORM
trial and for which we commenced enrollment in October 2006,
compares cangrelor to the use of eight 75 mg clopidogrel
tablets (600 mg) administered at the end of the procedure
in patients undergoing PCI. We currently expect to enroll
approximately 6,400 patients in this trial. This trial will
measure the composite endpoint of death, MI, or urgent
revascularization at 48 hours after the procedure. The FDA
has recommended that we use an alternative statistical design
for this trial. Implementing the FDAs recommendation, we
have developed an alternative statistical design for this trial
to allow potential modifications to the study based on
accumulated data at 70% enrollment.
There were approximately 8,000 patients enrolled in
CHAMPION-PCI and approximately 4,100 patients enrolled in
CHAMPION-PLATFORM at the end of 2008. We plan to complete
patient enrollment in both trials by the end of the third
quarter of 2009. If we complete these trials on a timely basis
and the results of these trials are favorable, we anticipate
making submissions for marketing approvals in the United States
in 2009 and in the European Union and selected markets
thereafter.
Oritavancin
Overview
We obtained exclusive worldwide rights to oritavancin as a
result of our acquisition of Targanta in February 2009.
Oritavancin is a novel semi-synthetic lipoglycopeptide
antibiotic being developed for the treatment of serious
gram-positive infections. It is synthetically modified from a
naturally occurring compound, and was originally discovered and
developed by Eli Lilly and Company, or Eli Lilly, to combat a
broad spectrum of gram-positive pathogens in response to the
emergence of resistance to vancomycin, the most commonly
prescribed antibiotic for resistant gram-positive infections.
Oritavancin is exclusively licensed from Eli Lilly, and under
the terms of the license, we have exclusive rights to develop,
market and sell oritavancin worldwide.
In February 2008, Targanta submitted a new drug application, or
NDA, to the FDA seeking to commercialize oritavancin for the
treatment of cSSSI, including infections caused by
methicillin-resistant
11
Staphylococcus aureus, or MRSA. In addition, in June
2008, Targanta submitted a MAA to the EMEA seeking approval of
oritavancin for the treatment of complicated skin and soft
tissue infections, or cSSTI, caused by methicillin susceptible
and resistant gram-positive bacteria. The application is
currently under review.
On December 8, 2008, the FDA issued a complete response
letter to Targanta indicating that the NDA could not be approved
in its present form, and that it would be necessary to perform
an additional adequate and well-controlled study to demonstrate
the safety and efficacy of oritavancin in patients with
cSSSI. We plan to meet with the FDA to discuss the
FDAs concerns and expect to commence a Phase III
trial in 2009 based on the guidance received. We further expect
to use the Phase III trial as an opportunity to study an
alternative (once only) dosing regimen for oritavancin based
upon data generated from Targantas SIMPLIFI clinical
study, as well as the daily dosing regimen examined in the
previous phase III trial.
Medical
Need
Shortcomings of current antibiotics for the treatment of
gram-positive infections include:
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Increasing resistance of bacteria to one or more existing
antibiotics.
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Some antibiotics solely inhibit the growth of pathogens
(bacteriostatic) and rely on the immune system to actually kill
the bacteria. Bacteriostatic drugs are less effective in
treating patients with compromised immune systems that cannot
rid their bodies of the pathogens.
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The range of bacteria treated by a drug is called its
spectrum. Many antibiotics are effective against
some serious pathogens but not others.
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Many of the existing antibiotics used to treat serious
infections are difficult or inconvenient to administer, as they
must be administered twice daily for seven to fourteen days, or
more, and patients can be hospitalized for much or all of this
period.
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Existing antibiotics may cause serious side effects in some
patients, sometimes requiring discontinuation of therapy. Due to
these side effects, costly and time-consuming monitoring of
blood levels and other parameters is required with the use of a
number of currently available therapies.
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As a result, there is a significant need for new antibiotics
that address the limitations of currently available products. We
believe that infectious disease physicians desire new
antibiotics with greater efficacy, fewer side effects, fewer
administration issues, and better hospital economics.
Clinical
Development
Oritavancin has been tested in over 1,650 patients and has
been the subject of two Phase III trials for the indication
of cSSSI conducted by Eli Lilly and InterMune, Inc., or
InterMune, which transferred oritavancin to Targanta in 2005.
Each Phase III clinical trial compared oritavancin with
vancomycin using a non-inferiority trial design, and each of
these trials met its primary endpoint. Oritavancin was found to
be effective in an average of 5.3 days compared to
10.9 days for vancomycin / cephalexin. In
addition oritavancin was well tolerated and exhibited a
favorable safety profile.
In September 2007, Targanta completed a QT study, which is a
study required by the FDA that focuses on the evaluation of
cardiac safety of new drugs. In this study Targanta examined the
effects of a 200 mg per day dose of oritavancin (which was
the dose used in the Phase III trials), an 800 mg per
day dose of oritavancin, and a control arm of moxifloxacin with
a single dose of 400 mg. Oritavancin did not demonstrate an
undesirable effect on the cardiac QT interval.
In September 2008, Targanta announced positive, preliminary
results from its SIMPLFI Phase II clinical study conducted
in 2007 and 2008. SIMPLIFI was a three-arm trial in over
300 patients that examined the efficacy and safety of a
single 1,200 mg dose of oritavancin, compared to an
infrequent dosing regimen of 800 mg of oritavancin on day 1
followed by an optional 400 mg dose of oritavancin on day
5, compared to 200 mg of oritavancin given daily for three
to seven days (the dose used in the larger of the two
Phase III clinical trials). The results showed comparable
efficacy and safety across all three treatment arms.
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We plan to meet with the FDA to discuss the NDA filed by
Targanta and expect to commence a Phase III trial in 2009
based on the guidance received. We plan to consult with
regulatory authorities with a view to initiating a confirmatory
Phase III study of oritavancin given as a single dose
infusion as well as the daily dosing regimen examined in the
previous Phase III trial. We are also exploring the
viability of other indications for oritavancin, including
treatment of bacteremia, clostridium difficile associated
diarrhea and inhalation anthrax. Developing oritavancin for
these other indications will necessitate additional clinical
trials.
CU-2010
We acquired CU-2010 in August 2008 in connection with our
acquisition of Curacyte Discovery.
CU-2010 is a
small molecule serine protease inhibitor that we are developing
for the prevention of blood loss during surgery. In preclinical
studies, the compound has demonstrated a favorable
pharmacokinetic profile for the surgical setting with a rapid
onset and offset of effect, due to its short half life. The
molecule was designed and is being developed to address a
significant unmet medical need that has intensified for
clinicians since the recent withdrawal of aprotinin. We expect
to begin Phase I clinical studies in 2009.
Sales
We sell Angiomax and Cleviprex in the United States using a
hospital sales force, as of December 31, 2008, of 192 sales
representatives and managers. We increased our sales force by 88
representatives and managers in connection with the launch of
Cleviprex. For Angiomax, our sales force targets, as potential
hospital customers, hospitals with cardiac catheterization
laboratories in the United States that perform approximately 200
or more coronary angioplasties per year. These hospitals conduct
a significant percentage of the total number of the coronary
angioplasties performed each year in the United States. For
Cleviprex, our sales force targets many of the same hospitals,
as most institutions with a cardiac catheterization laboratory
also perform heart surgeries and have intensive care units as
well as emergency rooms.
In March 2007, we entered into an agreement with a third party
to distribute Angiomax in the United States through a sole
source distribution model. Under this model, we sell Angiomax to
our sole source distributor, which then sells Angiomax to a
limited number of national medical and pharmaceutical
wholesalers with distribution centers located throughout the
United States and, in certain cases, directly to hospitals.
Prior to adopting this sole source distribution model, we sold
Angiomax to these wholesalers directly and these wholesalers
then sold Angiomax to hospitals. We began selling Angiomax under
this revised distribution system during the quarter ended
March 31, 2007. With the launch of Cleviprex in September
2008, we began distributing Cleviprex through this model to our
sole source distributor as well.
We are increasing our sales force worldwide in connection with
the expansion of our sales and marketing efforts in Europe and
approval in January 2008 of the label expansion for the use of
Angiox for ACS in Europe. In Europe, we market and sell Angiox
with a sales force that we are currently building. Prior to
July 1, 2007, outside the United States, we sold Angiomax
to several international distributors that marketed and
distributed Angiox to hospitals, including to Nycomed, who
served as the exclusive distributor of Angiox in the Nycomed
territory. On July 1, 2007, we entered into a series of
agreements with Nycomed pursuant to which we terminated our
distribution agreement with Nycomed and reacquired all rights
held by Nycomed with respect to the distribution and marketing
of Angiox in the Nycomed territory. Under our Nycomed
arrangements, we assumed control of the marketing of Angiox
immediately and control of the distribution of Angiox in the
majority of the countries in the Nycomed territory during the
third quarter of 2008 and the remainder of the countries in the
Nycomed territory by December 31, 2008. We also have
agreements outside the United States with other distributors,
including Sepracor Inc. (formerly Oryx Pharmaceuticals Inc.),
which distributes Angiomax in Canada, and affiliates of Grupo
Ferrer Internacional for the distribution of Angiox in Greece,
Portugal and Spain and for countries in Central America and
South America. We also have agreements with other third parties
for other countries outside of the United States, including
Israel and Australia. We are developing a global strategy for
Cleviprex in preparation for its potential approval outside of
the United States.
In support of sales efforts, we focus our Angiomax marketing in
the United States and in Europe on interventional cardiologists
and other key clinical decision-makers in cardiac
catheterization laboratories and
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focus our Cleviprex marketing to anesthesiology/surgery,
critical care and emergency department practitioners in the
United States. We believe our ability to deliver relevant,
advanced and reliable service and information to our
concentrated customer base provides us with significant market
presence in the United States, and will provide us with such
presence outside the United States, even in the highly
competitive sub-segments of the hospital market such as
cardiology.
Manufacturing
Our product manufacturing operation is comprised of
professionals with expertise in pharmaceutical manufacturing
development and logistics and supply chain management. These
professionals oversee the manufacturing and distribution of our
products by third-party companies. We do not have a
manufacturing infrastructure and do not intend to develop one.
We are party to agreements with contract manufacturers to supply
bulk drug substance for our products and with other third
parties to formulate, package and distribute our products.
Angiomax
In December 1999, we entered into a commercial development and
supply agreement with Lonza Braine, S.A. (formerly known as UCB
Bioproducts S.A.), for the development and supply of Angiomax
bulk drug substance. Together with Lonza Braine, we developed a
second generation chemical synthesis process to improve the
economics of manufacturing Angiomax bulk drug substance. This
process, which was approved by the FDA in May 2003, is known as
the Chemilog process. The agreement expires in September 2010,
subject to automatic renewals of consecutive three-year periods
unless either party provides notice of non-renewal within one
year prior to the expiration of the initial term or any renewal
term.
We have agreed that during the initial term or any renewal term
of the agreement, we will purchase a substantial portion of our
Angiomax bulk drug substance manufactured using the Chemilog
process from Lonza Braine at agreed upon prices. Under the
agreement, following the expiration of the agreement or if we
terminate the agreement prior to its expiration, Lonza Braine
has agreed to transfer the development technology to us. We may
only terminate the agreement prior to its expiration in the
event of a material breach by Lonza Braine. If we engage a third
party to manufacture Angiomax for us using this technology prior
to bivalirudin becoming a generic drug in the United States, we
will be obligated to pay Lonza Braine a royalty based on the
amount paid by us to the third-party manufacturer.
Ben Venue Laboratories, Inc. conducts the fill-finish of
Angiomax drug product in the United States. In Europe, Almac
Pharma Services is responsible for the importation and release
of Angiox.
Cleviprex
Prior to our acquisition of Cleviprex, AstraZeneca manufactured
all clevidipine bulk drug substance. We have transferred the
manufacturing process for bulk drug substance to Johnson Matthey
Pharma Services for
scale-up and
clinical trials and commercial supply.
We are also a party to an agreement with Hospira, Inc., pursuant
to which Hospira has agreed to use its proprietary formulation
technology for
scale-up and
manufacture for all finished drug product of Cleviprex. Together
with our contract manufacturers, we have completed manufacturing
development work for Cleviprex. Our contract manufacturers are
now manufacturing and packaging Cleviprex on a commercial scale.
Cangrelor
Prior to our acquisition of cangrelor, AstraZeneca manufactured
all cangrelor bulk drug substance. Following our acquisition of
cangrelor, we transferred the manufacturing process for bulk
drug to Johnson Matthey Pharma Services for
scale-up and
manufacture for Phase III clinical trial supply. We are
currently in the final development stages of the manufacturing
process, including performing engineering lots and preparing for
GMP validation.
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In October 2004, we also entered into an agreement with Baxter
Pharmaceutical Solutions LLC, a division of Baxter Healthcare
Corporation, and have entered into purchase order arrangements
with Ben Venue, pursuant to which Baxter and Ben Venue
manufacture all cangrelor finished drug product for all
Phase III clinical trials and carry out release testing. We
have not entered into an agreement for commercial supply of
cangrelor finished drug product, although we believe our
contract manufacturers have the capability to manufacture and
package cangrelor on a commercial scale appropriate for launch
of the drug when and if cangrelor is approved for sale.
Oritavancin
Prior to our acquisition of oritavancin, Abbott Laboratories, or
Abbott, manufactured the oritavancin bulk drug substance used in
clinical trials. We expect to continue to use Abbott as the sole
provider of our supply of oritavancin bulk drug substance under
the existing agreement between Abbott and Targanta.
Under the existing agreement with Abbott, Targanta is required
to purchase oritavancin bulk drug substance exclusively from
Abbott, except if Abbott fails to deliver sufficient oritavancin
bulk drug substance to meet its needs, in which case Targanta
may use another manufacturer for as long as Abbott is unable to
supply it. Targanta is also required to purchase a minimum
amount of oritavancin bulk drug substance from Abbott.
We obtain oritavancin final drug product from contract
fill/finish providers, Catalent Pharma Solutions, Inc. (formerly
known as Cardinal Health PTS, LLC) and Ben Venue. The
Catalent agreement requires the purchase of a minimum number of
batches of oritavancin final drug product.
CU-2010
We currently obtain our CU-2010 bulk drug substance for our
early stage clinical trial from ABX GmbH and final drug product
from Haupt Pharma AG. We may reevaluate our sourcing of CU-2010
if we progress to larger scale clinical trials.
Business
Development
We intend to continue building our critical care franchise of
hospital products by selectively acquiring and developing
clinical compound candidates or products approved for marketing.
We believe that we have proven capability in developing and
commercializing in-licensed or acquired critical care drug
candidates. We believe that products may be acquired from
pharmaceutical companies in the process of refining their own
product portfolios and companies seeking specialist development
or commercial collaborations.
In evaluating product acquisition candidates, we plan to
continue to seek products that have the potential to provide
reasonable evidence of safety and efficacy, together with the
potential to reduce a patients hospital stay. Our
acquisition strategy is to acquire global rights for development
compounds wherever possible. In the United States, we may
acquire approved products that can be marketed in hospitals by
our commercial organization.
Recent
Acquisitions
Targanta. In February 2009, we acquired
Targanta, a biopharmaceutical company focused on developing and
commercializing innovative antibiotics to treat serious
infections in the hospital and other institutional settings.
Targantas product pipeline included an intravenous version
of oritavancin and a program to develop an oral version of
oritavancin for the possible treatment of Clostidium
difficile-related infection.
Under the terms of our agreement with Targanta, we paid Targanta
shareholders $2.00 in cash at closing for each common share of
Targanta common stock tendered, or approximately
$42.0 million in aggregate, and agreed to pay contingent
cash payments up to an additional $4.55 per share as described
below:
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If we or a MDCO Affiliated Party (meaning an affiliate of ours,
a successor or assigns of ours, or a licensee or collaborator of
ours) obtain approval from the EMEA for a MAA for oritavancin
for the treatment of cSSSI on or before December 31, 2013,
each former Targanta shareholder will be entitled
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to receive a cash payment equal to (1) $1.00 per share if
such approval is granted on or before December 31, 2009,
(2) $0.75 per share if such approval is granted between
January 1, 2010 and June 30, 2010, or (3) $0.50
per share if such approval is granted between July 1, 2010
and December 31, 2013, a payment of approximately
$21.0 million in the aggregate, approximately
$15.8 million in the aggregate, or approximately
$10.5 million in the aggregate, respectively.
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If we or a MDCO Affiliated Party obtain final approval from the
FDA for a new drug application, or NDA, for oritavancin for the
treatment of cSSSI (1) within 40 months after the date
the first patient is enrolled in a Phase III clinical trial
of cSSSI that is initiated by us or a MDCO Affiliate Party after
the date of our merger agreement with Targanta and (2) on
or before December 31, 2013, each former Targanta
shareholder will be entitled to receive a cash payment equal to
$0.50 per share, or approximately $10.5 in the aggregate.
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If we obtain final FDA approval for an NDA for the use of
oritavancin for the treatment of cSSSI administered by a single
dose intravenous infusion (1) within 40 months after
the date the first patient is enrolled in a Phase III
clinical trial of cSSSI that is initiated by us or a MDCO
Affiliated Party after the date of our merger agreement with
Targanta and (2) on or before December 31, 2013, each
former Targanta shareholder will be entitled to receive a cash
payment equal to $0.70 per share, or approximately
$14.7 million in the aggregate. This payment may become
payable simultaneously with the payment described in the
previous bullet above.
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If aggregate net sales of oritavancin in four consecutive
calendar quarters ending on or before December 31, 2021
reach or exceed $400 million, each former Targanta
shareholder will be entitled to receive a cash payment equal to
$2.35 per share, or approximately $49.4 million in the
aggregate.
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Curacyte Discovery. In August 2008, we
acquired Curacyte Discovery, a wholly owned subsidiary of
Curacyte AG. Curacyte Discovery, a German limited liability
company and now known as The Medicines Company (Leipzig) GmbH,
is primarily engaged in the discovery and development of small
molecule serine protease inhibitors. In connection with the
acquisition, we paid Curacyte AG an initial payment of
14.5 million (approximately $22.9 million) and
agreed to pay a contingent milestone payment of
10.5 million if we elect to proceed with clinical
development of CU-2010 at the earlier of four months after
enrollment and
follow-up of
the last subject of a Phase I clinical program or
October 31, 2009 (which will be automatically extended to
March 31, 2010 if the Phase I clinical program has been
initiated by March 31, 2009) . In addition, our agreement
with Curacyte AG provides for possible future sales royalty
payments and a commercial milestone payment.
License
Agreements
Angiomax. In March 1997, we entered into an
agreement with Biogen, Inc., a predecessor of Biogen Idec, Inc.,
for the license of the anticoagulant pharmaceutical bivalirudin,
which we have developed and marketed as Angiomax. Under the
terms of the agreement, we acquired exclusive worldwide rights
to the technology, patents, trademarks, inventories and know-how
related to Angiomax. In exchange for the license, we paid
$2.0 million on the closing date and are obligated to pay
up to an additional $8.0 million upon the first commercial
sales of Angiomax for the treatment of AMI in the United States
and Europe. In addition, we are obligated to pay royalties on
sales of Angiomax and on any sublicense royalties on a
country-by-country
basis earned until the later of (1) 12 years after the
date of the first commercial sales of the product in a country
or (2) the date on which the product or its manufacture,
use or sale is no longer covered by a valid claim of the
licensed patent rights in such country. Under the terms of the
agreement, the royalty rate due to Biogen Idec on sales
increases with growth in annual sales of Angiomax. The agreement
also stipulates that we use commercially reasonable efforts to
meet certain milestones related to the development and
commercialization of Angiomax, including expending at least
$20 million for certain developmental and commercialization
activities, which we met in 1998. The license and rights under
the agreement remain in force until our obligation to pay
royalties ceases. Either party may terminate the agreement for
material breach by the other party, if the material breach is
not cured within 90 days after written notice. In addition,
we may terminate the agreement for any reason upon 90 days
prior written notice. During 2008, we incurred approximately
$53.6 million in royalties related to Angiomax under our
agreement with Biogen Idec.
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Cleviprex. In March 2003, we acquired from
AstraZeneca exclusive worldwide license rights to Cleviprex for
all countries other than Japan. Under the terms of the
agreement, we have the rights to the patents, trademarks,
inventories and know-how related to Cleviprex. In May 2006, we
amended our license agreement with AstraZeneca to provide us
with exclusive license rights in Japan in exchange for an
upfront payment. We acquired this license after having studied
Cleviprex under the study and exclusive option agreement with
AstraZeneca that we entered into in March 2002. In exchange for
the license, we paid $1.0 million in 2003 upon entering
into the license and agreed to pay up to an additional
$5.0 million upon reaching certain regulatory milestones,
including a payment of $1.5 million that we remitted in
September 2007 as a result of the FDAs acceptance to file
of our NDA for Cleviprex for the treatment of acute hypertension
and a payment of $1.5 million as a result of
Cleviprexs approval for sale by the FDA. Under the terms
of the license agreement, we are obligated to pay royalties on a
country-by-country
basis on future annual sales of Cleviprex, and on any sublicense
royalties earned, until the later of (1) the duration of
the licensed patent rights which are necessary to manufacture,
use or sell Cleviprex in a country or (2) ten years from
our first commercial sale of Cleviprex in such country. The
licenses and rights under the agreement remain in force on a
country-by-country
basis until we cease selling Cleviprex in such country or the
agreement is otherwise terminated. We may terminate the
agreement upon 30 days written notice, unless
AstraZeneca, within 20 days of having received our notice,
requests that we enter into good faith discussions to redress
our concerns. If we cannot reach a mutually agreeable solution
with AstraZeneca within three months of the commencement of such
discussions, we may then terminate the agreement upon
90 days written notice. Either party may terminate
the agreement for material breach upon 60 days prior
written notice if the breach is not cured within such
60 days.
Cangrelor. In December 2003, we acquired from
AstraZeneca exclusive license rights to cangrelor for all
countries other than Japan, China, Korea, Taiwan and Thailand.
Under the terms of the agreement, we have the rights to the
patents, trademarks, inventories and know-how related to
cangrelor. In exchange for the license, in January 2004 we paid
an upfront payment upon entering into the license and agreed to
make additional payments upon reaching certain regulatory
milestones. Under the terms of the license agreement, we will be
obligated to pay royalties on a
country-by-country
basis on future annual sales of cangrelor, and on any sublicense
royalties earned, until the later of (1) the duration of
the licensed patent rights which are necessary to manufacture,
use or sell cangrelor in a country or (2) ten years from
our first commercial sale of cangrelor in such country. The
licenses and rights under the agreement remain in force on a
country-by-country
basis until we cease selling cangrelor in such country or the
agreement is otherwise terminated. We may terminate the
agreement upon 30 days written notice, unless
AstraZeneca, within 20 days of having received our notice,
requests that we enter into good faith discussions to redress
our concerns. If we cannot reach a mutually agreeable solution
with AstraZeneca within three months of the commencement of such
discussions, we may then terminate the agreement upon
90 days written notice. Either party may terminate
the agreement for material breach upon 60 days prior
written notice if the breach is not cured within such
60 days.
Oritavancin. As a result of our acquisition of
Targanta, we are a party to a license agreement with Eli Lilly
through our Targanta subsidiary. Under the terms of the
agreement, we have exclusive worldwide rights to certain patents
and other intellectual property related to oritavancin and other
compounds claimed in the licensed patent rights. In
consideration for the license, we are required to make specified
payments to Eli Lilly upon reaching specified regulatory and
sales milestones. In addition, we are obligated to pay royalties
based on net sales of products containing oritavancin or the
other compounds, in any jurisdiction in which we hold license
rights to a valid patent. Under the terms of the agreement, the
royalty rate due to Eli Lilly on sales increases with growth in
annual sales of these products.
The agreement also stipulates that we use commercially
reasonable efforts to obtain and maintain regulatory approval
for oritavancin in the United States and to commercialize
oritavancin in the United States. If we breach that obligation,
Eli Lilly may terminate our license in the United States and
license rights to oritavancin could revert to Eli Lilly and we
would lose our rights to develop and commercialize oritavancin.
The license and rights under the agreement remain in force, on a
country-by-country
basis, until our obligation to pay royalties ceases in that
country. Either party may terminate the agreement upon an
uncured material breach by the other party. In addition, either
party may terminate the agreement upon the other partys
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insolvency or bankruptcy. Our rights to the licensed products
under the license agreement would revert to Eli Lilly if the
agreement is terminated due to our material breach or bankruptcy.
Competition
The development and commercialization of new drugs is
competitive, and we face competition from major pharmaceutical
companies, specialty pharmaceutical companies and biotechnology
companies worldwide. Our competitors may develop or license
products or other novel technologies that are more effective,
safer or less costly than any that have been or are being
developed by us, or may obtain FDA approval for their products
more rapidly than we may obtain approval for ours.
The acquisition or licensing of pharmaceutical products is a
competitive area, and a number of more established companies,
which have acknowledged strategies to license or acquire
products, may have competitive advantages, as may emerging
companies taking similar or different approaches to product
acquisition. These established companies may have a competitive
advantage over us due to their size, cash flows and
institutional experience.
Many of our competitors have substantially greater financial,
technical and human resources than we have. Additional mergers
and acquisitions in the pharmaceutical industry may result in
even more resources being concentrated in our competitors.
Competition may increase further as a result of advances made in
the commercial applicability of technologies and greater
availability of capital for investment in these fields. Our
success will be based in part on our ability to build and
actively manage a portfolio of drugs that addresses unmet
medical needs and creates value in patient therapy.
We compete, in the case of Angiomax and Cleviprex, and expect to
compete, in the cases of cangrelor, oritavancin and CU-2010, on
the basis of efficacy, safety, ease of administration and
economic value compared to drugs used in current practice or
currently being developed.
Angiomax
Due to the incidence and severity of cardiovascular diseases,
the market for anticoagulant therapies is large and competition
is intense. We intend to continue to develop Angiomax for
additional patient populations. We are evaluating Angiomax for
additional uses including patients presenting with ACS and in
December 2008 we submitted an application to the EMEA for the
approval of Angiox in the treatment of STEMI patients undergoing
PCI. There are a number of anticoagulant therapies currently on
the market, awaiting regulatory approval or in development for
these uses with which Angiomax competes. In addition, if we are
unable to secure patent term restoration for Angiomax, we expect
the entry of generic competition into the market potentially as
early as the third quarter of 2010.
Direct thrombin inhibitors. Direct thrombin
inhibitors act directly on thrombin, inhibiting the action of
thrombin in the clotting process. Because thrombin activates
platelets, direct thrombin inhibitors also prevent platelet
aggregation. Direct thrombin inhibitors include Angiomax,
Refludan from Bayer HealthCare Pharmaceuticals and Argatroban
from GlaxoSmithKline, Encysive Pharmaceuticals Inc. and
Mitsubishi Chemical Corp. Both Refludan and Argatroban are
approved for use in the treatment of patients with HIT/HITTS.
Argatroban is also approved for use in patients with HIT/HITTS
undergoing angioplasty.
Indirect thrombin inhibitors. Heparin is
widely used in patients with ischemic heart disease. Heparin is
manufactured and distributed by a number of companies as a
generic product. Low molecular weight heparin products include
Lovenox from Sanofi-Aventis and Fragmin from Eisai Inc. in the
United States and Pfizer Inc. in the European Union. Very short
molecules of heparin, called pentasaccharide sequences, include
Arixtra from GlaxoSmithKline. Low molecular weight heparins have
been approved for use in the treatment of patients with unstable
angina and are being developed for use in angioplasty and
vascular surgery. Arixtra has been approved for use in the
treatment and prevention of deep vein thrombosis and pulmonary
embolism and is being developed for arterial thrombosis.
Platelet inhibitors. Platelet inhibitors, such
as GP IIb/IIIa inhibitors, block the aggregation of platelets.
GP IIb/IIIa inhibitors include ReoPro from Eli Lilly and
Johnson & Johnson/Centocor, Inc., Integrilin from
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Schering-Plough Corporation, and Aggrastat from
Merck & Co., Inc. and MediCure Inc. ReoPro is approved
and marketed for angioplasty in a broad range of patients.
Integrilin is approved and marketed for angioplasty and for the
management of ACS. Aggrastat is approved for the management of
ACS.
Although platelet inhibitors may be complementary to Angiomax,
Angiomax may compete with platelet inhibitors for the use of
hospital financial resources. For example, many
U.S. hospitals receive a fixed reimbursement amount per
procedure for the angioplasties and other treatment therapies
they perform. As this amount is not based on the actual expenses
the hospital incurs, hospitals may choose to use either Angiomax
or a platelet inhibitor but not necessarily several of the drugs
together.
Cleviprex
Cleviprex competes with a variety of parenteral antihypertensive
agents in the critical care setting, many of which are generic.
Cleviprex also competes with nitroglycerine, which is used for a
variety of purposes in the critical care setting. We believe
that the most commonly administered drugs used specifically for
their intravenous antihypertensive effects are labetalol,
hydralazine, and enalaprilat.
Cangrelor
We expect that cangrelor will compete with oral platelet
inhibitors that are used in critical care settings, if approved,
such as clopidogrel from Bristol Meyers Squibb/Sanofi
Pharmaceuticals Partnership, as well as prasugrel, an
anti-platelet agent from Eli Lilly and Sankyo Co., Ltd. and
elinogrel, an anti-clotting agent, currently being developed by
Novartis and Portola.
Oritavancin
We expect that oritavancin, if approved, will compete with a
number of drugs that target serious gram-positive infections
acquired or treated in hospitals such as vancomycin, a generic
drug that is manufactured by a variety of companies, daptomycin
from Cubist Pharmaceuticals, Inc., linezolid from Pfizer Inc.,
quinupristin/dalfopristin from Sanofi-Aventis and Monarch
Pharmaceuticals Inc., and teicoplanin from Sanofi-Aventis, as
well as dalbavancin, which is being developed by Pfizer,
telavancin, which is being developed by Theravance, Inc. and
Astellas Pharma Inc., ceftobiprole, which is being developed by
Johnson & Johnson and Basilea Pharmaceutica Ltd.,
iclaprim, which is being developed by Arpida Ltd. Both
ceftobiprole and iclaprim are drugs directed at both
gram-positive and gram-negative bacterial infections.
Patents,
Proprietary Rights and Licenses
Our success will depend in part on our ability to protect the
products we acquire or license by obtaining and maintaining
patent protection both in the United States and in other
countries. We rely upon trade secrets, know-how, continuing
technological innovations, contractual restrictions and
licensing opportunities to develop and maintain our competitive
position. We plan to prosecute and defend patents or patent
applications we file, acquire or license.
In all, as of February 1, 2009, we exclusively licensed
patents and patent applications for Angiomax, Cleviprex, and
cangrelor. The U.S. patents licensed by us are currently
set to expire at various dates. In the case of Angiomax, the
principal patent is set to expire in March 2010; in the case of
Cleviprex, the principal patent is set to expire in January
2016; and in the case of cangrelor, the principal patent is set
to expire in February 2014. We are seeking patent term extension
for the principal patents for Angiomax and Cleviprex. We have
also filed and are currently prosecuting a number of patent
applications for Angiomax, Cleviprex and cangrelor.
In addition, in connection with our acquisition of Curacyte, we
acquired a portfolio of patents and patent applications covering
CU-2010, its analogs or other similar protease inhibitors. We
plan to prosecute and defend these patents and patent
applications. In connection with our acquisition of Targanta, we
obtained an exclusive license to patents and patent applications
for oritavancin and its analogs. These patents and patent
applications include those patents and patent applications
exclusively licensed by Targanta from Eli Lilly, and
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also include a number of patent applications subsequently filed
by Targanta. The principal patent for oritavancin is set to
expire in November 2015.
We have exclusively licensed from Biogen Idec and Health
Research Inc. patents and patent applications covering Angiomax
and Angiomax analogs and other novel anticoagulants as
compositions of matter, and processes for using Angiomax and
Angiomax analogs and other novel anticoagulants. We are
responsible for prosecuting and maintaining patents and patent
applications relating to Angiomax. We have exclusively licensed
from AstraZeneca rights to patents and patent applications
covering Cleviprex as a composition of matter and covering
formulations and uses of Cleviprex, and rights to patents and
patent applications covering cangrelor as a composition of
matter, and covering formulations and uses of cangrelor. Under
both licenses, AstraZeneca is responsible for prosecuting and
maintaining these patents and patent applications relating to
Cleviprex and cangrelor, and we are required to reimburse
AstraZeneca for expenses it incurs in connection with the
prosecution and maintenance of the patents and patent
applications. In connection with our acquisition of Targanta, we
obtained an exclusive license from Eli Lilly to patents and
patent applications covering oritavancin and its analogs. Under
the license with Eli Lilly, we are responsible for prosecuting
and maintaining these patents and patent applications.
The patent positions of pharmaceutical and biotechnology firms
like us can be uncertain and involve complex legal, scientific
and factual questions. In addition, the coverage claimed in a
patent application can be significantly reduced before the
patent is issued. Consequently, we do not know whether any of
the patent applications we acquire or license will result in the
issuance of patents or, if any patents are issued, whether they
will provide significant proprietary protection or will be
challenged, circumvented or invalidated. Because unissued
U.S. patent applications filed prior to November 29,
2000 and patent applications filed within the last
18 months are maintained in secrecy until patents issue,
and since publication of discoveries in the scientific or patent
literature often lags behind actual discoveries, we cannot be
certain of the priority of inventions covered by pending patent
applications. Moreover, we may have to participate in
interference proceedings declared by the United States Patent
and Trademark Office to determine priority of invention, or in
opposition proceedings in a foreign patent office, either of
which could result in substantial cost to us, even if the
eventual outcome is favorable to us. There can be no assurance
that the patents, if issued, would be held valid by a court of
competent jurisdiction. An adverse outcome could subject us to
significant liabilities to third parties, require disputed
rights to be licensed from third parties or require us to cease
using such technology.
The development of critical care hospital products is intensely
competitive. A number of pharmaceutical companies, biotechnology
companies, universities and research institutions have filed
patent applications or received patents in this field. Some of
these patent applications could be competitive with applications
we have acquired or licensed, or could conflict in certain
respects with claims made under such applications. Such conflict
could result in a significant reduction of the coverage of the
patents we have acquired or licensed, if issued, which would
have a material adverse effect on our business, financial
condition and results of operations. In addition, if patents are
issued to other companies that contain competitive or
conflicting claims and such claims are ultimately determined to
be valid, no assurance can be given that we would be able to
obtain licenses to these patents at a reasonable cost, or
develop or obtain alternative technology.
We also rely on trade secret protection for our confidential and
proprietary information. No assurance can be given that others
will not independently develop substantially equivalent
proprietary information and techniques or otherwise gain access
to our trade secrets or disclose such technology, or that we can
meaningfully protect our trade secrets.
We have a number of trademarks that we consider important to our
business. The Medicines
Company®
name and logo,
Angiomax®,
Angiox®
and
Cleviprex®
name and logo are either our registered trademarks or our
trademarks in the United States
and/or other
countries.
It is our policy to require our employees, consultants, outside
scientific collaborators, sponsored researchers and other
advisors to execute confidentiality agreements upon the
commencement of employment or consulting relationships with us.
These agreements generally provide that all confidential
information developed or made known to the individual during the
course of the individuals relationship with us is to be
kept confidential and not disclosed to third parties except in
specific circumstances. In the case of employees
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and consultants, the agreements provide that all inventions
conceived by the individual shall be our exclusive property.
There can be no assurance, however, that these agreements will
provide meaningful protection or adequate remedies for our trade
secrets in the event of unauthorized use or disclosure of such
information.
Customers
In March 2007, we began selling Angiomax in the United States to
a sole source distributor and we began selling Cleviprex to the
same sole source distributor in September 2008. Our sole source
distributor accounted for 96% of our net revenue for the year
ended December 31, 2008. At December 31, 2008, amounts
due from the sole source distributor represented approximately
$32.4 million, or 90%, of gross accounts receivable. From
January 2007 through March 2007, we sold Angiomax primarily to a
limited number of domestic wholesalers with distribution centers
located throughout the United States and to several
international distributors. The sole source distributor and our
two domestic wholesaler customers, AmerisourceBergen Drug
Corporation and Cardinal Health, Inc., accounted for 82%, 7% and
7%, respectively, of our net revenue for the year ended
December 31, 2007. At December 31, 2007, amounts due
from the sole source distributor and our two domestic wholesaler
customers to us represented approximately $25.3 million, or
93%, of our gross accounts receivable. During 2006, net revenue
from our domestic wholesaler customers, which included McKesson
Corporation, totaled approximately 88% of net revenue.
Government
Regulation
Government authorities in the United States and other countries
extensively regulate the testing, manufacturing, labeling,
safety advertising, promotion, storage, sales, distribution,
export and marketing, among other things, of our products and
product candidates. In the United States, the FDA regulates
drugs under the Federal Food, Drug, and Cosmetic Act and
implementing regulations. We cannot market a drug until we have
submitted an application for marketing authorization to the FDA,
and the FDA has approved it. Both before and after approval is
obtained, violations of regulatory requirements may result in
various adverse consequences, including, among other things,
warning letters, the FDAs delay in approving or refusal to
approve a product, product recall or seizure, suspension or
withdrawal of an approved product from the market, interruption
of production, operating restrictions, injunctions and the
imposition of civil or criminal penalties. The steps required
before a drug may be approved by the FDA and marketed in the
United States include:
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pre-clinical laboratory tests, animal studies and formulation
studies;
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submission to the FDA of an investigational new drug exemption,
or IND, for human clinical testing, which must become effective
before human clinical trials may begin;
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adequate and well-controlled clinical trials to establish the
safety and efficacy of the drug for each indication;
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submission to the FDA of an NDA;
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satisfactory completion of an FDA inspection of the
manufacturing facility or facilities at which the drug is
produced to assess compliance with current good manufacturing
practices, or cGMP; and
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FDA review and approval of the NDA.
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Pre-clinical tests include laboratory evaluations of product
chemistry, toxicity and formulation, as well as animal studies.
The results of the pre-clinical tests, together with
manufacturing information and analytical data, are submitted to
the FDA as part of an investigational new drug, or IND, which
must become effective before human clinical trials may begin. An
IND will automatically become effective 30 days after
receipt by the FDA, unless before that time the FDA raises
concerns or questions about issues such as the conduct of the
trials as outlined in the IND. In such a case, the IND sponsor
and the FDA must resolve any outstanding FDA concerns or
questions before clinical trials can proceed. Submission of an
IND does not necessarily result in the FDA allowing clinical
trials to commence.
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Clinical trials involve the administration of the
investigational drug to human subjects under the supervision of
qualified investigators. Clinical trials are conducted under
protocols detailing the objectives of the study, the parameters
to be used in monitoring subject safety, and the effectiveness
criteria, or endpoints, to be evaluated. Each protocol must be
submitted to the FDA as part of the IND and the FDA may or may
not allow that trial to proceed.
Clinical trials typically are conducted in three sequential
phases, but the phases may overlap or be combined. Each trial
must be reviewed and approved by an independent Institutional
Review Board before it can begin. Phase I usually involves the
initial introduction of the investigational drug into people to
evaluate its safety, dosage tolerance, pharmacodynamics, and, if
possible, to gain an early indication of its effectiveness.
Phase II usually involves trials in a limited patient
population to:
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evaluate dosage tolerance and appropriate dosage;
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identify possible adverse effects and safety risks; and
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evaluate preliminarily the efficacy of the drug for specific
indications.
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Phase III trials usually further evaluate clinical efficacy
and test further for safety by administering the drug in its
final form in an expanded patient population. We cannot
guarantee that Phase I, Phase II or Phase III
testing will be completed successfully within any specified
period of time, if at all. Furthermore, we or the FDA may
suspend clinical trials at any time on various grounds,
including a finding that the subjects or patients are being
exposed to an unacceptable health risk.
Assuming successful completion of the required clinical testing,
the results of the pre-clinical studies and of the clinical
studies, together with other detailed information, including
information on the manufacture and composition of the drug, are
submitted to the FDA in the form of an NDA requesting approval
to market the product for one or more indications. Before
approving an application, the FDA usually will inspect the
facility or the facilities at which the drug is manufactured,
and will not approve the product unless cGMP compliance is
satisfactory. If the FDA determines the application or
manufacturing facilities are not acceptable, the FDA may outline
the deficiencies in the submission and often will request
additional testing or information. Notwithstanding the
submission of any requested additional information, the FDA
ultimately may decide that the application does not satisfy the
regulatory criteria for approval. As a condition of approval of
an application, the FDA may require postmarket testing and
surveillance to monitor the drugs safety or efficacy.
After approval, certain changes to the approved product, such as
adding new indications, manufacturing changes, or additional
labeling claims, are subject to further FDA review and approval
before the changes can be implemented. The testing and approval
process requires substantial time, effort and financial
resources, and we cannot be sure that any approval will be
granted on a timely basis, if at all.
After the FDA approves a product, we and our contract
manufacturers must comply with a number of post-approval
requirements. For example, holders of an approved NDA are
required to report certain adverse reactions and production
problems, if any, to the FDA, and to comply with certain
requirements concerning advertising and promotional labeling for
their products. Also, quality control and manufacturing
procedures must continue to conform to cGMP after approval, and
the FDA periodically inspects manufacturing facilities to assess
compliance with cGMP. Accordingly, we and our contract
manufacturers must continue to expend time, money, and effort to
maintain compliance with cGMP and other aspects of regulatory
compliance.
We use and will continue to use third-party manufacturers to
produce our products in clinical and commercial quantities, and
we cannot be sure that future FDA inspections will not identify
compliance issues at the facilities of our contract
manufacturers that may disrupt production or distribution, or
require substantial resources to correct. In addition, discovery
of problems with a product may result in restrictions on a
product, manufacturer, or holder of an approved NDA, including
withdrawal of the product from the market. Also, new government
requirements may be established that could delay or prevent
regulatory approval of our products under development.
Outside the United States, our ability to market our products
will be contingent upon receiving marketing authorizations from
the appropriate regulatory authorities and compliance with
applicable post-approval
22
regulatory requirements, such as product manufacture, marketing
and distribution requirements. Although the specific
requirements, restrictions and timing of approvals vary from
country to country and may differ substantially from what is
required for FDA approval, as a general matter, foreign
regulatory systems include risks similar to those associated
with FDA regulation, as described above. In addition, regulatory
approval of drug pricing is required in most countries other
than the United States. There can be no assurance that the
resulting pricing of our drugs would be sufficient to generate
an acceptable return to us.
We are also subject to foreign regulatory requirements governing
human clinical trials for pharmaceutical products which we sell
or plan to sell outside the United States. Clinical trials in
one country may not be accepted by other countries, and approval
in one country may not result in approval in any other country.
For clinical trials conducted outside the United States, the
clinical stages generally are comparable to the phases of
clinical development established by the FDA.
Research
and Development
Our research and development expenses totaled
$105.7 million in 2008, $77.3 million in 2007 and
$63.5 million in 2006. The acquisition of Curacyte
Discovery in August 2008 resulted in the inclusion in research
and development expenses of $21.4 million of acquisition
related in-process research and development.
Employees
We believe that our success depends greatly on our ability to
identify, attract and retain capable employees. We have
assembled a management team with significant experience in drug
development and commercialization.
As of February 1, 2009, we employed 453 persons
worldwide. Our employees are not represented by any collective
bargaining unit, and we believe our relations with our employees
are good.
Segments
and Geographic Information
We have one reporting segment. For information regarding revenue
and other information regarding our results of operations,
including geographic segment information, for each of our last
three fiscal years, please refer to our consolidated financial
statements and note 2 to our consolidated financial
statements, which are included in Item 8 of this annual
report, and Managements Discussion and Analysis of
Financial Condition and Results of Operations included in
Item 7 of this annual report.
Available
Information
Our Internet address is
http://www.themedicinescompany.com.
The contents of our website are not part of this annual report
on
Form 10-K,
and our Internet address is included in this document as an
inactive textual reference only. We make our annual reports on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K
and all amendments to those reports available free of charge on
our website as soon as reasonably practicable after we file such
reports with, or furnish such reports to, the Securities and
Exchange Commission, or SEC. We were incorporated in Delaware on
July 31, 1996.
Investing in our common stock involves a high degree of risk.
You should carefully consider the risks and uncertainties
described below in addition to the other information included or
incorporated by reference in this annual report. If any of the
following risks actually occur, our business, financial
condition or results of operations would likely suffer. In that
case, the trading price of our common stock could fall.
23
Risks
Related to Our Financial Results
We
have a history of net losses and may not maintain profitability
on an annual basis
Except for 2004 and 2006, we have incurred net losses on an
annual basis since our inception. As of December 31, 2008,
we had an accumulated deficit of approximately
$267.9 million. We expect to make substantial expenditures
to further develop and commercialize our products, including
costs and expenses associated with clinical trials, regulatory
approvals and commercialization. Although we achieved
profitability in 2004 and in 2006, we were not profitable in
2008 primarily as a result of the costs incurred in connection
with our acquisition of Curacyte Discovery in August 2008 and
were not profitable in 2007, primarily as a result of the costs
incurred in connection with the Nycomed transaction. We will
likely need to generate significantly greater revenue in future
periods to achieve and maintain profitability in light of our
planned expenditures. We may not achieve profitability in future
periods or at all, and we may not be able to maintain
profitability for any substantial period of time. If we fail to
achieve profitability or maintain profitability on a quarterly
or annual basis within the time frame expected by investors or
securities analysts, the market price of our common stock may
decline.
Our
business is very dependent on the commercial success of
Angiomax
Angiomax has accounted for substantially all of our revenue
since we began selling Angiomax in 2000 and, until the approval
of Cleviprex by the FDA for the reduction of blood pressure when
oral therapy is not feasible or not desirable on August 2008,
Angiomax was our only commercial product. We expect revenues
from Angiomax to continue to account for substantially all of
our revenues in 2009. The commercial success of Angiomax depends
upon:
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its continued acceptance by regulators, physicians, patients and
other key decision-makers as a safe, therapeutic and
cost-effective alternative to heparin and other products used in
current practice or currently being developed;
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our ability to further develop Angiomax for use in additional
patient populations and the clinical data we generate to support
expansion of the product label, including our ability to obtain
EMEA approval of Angiox for the treatment of STEMI patients
undergoing PCI;
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the overall number of PCI procedures performed;
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our ability sell and market of Angiox in Europe; and
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the extent to which we and our international distributors are
successful in marketing Angiomax.
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We intend to continue to develop Angiomax for use in additional
patient populations. Even if we are successful in expanding the
Angiomax label, we cannot assure you that the expanded label
will result in higher revenue or income on a continuing basis.
As of December 31, 2008, our inventory of Angiomax was
$25.9 million. In addition, we have inventory-related
purchase commitments to Lonza Braine totaling $23.4 million
for 2009 and $13.3 million for 2010 for Angiomax bulk drug
substance. If sales of Angiomax were to decline, we could be
required to make an allowance for excess or obsolete inventory
or increase our accrual for product returns.
Our revenue has been substantially dependent on our sole
source distributor and a limited number of domestic wholesalers
and international distributors involved in the sale of our
products, and such revenue may fluctuate from quarter to quarter
based on the buying patterns of such distributor, wholesalers
and distribution partners
We distribute Angiomax and Cleviprex in the United States
through a sole source distribution model. Under this model, we
sell Angiomax and Cleviprex to our sole source distributor,
which then sells Angiomax and Cleviprex to a limited number of
national medical and pharmaceutical wholesalers with
distribution centers located throughout the United States and,
in certain cases, directly to hospitals. For the year ended
December 31, 2008, the sales to our sole source distributor
accounted for all of our U.S. sales. As our revenue from
sales of Angiomax and Cleviprex in the United States is now
exclusively from sales to the sole source
24
distributor, we expect that our revenue will continue to be
subject to fluctuation from quarter to quarter based on the
buying pattern of this sole source distributor.
In August 2008, we assumed control of the distribution of Angiox
in the majority of the countries in which Nycomed distributed
Angiox and assumed control of distribution in the remaining
countries of the Nycomed territory in the fourth quarter of
2008. In other countries, we continue to sell Angiomax to
international distributors and these distributors then sell
Angiomax to hospitals. Our reliance on a small number of
distributors for international sales of Angiomax could cause our
revenue to fluctuate from quarter to quarter based on the buying
patterns of these distributors, regardless of underlying
hospital demand.
If inventory levels at our sole source distributor or at our
international distributors become too high, these distributors
may seek to reduce their inventory levels by reducing purchases
from us, which could have a materially adverse effect on our
revenue in periods in which such purchase reductions occur.
Failure to achieve our revenue targets or raise additional
funds in the future may require us to delay, reduce the scope
of, or eliminate one or more of our planned activities
We will need to generate significantly greater revenue to
achieve and maintain profitability on an annual basis. The
further development of Angiomax and Cleviprex for use in
additional patient populations, the commercialization of
Cleviprex and the development of cangrelor, oritavancin and
CU-2010, including clinical trials, manufacturing development
and regulatory approvals, potential milestone payments to our
third party licensors, potential obligations to make cash
payments to former Targanta shareholders in connection with our
acquisition of Targanta, and the acquisition and development of
additional product candidates by us, such as oritavancin and
CU-2010, will require a commitment of substantial funds. Our
future funding requirements, which may be significantly greater
than we expect, will depend upon many factors, including:
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the extent to which Angiomax is commercially successful globally;
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the extent to which Cleviprex is commercially successful in the
United States;
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the extent to which we can successfully establish a commercial
infrastructure outside the United States;
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the expansion of our sales force in connection with the
expansion of our sales and marketing efforts in Europe and the
sale of Cleviprex in the United States;
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our plan to continue to seek possible acquisitions of
development-stage products, approved products, or businesses and
possible additional strategic or licensing arrangements with
companies that fit within our growth strategy, such as our
acquisitions of Curacyte Discovery and Targanta;
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the progress, level and timing of our research and development
activities related to our clinical trials with respect to
Angiomax, Cleviprex, cangrelor, oritavancin and CU-2010;
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the cost and outcomes of regulatory submissions and reviews,
approval of Cleviprex internationally and approval of our
product candidates globally;
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the continuation or termination of third-party manufacturing or
sales and marketing arrangements;
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the size, cost and effectiveness of our sales and marketing
programs in the United States and internationally;
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the status of competitive products;
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the success of obtaining regulatory approval of oritavancin and
the extent of the commercial success of oritavancin, if and when
it is approved, which could result in the cash payment to former
Targanta shareholders; and
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our ability to defend and enforce our intellectual property
rights.
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If our existing resources are insufficient to satisfy our
liquidity requirements due to slower than anticipated sales of
Angiomax and Cleviprex, or higher than anticipated costs
globally, if we acquire additional product candidates or
businesses, or if we determine that raising additional capital
would be in our interest and
25
the interests of our stockholders, we may sell equity or debt
securities or seek additional financing through other
arrangements. Any sale of additional equity or debt securities
may result in dilution to our stockholders, and debt financing
may involve covenants limiting or restricting our ability to
take specific actions, such as incurring additional debt or
making capital expenditures. We cannot be certain that public or
private financing will be available in amounts or on terms
acceptable to us, if at all. If we seek to raise funds through
collaboration or licensing arrangements with third parties, we
may be required to relinquish rights to products, product
candidates or technologies that we would not otherwise
relinquish or grant licenses on terms that may not be favorable
to us. If we are unable to obtain additional financing, we may
be required to delay, reduce the scope of, or eliminate one or
more of our planned research, development and commercialization
activities, which could harm our financial condition and
operating results.
Risks
Related to Commercialization
Angiomax competes with all categories of anticoagulant
drugs, which may limit the use of Angiomax
Because different anticoagulant drugs act on different
components of the clotting process, we believe that continued
clinical work will be necessary to determine the best
combination of drugs for clinical use. We recognize that
Angiomax competes with other anticoagulant drugs to the extent
Angiomax and any of these anticoagulant drugs are approved for
the same or similar indications.
In addition, other anticoagulant drugs may compete with Angiomax
for hospital financial resources. For example, many
U.S. hospitals receive a fixed reimbursement amount per
procedure for the angioplasties and other treatment therapies
they perform. Because this amount is not based on the actual
expenses the hospital incurs, hospitals may choose to use either
Angiomax or other anticoagulant drugs, but not necessarily
several of the drugs together.
Because the market for thrombin inhibitors is competitive,
Angiomax may not obtain widespread use
We have positioned Angiomax as a replacement for heparin, which
is a widely used, inexpensive, generic drug used in patients
with arterial thrombosis. Because heparin is inexpensive and has
been widely used for many years, physicians and medical
decision-makers may be hesitant to adopt Angiomax. In addition,
due to the high incidence and severity of cardiovascular
diseases, competition in the market for thrombin inhibitors is
intense and growing. We cannot assure you that the rate of
Angiomax sales growth will not slow or decline in future years.
There are a number of direct and indirect thrombin inhibitors
currently on the market, awaiting regulatory approval and in
development, including orally administered agents. The thrombin
inhibitors on the market include products for use in the
treatment of patients with HIT/HITTS, patients with unstable
angina and patients with deep vein thrombosis.
In addition, if we are unable to secure patent term restoration
for Angiomax, we expect the entry of generic competition into
the market potentially as early as the third quarter of 2010.
Competition from generic equivalents could have a material
adverse impact on our financial condition and operating results.
Cleviprex competes with all categories of IV
antihypertensive, or IV-AHT, drugs, which may limit the use of
Cleviprex
Because different IV-AHT drugs act in different ways on the
factors contributing to elevated blood pressure, physicians have
several therapeutic options to reduce acutely elevated blood
pressure and related conditions. We believe that continued
clinical work will be necessary to determine the best
combination of drugs for the various patient types and clinical
settings. We recognize that Cleviprex competes with other
IV-AHT drugs
to the extent Cleviprex and any of these IV-AHT drugs are
approved for the same or similar indications.
In addition, other IV-AHT drugs may compete with Cleviprex for
hospital financial resources. For example, many
U.S. hospitals receive a fixed reimbursement amount per
procedure for the procedures and emergency treatments they
perform. Because this amount is not based on the actual expenses
the hospital
26
incurs, hospitals may choose to use either Cleviprex or other
IV-AHT drugs, but not necessarily several of the drugs together.
Because the IV-AHT market is competitive and many of the
IV-AHT drugs with which we expect Cleviprex to compete have been
widely used in patient care for many years and are generic, our
product may not obtain widespread use
We have positioned Cleviprex as an alternative to multiple older
products, which are almost exclusively inexpensive generics used
widely in patients with acute hypertension or requiring acute
blood pressure management. Any medicine that competes with
generic market-leading medicines must demonstrate compelling
advantages in efficacy, convenience, tolerability
and/or
safety in order to overcome price competition and be
commercially successful. Because these therapies are inexpensive
and have been widely used for many years, physicians and
decision-makers for hospital resource allocation may be hesitant
to adopt Cleviprex. We cannot assure you of the rate of
Cleviprex sales growth immediately post launch and the
longer-term outlook for future years. While we are not aware of
any IV-AHT drugs currently awaiting regulatory approval or in
development, this remains a possible scenario, the impact of
which on Cleviprex sales we cannot estimate.
The market for Cleviprex will depend significantly on its
inclusion on hospital formularies
Many hospitals establish formularies, which are lists of drugs
approved for use in the hospital. In those hospitals, if a drug
is not included on the formulary, then the ability of our sales
representatives to sell the drug in such hospital is limited or
denied. If we fail to secure and maintain formulary coverage for
Cleviprex on favorable terms or are significantly delayed in
doing so, we will have difficultly achieving market acceptance
of Cleviprex and our business could be materially adversely
affected. We cannot estimate the extent and uptake rate of which
Cleviprex will be accepted on hospital formularies.
Near-term growth in our sales of Angiomax and Cleviprex is
dependent on acceptance by physicians, patients and other key
decision-makers of clinical data
We believe that the near-term commercial success of Angiomax and
Cleviprex will depend upon the extent to which physicians,
patients and other key decision-makers accept the results of the
clinical trials. For example, since the original results of
REPLACE-2 were announced in 2002, additional hospitals have
granted Angiomax formulary approval and hospital demand for the
product has increased. We cannot be certain, however, that these
trends will continue. Some commentators have challenged various
aspects of the trial design of REPLACE-2, the conduct of the
study and the analysis and interpretation of the results from
the study. Similarly, we cannot be certain of the extent to
which physicians, patients and other key decision-makers will
accept the results of the ACUITY and HORIZONS AMI trials. The
FDA, in denying our sNDA for an additional dosing regimen in the
treatment of ACS initiated in the emergency department,
indicated that the basis of their decision involved the
appropriate use and interpretation of non-inferiority trials
such as our ACUITY trial. If physicians, patients and other key
decision-makers do not accept clinical trial results, adoption
of Angiomax and Cleviprex may suffer, and our business will be
materially adversely affected.
We believe that as a result of data from a clinical trial that
was published in March 2007 in the New England Journal of
Medicine entitled Clinical Outcomes Utilizing
Revascularization and Aggressive Drug Evaluation, or
COURAGE, and the controversy regarding the use of
drug-eluting stents, the number of PCI procedures performed in
the United States declined in 2007. The decline in the number of
procedures has had a direct impact on our net revenues. PCI
procedure volume increased in 2008 from 2007 levels, but has not
returned to the level of PCI procedures performed prior to the
2007 decline. PCI procedure volume might decline again and might
not return to its previous level over time or at all. In the
event that the number of procedures declines, sales of Angiomax
may be impacted negatively.
We face substantial competition, which may result in
others discovering, developing or commercializing competing
products before or more successfully than we do
Our industry is highly competitive. Our success will depend on
our ability to acquire and develop products and apply
technology, and our ability to establish and maintain markets
for our products. Potential competitors in the United States and
other countries include major pharmaceutical and chemical
companies,
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specialized pharmaceutical companies and biotechnology firms,
universities and other research institutions. Many of our
competitors have substantially greater research and development
capabilities and experience, and greater manufacturing,
marketing and financial resources, than we do. Accordingly, our
competitors may develop or license products or other novel
technologies that are more effective, safer, more convenient or
less costly than existing products or technologies or products
or technologies that are being developed by us or may obtain
regulatory approvals for products more rapidly than we are able.
Technological developments by others may render our products or
product candidates noncompetitive. We may not be successful in
establishing or maintaining technological competitiveness.
Our ability to generate future revenue from products will
be affected by our ability to develop our international
operations
To support the international sales and marketing of Angiomax,
and of Cleviprex, cangrelor, oritavancin and CU-2010 if and when
they are approved for sale outside the United States, we are
developing our business infrastructure internationally, with
European operations being our initial focus. If we are unable to
expand our international operations successfully and in a timely
manner, the growth of our business may be limited and our
business, operating results and financial condition may be
harmed. Such expansion may be more difficult, be more expensive
or take longer than we anticipate, and we may not be able to
successfully market and sell our products internationally.
Future rapid expansion could strain our operational, human and
financial resources. In order to manage expansion, we must:
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continue to improve operating, administrative, and information
systems;
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accurately predict future personnel and resource needs to meet
contract commitments;
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track the progress of ongoing projects; and
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attract and retain qualified management, sales, professional,
scientific and technical operating personnel.
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If we do not take these actions and are not able to manage our
international business, then our international operations may be
less successful than anticipated, and we may be required to
allocate additional resources to the expanded business, which we
would have otherwise allocated to another part of our business.
Our future growth depends, in part, on our ability to
penetrate foreign markets, particularly in Europe. However, we
have limited experience marketing, servicing and distributing
our products and otherwise conducting our business outside the
United States, where we are subject to additional regulatory
burdens and other risks
Our future profitability will depend in part on our ability to
grow and ultimately maintain our product sales in foreign
markets, particularly in Europe. However, we have limited
experience in marketing, servicing and distributing our products
outside of the United States. In addition, in August 2008 we
acquired Curacyte Discovery and are conducting research and
development activities through this German subsidiary. In
connection with our acquisition of Targanta in February 2009, we
acquired Targantas Canadian subsidiary and will be
conducting research and development activities through this
Canadian subsidiary. These foreign operations subject us to
additional risks and uncertainties, including:
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our customers ability to obtain reimbursement for
procedures using our products in foreign markets;
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the burden of complying with complex and changing foreign legal,
tax, accounting and regulatory requirements;
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language barriers and other difficulties in providing long-range
customer support and service;
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longer accounts receivable collection times;
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significant currency fluctuations;
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reduced protection of intellectual property rights in some
foreign countries; and
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the interpretation of contractual provisions governed by foreign
laws in the event of a contract dispute.
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Our foreign sales of our products could also be adversely
affected by export license requirements, the imposition of
governmental controls, political and economic instability, trade
restrictions, changes in tariffs and difficulties in staffing
and managing foreign operations. In addition, we are subject to
the Foreign Corrupt Practices Act, any violation of which could
create a substantial liability for us and also cause a loss of
reputation in the market.
Our ability to generate future revenue from products will
be affected by reimbursement and drug pricing
Acceptable levels of reimbursement of drug treatments by
government authorities, private health insurers and other
organizations will have an effect on our ability to successfully
commercialize, and attract collaborative partners to invest in
the development of, product candidates. We cannot be sure that
reimbursement in the United States, Europe or elsewhere will be
available for any products we may develop or, if already
available, will not be decreased in the future. We may not get
reimbursement or reimbursement may be limited if authorities,
private health insurers and other organizations are influenced
by existing drugs and prices in determining our reimbursement.
For example, the availability of numerous generic antibiotics at
lower prices than branded antibiotics, such as oritavancin, if
it were approved for commercial sale, may also substantially
reduce the likelihood of reimbursement for oritavancin. If
reimbursement is not available or is available only to limited
levels, we may not be able to commercialize our products, or may
not be able to obtain a satisfactory financial return on our
products.
In certain countries, particularly the countries of the European
Union, the pricing of prescription pharmaceuticals and the level
of reimbursement are subject to governmental control. In some
countries, it can take an extended period of time to establish
and obtain reimbursement, and reimbursement approval may be
required at the individual patient level, which can lead to
further delays. In addition, in some countries, it may take an
extended period of time to collect payment even after
reimbursement has been established.
Third-party payers increasingly are challenging prices charged
for medical products and services. Also, the trend toward
managed health care in the United States and the changes in
health insurance programs, as well as legislative proposals, may
result in lower prices for pharmaceutical products, including
any products that may be offered by us. Cost-cutting measures
that health care providers are instituting, and the effect of
any health care reform, could materially adversely affect our
ability to sell any products that are successfully developed by
us and approved by regulators. Moreover, we are unable to
predict what additional legislation or regulation, if any,
relating to the health care industry or third-party coverage and
reimbursement may be enacted in the future or what effect such
legislation or regulation would have on our business.
We must comply with federal, state and foreign laws and
regulations relating to the health care business, and, if we do
not fully comply with such laws and regulations, we could face
substantial penalties
We and our customers are subject to extensive regulation by the
federal government, and the governments of the states and
foreign countries in which we may conduct our business. In the
United States, the laws that directly or indirectly affect our
ability to operate our business include the following:
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the Federal Anti-Kickback Law, which prohibits persons from
knowingly and willfully soliciting, offering, receiving or
providing remuneration, directly or indirectly, in cash or in
kind, to induce either the referral of an individual or
furnishing or arranging for a good or service for which payment
may be made under federal health care programs such as Medicare
and Medicaid;
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other Medicare laws and regulations that prescribe the
requirements for coverage and payment for services performed by
our customers, including the amount of such payment;
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the Federal False Claims Act, which imposes civil and criminal
liability on individuals and entities who submit, or cause to be
submitted, false or fraudulent claims for payment to the
government; and
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the Federal False Statements Act, which prohibits knowingly and
willfully falsifying, concealing or covering up a material fact
or making any materially false statement in connection with
delivery of or payment for health care benefits, items or
services.
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If our operations are found to be in violation of any of the
laws and regulations described above or any other law or
governmental regulation to which we or our customers are or will
be subject, we may be subject to civil and criminal penalties,
damages, fines, exclusion from the Medicare and Medicaid
programs and the curtailment or restructuring of our operations.
Similarly, if our customers are found to be non-compliant with
applicable laws, they may be subject to sanctions, which could
also have a negative impact on us. Any penalties, damages,
fines, curtailment or restructuring of our operations would
adversely affect our ability to operate our business and our
financial results. Any action against us for violation of these
laws, even if we successfully defend against it, could cause us
to incur significant legal expenses, divert our
managements attention from the operation of our business
and damage our reputation.
We could be exposed to significant liability if we are
unable to obtain insurance at acceptable costs and adequate
levels or otherwise protect ourselves against potential product
liability claims
Our business exposes us to potential product liability risks
which are inherent in the testing, manufacturing, marketing and
sale of human healthcare products. Product liability claims
might be made by patients in clinical trials, consumers, health
care providers or pharmaceutical companies or others that sell
our products. These claims may be made even with respect to
those products that are manufactured in licensed and regulated
facilities or otherwise possess regulatory approval for
commercial sale.
These claims could expose us to significant liabilities that
could prevent or interfere with the development or
commercialization of our products. Product liability claims
could require us to spend significant time and money in
litigation or pay significant damages. With respect to our
commercial sales and our clinical trials, we are covered by
product liability insurance in the amount of $20.0 million
per occurrence and $20.0 million annually in the aggregate
on a claims-made basis. This coverage may not be adequate to
cover any product liability claims.
As we continue to commercialize our products, we may wish to
increase our product liability insurance. Product liability
coverage is expensive. In the future, we may not be able to
maintain or obtain such product liability insurance on
reasonable terms, at a reasonable cost or in sufficient amounts
to protect us against losses due to product liability claims.
Risks
Related to Regulatory Matters
If we do not obtain regulatory approvals for our product
candidates, we will not be able to market our product candidates
and our ability to generate additional revenue could be
materially impaired
Except for Angiomax and Cleviprex, we do not have any other
product approved for sale in the United States or any foreign
market. Angiomax has been approved for sale in the United States
for use as an anticoagulant in combination with aspirin in
patients with unstable angina undergoing PCI and patients
undergoing PCI with or at risk of HIT/HITTS, for sale in the
European Union for indications similar to those approved by the
FDA and for adult patients with ACS and for sale in other
countries for indications similar to those approved by the FDA.
Cleviprex has been approved for sale in the United States for
the reduction of blood pressure when oral therapy is not
feasible or not desirable. We must obtain approval from the FDA
in order to sell our product candidates in the United States and
from foreign regulatory authorities in order to sell our product
candidates in other countries. Obtaining regulatory approval is
uncertain, time-consuming and expensive. Any regulatory approval
we ultimately obtain may be limited or subject to restrictions
or post-approval commitments that render the product
commercially non-viable. Securing regulatory approval requires
the submission of extensive pre-clinical and clinical data,
information about product manufacturing processes and inspection
of facilities and supporting information to the regulatory
authorities for each therapeutic indication to establish the
products safety and efficacy. If we are unable to submit
the necessary data and information, for example, because the
results of clinical trials are not favorable, or if the
applicable regulatory authority delays reviewing or does not
approve our applications, we will be unable to obtain regulatory
approval. Delays in obtaining or failure to obtain regulatory
approvals may:
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delay or prevent the successful commercialization of any of our
product candidates;
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diminish our competitive advantage; and
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defer or decrease our receipt of revenue.
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The regulatory review and approval process to obtain marketing
approval for a new drug or indication takes many years and
requires the expenditure of substantial resources. This process
can vary substantially based on the type, complexity, novelty
and indication of the product candidate involved. The regulatory
authorities in the United States and internationally have
substantial discretion in the approval process and may refuse to
accept any application or may decide that data is insufficient
for approval and require additional pre-clinical, clinical or
other studies. In addition, varying interpretations of the data
obtained from pre-clinical and clinical testing could delay,
limit or prevent regulatory approval of a product candidate. For
example, the FDA issued a complete response letter to Targanta
in December 2008 before it was acquired by us with respect to
the oritavancin NDA indicating that the FDA could not approve
the NDA in its present form and that it would be necessary for
Targanta to perform an additional adequate and well-controlled
study to demonstrate the safety and efficacy of oritavancin in
patients with cSSSI before the application could be approved.
We cannot expand the indications for which we are
marketing Angiomax unless we receive regulatory approval for
each additional indication. Failure to expand these indications
will limit the size of the commercial market for Angiomax
The FDA has approved Angiomax for use as an anticoagulant in
combination with aspirin in patients with unstable angina
undergoing PCI and patients undergoing PCI with or at risk of
HIT/HITTS. Angiox is approved for patients undergoing PCI and
for adult patients with ACS in the European Union. One of our
key objectives is to expand the indications for which Angiomax
is approved. For example, in December 2008, we submitted an
application to the EMEA for the approval of Angiox in the
treatment STEMI patients undergoing PCI. In order to market
Angiomax for expanded indications, we will need to conduct
appropriate clinical trials, obtain positive results from those
trials and obtain regulatory approval for such proposed
indications. Obtaining regulatory approval is uncertain,
time-consuming and expensive. The regulatory review and approval
process to obtain marketing approval for a new indication can
take many years and require the expenditure of substantial
resources. This process can vary substantially based on the
type, complexity, novelty and indication of the product
candidate involved. The regulatory authorities have substantial
discretion in the approval process and may refuse to accept any
application or may decide that any data submitted is
insufficient for approval and require additional pre-clinical,
clinical or other studies. In addition, varying interpretations
of the data obtained from pre-clinical and clinical testing
could delay, limit or prevent regulatory approval of a new
indication product candidate. For example, in 2006 we received a
non-approvable letter from the FDA in connection with our
application to market Angiomax in patients with or at risk of
HIT/HITTS undergoing cardiac surgery. While we have indicated to
the FDA that we are evaluating potential next steps, the FDA may
require additional studies which may require the expenditure of
substantial resources. Even if any such studies are undertaken,
we might not be successful in obtaining regulatory approval for
this indication in a timely manner or at all. In addition, in
May 2008, we received a non-approvable letter from the FDA with
respect to an sNDA that we submitted to the FDA seeking approval
of an additional indication for Angiomax for the treatment of
patients with ACS. In its letter, the FDA indicated that the
basis of their decision involved the appropriate use and
interpretation of non-inferiority trials, including the ACUITY
trial. We disagree with the FDA on these issues and have
initiated discussions with the FDA to address them. We might not
be successful in obtaining regulatory approval for these
indications or any other indications in a timely manner or at
all. If we are unsuccessful in expanding the Angiomax product
label, the size of the commercial market for Angiomax will be
limited.
Clinical trials of product candidates are expensive and
time-consuming, and the results of these trials are
uncertain
Before we can obtain regulatory approvals to market any product
for a particular indication, we will be required to complete
pre-clinical studies and extensive clinical trials in humans to
demonstrate the safety and efficacy of such product for such
indication.
Clinical testing is expensive, difficult to design and
implement, can take many years to complete and is uncertain as
to outcome. Success in pre-clinical testing or early clinical
trials does not ensure that later clinical trials will be
successful, and interim results of a clinical trial do not
necessarily predict final results. An
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unexpected result in one or more of our clinical trials can
occur at any stage of testing. We may experience numerous
unforeseen events during, or as a result of, the clinical trial
process that could delay or prevent us from receiving regulatory
approval or commercializing our products, including:
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our clinical trials may produce negative or inconclusive
results, and we may decide, or regulators may require us, to
conduct additional clinical trials which even if undertaken
cannot ensure we will gain approval;
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data obtained from pre-clinical testing and clinical trials may
be subject to varying interpretations, which could result in the
FDA or other regulatory authorities deciding not to approve a
product in a timely fashion, or at all;
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the cost of clinical trials may be greater than we currently
anticipate;
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regulators or institutional review boards may not authorize us
to commence a clinical trial or conduct a clinical trial at a
prospective trial site;
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we, or the FDA or other regulatory authorities, might suspend or
terminate a clinical trial at any time on various grounds,
including a finding that participating patients are being
exposed to unacceptable health risks. For example, we have in
the past voluntarily suspended enrollment in one of our clinical
trials to review an interim analysis of safety data from the
trial; and
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the effects of our product candidates may not be the desired
effects or may include undesirable side effects or the product
candidates may have other unexpected characteristics.
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The rate of completion of clinical trials depends in part upon
the rate of enrollment of patients. Patient enrollment is a
function of many factors, including the size of the patient
population, the proximity of patients to clinical sites, the
eligibility criteria for the trial, the existence of competing
clinical trials and the availability of alternative or new
treatments. In particular, the patient population targeted by
some of our clinical trials may be small. Delays in patient
enrollment in any of our current or future clinical trials may
result in increased costs and program delays.
If we or our contract manufacturers fail to comply with
the extensive regulatory requirements to which we, our contract
manufacturers and our products are subject, our products could
be subject to restrictions or withdrawal from the market and we
could be subject to penalties
The testing, manufacturing, labeling, safety, advertising,
promotion, storage, sales, distribution, export and marketing,
among other things, of our products, both before and after
approval, are subject to extensive regulation by governmental
authorities in the United States, Europe and elsewhere
throughout the world. Both before and after approval of a
product, quality control and manufacturing procedures must
conform to current good manufacturing practice, or cGMP.
Regulatory authorities, including the FDA, periodically inspect
manufacturing facilities to assess compliance with cGMP. Our
failure or the failure of our contract manufacturers to comply
with the laws administered by the FDA, the European Medicines
Agency or other governmental authorities could result in, among
other things, any of the following:
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delay in approving or refusal to approve a product;
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product recall or seizure;
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suspension or withdrawal of an approved product from the market;
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interruption of production;
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operating restrictions;
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warning letters;
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injunctions;
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fines and other monetary penalties;
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criminal prosecutions; and
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unanticipated expenditures.
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Risks
Related to our Dependence on Third Parties for Manufacturing,
Research and Development, and Distribution Activities
We depend on single suppliers for the production of
Angiomax, Cleviprex, cangrelor and oritavancin bulk drug
substance and a limited number of suppliers to carry out all
fill-finish activities
We do not manufacture any of our products and do not plan to
develop any capacity to manufacture them. We currently obtain
all of our Angiomax bulk drug substance from one manufacturer,
Lonza Braine, and rely on another manufacturer, Ben Venue
Laboratories, to carry out all fill-finish activities for
Angiomax, which includes final formulation and transfer of the
drug into vials where it is then freeze-dried and sealed. The
terms of our agreement with Lonza Braine require us to purchase
from Lonza Braine a substantial portion of our Angiomax bulk
drug product manufactured using the Chemilog process, a chemical
synthesis process that we developed with UCB Bioproducts S.A.,
the predecessor to Lonza Braine.
We currently obtain all of our Cleviprex bulk drug substance
from one manufacturer, Johnson Matthey Pharma Services. We rely
on a different single supplier, Hospira, Inc., and its
proprietary formulation technology, for the manufacture of all
finished Cleviprex product, as well as for release testing and
commercial packaging.
We have transferred the manufacturing process for all of our
cangrelor bulk drug substance from AstraZeneca to Johnson
Matthey Pharma Services for scale up and manufacture for
Phase III clinical trials and commercial supplies. We also
plan to rely on different suppliers, Baxter Pharmaceutical
Solutions LLC and Ben Venue Laboratories, Inc., for the
manufacture of all finished cangrelor drug product for all
Phase III clinical trials and to carry out release testing.
All bulk drug substance of oritavancin is currently obtained
from Abbott under an agreement originally entered into between
Targanta and Abbott for use in clinical trials and for
commercial supply. We obtain oritavancin final drug product from
contract fill/finish providers, Catalent Pharma Solutions, Inc.
(formerly known as Cardinal Health PTS, LLC) and Ben Venue.
The Catalent agreement requires the purchase of a minimum number
of batches of oritavancin final drug product.
A limited number of manufacturers are capable of manufacturing
Angiomax, Cleviprex, cangrelor and oritavancin. We do not
currently have alternative sources for production of bulk drug
substance or to carry out fill-finish activities. Consolidation
within the pharmaceutical manufacturing industry could further
reduce the number of manufacturers capable of producing our
products, or otherwise affect our existing contractual
relationships.
In the event that any of Lonza Braine, Johnson Matthey, Hospira,
Ben Venue, Baxter or Abbott is unable or unwilling to carry out
its respective manufacturing obligations or terminates or
refuses to renew its arrangements with us, we may be unable to
obtain alternative manufacturing, or obtain such manufacturing
on commercially reasonable terms or on a timely basis. If we
were required to transfer manufacturing processes to other
third-party manufacturers, we would need to satisfy various
regulatory requirements, which could cause us to experience
significant delays in receiving an adequate supply of Angiomax,
Cleviprex, cangrelor or oritavancin. Moreover, we may not be
able to transfer processes that are proprietary to the
manufacturer. Any delays in the manufacturing process may
adversely impact our ability to meet commercial demands for
Angiomax or Cleviprex on a timely basis and supply product for
clinical trials of Angiomax, Cleviprex, cangrelor or oritavancin.
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The development and commercialization of our products may
be terminated or delayed, and the costs of development and
commercialization may increase, if third parties on whom we rely
to manufacture and support the development and commercialization
of our products do not fulfill their obligations
Our development and commercialization strategy involves entering
into arrangements with corporate and academic collaborators,
contract research organizations, distributors, third party
manufacturers, licensors, licensees and others to conduct
development work, manage or conduct our clinical trials,
manufacture our products and market and sell our products
outside of the United States. We do not have the expertise or
the resources to conduct such activities on our own and, as a
result, are particularly dependent on third parties in most
areas.
We may not be able to maintain our existing arrangements with
respect to the commercialization or manufacture of Angiomax and
Cleviprex or establish and maintain arrangements to develop,
manufacture and commercialize cangrelor, oritavancin, CU-2010 or
any additional product candidates or products we may acquire on
terms that are acceptable to us. Any current or future
arrangements for development and commercialization may not be
successful. If we are not able to establish or maintain
agreements relating to Angiomax, Cleviprex, cangrelor,
oritavancin, CU-2010 or any additional products we may acquire
on terms that we deem favorable, our results of operations would
be materially adversely affected.
Third parties may not perform their obligations as expected. The
amount and timing of resources that third parties devote to
developing, manufacturing and commercializing our products are
not within our control. Our collaborators may develop,
manufacture or commercialize, either alone or with others,
products and services that are similar to or competitive with
the products that are the subject of the collaboration with us.
Furthermore, our interests may differ from those of third
parties that manufacture or commercialize our products. Our
collaborators may reevaluate their priorities from time to time,
including following mergers and consolidations, and change the
focus of their development, manufacturing or commercialization
efforts. Disagreements that may arise with these third parties
could delay or lead to the termination of the development or
commercialization of our product candidates, or result in
litigation or arbitration, which would be time consuming and
expensive.
If any third party that manufactures or supports the development
or commercialization of our products breaches or terminates its
agreement with us, or fails to commit sufficient resources to
our collaboration or conduct its activities in a timely manner,
or fails to comply with regulatory requirements, such breach,
termination or failure could:
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delay or otherwise adversely impact the manufacturing,
development or commercialization of Angiomax, Cleviprex,
cangrelor, oritavancin, CU-2010 or any additional products that
we may acquire or develop;
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require us to seek a new collaborator or undertake unforeseen
additional responsibilities or devote unforeseen additional
resources to the manufacturing, development or commercialization
of our products; or
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result in the termination of the development or
commercialization of our products.
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Use of third-party manufacturers may increase the risk
that we will not have appropriate supplies of our product
candidates
Reliance on third-party manufacturers entails risks to which we
would not be subject if we manufactured product candidates or
products ourselves, including:
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reliance on the third party for regulatory compliance and
quality assurance;
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the possible breach of the manufacturing agreement by the third
party; and
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the possible termination or nonrenewal of the agreement by the
third party, based on its own business priorities, at a time
that is costly or inconvenient for us.
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Angiomax and Cleviprex and our other product candidates may
compete with products and product candidates of third parties
for access to manufacturing facilities. If we are not able to
obtain adequate supplies of Angiomax, Cleviprex, cangrelor,
oritavancin and CU-2010, it will be more difficult for us to
compete effectively and develop our product candidates.
Our contract manufacturers are subject to ongoing, periodic,
unannounced inspection by the FDA and corresponding state and
foreign agencies or their designees to evaluate compliance with
the FDAs cGMP, regulations and other governmental
regulations and corresponding foreign standards. We cannot be
certain that our present or future manufacturers will be able to
comply with cGMP regulations and other FDA regulatory
requirements or similar regulatory requirements outside the
United States. We do not control compliance by our contract
manufacturers with these regulations and standards. Failure of
our third-party manufacturers or us to comply with applicable
regulations could result in sanctions being imposed on us,
including fines and other monetary penalties, injunctions, civil
penalties, failure of regulatory authorities to grant marketing
approval of our product candidates, delays, suspension or
withdrawal of approvals, license revocation, seizures or recalls
of product candidates or products, interruption of production,
warning letters, operating restrictions and criminal
prosecutions, any of which could significantly and adversely
affect supplies of Angiomax, Cleviprex, cangrelor, oritavancin,
CU-2010 and our other product candidates.
In order to satisfy regulatory authorities, we may need to
reformulate the way in which our oritavancin bulk drug substance
is created to remove animal source product
Oritavancin bulk drug substance is manufactured using
animal-sourced products, namely porcine-sourced products. Some
non-U.S. regulatory
authorities have historically objected to the use of
animal-sourced products, particularly bovine-sourced products,
during the preparation of finished drug product. As a result and
in order to best position oritavancin for approval in foreign
jurisdictions, under the agreement with Abbott, Targanta and
Abbott are seeking to develop a manufacturing process for
oritavancin bulk drug substance that does not rely on the use of
any animal-sourced products.
If we are unable to develop a manufacturing process for
oritavancin bulk drug substance that does not rely on the use of
animal-sourced product, it is possible that we will be unable to
receive regulatory approval for oritavancin in certain foreign
jurisdictions, which would likely have a negative impact on our
ability to achieve our business objectives.
If we use hazardous and biological materials in a manner
that causes injury or violates applicable law, we may be liable
for damages
In connection with our acquisitions of Curacyte Discovery and
Targanta, we now conduct research and development activities.
These research and development activities involve the controlled
use of potentially hazardous substances, including chemical,
biological and radioactive materials and viruses. In addition,
our operations produce hazardous waste products. Federal, state
and local laws and regulations in each of the United States,
Canada and Germany govern the use, manufacture, storage,
handling and disposal of hazardous materials. Although we
believe that our procedures for use, handling, storing and
disposing of these materials comply with legally prescribed
standards, we may incur significant additional costs to comply
with applicable laws in the future. Also, even if we are in
compliance with applicable laws, we cannot completely eliminate
the risk of contamination or injury resulting from hazardous
materials and we may incur liability as a result of any such
contamination or injury. In the event of an accident, we could
be held liable for damages or penalized with fines, and the
liability could exceed our resources. We have only limited
insurance for liabilities arising from hazardous materials.
Compliance with applicable environmental laws and regulations is
expensive, and current or future environmental regulations may
restrict our research, development and production efforts, which
could harm our business, operating results and financial
condition.
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Risks
Related to Our Intellectual Property
A breach of any of the agreements under which we license
commercialization rights to products or technology from others
could cause us to lose license rights that are important to our
business or subject us to claims by our licensors
We license rights to products and technology that are important
to our business, and we expect to enter into additional licenses
in the future. For instance, we have exclusively licensed
patents and patent applications relating to Angiomax from Biogen
Idec and Health Research Inc., relating to Cleviprex and
cangrelor from AstraZeneca and, through our acquisition of
Targanta, oritavancin from Eli Lilly. Under these agreements, we
are subject to commercialization and development, sublicensing,
royalty, patent prosecution and maintenance, insurance and other
obligations. For example, we are required under our license for
cangrelor to file an NDA for cangrelor by December 31,
2009. Any failure by us to comply with any of these obligations
or any other breach by us of our license agreements could give
the licensor the right to terminate the license in whole,
terminate the exclusive nature of the license or bring a claim
against us for damages. Any such termination or claim,
particularly relating to our agreements with respect to
Angiomax, could have a material adverse effect on our business.
We have entered into an agreement with Biogen Idec that suspends
the statute of limitations relating to any claims for damages
and/or
license termination that they may bring in the event that a
dispute arises between us and Biogen Idec relating to the late
filing of our application under the Hatch-Waxman Act for an
extension of the term of the principal patent that covers
Angiomax. Even if we contest any such termination or claim and
are ultimately successful, our stock price could suffer. In
addition, upon any termination of a license agreement, we may be
required to license to the licensor any related intellectual
property that we developed.
If we are unable to obtain or maintain patent protection
for the intellectual property relating to our products, the
value of our products will be adversely affected
The patent positions of pharmaceutical companies like us are
generally uncertain and involve complex legal, scientific and
factual issues. Our success depends significantly on our ability
to:
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obtain and maintain U.S. and foreign patents, including
defending those patents against adverse claims;
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secure patent term extension for the patents covering our
approved products;
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protect trade secrets;
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operate without infringing the proprietary rights of
others; and
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prevent others from infringing our proprietary rights.
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We may not have any additional patents issued from any patent
applications that we own or license. If additional patents are
granted, the claims allowed may not be sufficiently broad to
protect our technology. In addition, issued patents that we own
or license may be challenged, narrowed, invalidated or
circumvented, which could limit our ability to stop competitors
from marketing similar products or limit the length of term of
patent protection we may have for our products, and we may not
be able to obtain patent term extension to prolong the terms of
the principal patents covering our approved products. Changes in
patent laws or in interpretations of patent laws in the United
States and other countries may diminish the value of our
intellectual property or narrow the scope of our patent
protection.
Our patents also may not afford us protection against
competitors with similar technology. Because patent applications
in the United States and many foreign jurisdictions are
typically not published until eighteen months after filing, or
in some cases not at all, and because publications of
discoveries in the scientific literature often lag behind actual
discoveries, neither we nor our licensors can be certain that
others have not filed or maintained patent applications for
technology used by us or covered by our pending patent
applications without our being aware of these applications.
As of February 1, 2009, we exclusively licensed patents and
patent applications for Angiomax, Cleviprex, and cangrelor. The
U.S. patents licensed by us are currently set to expire at
various dates. In the case of Angiomax, the principal patent is
set to expire in March 2010; in the case of Cleviprex, its
principal patent is
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set to expire in January 2016; and in the case of cangrelor, the
principal patent is set to expire in February 2014. We are
seeking patent term extension for the principal patent for
Cleviprex.
In connection with our acquisition of Targanta, we obtained an
exclusive license to a portfolio of patents and patent
applications covering oritavancin and its analogs. These patents
and patent applications include those patents and patent
applications exclusively licensed by Targanta from Eli Lilly,
and also include a number of patent applications subsequently
filed by Targanta. The principal patent for oritavancin is set
to expire in November 2015. In connection with our acquisition
of Curacyte Discovery, we also acquired a portfolio of patents
and patent applications covering CU-2010, its analogs or other
similar protease inhibitors. We plan to prosecute and defend
these patents and patent applications.
The principal U.S. patent that covers Angiomax expires in
2010. The U.S. Patent and Trademark Office, or PTO,
rejected our application under the Hatch-Waxman Act for an
extension of the term of the patent beyond 2010 because the
application was not filed on time by our counsel. In October
2002, we filed a request with the PTO for reconsideration of the
denial of the application. On April 26, 2007, we received a
decision from the PTO denying our application for patent term
extension. We continue to explore alternatives to extend the
term of the patent but we can provide no assurance that we will
be successful in doing so.
On June 23, 2008, the United States House of
Representatives passed a bill that, if enacted, would have
provided the PTO with discretion to consider patent extension
applications filed late unintentionally under the Hatch-Waxman
Act. The United States Senate, however, adjourned without
considering this bill. While we are hopeful that, in the current
session, Congress will consider legislation similar to that
passed by the House in June 2008, we can provide no assurance
that a bill will be introduced or enacted or that, if it is
enacted, the PTO will consider our application.
We have entered into agreements with the counsel involved in the
late filing that suspend the statute of limitations on our
claims against them for failing to make a timely filing. We have
entered into a similar agreement with Biogen Idec relating to
any claims for damages
and/or
license termination they may bring in the event that a dispute
arises between us and Biogen Idec relating to the late filing.
These agreements may be terminated by either party upon
30 days notice. We cannot assure you that Biogen Idec
will not terminate this agreement.
We may be unable to utilize the Chemilog process if Lonza
Braine breaches our agreement
Our agreement with Lonza Braine for the supply of Angiomax bulk
drug substance requires that Lonza Braine transfer the
technology that was used to develop the Chemilog process to a
secondary supplier of Angiomax bulk drug substance or to us or
an alternate supplier at the expiration of the agreement, which
is currently scheduled to occur in September 2010, but is
subject to automatic renewals of consecutive three-year periods
unless either party provides notice of non-renewal within one
year prior to the expiration of the initial term or any renewal
term. If Lonza Braine fails or is unable to transfer
successfully this technology, we would be unable to employ the
Chemilog process to manufacture our Angiomax bulk drug
substance, which could cause us to experience delays in the
manufacturing process and increase our manufacturing costs in
the future.
If we are not able to keep our trade secrets confidential,
our technology and information may be used by others to compete
against us
We rely significantly upon unpatented proprietary technology,
information, processes and know-how. We seek to protect this
information by confidentiality agreements with our employees,
consultants and other third-party contractors, as well as
through other security measures. We may not have adequate
remedies for any breach by a party to these confidentiality
agreements. In addition, our competitors may learn or
independently develop our trade secrets. If our confidential
information or trade secrets become publicly known, they may
lose their value to us.
If we infringe or are alleged to infringe intellectual
property rights of third parties, it will adversely affect our
business
Our research, development and commercialization activities, as
well as any product candidates or products resulting from these
activities, may infringe or be claimed to infringe patents or
patent applications under
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which we do not hold licenses or other rights. Third parties may
own or control these patents and patent applications in the
United States and abroad. These third parties could bring claims
against us or our collaborators that would cause us to incur
substantial expenses and, if successful against us, could cause
us to pay substantial damages. Further, if a patent infringement
suit were brought against us or our collaborators, we or they
could be forced to stop or delay research, development,
manufacturing or sales of the product or product candidate that
is the subject of the suit.
As a result of patent infringement claims, or in order to avoid
potential claims, we or our collaborators may choose or be
required to seek a license from the third party and be required
to pay license fees or royalties or both. These licenses may not
be available on acceptable terms, or at all. Even if we or our
collaborators were able to obtain a license, the rights may be
nonexclusive, which could result in our competitors gaining
access to the same intellectual property. Ultimately, we could
be prevented from commercializing a product, or be forced to
cease some aspect of our business operations, if, as a result of
actual or threatened patent infringement claims, we or our
collaborators are unable to enter into licenses on acceptable
terms. This could harm our business significantly.
There has been substantial litigation and other proceedings
regarding patent and other intellectual property rights in the
pharmaceutical and biotechnology industries. In addition to
infringement claims against us, we may become a party to other
patent litigation and other proceedings, including interference
proceedings declared by the PTO and opposition proceedings in
the European Patent Office, regarding intellectual property
rights with respect to our products and technology. The cost to
us of any patent litigation or other proceeding, even if
resolved in our favor, could be substantial. Some of our
competitors may be able to sustain the costs of such litigation
or proceedings more effectively than we can because of their
substantially greater financial resources. Uncertainties
resulting from the initiation and continuation of patent
litigation or other proceedings could have a material adverse
effect on our ability to compete in the marketplace. Patent
litigation and other proceedings may also absorb significant
management time.
Risks
Related to Growth and Employees
If we fail to acquire and develop additional product
candidates or approved products it will impair our ability to
grow
We sell and generate revenue from two products, Angiomax and
Cleviprex. In order to generate additional revenue, we intend to
acquire and develop additional product candidates or approved
products. For example, in August 2008, we acquired Curacyte
Discovery and its lead product candidate, CU-2010, for the
prevention of blood loss during surgery and in February 2009, we
acquired Targanta and its lead product candidate, oritavancin.
The success of this growth strategy depends upon our ability to
identify, select and acquire pharmaceutical products that meet
the criteria we have established. Because we have only the
limited internal scientific research capabilities that we
acquired in our acquisitions of Curacyte Discovery and Targanta,
and we do not anticipate establishing additional scientific
research capabilities, we are dependent upon pharmaceutical and
biotechnology companies and other researchers to sell or license
product candidates to us. We will be required to integrate any
acquired products into our existing operations. Managing the
development of a new product entails numerous financial and
operational risks, including difficulties in attracting
qualified employees to develop the product.
Any product candidate we acquire will require additional
research and development efforts prior to commercial sale,
including extensive pre-clinical
and/or
clinical testing and approval by the FDA and corresponding
foreign regulatory authorities. For example, CU-2010 is a
pre-clinical product candidate, for which we plan to commence
clinical testing during 2009. With respect to oritavancin, the
FDA issued a complete response letter to Targanta with respect
to its oritavancin NDA indicating that the FDA could not approve
the NDA in its present form and that it would be necessary for
Targanta to perform an additional adequate and well-controlled
study to demonstrate the safety and efficacy of oritavancin in
patients with cSSSI before the application could be approved. We
expect to meet with the FDA in 2009 to discuss the FDAs
issues with the NDA filed by Targanta and to commence a
Phase III trial in 2009 based on guidance we receive from
the FDA.
38
All product candidates are prone to the risks of failure
inherent in pharmaceutical product development, including the
possibility that the product candidate will not be safe and
effective or approved by regulatory authorities. In addition, we
cannot assure you that any approved products that we develop or
acquire will be:
|
|
|
|
|
manufactured or produced economically;
|
|
|
|
successfully commercialized; or
|
|
|
|
widely accepted in the marketplace.
|
We have previously acquired rights to products and, after having
conducted development activities, determined not to devote
further resources to those products. We cannot assure you that
any additional products that we acquire will be successfully
developed. In addition, proposing, negotiating and implementing
an economically viable acquisition is a lengthy and complex
process. Other companies, including those with substantially
greater financial, marketing and sales resources, may compete
with us for the acquisition of product candidates and approved
products. We may not be able to acquire the rights to additional
product candidates and approved products on terms that we find
acceptable, or at all.
We may undertake strategic acquisitions in the future and
any difficulties from integrating such acquisitions could damage
our ability to attain or maintain profitability
We may acquire additional businesses and products that
complement or augment our existing business. Integrating any
newly acquired business or product could be expensive and
time-consuming. We may not be able to integrate any acquired
business or product successfully or operate any acquired
business profitably. Moreover, we may need to raise additional
funds through public or private debt or equity financing to
acquire any businesses or products, which may result in dilution
for stockholders or the incurrence of indebtedness.
We may not be able to manage our business effectively if
we are unable to attract and retain key personnel and
consultants
Our industry has experienced a high rate of turnover of
management personnel in recent years. We are highly dependent on
our ability to attract and retain qualified personnel for the
acquisition, development and commercialization activities we
conduct or sponsor. If we lose one or more of the members of our
senior management, including our Chairman and Chief Executive
Officer, Clive A. Meanwell, our President and Chief Operating
Officer, John P. Kelley, our Executive Vice President and Chief
Financial Officer, Glenn P. Sblendorio, or other key employees
or consultants, our ability to implement successfully our
business strategy could be seriously harmed. Our ability to
replace these key employees may be difficult and may take an
extended period of time because of the limited number of
individuals in our industry with the breadth of skills and
experience required to acquire, develop and commercialize
products successfully. Competition to hire from this limited
pool is intense, and we may be unable to hire, train, retain or
motivate such additional personnel.
Risks
Related to Our Common Stock
Fluctuations in our operating results could affect the
price of our common stock
Our operating results may vary from period to period based on
factors including the amount and timing of sales of Angiomax,
underlying hospital demand for Angiomax, our customers
buying patterns, the timing, expenses and results of clinical
trials, announcements regarding clinical trial results and
product introductions by us or our competitors, the availability
and timing of third-party reimbursement, including in Europe,
sales and marketing expenses and the timing of regulatory
approvals. If our operating results do not meet the expectations
of securities analysts and investors as a result of these or
other factors, the trading price of our common stock will likely
decrease.
Our stock price has been and may in the future be
volatile. This volatility may make it difficult for you to sell
common stock when you want or at attractive prices
Our common stock has been and in the future may be subject to
substantial price volatility. From January 1, 2008 to
February 26, 2009, the last reported sale price of our
common stock ranged from a high of
39
$27.68 per share to a low of $11.66 per share. The value of your
investment could decline due to the effect of any of the
following factors upon the market price of our common stock:
|
|
|
|
|
changes in securities analysts estimates of our financial
performance;
|
|
|
|
changes in valuations of similar companies;
|
|
|
|
variations in our operating results;
|
|
|
|
acquisitions and strategic partnerships;
|
|
|
|
announcements of technological innovations or new commercial
products by us or our competitors;
|
|
|
|
disclosure of results of clinical testing or regulatory
proceedings by us or our competitors;
|
|
|
|
the timing, amount and receipt of revenue from sales of our
products and margins on sales of our products;
|
|
|
|
governmental regulation and approvals;
|
|
|
|
developments in patent rights or other proprietary rights;
|
|
|
|
changes in our management; and
|
|
|
|
general market conditions.
|
In addition, the stock market has experienced significant price
and volume fluctuations, and the market prices of specialty
pharmaceutical companies have been highly volatile. Moreover,
broad market and industry fluctuations that are not within our
control may adversely affect the trading price of our common
stock. You must be willing to bear the risk of fluctuations in
the price of our common stock and the risk that the value of
your investment in our securities could decline.
Our corporate governance structure, including provisions
in our certificate of incorporation and by-laws and Delaware
law, may prevent a change in control or management that security
holders may consider desirable
Section 203 of the General Corporation Law of the State of
Delaware and our certificate of incorporation and by-laws
contain provisions that might enable our management to resist a
takeover of our company or discourage a third party from
attempting to take over our company. These provisions include
the inability of stockholders to act by written consent or to
call special meetings, a classified board of directors and the
ability of our board of directors to designate the terms of and
issue new series of preferred stock without stockholder approval.
These provisions could have the effect of delaying, deferring,
or preventing a change in control of us or a change in our
management that stockholders may consider favorable or
beneficial. These provisions could also discourage proxy
contests and make it more difficult for stockholders to elect
directors and take other corporate actions. These provisions
could also limit the price that investors might be willing to
pay in the future for shares of our common stock or our other
securities.
|
|
Item 1B.
|
Unresolved
Staff Comments
|
None.
In January 2009, we moved our principal offices to a new office
building in Parsippany, New Jersey. The lease covering the new
office building covers 173,146 square feet and expires
January 2024. In connection with the move, we vacated our
previous office space in Parsippany and are currently exploring
subleasing our vacated office space. The lease for our old
office facility expires in January 2013.
In addition, we lease approximately 2,044 square feet of
office space in Waltham, Massachusetts under a lease expiring in
December 2011. We also have offices in: Milton Park, Abingdon,
United Kingdom; Zurich,
40
Switzerland; Paris, France; Rome Italy; Munich, Germany; and
Leipzig, Germany. In connection with our acquisition of
Targanta, we acquired leases covering approximately
33,600 square feet in the aggregate of laboratory and
office facilities located in the United States and Canada,
including facilities in Cambridge, Massachusetts, Indianapolis,
Indiana and Montreal, Canada.
We believe our current arrangements will be sufficient to meet
our needs for the foreseeable future and that any required
additional space will be available on commercially reasonable
terms to meet space requirements if they arise.
|
|
Item 3.
|
Legal
Proceedings
|
We are involved in ordinary and routine matters and litigation
incidental to our business.
Martin Albright and Vito Caruso filed a lawsuit in the Business
Session of the Superior Court for Suffolk County, Massachusetts
(Civ. Action No
09-0269-BLS)
on January 21, 2009 against Targanta and each member of
Targantas Board of Directors including its President and
Chief Executive Officer, and us.
On February 2, 2009, the plaintiffs filed an Amended
Complaint in the Business Session of the Superior Court for
Suffolk County, Massachusetts. The Amended Complaint alleges
that (1) the defendants breached their fiduciary duties,
and/or aided
and abetted the breach of fiduciary duties, owed to Targanta
stockholders in connection with the tender offer to purchase all
of the outstanding shares of Targanta, or the Offer,
(2) Targanta failed to disclose certain information to its
stockholders in connection with the Offer and (3) the
consideration being offered pursuant to the Offer is inadequate.
The Amended Complaint seeks to be certified as a class action on
behalf of the public stockholders of Targanta and seeks
injunctive relief enjoining the Offer, or, in the event the
Offer has been consummated prior to the courts entry of
final judgment, rescinding the Offer or awarding rescissory
damages. The Amended Complaint also seeks an accounting for all
damages and an award of costs, including a reasonable allowance
for attorneys and experts fees and expenses. On
February 17, 2009, the plaintiffs filed a Notice of Motion
and Motion for Preliminary Injunction, a Memorandum in Support
of Motion for Preliminary Injunction and affidavits in support
of the motion from Juan E. Monteverde and Matthew Morris.
While the defendants believe that the lawsuit is entirely
without merit and that they have valid defenses to all claims,
in an effort to minimize the cost and expense of any litigation,
on February 19, 2009, the defendants entered into a
memorandum of understanding, or MOU, with the parties to the
lawsuit providing for the settlement of the lawsuit. Subject to
court approval and further definitive documentation, the MOU
resolves the allegations by the plaintiffs against the
defendants in connection with the merger agreement with
Targanta, or the Merger Agreement, and the transactions
contemplated by the Merger Agreement, including without
limitation the Offer and the merger contemplated by the Merger
Agreement, or the Merger, and provides a release and settlement
by the purported class of Targantas stockholders of all
claims against the defendants and their affiliates and agents in
connection with the Merger Agreement and the transactions
contemplated by the Merger Agreement, including without
limitation the Offer and the Merger. In exchange for such
release and settlement, pursuant to the terms of the MOU, the
parties agreed, after arms length discussions between and
among the parties, that Targanta would provide additional
supplemental disclosures to its
Schedule 14D-9
previously filed with the SEC. The defendants have also agreed
not to oppose any fee application by plaintiffs counsel
that does not exceed $250,000. The settlement, including the
payment by Targanta or any successor thereto of any such
attorneys fees, is also contingent upon, among other
things, the Merger becoming effective under Delaware law. In the
event that the settlement is not approved and such conditions
are not satisfied, the defendants will continue to vigorously
defend the lawsuit.
We and our subsidiary that is the offeror of the Offer have
denied, and continue to deny, that either has committed or aided
and abetted in the commission of any violation of law of any
kind or engaged in any of the wrongful acts alleged in the
above-referenced lawsuit. We and the offeror each expressly
maintain that it has diligently and scrupulously complied with
its legal duties, and has executed the MOU solely to eliminate
the burden and expense of further litigation.
41
|
|
Item 4.
|
Submission
of Matters to a Vote of Security Holders
|
None.
PART II
|
|
Item 5.
|
Market
for Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
|
Market
Information and Holders
Our common stock trades on the NASDAQ Global Select Market under
the symbol MDCO. The following table reflects the
range of the high and low sale price per share of our common
stock, as reported on the NASDAQ Global Select Market or its
predecessor, the NASDAQ National Market, for the periods
indicated. These prices reflect inter-dealer prices, without
retail
mark-up,
mark-down or commission and may not necessarily represent actual
transactions.
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
|
Price
|
|
|
|
High
|
|
|
Low
|
|
|
Year Ended December 31, 2007
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
34.73
|
|
|
$
|
23.88
|
|
Second Quarter
|
|
|
27.40
|
|
|
|
17.25
|
|
Third Quarter
|
|
|
21.30
|
|
|
|
14.26
|
|
Fourth Quarter
|
|
|
19.90
|
|
|
|
16.68
|
|
Year Ended December 31, 2008
|
|
|
|
|
|
|
|
|
First Quarter
|
|
|
21.41
|
|
|
|
16.38
|
|
Second Quarter
|
|
|
21.13
|
|
|
|
17.18
|
|
Third Quarter
|
|
|
28.00
|
|
|
|
19.07
|
|
Fourth Quarter
|
|
|
24.18
|
|
|
|
11.37
|
|
American Stock Transfer & Trust Company is the
transfer agent and registrar for our common stock. As of the
close of business on February 26, 2009, we had
198 holders of record of our common stock.
Dividends
We have never declared or paid cash dividends on our common
stock. We anticipate that we will retain all of our future
earnings, if any, for use in the expansion and operation of our
business and do not anticipate paying cash dividends in the
foreseeable future. Payment of future dividends, if any, will be
at the discretion of our board of directors.
42
Performance
Graph
The graph below matches our cumulative
5-year total
return on common equity with the cumulative total returns of the
NASDAQ Composite Index and the NASDAQ Biotechnology Index. The
graph tracks the performance of a $100 investment in our common
stock and in each of the indexes (with the reinvestment of all
dividends) from December 31, 2003 to December 31,
2008. The stock price performance included in this graph is not
necessarily indicative of future stock price performance.
COMPARISON
OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among
The Medicines Company, The NASDAQ Composite Index
And The NASDAQ Biotechnology Index
|
|
|
* |
|
Fiscal year ended December 31. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12/03
|
|
|
12/04
|
|
|
12/05
|
|
|
12/06
|
|
|
12/07
|
|
|
12/08
|
|
|
The Medicines Company
|
|
|
100.00
|
|
|
|
97.76
|
|
|
|
59.23
|
|
|
|
107.67
|
|
|
|
65.04
|
|
|
|
50.00
|
|
NASDAQ Composite
|
|
|
100.00
|
|
|
|
110.08
|
|
|
|
112.88
|
|
|
|
126.51
|
|
|
|
138.13
|
|
|
|
80.47
|
|
NASDAQ Biotechnology
|
|
|
100.00
|
|
|
|
112.17
|
|
|
|
130.53
|
|
|
|
130.05
|
|
|
|
132.24
|
|
|
|
122.10
|
|
This performance graph shall not be deemed filed for
purposes of Section 18 of the Securities Exchange Act of
1934, as amended, or incorporated by reference into any of our
filings under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, except as shall be expressly
set forth by specific reference in such filing.
43
|
|
Item 6.
|
Selected
Financial Data
|
In the table below, we provide you with our selected
consolidated financial data. We have prepared this information
using our audited consolidated financial statements for the
years ended December 31, 2008, 2007, 2006, 2005 and 2004.
In 2006 and 2004, we computed diluted earnings per share by
giving effect to options, restricted stock awards and warrants
outstanding at December 31, 2006 and 2004, respectively. We
have not included options, restricted stock awards or warrants
in the computation of diluted net loss per share for any other
periods, as their effects in those periods would have been
anti-dilutive. For further discussion of the computation of
basic and diluted earnings (loss) per share, please see
note 12 of the notes to our consolidated financial
statements included in this report.
You should read the following selected consolidated financial
data in conjunction with our consolidated financial statements
and related notes included in this report and
Item 7 Managements Discussion and
Analysis of Financial Condition and Results of Operations
of this report.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(In thousands, except per share data)
|
|
|
Statements of Operations Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue
|
|
$
|
348,157
|
|
|
$
|
257,534
|
|
|
$
|
213,952
|
|
|
$
|
150,207
|
|
|
$
|
144,251
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue
|
|
|
88,355
|
|
|
|
66,502
|
|
|
|
51,812
|
|
|
|
34,762
|
|
|
|
29,123
|
|
Research and development
|
|
|
105,720
|
|
|
|
77,255
|
|
|
|
63,536
|
|
|
|
64,389
|
|
|
|
49,290
|
|
Selling, general and administrative
|
|
|
164,903
|
|
|
|
141,807
|
|
|
|
88,265
|
|
|
|
63,053
|
|
|
|
50,275
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
358,978
|
|
|
|
285,564
|
|
|
|
203,613
|
|
|
|
162,204
|
|
|
|
128,688
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from operations
|
|
|
(10,821
|
)
|
|
|
(28,030
|
)
|
|
|
10,339
|
|
|
|
(11,997
|
)
|
|
|
15,563
|
|
Other income
|
|
|
5,235
|
|
|
|
10,653
|
|
|
|
7,319
|
|
|
|
4,344
|
|
|
|
2,126
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes
|
|
|
(5,586
|
)
|
|
|
(17,377
|
)
|
|
|
17,658
|
|
|
|
(7,653
|
)
|
|
|
17,689
|
|
(Provision for) benefit from income taxes
|
|
|
(2,918
|
)
|
|
|
(895
|
)
|
|
|
46,068
|
|
|
|
(100
|
)
|
|
|
(690
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(8,504
|
)
|
|
$
|
(18,272
|
)
|
|
$
|
63,726
|
|
|
$
|
(7,753
|
)
|
|
$
|
16,999
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic (loss) earnings per common share
|
|
$
|
(0.16
|
)
|
|
$
|
(0.35
|
)
|
|
$
|
1.27
|
|
|
$
|
(0.16
|
)
|
|
$
|
0.36
|
|
Shares used in computing basic (loss) earnings per common share
|
|
|
51,904
|
|
|
|
51,624
|
|
|
|
50,300
|
|
|
|
49,443
|
|
|
|
47,855
|
|
Diluted (loss) earnings per common share
|
|
$
|
(0.16
|
)
|
|
$
|
(0.35
|
)
|
|
$
|
1.25
|
|
|
$
|
(0.16
|
)
|
|
$
|
0.34
|
|
Shares used in computing diluted (loss) earnings per common share
|
|
|
51,904
|
|
|
|
51,624
|
|
|
|
51,034
|
|
|
|
49,443
|
|
|
|
49,772
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(In thousands)
|
|
|
Balance Sheet Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, available for sale securities and
accrued interest receivable
|
|
$
|
217,542
|
|
|
$
|
223,711
|
|
|
$
|
198,231
|
|
|
$
|
141,012
|
|
|
$
|
161,224
|
|
Working capital
|
|
|
206,451
|
|
|
|
208,568
|
|
|
|
228,523
|
|
|
|
169,912
|
|
|
|
173,349
|
|
Total assets
|
|
|
387,404
|
|
|
|
361,516
|
|
|
|
318,568
|
|
|
|
208,707
|
|
|
|
210,044
|
|
Accumulated deficit
|
|
|
(267,948
|
)
|
|
|
(259,444
|
)
|
|
|
(241,172
|
)
|
|
|
(304,898
|
)
|
|
|
(297,145
|
)
|
Total stockholders equity
|
|
|
298,025
|
|
|
|
277,896
|
|
|
|
269,951
|
|
|
|
170,899
|
|
|
|
171,671
|
|
Effective January 1, 2006, we adopted the fair value
recognition provisions of SFAS 123(R), Share-Based
Payment (SFAS 123(R)), using the accelerated expense
attribution method specified in FASB Interpretation No. 28,
Accounting for Stock Appreciation Rights and Other
Variable Stock Option or Award Plans (FIN 28).
SFAS 123(R) requires us to recognize compensation expense
in an amount equal to the fair value of all share-based awards
granted to employees, resulting in $22.8 million,
$15.4 million and $8.5 million in share-based
compensation expense during 2008, 2007 and 2006, respectively.
44
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Item 7.
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Managements
Discussion and Analysis of Financial Condition and Results of
Operations
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You should read the following discussion and analysis of our
financial condition and results of operations together with
Selected Consolidated Financial Data and our
financial statements and accompanying notes included elsewhere
in this annual report. In addition to the historical
information, the discussion in this annual report contains
certain forward-looking statements that involve risks and
uncertainties. Our actual results could differ materially from
those anticipated by the forward-looking statements due to our
critical accounting estimates discussed below and important
factors set forth in this annual report, including under
Risk Factors in Item 1A of this annual
report.
Overview
We are a global pharmaceutical company focused on advancing the
treatment of critical care patients through the delivery of
innovative, cost-effective medicines to the worldwide hospital
marketplace. We have two marketed products,
Angiomax®
(bivalirudin) and
Cleviprex®
(clevidipine butyrate) injectable emulsion, two products in
late-stage development, cangrelor and oritavancin, and one
compound, CU-2010, scheduled to enter clinical development in
2009. We market Angiomax primarily in the United States and
Europe (where we use the name
Angiox®
(bivalirudin)) to interventional cardiology customers for its
approved uses in patients undergoing PCI, including in patients
with or at risk of HIT/HITTS. In Europe, we also market Angiox
for use in adult patients with ACS. We market Cleviprex to
anesthesiology/surgery, critical care and emergency department
practitioners in the United States for its approved use for the
reduction of blood pressure when oral therapy is not feasible or
not desirable. Cleviprex is not approved for sale outside the
United States. We intend to continue to develop Angiomax and
Cleviprex for use in additional patient populations.
We market and sell Angiomax and Cleviprex in the United States
with a joint sales force that, as of December 31, 2008,
consisted of 192 representatives and managers experienced in
selling to hospital customers. In Europe, we market and sell
Angiox with a sales force that we are currently building. Our
revenues to date have been generated principally from sales of
Angiomax in the United States. We are increasing our sales force
in the United States and Europe in connection with the expansion
of our sales and marketing efforts in Europe, the approval of
the label expansion for Angiox for ACS in Europe that occurred
in January 2008, and the approval by the FDA of Cleviprex in the
United States in August 2008 for the reduction of blood pressure
when oral therapy is not feasible or not desirable.
Research and development expenses represent costs incurred for
product acquisition, clinical trials, activities relating to
regulatory filings and manufacturing development efforts. We
outsource much of our clinical trials and all of our
manufacturing development activities to third parties to
maximize efficiency and minimize our internal overhead. We
expense our research and development costs as they are incurred.
Selling, general and administrative expenses consist primarily
of salaries and related expenses, general corporate activities
and costs associated with marketing and promotional activities.
Research and development expense, selling, general and
administrative expense and cost of revenue also include
stock-based compensation expense, which we allocate based on the
responsibilities of the recipients of the stock-based
compensation.
Except for 2004 and 2006, we have incurred net losses on an
annual basis since our inception. As of December 31, 2008,
we had an accumulated deficit of approximately
$267.9 million. We expect to make substantial expenditures
to further develop and commercialize our products, including
costs and expenses associated with clinical trials, regulatory
approvals and commercialization. Although we achieved
profitability in 2004 and in 2006 and expect to be profitable in
2009, we were not profitable in 2008 primarily as a result of
the costs incurred in connection with our acquisition of
Curacyte Discovery in August 2008 and were not profitable in
2007, primarily as a result of the costs incurred in connection
with the Nycomed transaction. We will likely need to generate
significantly greater revenue in future periods to achieve and
maintain profitability in light of our planned expenditures.
In March 2007, we entered into an agreement with a third party
to distribute Angiomax in the United States through a sole
source distribution model. Cleviprex, which we launched in the
United States in September 2008, is distributed under the same
sole source distribution model with the same third party. Under
45
this model, we sell Angiomax and Cleviprex to our sole source
distributor, which then sells Angiomax and Cleviprex to a
limited number of national medical and pharmaceutical
wholesalers with distribution centers located throughout the
United States and, in certain cases, directly to hospitals.
Prior to adopting this sole source distribution model, we sold
Angiomax to these wholesalers directly and these wholesalers
then sold Angiomax to hospitals. We began selling Angiomax under
this revised distribution system during the quarter ended
March 31, 2007. Outside the United States, we sell Angiomax
either directly to hospitals or to wholesalers or international
distributors, which then sell Angiomax to hospitals.
The reacquisition of all development, commercial and
distribution rights for Angiox from Nycomed in 2007 was our
first step directly into international markets and gives us a
direct presence in European markets. In July 2007, we entered
into a series of agreements with Nycomed pursuant to which we
terminated the prior distribution agreement with Nycomed and
re-acquired all development, commercial and distribution rights
for Angiox in the European Union (excluding Spain, Portugal and
Greece) and the former Soviet republics, which we refer to as
the Nycomed territory. Prior to entering into the 2007 Nycomed
agreements, Nycomed served as the exclusive distributor of
Angiox in the Nycomed territory pursuant to a sales, marketing
and distribution agreement, dated March 25, 2002, as
amended. Pursuant to the 2007 Nycomed agreements, we and Nycomed
agreed to transition the Angiox rights held by Nycomed to us.
Under these arrangements, including a transitional distribution
agreement, we assumed control of the marketing of Angiox
immediately and Nycomed provided, on a transitional basis, sales
operations services, until December 31, 2007 and product
distribution services until the second half of 2008. We assumed
control of the distribution of Angiox in the majority of the
countries in the Nycomed territory during the third quarter of
2008 and the remainder of the countries in the Nycomed territory
by December 31, 2008.
Under the terms of the transitional distribution agreement with
Nycomed, upon the sale by Nycomed to third parties of vials of
Angiox purchased by Nycomed from us prior to July 1, 2007,
which we refer to as existing inventory, Nycomed agreed to pay
us a specified percentage of Nycomeds net sales of Angiox,
less the amount previously paid by Nycomed to us for the
existing inventory. Under the transitional distribution
agreement, upon the termination of the agreement, Nycomed had
the right to return any existing inventory for the price paid by
Nycomed to us for such inventory. We recorded a reserve of
$3.0 million in the fourth quarter of 2007 for the existing
inventory at Nycomed which we did not believe would be sold
prior to the termination of the transitional distribution
agreement and would be subject to purchase in accordance with
the agreement. During 2008, we reduced the reserve by
$2.2 million as Nycomed sold a portion of its existing
inventory during the year. We will reimburse Nycomed
$0.8 million for the final amount of inventory held by
Nycomed at December 31, 2008. The transitional distribution
agreement terminated on December 31, 2008.
Under the transitional services agreement we entered into with
Nycomed, Nycomed performed detailing and other selling, sales
management, product/marketing management, medical advisor,
international marketing and certain pharmacovigilance services
in accordance with an agreed upon marketing plan through
December 31, 2007. Nycomed remained responsible for safety
reporting as long as it sold Angiox in the Nycomed territory.
Pursuant to the agreement, we agreed to pay Nycomeds
personnel costs, plus an agreed upon markup, for the performance
of the services, in accordance with a budget detailed by country
and function. In addition, we have agreed to pay Nycomeds
costs, in accordance with a specified budget, for performing
specified promotional activities during the term of the services
agreement. The transitional services agreement terminated on
December 31, 2007.
We incurred total costs of $45.7 million in connection with
the reacquisition of the rights to develop, distribute and
market Angiox in the Nycomed territory. This total costs amount
includes transaction fees of approximately $0.7 million and
agreed upon milestone payments of $20.0 million paid to
Nycomed on June 2, 2007, $15.0 million paid to Nycomed
on January 15, 2008 and $5.0 million paid to Nycomed
on July 8, 2008, as well as an additional $5.0 million
paid to Nycomed on July 8, 2008 in connection with our
obtaining European Commission approval to market Angiox for ACS
in January 2008.
During the third quarter of 2007, we allocated
$30.8 million of these costs as expense attributable to the
termination of the prior distribution agreement with Nycomed and
$14.9 million to intangible assets. The $30.8 million
expense was offset in part by the write-off of approximately
$2.7 million of deferred revenue,
46
which amount represented the unamortized portion of deferred
revenue related to milestone payments received from Nycomed in
2004 and 2002. We included such amounts in selling, general and
administrative expense on the consolidated statements of
operations for the year ended December 31, 2007. We
allocated approximately $14.9 million of the costs
associated with the reacquisition of the rights to develop,
distribute and market Angiox in the European Union to intangible
assets. We are amortizing these intangible assets over the
remaining patent life of Angiox, which expires in 2015. The
period in which amortization expense will be recorded reflects
the pattern in which we expect the economic benefits of the
intangible assets to be consumed.
To support the marketing, sales and distribution efforts of
Angiomax, we are taking the necessary steps to develop our
business infrastructure outside the United States. We initiated
research to understand the PCI market, as well as the
hypertension market, on a global basis, including profiling
hospitals and identifying key opinion leaders. Since reacquiring
these rights, we have developed a business infrastructure to
conduct the international sales and marketing of Angiox,
including the formation of subsidiaries in Switzerland, Germany,
France and Italy in addition to our pre-existing subsidiary in
the United Kingdom. We also obtained all the licenses and
authorizations necessary to distribute the product in the
various countries in Europe, hired new personnel and entered
into third-party arrangements to provide services, such as
importation, packaging, quality control and distribution. We
believe that by establishing operations in Europe for Angiox, we
will be positioned to commercialize our pipeline of critical
care product candidates, including Cleviprex, cangrelor,
oritavancin and CU-2010.
In August 2008, we acquired Curacyte Discovery. Curacyte
Discovery was primarily engaged in the discovery and development
of small molecule serine protease inhibitors including CU-2010.
In connection with the acquisition, we paid Curacyte AG an
initial payment of 14.5 million (approximately
$22.9 million) and agreed to pay a contingent milestone
payment of 10.5 million if we elect to proceed with
clinical development of CU-2010 at the earlier of four months
after enrollment and
follow-up of
the last subject of a Phase I clinical program or
October 31, 2009 (which will be automatically extended to
March 31, 2010 if the Phase I clinical program has been
initiated by March 31, 2009) . In addition, our agreement
with Curacyte AG provides for possible future sales royalty
payments and a commercial milestone payment.
The total cost of the acquisition was approximately
$23.7 million, which consisted of a purchase price of
approximately $22.9 million and direct acquisition costs of
$0.8 million. Since the acquisition date, we have included
results of Curacyte Discoverys operations in our
consolidated financial statements. We allocated the purchase
price to the estimated fair value of assets acquired and
liabilities assumed based on a preliminary valuation and
management estimates. We allocated approximately
$21.4 million of the purchase price to in-process research
and development, which we expensed upon completion of the
acquisition. We recorded this amount as research and development
in the consolidated statements of operations. We allocated the
remaining portion of the purchase price to net tangible assets.
We expect to complete the purchase price allocation within one
year from the date of the acquisition.
In February 2009, we acquired Targanta. Under the terms of our
agreement with Targanta, we paid Targanta shareholders $2.00 in
cash at closing for each common share of Targanta common stock
tendered, or approximately $42.0 million in aggregate and
agreed to pay contingent cash payments up to an additional $4.55
per share as described below:
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If we or a MDCO Affiliated Party (meaning an affiliate of ours,
a successor or assigns of ours, or a licensee or collaborator of
ours) obtain approval from the EMEA for a MAA for oritavancin
for the treatment of cSSSI on or before December 31, 2013,
each former Targanta shareholder will be entitled to receive a
cash payment equal to (1) $1.00 per share if such approval
is granted on or before December 31, 2009, (2) $0.75
per share if such approval is granted between January 1,
2010 and June 30, 2010, or (3) $0.50 per share if such
approval is granted between July 1, 2010 and
December 31, 2013, a payment of approximately
$21.0 million in the aggregate, approximately
$15.8 million in the aggregate, or approximately
$10.5 million in the aggregate, respectively.
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If we or a MDCO Affiliated Party obtain final approval from the
FDA for a new drug application, or NDA, for oritavancin for the
treatment of cSSSI (1) within 40 months after the date
the first patient is
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enrolled in a Phase III clinical trial of cSSSI that is
initiated by us or a MDCO Affiliate Party after the date of our
merger agreement with Targanta and (2) on or before
December 31, 2013, each former Targanta shareholder will be
entitled to receive a cash payment equal to $0.50 per share, or
approximately $10.5 million in the aggregate.
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If we obtain final FDA approval for an NDA for the use of
oritavancin for the treatment of cSSSI administered by a single
dose intravenous infusion (1) within 40 months after
the date the first patient is enrolled in a Phase III
clinical trial of cSSSI that is initiated by us or a MDCO
Affiliated Party after the date of our merger agreement with
Targanta and (2) on or before December 31, 2013, each
former Targanta shareholder will be entitled to receive a cash
payment equal to $0.70 per share, or approximately
$14.7 million in the aggregate. This payment may become
payable simultaneously with the payment described in the
previous bullet above.
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If aggregate net sales of oritavancin in four consecutive
calendar quarters ending on or before December 31, 2021
reach or exceed $400 million, each former Targanta
shareholder will be entitled to receive a cash payment equal to
$2.35 per share, or approximately $49.4 million in the
aggregate.
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We expect to account for this transaction in accordance with
SFAS No. 141(R), Business Combinations
(SFAS No. 141(R)) and expect to complete the
allocation of the purchase price within one year from the date
of the acquisition.
We have accrued for U.S. and state income taxes, for state
taxes based on net worth and for a certain amount of income tax
in international jurisdictions in our financial statements to
the extent these taxes apply. At December 31, 2008, net
operating losses available to offset future taxable income for
federal income tax purposes were approximately
$147.3 million. If not utilized, federal net operating loss
carryforwards will expire at various dates beginning in 2020 and
ending in 2027. During 2006, we reduced a portion of our
valuation allowance associated with the deferred tax assets
because at that time we considered the realization of these
assets to be more likely than not. The future utilization of net
operating losses and credits may be subject to limitation based
upon changes in ownership under the rules of the Internal
Revenue Code, or IRC. We experienced changes in ownership as
defined by Section 382 of the IRC during the years ended
December 31, 1998 and 2002. Based on the market value of
our common stock at the time of those changes, we believe there
will be no impact on our ability to utilize our net operating
losses and credits. Of the $147.3 million of our federal
net operating losses, $32.0 million is subject to
limitations through 2010.
As a result of our acquisition of Targanta, we are a party to an
asset purchase agreement with InterMune. Under the agreement, we
are obligated to use commercially reasonable efforts to develop
oritavancin and to make a $5.0 million cash payment to
InterMune if and when we receive from the FDA all approvals
necessary for the commercial launch of oritavancin. We have no
other milestone or royalty obligations to InterMune in
connection with Targantas December 2005 acquisition of the
worldwide rights to oritavancin from InterMune.
Recent
Accounting Pronouncements
In December 2007, the Financial Accounting Standards Board
(FASB) issued SFAS No. 141(R) to replace
SFAS No. 141, Business Combinations.
SFAS No. 141(R) requires use of the acquisition method
of accounting, defines the acquirer, establishes the acquisition
date and broadens the scope to all transactions and other events
in which one entity obtains control over one or more other
businesses. This statement is effective for financial statements
issued for fiscal years beginning on or after December 15,
2008 with earlier adoption prohibited. While there will be no
impact to our financial statements on the accounting for
acquisitions completed prior to December 31, 2008, such as
the Curacyte Discovery acquisition, the adoption of
SFAS No. 141(R) on January 1, 2009 will
materially change the accounting for business combinations
consummated after that date, such as the Targanta acquisition.
In December 2007, the FASB issued SFAS No. 160,
Noncontrolling Interests in Consolidated Financial
Statements an amendment of ARB No. 51
(SFAS No. 160). SFAS No. 160 establishes
accounting and reporting standards for the noncontrolling
interest in a subsidiary and for the retained interest and gain
or loss when a subsidiary is deconsolidated. This statement is
effective for financial statements issued for fiscal years
48
beginning on or after December 15, 2008 with earlier
adoption prohibited. We do not expect the adoption of
SFAS No. 160 to have a material impact on our
financial statements as we currently do not have any
noncontrolling interests. However, the adoption of SFAS 160
could materially change the accounting for such interests
outstanding as of, or subsequent to, the date of adoption.
In April 2008, the FASB issued FSP
No. FAS 142-3,
Determination of the Useful Life of Intangible
Assets
(FAS 142-3).
In determining the useful life of intangible assets,
FAS 142-3
removes the requirement to consider whether an intangible asset
can be renewed without substantial cost or material
modifications to the existing terms and conditions and, instead,
requires an entity to consider its own historical experience in
renewing similar arrangements.
FAS 142-3
also requires expanded disclosure related to the determination
of intangible asset useful lives.
FAS 142-3
is effective for financial statements issued for fiscal years
beginning after December 15, 2008. We are currently
evaluating the impact, if any, of
FAS 142-3
on our results of operations or financial position.
In May 2008, the FASB issued SFAS No. 162, The
Hierarchy of Generally Accepted Accounting Principles
(SFAS No. 162). The new standard is intended to
improve financial reporting by identifying a consistent
framework or hierarchy for selecting accounting principles to be
used in preparing financial statements that are presented in
conformity with U.S. generally accepted accounting
principles, or GAAP for nongovernmental entities. Prior to the
issuance of SFAS No. 162, GAAP hierarchy was defined
in the American Institute of Certified Public Accountants
(AICPA) Statement on Auditing Standards (SAS) No. 69,
The Meaning of Present Fairly in Conformity With Generally
Accepted Accounting Principles. SFAS No. 162 is
effective 60 days following the SECs approval of the
Public Company Accounting Oversight Board Auditing amendments to
AU Section 411, The Meaning of Present Fairly in
Conformity with Generally Accepted Accounting Principles.
We do not expect our adoption of SFAS No. 162 to have
a material impact on our results of operations or financial
position.
In June 2008, the FASB issued Staff Position
EITF 03-6-1,
Determining Whether Instruments Granted in Share-Based
Payment Transactions Are Participating Securities
(EITF 03-6-1).
EITF 03-6-1
addresses whether instruments granted in share-based payment
transactions are participating securities prior to vesting and,
therefore, need to be included in the earnings allocation in
computing earnings per share under the two-class method as
described in SFAS No. 128, Earnings per
Share. Under the guidance in
EITF 03-6-1,
unvested share-based payment awards that contain non-forfeitable
rights to dividends or dividend equivalents (whether paid or
unpaid) are participating securities and shall be included in
the computation of earnings per share pursuant to the two-class
method.
EITF 03-6-1
is effective for us as of January 1, 2009. After the
effective date of
EITF 03-6-1,
all prior-period earnings per share data presented must be
adjusted retrospectively. We are currently evaluating the
impact, if any, of
EITF 03-6-1
on our results of operations or financial position.
Application
of Critical Accounting Estimates
The discussion and analysis of our financial condition and
results of operations is based on our consolidated financial
statements, which have been prepared in accordance with
U.S. GAAP. The preparation of these financial statements
requires us to make estimates and judgments that affect our
reported assets and liabilities, revenues and expenses, and
other financial information. Actual results may differ
significantly from these estimates under different assumptions
and conditions. In addition, our reported financial condition
and results of operations could vary due to a change in the
application of a particular accounting standard.
We regard an accounting estimate or assumption underlying our
financial statements as a critical accounting
estimate where:
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the nature of the estimate or assumption is material due to the
level of subjectivity and judgment necessary to account for
highly uncertain matters or the susceptibility of such matters
to change; and
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the impact of the estimates and assumptions on financial
condition or operating performance is material.
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49
Our significant accounting policies are more fully described in
note 2 to our consolidated financial statements included in
this annual report on
Form 10-K.
Not all of these significant accounting policies, however,
require that we make estimates and assumptions that we believe
are critical accounting estimates. We have discussed
our accounting policies with the audit committee of our board of
directors, and we believe that our estimates relating to revenue
recognition, inventory, stock-based compensation and income
taxes described below are critical accounting
estimates.
Revenue
Recognition
Product Sales. We distribute Angiomax and
Cleviprex in the United States through a sole source
distribution model. Under this model, we sell Angiomax and
Cleviprex to our sole source distributor, which then sells
Angiomax and Cleviprex to a limited number of national medical
and pharmaceutical wholesalers with distribution centers located
throughout the United States and in certain cases, directly to
hospitals. Prior to March 2007, we sold Angiomax to these
wholesalers directly and these wholesalers then sold Angiomax to
hospitals. Outside of the United States, we sell Angiomax either
directly to hospitals or to wholesalers or to international
distributors, which then sell Angiomax to hospitals. As of
December 31, 2008, we had deferred revenue of
$0.4 million associated with sales to wholesalers outside
of the United States. We recognize revenue from such sales when
hospitals purchase the product.
We do not recognize revenue from product sales until there is
persuasive evidence of an arrangement, delivery has occurred,
the price is fixed and determinable, the buyer is obligated to
pay us, the obligation to pay is not contingent on resale of the
product, the buyer has economic substance apart from us, we have
no obligation to bring about the sale of the product, the amount
of returns can be reasonably estimated and collectibility is
reasonably assured.
Initial gross wholesaler orders of Cleviprex in the United
States in the third quarter of 2008 totaled $10.0 million.
We recorded this amount as deferred revenue as we could not
estimate certain adjustments to gross revenue, including
returns. Under this deferred revenue model, we do not recognize
revenue upon product shipment to our sole source distributor.
Instead, upon product shipment, we invoice our sole source
distributor, record deferred revenue at gross invoice sales
price, classify the cost basis of the product held by the sole
source distributor as finished goods inventory held by others
and include such cost basis amount within prepaid expenses and
other current assets on our consolidated balance sheets. We
recognized $0.4 million of revenue associated with
Cleviprex during the fourth quarter of 2008 related to purchases
by hospitals. We expect to recognize revenue when hospitals
purchase product. We expect that we will recognize Cleviprex
revenue upon shipment to our sole source distributor in the same
manner as we recognize Angiomax revenue when we have sufficient
information to develop reasonable estimates of expected returns
and other adjustments to gross revenue.
We record allowances for chargebacks and other discounts or
accruals for product returns, rebates and fee-for-service
charges at the time of sale, and report revenue net of such
amounts. In determining the amounts of certain allowances and
accruals, we must make significant judgments and estimates. For
example, in determining these amounts, we estimate hospital
demand, buying patterns by hospitals and group purchasing
organizations from wholesalers and the levels of inventory held
by wholesalers and by our sole source distributor. Making these
determinations involves estimating whether trends in past
wholesaler and hospital buying patterns will predict future
product sales. We receive data periodically from our sole source
distributor and wholesalers on inventory levels and levels of
hospital purchases and we consider this data in determining the
amounts of these allowances and accruals.
The nature of our allowances and accruals requiring critical
estimates, and the specific considerations we use in estimating
their amounts are as follows.
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Product returns. Our customers have the right
to return any unopened product during the
18-month
period beginning six months prior to the labeled expiration date
and ending 12 months after the labeled expiration date. As
a result, in calculating the accrual for product returns, we
must estimate the likelihood that product sold might not be used
within six months of expiration and analyze the likelihood that
such product will be returned within 12 months after
expiration.
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50
In estimating the likelihood of product being returned, we rely
on information from our sole source distributor and wholesalers
regarding inventory levels, measured hospital demand as reported
by third-party sources and internal sales data. We also consider
the past buying patterns of our sole source distributor and
wholesalers, the estimated remaining shelf life of product
previously shipped and the expiration dates of product currently
being shipped.
At December 31, 2008 and December 31, 2007, our
accrual for product returns was $1.0 million and
$3.1 million, respectively. Included within the accrual at
December 31, 2008 and December 31, 2007 is a reserve
of $0.8 million and $3.0 million, respectively, that
we established for existing inventory at Nycomed that Nycomed
has the right to return at any time. A 10% change in our accrual
for product returns would have had an approximate
$0.1 million effect on our reported net revenue for the
year ended December 31, 2008.
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Chargebacks and rebates. Although we primarily
sell products to a sole source distributor in the United States,
we typically enter into agreements with hospitals, either
directly or through group purchasing organizations acting on
behalf of their hospital members, in connection with the
hospitals purchases of products. Based on these
agreements, most of our hospital customers have the right to
receive a discounted price for product and volume-based rebates
on product purchases. In the case of discounted pricing, we
typically provide a credit to the sole source distributor, or a
chargeback, representing the difference between the sole source
distributors acquisition list price and the discounted
price. In the case of the volume-based rebates, we typically pay
the rebate directly to the hospitals.
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As a result of these agreements, at the time of product
shipment, we estimate the likelihood that products sold to the
sole source distributor might be ultimately sold to a
contracting hospital or group purchasing organization. We also
estimate the contracting hospitals or group purchasing
organizations volume of purchases.
We base our estimates on certain industry data, hospital
purchases and the historic chargeback data we receive from our
sole source distributor, most of which the sole source
distributor receives from wholesalers, which detail historic
buying patterns and sales mix for particular hospitals and group
purchasing organizations, and the applicable customer chargeback
rates and rebate thresholds.
Our allowance for chargebacks for products was $1.2 million
and $0.6 million at December 31, 2008 and
December 31, 2007, respectively. A 10% change in our
allowance for chargebacks would have had an approximate
$0.1 million effect on our reported net revenue for the
year ended December 31, 2008. Our accrual for product
rebates was $0.4 million at December 31, 2008 and
$1.7 million at December 31, 2007. A 10% change in our
accrual for rebates would have had an approximate
$0.1 million effect on our reported net revenue for the
year ended December 31, 2008.
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Fees-for-service. We offer discounts to
certain wholesalers and our sole source distributor based on
contractually determined rates for certain services. We estimate
our fee-for-service accruals and allowances based on historical
sales, wholesaler and distributor inventory levels and the
applicable discount rate. Our discounts are accrued at the time
of the sale and are typically settled with the wholesalers or
sole source distributor within 60 days after the end of
each respective quarter. Our fee-for-service accruals and
allowances were $2.0 million and $1.7 million at
December 31, 2008 and December 31, 2007, respectively.
A 10% change in our fee-for-service accruals and allowances
would have had an approximate $0.2 million effect on our
reported net revenue for the year ended December 31, 2008.
|
We have adjusted our allowances for chargebacks and accruals for
product returns, rebates and fees-for-service in the past based
on actual sales experience, and we will likely be required to
make adjustments to these allowances and accruals in the future.
We continually monitor our allowances and accruals and makes
adjustments when we believe actual experience may differ from
our estimates. The allowances included in the table below
reflect these adjustments.
51
The following table provides a summary of activity with respect
to our sales allowances and accruals during 2008, 2007 and 2006
(amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees-for-
|
|
|
|
Returns
|
|
|
Chargebacks
|
|
|
Rebates
|
|
|
Service
|
|
|
Balance at January 1, 2006
|
|
$
|
217
|
|
|
$
|
506
|
|
|
$
|
1,454
|
|
|
$
|
105
|
|
2006 allowances
|
|
|
404
|
|
|
|
4,240
|
|
|
|
2,247
|
|
|
|
7,063
|
|
Actual credits issued for prior years sales
|
|
|
(212
|
)
|
|
|
(737
|
)
|
|
|
(1,318
|
)
|
|
|
(103
|
)
|
Actual credits issued for sales during 2006
|
|
|
(8
|
)
|
|
|
(3,681
|
)
|
|
|
(1,549
|
)
|
|
|
(5,291
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2006
|
|
|
401
|
|
|
|
328
|
|
|
|
834
|
|
|
|
1,774
|
|
2007 allowances
|
|
|
3,132
|
|
|
|
4,485
|
|
|
|
4,571
|
|
|
|
4,507
|
|
Actual credits issued for prior years sales
|
|
|
(459
|
)
|
|
|
(427
|
)
|
|
|
(849
|
)
|
|
|
(929
|
)
|
Actual credits issued for sales during 2007
|
|
|
(14
|
)
|
|
|
(3,789
|
)
|
|
|
(2,894
|
)
|
|
|
(3,695
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
|
3,060
|
|
|
|
597
|
|
|
|
1,662
|
|
|
|
1,657
|
|
2008 allowances
|
|
|
(1,824
|
)
|
|
|
5,751
|
|
|
|
1,413
|
|
|
|
6,562
|
|
Actual credits issued for prior years sales
|
|
|
(261
|
)
|
|
|
(720
|
)
|
|
|
(1,397
|
)
|
|
|
(721
|
)
|
Actual credits issued for sales during 2008
|
|
|
|
|
|
|
(4,442
|
)
|
|
|
(1,247
|
)
|
|
|
(5,542
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
$
|
975
|
|
|
$
|
1,186
|
|
|
$
|
431
|
|
|
$
|
1,956
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included within the 2007 allowances above is the reserve of
$3.0 million that we recorded during the fourth quarter of
2007 for the existing inventory at Nycomed which we did not
believe would be sold prior to the termination of the
transitional distribution agreement and would be subject to
purchase in accordance with the agreement. During 2008, we
reduced the reserve by $2.2 million as Nycomed sold a
portion of its existing inventory during the year. Such amount
is included within the 2008 allowances above. We will reimburse
Nycomed $0.8 million for the final amount of inventory held
by Nycomed at December 31, 2008.
International Distributors. Under our
agreements with our primary international distributors,
including Nycomed under the distribution agreement that was
terminated in July 2007, we sell Angiomax to these distributors
at a fixed transfer price. The established transfer price is
typically determined once per year, prior to the first shipment
of Angiomax to the distributor each year. The minimum selling
price used in determining the transfer price is 50% of the
average net unit selling price.
Revenue from the sale of distribution rights during 2007
includes the amortization of milestone payments. These milestone
payments are recorded as deferred revenue until contractual
performance obligations have been satisfied, and they are
typically recognized ratably over the term of these agreements.
When the period of deferral cannot be specifically identified
from the contract, we must estimate the period based upon other
critical factors contained within the contract. We review these
estimates at least annually, which could result in a change in
the deferral period. In connection with the Nycomed transaction
(described in note 8 of the notes to our consolidated
financial statements included in this report), we wrote-off
approximately $2.7 million of deferred revenue during the
third quarter of 2007, which amount represented the unamortized
portion of deferred revenue related to milestone payments
received from Nycomed in 2004 and 2002.
Revenue associated with sales of Angiomax to our international
distributors during 2008, 2007 and 2006 was $6.6 million,
$0.1 million and $11.3 million, respectively. During
2007, international net revenue was reduced by
$3.0 million, which represented a reserve for existing
inventory at Nycomed that we did not believe would be sold prior
to the termination of our transitional distribution agreement
with Nycomed and would be subject to purchase under such
agreement. During 2008, we reduced the Nycomed inventory reserve
by $2.2 million as Nycomed sold a portion of its existing
inventory during the year. Such amount is included in the
$6.6 million of revenue associated with sales to our
international distributors in 2008.
Reimbursement Revenue. In collaboration with a
third party, in 2006 we paid fees for services rendered by a
research organization and other out-of-pocket costs for which we
were reimbursed at cost, without
mark-up or
profits. We account for these arrangements using FASB
EITF 01-14
Income Statement
52
Characterization of Reimbursements Received for Out-of-Pocket
Expenses Incurred and FASB
EITF 99-19
Reporting Revenue Gross as a Principal versus Net as an
Agent. We have reported the reimbursements received as
part of net revenue on our consolidated statements of
operations. We have included the fees for the services rendered
and the out-of-pocket costs in research and development expenses.
Revenue from Collaborations. Under the terms
of the transitional distribution agreement with Nycomed, we were
entitled to receive a specified percentage of Nycomeds net
sales of Angiox to third parties. In the event the Angiox sold
was purchased by Nycomed from us prior to July 1, 2007, the
amount we were entitled to receive in connection with such sale
was reduced by the amount previously paid by Nycomed to us for
such product. Accordingly, revenue related to the transitional
distribution agreement with Nycomed was not recognized until the
product is sold by Nycomed to a hospital customer. For the year
ended December 31, 2008, we recorded $3.8 million of
net revenue from sales made by Nycomed of approximately
$8.2 million under the transitional distribution agreement.
Inventory
We record inventory upon the transfer of title from our vendors.
Inventory is stated at the lower of cost or market value and
valued using
first-in,
first-out methodology. Angiomax and Cleviprex bulk substance is
classified as raw materials and its costs are determined using
acquisition costs from our contract manufacturers. We record
work-in-progress
costs of filling, finishing and packaging against specific
product batches. We obtain all of our Angiomax bulk drug
substance from Lonza Braine, S.A. Under the terms of our
agreement with Lonza Braine, we provide forecasts of our annual
needs for Angiomax bulk substance 18 months in advance. We
also have a separate agreement with Ben Venue Laboratories, Inc.
for the fill-finish of Angiomax drug product. We obtain all of
our Cleviprex bulk drug substance from Johnson Matthey Pharma
Services and also have a separate agreement with Hospira, Inc.
for the fill-finish of Cleviprex drug product.
We review inventory, including inventory purchase commitments,
for slow moving or obsolete amounts based on expected revenues.
As of December 31, 2008, we have an inventory obsolescence
reserve of $0.5 million related to Cleviprex. If annual
revenues are less than expected, we may be required to make
additional allowances for excess or obsolete inventory in the
future.
Stock-Based
Compensation
We have established equity compensation plans for our employees,
directors and certain other individuals. All grants and terms
are authorized by our Board of Directors or the Compensation
Committee of our Board of Directors, as appropriate. We may
grant non-qualified stock options, restricted stock awards,
stock appreciation rights and other stock-based awards under our
Amended & Restated 2004 Stock Incentive Plan. From
January 2008 to May 2008, we granted non-qualified stock options
under our 2007 Equity Inducement Plan to new employees as an
inducement to their entering into employment with us.
Effective January 1, 2006, we adopted the fair value
recognition provisions of SFAS No. 123(R), and
recognize expense using the accelerated expense attribution
method specified in FASB Interpretation No. (FIN) 28,
Accounting for Stock Appreciation Rights and Other
Variable Stock Option or Award Plans.
SFAS No. 123(R) requires companies to recognize
compensation expense in an amount equal to the fair value of all
share-based awards granted to employees.
We estimate the fair value of each option on the date of grant
using the Black-Scholes closed-form option-pricing model based
on assumptions for the expected term of the stock options,
expected volatility of our common stock, and prevailing interest
rates. SFAS 123(R) also requires us to estimate forfeitures
in calculating the expense relating to stock-based compensation
as opposed to only recognizing forfeitures and the corresponding
reduction in expense as they occur.
53
We have based our assumptions on the following:
|
|
|
Assumption
|
|
Method of Estimating
|
|
Estimated expected term of options
|
|
Employees historical exercise
experience and, at times, estimates of future exercises of
unexercised options based on the midpoint between the vesting
date and end of the contractual term
|
Expected volatility
|
|
Historic price of our common stock and
the implied volatility of the stock of our peer group
|
Risk-free interest rate
|
|
Yields of U.S. Treasury securities
corresponding with the expected life of option grants
|
Forfeiture rates
|
|
Historical forfeiture data
|
Of these assumptions, the expected term of the option and
expected volatility of our common stock are the most difficult
to estimate since they are based on the exercise behavior of the
employees and expected performance of our common stock.
Increases in the term and the volatility of our common stock
will generally cause an increase in compensation expense.
Income
Taxes
Effective January 1, 2007, we adopted FASB Interpretation
No. 48, Accounting for Uncertainty in Income
Taxes, which requires the use of a two-step approach for
recognizing and measuring tax benefits taken or expected to be
taken in a tax return and disclosures regarding uncertainties in
income tax positions. The first step is recognition: we
determine whether it is more likely than not that a tax position
will be sustained upon examination, including resolution of any
related appeals or litigation processes, based on the technical
merits of the position. In evaluating whether a tax position has
met the more-likely-than-not recognition threshold, we presume
that the position will be examined by the appropriate taxing
authority that has full knowledge of all relevant information.
The second step is measurement: a tax position that meets the
more-likely-than-not recognition threshold is measured to
determine the amount of benefit to recognize in the financial
statements. The tax position is measured at the largest amount
of benefit that is greater than 50% likely of being realized
upon ultimate settlement.
Our annual effective tax rate is based on pre-tax earnings,
existing statutory tax rates, limitations on the use of tax
credits, net operating loss carryforwards and tax planning
opportunities available in the jurisdictions in which we
operate. Significant judgment is required in evaluating our tax
position.
On a periodic basis, we evaluate the realizability of our
deferred tax assets and liabilities and will adjust such amounts
in light of changing facts and circumstances, including but not
limited to future projections of taxable income, tax
legislation, rulings by relevant tax authorities, tax planning
strategies and the progress of ongoing tax audits. Settlement of
filing positions that may be challenged by tax authorities could
impact the income tax position in the year of resolution. Our
current tax liability is presented in the consolidated balance
sheets within accrued expenses.
At December 31, 2008, we had $112.8 million of gross
deferred tax assets before valuation allowance, which included
the tax effect of net operating loss carryforwards of
$56.0 million, research and development credits of
$16.6 million and other items of $40.2 million. These
assets are offset by a $64.5 million valuation allowance
since the realization of these future benefits is not considered
more likely than not as our ability to estimate long-term future
taxable income with a high level of certainty is limited. In
assessing the realizability of deferred tax assets, we consider
whether it is more likely than not that some portion or all of
the deferred tax assets will not be realized. The ultimate
realization of deferred tax assets is dependent upon the
generation of future taxable income during the period in which
those temporary differences become deductible or the net
operating losses and credit carryforwards can be utilized. When
considering the reversal of the valuation allowance, we consider
the level of past and anticipated future taxable income and the
utilization of the carryforwards.
54
We expect that future periods will include income taxes at a
higher effective rate. Revisions to the estimated net realizable
value of the deferred tax asset could cause our provision for
income taxes to vary significantly from period to period.
Factors that could significantly impact our valuation allowance
include future projections of taxable income, tax legislation,
rulings by relevant tax authorities, the progress of ongoing
audits, the regulatory approval of products currently under
development, extension of the patent rights relating to
Angiomax, failure to achieve future anticipated revenues or the
implementation of tax planning strategies in connection with our
European expansion. Should we further reduce or increase the
valuation allowance on deferred tax assets, a current year tax
benefit or expense would be recognized and future periods would
then include income taxes at a higher or lower rate than the
effective rate in the period that the adjustment is made.
Results
of Operations
Years
Ended December 31, 2008 and 2007
Net Revenue. Net revenue increased 35% to
$348.2 million for 2008 as compared to $257.5 million
for 2007. The following table reflects the components of net
revenue for the years ended December 31, 2008 and 2007:
Net
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
% of Total
|
|
|
|
|
|
% of Total
|
|
Net Revenue
|
|
2008
|
|
|
Revenue
|
|
|
2007
|
|
|
Revenue
|
|
|
|
(In thousands)
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
Angiomax and Cleviprex
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. sales
|
|
$
|
334,582
|
|
|
|
96
|
%
|
|
$
|
254,975
|
|
|
|
99
|
%
|
International net revenue
|
|
|
9,750
|
|
|
|
3
|
%
|
|
|
32
|
|
|
|
|
|
Revenue from collaborations, net
|
|
|
3,825
|
|
|
|
1
|
%
|
|
|
2,527
|
|
|
|
1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue
|
|
$
|
348,157
|
|
|
|
100
|
%
|
|
$
|
257,534
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. sales during 2008 increased $79.6 million
compared to 2007 primarily due to increased sales of Angiomax as
a result of increased demand by existing hospital customers, the
addition of new hospital customers and the 8% price increases we
implemented in August 2007 and January 2008. The increase in
sales of Angiomax in the United States also reflects a
$1.4 million credit from our domestic wholesalers in
connection with our price increase announced in January 2008. Of
the 31% increase in United States sales of Angiomax during 2008
compared to 2007, approximately 16% was attributable to price
increases, 13% was related to hospital demand by existing
hospital customers and the addition of new hospital customers
and 2% was related to the $1.4 million credit from our
domestic wholesalers. The increase in U.S. sales in 2008
also includes $0.4 million of net revenue from Cleviprex
sales.
International net revenue increased $9.7 million during
2008 compared to 2007 primarily as a result of a
$3.1 million increase in direct sales we made after
assuming control of the distribution of Angiox in the Nycomed
territory during the third quarter of 2008 and the
$2.2 million decrease of our reserve for existing inventory
at Nycomed. During the fourth quarter of 2007, we recorded a
$3.0 million reserve for existing inventory at Nycomed
which reduced international net revenue in 2007 by
$3.0 million. We reserved for this inventory because we did
not believe that such inventory would be sold by Nycomed prior
to the termination of our transitional distribution agreement
with Nycomed and because such inventory was subject to return.
During 2008, Nycomed sold approximately $2.2 million of its
existing inventory. As a result, we reduced our reserve for
existing inventory to $0.8 million and such adjustment
resulted in an increase to international net revenue. We will
reimburse Nycomed $0.8 million for the final amount of
inventory held by Nycomed at December 31, 2008. As of
December 31, 2008, we assumed control of the distribution
of Angiox in the countries previously serviced by Nycomed. The
remaining increase in international net revenue is primarily
related to increased orders for Angiomax from our Canadian
distributor.
55
During 2008, we recognized as revenue from collaborations
approximately $3.8 million of net revenue from sales made
by Nycomed of approximately $8.2 million under our
transitional distribution agreement with Nycomed. Under the
terms of this transitional distribution agreement, upon the sale
by Nycomed to third parties of vials of Angiox, Nycomed pays us
a specified percentage of Nycomeds net sales of Angiox,
less the amount previously paid by Nycomed to us for the
existing inventory. During 2007, we recognized as revenue from
collaborations approximately $2.5 million of net revenue
from sales of Angiox made by Nycomed of approximately
$5.7 million under the transitional distribution agreement.
The increase in revenue from collaborations is primarily due to
the timing of when the Nycomed agreements were entered into and
timing of when we assumed control of distribution of Angiox in
the Nycomed territories.
Cost of Revenue. As shown in the table below,
cost of revenue in 2008 was $88.4 million, or 25% of net
revenue, compared to $66.5 million, or 26% of net revenue,
in 2007. Cost of revenue consisted of expenses in connection
with the manufacture of Angiomax and Cleviprex sold, royalty
expenses under our agreements with Biogen Idec, Health Research
Inc. and AstraZeneca and the logistics costs of selling Angiomax
and Cleviprex, such as distribution, storage, and handling.
Cost of
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
% of Total
|
|
|
|
|
|
% of Total
|
|
Cost of Revenue
|
|
2008
|
|
|
Cost
|
|
|
2007
|
|
|
Cost
|
|
|
|
(In thousands)
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
Manufacturing
|
|
$
|
22,518
|
|
|
|
25
|
%
|
|
$
|
20,205
|
|
|
|
30
|
%
|
Royalty
|
|
|
53,642
|
|
|
|
61
|
%
|
|
|
40,318
|
|
|
|
61
|
%
|
Logistics
|
|
|
12,195
|
|
|
|
14
|
%
|
|
|
5,979
|
|
|
|
9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenue
|
|
$
|
88,355
|
|
|
|
100
|
%
|
|
$
|
66,502
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue increased $21.9 million during 2008
compared to 2007. Approximately $13.3 million of the total
cost of revenue increase related to an increase in royalty
expense due to higher Angiomax sales and approximately
$6.2 million of the increase related to an increase in
logistics costs primarily related to higher sales of Angiomax
and our costs associated with establishing our European
distribution network. Manufacturing expenses increased
$2.3 million during 2008 compared to 2007. Approximately
$0.7 million of the increase was due to a write-off of one
batch of Angiomax, $0.5 million related to the inventory
obsolescence reserve for Cleviprex and the remaining increase is
primarily a result of producing more Angiomax to accommodate for
higher sales. The decrease in cost of revenue as a percentage of
net revenue is attributable to an increase in revenue from
collaborations, net and an increase in U.S. sales of
Angiomax. We expect our cost of revenue to increase in 2009 as a
result of higher anticipated sales and expect our cost of
revenue as a percentage of net revenue to also increase in 2009
as we expect to have a higher effective royalty rate for sales
of Angiomax under our agreement with Biogen Idec.
Research and Development Expenses. Research
and development expenses increased by 37% to $105.7 million
for 2008, compared to $77.3 million for 2007. The increase
primarily reflects the acquisition of Curacyte Discovery in
August 2008, which resulted in the inclusion in research and
development expenses of $21.4 million of acquisition
related in-process research and development. The remaining
increase in research and development expenses resulted primarily
from increased expenses associated with our cangrelor clinical
trials and increased business development expenses. The increase
in research and development expenses was partially offset by
decreased expenditures in connection with the development of
Angiomax for additional indications and decreased research and
development expenditures in connection with Cleviprex.
56
The following table identifies, for each of our major research
and development projects, our spending for 2008 and 2007.
Spending for past periods is not necessarily indicative of
spending in future periods. We expect that this table will
include oritavancin in future periods.
Research
and Development Spending
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
Research and Development
|
|
2008
|
|
|
Total R&D
|
|
|
2007
|
|
|
Total R&D
|
|
|
|
(In thousands)
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
Angiomax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Clinical trials
|
|
$
|
4,959
|
|
|
|
5
|
%
|
|
$
|
10,394
|
|
|
|
14
|
%
|
Manufacturing development
|
|
|
3,924
|
|
|
|
4
|
%
|
|
|
703
|
|
|
|
1
|
%
|
Administrative and headcount costs
|
|
|
3,711
|
|
|
|
3
|
%
|
|
|
4,162
|
|
|
|
5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Angiomax
|
|
|
12,594
|
|
|
|
12
|
%
|
|
|
15,259
|
|
|
|
20
|
%
|
Cleviprex
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Clinical trials
|
|
|
3,031
|
|
|
|
3
|
%
|
|
|
2,803
|
|
|
|
3
|
%
|
Manufacturing development
|
|
|
2,484
|
|
|
|
2
|
%
|
|
|
2,890
|
|
|
|
4
|
%
|
Administrative and headcount costs
|
|
|
6,214
|
|
|
|
6
|
%
|
|
|
9,290
|
|
|
|
12
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Cleviprex
|
|
|
11,729
|
|
|
|
11
|
%
|
|
|
14,983
|
|
|
|
19
|
%
|
Cangrelor
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Clinical trials
|
|
|
37,090
|
|
|
|
35
|
%
|
|
|
30,135
|
|
|
|
39
|
%
|
Manufacturing development
|
|
|
2,661
|
|
|
|
3
|
%
|
|
|
4,240
|
|
|
|
6
|
%
|
Administrative and headcount costs
|
|
|
4,658
|
|
|
|
4
|
%
|
|
|
3,971
|
|
|
|
5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Cangrelor
|
|
|
44,409
|
|
|
|
42
|
%
|
|
|
38,346
|
|
|
|
50
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CU-2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Clinical trials
|
|
|
|
|
|
|
0
|
%
|
|
|
|
|
|
|
0
|
%
|
Manufacturing development
|
|
|
|
|
|
|
0
|
%
|
|
|
|
|
|
|
0
|
%
|
Administrative and headcount costs
|
|
|
1,180
|
|
|
|
1
|
%
|
|
|
|
|
|
|
0
|
%
|
Acquisition related in-process research and development t
|
|
|
21,373
|
|
|
|
20
|
%
|
|
|
|
|
|
|
0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total CU-2010
|
|
|
22,553
|
|
|
|
21
|
%
|
|
|
|
|
|
|
0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
14,435
|
|
|
|
14
|
%
|
|
|
8,667
|
|
|
|
11
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
105,720
|
|
|
|
100
|
%
|
|
$
|
77,255
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Angiomax
Research and development spending related to Angiomax during
2008 decreased by approximately $2.7 million compared to
2007. Angiomax clinical trial costs decreased by approximately
$5.4 million primarily due to decreased expenditures in
connection with the investigator initiated trial called HORIZONS
AMI to study Angiomax use in adult AMI patients that we
supported. During the third quarter of 2008, we incurred
$1.5 million in costs related to the final milestone
payment in connection with HORIZONS AMI. The decrease in
Angiomax clinical trial expenses was also due to decreased
expenditures in connection with our 13,819 patient
Phase III ACUITY trial. In 2007, clinical trial expenses
incurred related to our Phase III ACUITY trial primarily
related to data analysis. We incurred no clinical trial expense
in 2008 related to ACUITY. Clinical trial expenses also
decreased during 2008 due to reduced research and development
expenses that we incurred in connection with a study of Angiomax
in the pediatric setting that we began in the first half of 2007
in connection with a written
57
request by the FDA. The study consists of a single trial to
clarify the pediatric dose that provides a pharmacodynamic
response equivalent to that observed in the adult population at
the approved adult dose. We completed the enrollment of
110 patients during the third quarter of 2008 and expect to
file a clinical study report for the pediatric extension with
the FDA in the second quarter of 2009. Costs incurred in
connection with the pediatric study were approximately
$0.4 million less during 2008 compared to 2007.
Angiomax manufacturing development expenses during 2008
increased $3.2 million compared to 2007, primarily due to
product lifecycle management activities. Administrative and
headcount costs decreased in 2008 primarily related to our
efforts in 2007 to seek approval from the FDA of an additional
indication for Angiomax for the treatment of patients with ACS
based on results of our Phase III ACUITY trial. The FDA
accepted this application to file in September 2007. In May
2008, we received a non-approvable letter from the FDA. In its
letter, the FDA indicated that the basis of its decision
involved the appropriate use and interpretation of the
non-inferiority trials we relied on in support of our NDA,
including ACUITY trial. We disagree with the FDA on these issues
and have initiated discussions with the FDA to address them.
We plan to continue to incur research and development expenses
relating to Angiomax in connection with our efforts to further
develop Angiomax for use in additional patient populations and
to increase our product lifecycle management activities, we
expect spending for Angiomax in 2009 to continue to decrease as
a percentage of our research and development expense.
Cleviprex
Research and development expenditures for Cleviprex decreased
approximately $3.3 million during 2008 compared 2007. The
decrease in research and development expenditures primarily
reflected higher spending during 2007 in preparation for filing
our NDA with the FDA, which we submitted in July 2007. On
August 1, 2008, the FDA approved Cleviprex for the
reduction of blood pressure when oral therapy is not feasible or
not desirable and we launched the product in the United States
in September 2008.
Cangrelor
Research and development expenditures related to cangrelor
increased by approximately $6.1 million in 2008 compared to
2007 as enrollment continued in the two pivotal Phase III
clinical trials that we continue to conduct for the evaluation
of cangrelors effectiveness and safety in preventing
ischemic events in patients who require PCI. Research and
development spending associated with our CHAMPION-PCI and
CHAMPTION-PLATFORM trials increased during 2008 primarily due to
an increase in the number of countries in which we are
recruiting patients through contract research organizations for
these trials. In March 2006, we commenced enrollment of our
CHAMPION-PCI trial, which we designed to evaluate whether use of
intravenous cangrelor is superior to use of clopidrogrel tablets
in patients undergoing PCI. We commenced enrollment in October
2006 of a second trial, called CHAMPION-PLATFORM, which compares
cangrelor plus usual care to placebo plus usual care in patients
who require PCI. We currently expect to enroll approximately
9,000 patients in the CHAMPION-PCI trial and
6,400 patients in the CHAMPION-PLATFORM trial.
As of December 31, 2008, we had enrolled approximately
8,000 patients in our CHAMPION-PCI trial and approximately
4,100 patients in our CHAMPION-PLATFORM trial. We expect to
complete patient enrollment in both trials by the end of the
third quarter of 2009.
If we complete these trials on a timely basis and the results of
these trials are favorable, we anticipate making submissions for
marketing approvals in the United States in 2009 and in the
European Union and selected markets thereafter.
CU-2010
In August 2008, we acquired Curacyte Discovery and its lead
compound CU-2010, which we are developing for the prevention of
blood loss during surgery. We allocated approximately
$21.4 million of
58
the purchase price for the acquisition to in-process research
and development and expensed it during the third quarter of
2008. We expect to initiate Phase I clinical trials of CU-2010
in 2009.
Other
Spending in this category consists of infrastructure costs in
support of our product development efforts, which includes
expenses for data management, statistical analysis, analysis of
pre-clinical data, analysis of pharmacokinetic-pharmacodynamic
(PK/PD) data and product safety as well as expenses related to
business development activities. We also incur business
development expenses in connection with our efforts to evaluate
early stage and late stage compounds for development and
commercialization and other strategic opportunities. In 2008,
spending in this category increased by $5.8 million
compared to the same period in 2007, primarily related to an
increase in business development activities and increased
headcount in our business development department.
In order to support the continued development of Angiomax,
Cleviprex, cangrelor and CU-2010, we expect our annual research
and development expenses to decrease in 2009, which does not
include expenses related to oritavancin. We expect these
research and development expenses to reflect costs associated
with the costs of enrollment of our ongoing Phase III
CHAMPION-PCI trial and CHAMPION-PLATFORM trial for cangrelor,
our Phase IV trials for Cleviprex, additional manufacturing
development costs for Cleviprex and cangrelor and costs of our
anticipated Phase I clinical trial of CU-2010. In addition, we
expect to incur additional research and development expenses in
2009 in connection with our anticipated Phase III clinical
trial of oritavancin.
Our success in further developing Angiomax, obtaining marketing
approval for Cleviprex outside the United States, or developing
and obtaining marketing approval for cangrelor, oritavancin and
CU-2010, is highly uncertain. We cannot predict expenses
associated with ongoing data analysis or regulatory submissions,
if any. Nor can we reasonably estimate or know the nature,
timing and estimated costs of the efforts necessary to complete
the development of, or the period in which material net cash
inflows are expected to commence from, Cleviprex outside the
United States, cangrelor, oritavancin or CU-2010 due to the
numerous risks and uncertainties associated with developing and
commercializing drugs, including the uncertainty of:
|
|
|
|
|
the scope, rate of progress and cost of our clinical trials and
other research and development activities;
|
|
|
|
future clinical trial results;
|
|
|
|
the terms and timing of any collaborative, licensing and other
arrangements that we may establish;
|
|
|
|
the cost and timing of regulatory approvals;
|
|
|
|
the cost and timing of establishing and maintaining sales,
marketing and distribution capabilities;
|
|
|
|
the cost of establishing and maintaining clinical and commercial
supplies of our product candidates;
|
|
|
|
the effect of competing technological and market
developments; and
|
|
|
|
the cost of filing, prosecuting, defending and enforcing any
patent claims and other intellectual property rights.
|
Selling, General and Administrative
Expenses. Selling, general and administrative
expenses increased by $23.1 million to $164.9 million
for 2008, from $141.8 million for 2007. The increase in
selling, general and administrative expenses of
$23.1 million includes $15.9 million of expenses
incurred in preparation for the launch of Cleviprex, a
$13.1 million increase in expenses relating to marketing of
Angiomax, $3.8 million in fees related to the building of
our business infrastructure in Europe, a $14.5 million
increase in costs related to headcount expansion, including the
expansion of medical science, sales management and international
operations teams and a $6.5 million increase in stock-based
compensation expense. The increase in selling, general and
administrative expenses in 2008 was partially offset by the
$28.1 million of expenses incurred during the third quarter
of 2007 related to the termination of the prior distribution
agreement with Nycomed and our reacquisition of all the rights
to develop, distribute and market Angiox in the Nycomed
territory that we recorded as selling, general and
administrative expenses in 2007.
59
We expect selling, general and administrative expenses to
increase in 2009 from 2008 levels primarily due to increased
headcount and related expenses, expenses related to our European
expansion and additional expenses related to the relocation of
our principal executive offices in January 2009.
Other Income. Other income, which is comprised
of interest income and gains and losses on foreign currency
transactions, decreased $5.5 million to $5.2 million
for 2008, from $10.7 million for 2007. Approximately
$3.9 million of the decrease in other income related to a
decrease in interest income due to lower rates of return on our
available for sale securities in 2008. The remaining decrease in
other income related to losses on foreign currency transactions.
Provision for Income Tax. During 2008 we
recorded a $2.9 million provision for income taxes based on
a loss before taxes of $5.6 million during the period. The
provision for income taxes was recorded based upon
U.S. taxable income as no benefit from income taxes related
to our losses from international operations was recorded as it
is not more likely than not that we will recognize a benefit
from the international deferred tax assets. During 2007, we
recorded a provision for income tax of $0.9 million based
upon loss before income taxes of $17.4 million. We did not
record a deferred tax benefit for the losses incurred in 2007,
as we believed that the realization of the deferred tax assets
associated with those losses was not more likely than not.
We will continue to evaluate the realizability of our deferred
tax assets and liabilities on a periodic basis, and will adjust
such amounts in light of changing facts and circumstances,
including but not limited to future projections of taxable
income, tax legislation, rulings by relevant tax authorities,
the progress of ongoing tax audits, the regulatory approval of
products currently under development, extension of the patent
rights relating to Angiomax, failure to achieve future
anticipated revenues or the implementation of tax planning
strategies in connection with our European expansion. If we
further reduce or increase the valuation allowance of deferred
tax assets in future years, we would recognize a tax benefit or
expense.
Results
of Operations
Years
Ended December 31, 2007 and 2006
Net Revenue. Net revenue increased 20% to
$257.5 million for 2007 as compared to $214.0 million
for 2006. The following table reflects the components of net
revenue for the years ended December 31, 2007 and 2006:
Net
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
% of Total
|
|
|
|
|
|
% of Total
|
|
Net Revenue
|
|
2007
|
|
|
Revenue
|
|
|
2006
|
|
|
Revenue
|
|
|
|
(In thousands)
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
Angiomax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. sales
|
|
$
|
254,975
|
|
|
|
99
|
%
|
|
$
|
200,727
|
|
|
|
94
|
%
|
International net revenue
|
|
|
32
|
|
|
|
|
|
|
|
11,277
|
|
|
|
5
|
%
|
Reimbursement
|
|
|
|
|
|
|
|
|
|
|
1,948
|
|
|
|
1
|
%
|
Revenue from collaborations, net
|
|
|
2,527
|
|
|
|
1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue
|
|
$
|
257,534
|
|
|
|
100
|
%
|
|
$
|
213,952
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue during 2007 increased compared to 2006 primarily as
a result of the 8% price increases for Angiomax we implemented
in both January and August of 2007, as well as increased demand
by existing hospital customers and the addition of new hospital
customers. Of the 20% increase in net revenue in 2007 compared
to 2006, approximately 10% was attributable to price increases
and approximately 10% was related to hospital demand. The
increase also reflected the completion in the first quarter of
2006 of the wholesaler inventory reduction program, which
commenced in the third quarter of 2005 in conjunction with the
entrance
60
into fee-for-service agreements with our three largest
wholesalers at the time and concluded in the first quarter of
2006. We estimate that our wholesalers reduced their aggregate
inventories of Angiomax during the first quarter of 2006 by
approximately $13.0 million.
International net revenue decreased approximately
$11.2 million in 2007 compared to 2006. Approximately
$7.2 million related to a decrease in international sales
resulting from a curtailment of orders from Nycomed during 2007.
The decrease in international net revenue also includes a
reserve of $3.0 million that we established in the fourth
quarter of 2007 for existing inventory at Nycomed because we did
not believe such inventory would be sold by Nycomed prior to the
termination of our transitional distribution agreement with
Nycomed and because such inventory was subject to return. The
remaining decrease in international sales relates primarily to
decreases in sales to our other international distributors due
to decreased demand.
Also included within international net revenue was the
amortization of milestone payments related to $4.0 million
in non-refundable fees received from Nycomed. During 2007 and
2006, we recognized $0.2 million and $0.3 million,
respectively, of amortization related to such milestone
payments. We recorded these milestone payments as deferred
revenue in 2004 and 2002, and recognized them ratably over the
remaining life of the Angiox patent. As a result of our 2007
arrangements with Nycomed, during the third quarter of 2007, we
wrote-off approximately $2.7 million of deferred revenue,
which represented the unamortized portion of deferred revenue
related to milestone payments received from Nycomed in 2004 and
2002. This amount was recorded in selling, general and
administrative expenses.
In 2007, we did not generate any reimbursement revenue, compared
to reimbursement revenue of $1.9 million in 2006. We
generated this revenue during 2006 in connection with the
performance of services in collaboration with a third party
under a contract research agreement.
In 2007, we recognized as revenue from collaborations
approximately $2.5 million of net revenue from sales made
by Nycomed of approximately $5.7 million under our
transitional distribution agreement with them. Under the terms
of this transitional distribution agreement, upon the sale by
Nycomed to third parties of vials of Angiox, Nycomed pays us a
specified percentage of Nycomeds net sales of Angiox, less
the amount previously paid by Nycomed to us for the existing
inventory.
Cost of Revenue. As shown in the table below,
cost of revenue in 2007 was $66.5 million, or 26% of net
revenue, compared to $51.8 million, or 24% of net revenue,
in 2006. Cost of revenue consisted of expenses in connection
with the manufacture of Angiomax sold, royalty expenses under
our agreement with Biogen Idec and Health Research Inc. and the
logistics costs of selling Angiomax, such as distribution,
storage, and handling.
Cost of
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
% of Total
|
|
|
|
|
|
% of Total
|
|
Cost of Revenue
|
|
2007
|
|
|
Cost
|
|
|
2006
|
|
|
Cost
|
|
|
|
(In thousands)
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
Manufacturing
|
|
$
|
20,205
|
|
|
|
30
|
%
|
|
$
|
18,508
|
|
|
|
36
|
%
|
Royalty
|
|
|
40,318
|
|
|
|
61
|
%
|
|
|
27,216
|
|
|
|
52
|
%
|
Logistics
|
|
|
5,979
|
|
|
|
9
|
%
|
|
|
6,088
|
|
|
|
12
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenue
|
|
$
|
66,502
|
|
|
|
100
|
%
|
|
$
|
51,812
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The increase in cost of revenue for 2007 compared to 2006
resulted primarily from an increase in royalty expenses due to
higher annual sales volume and a higher effective royalty rate
under our agreement with Biogen Idec. Cost for manufacturing
increased by $1.7 million for 2007 compared to 2006
primarily due to an increase in sales.
61
Research and Development Expenses. Research
and development expenses increased by 22% to $77.3 million
for 2007, from $63.5 million for 2006. The increase in
research and development expenses resulted primarily from
increased investment in our cangrelor development program, which
was offset in part by decreased expenditures in connection with
the development of Angiomax.
The following table identifies, for each of our major research
and development projects, our spending for 2007 and 2006.
Spending for past periods is not necessarily indicative of
spending in future periods.
Research
and Development Spending
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
Research and Development
|
|
2007
|
|
|
Total R&D
|
|
|
2006
|
|
|
Total R&D
|
|
|
|
(In thousands)
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
Angiomax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Clinical trials
|
|
$
|
10,394
|
|
|
|
14
|
%
|
|
$
|
14,954
|
|
|
|
24
|
%
|
Manufacturing development
|
|
|
703
|
|
|
|
1
|
%
|
|
|
1,331
|
|
|
|
2
|
%
|
Administrative and headcount costs
|
|
|
4,162
|
|
|
|
5
|
%
|
|
|
2,695
|
|
|
|
4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Angiomax
|
|
|
15,259
|
|
|
|
20
|
%
|
|
|
18,980
|
|
|
|
30
|
%
|
Cleviprex
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Clinical trials
|
|
|
2,803
|
|
|
|
3
|
%
|
|
|
9,870
|
|
|
|
16
|
%
|
Manufacturing development
|
|
|
2,890
|
|
|
|
4
|
%
|
|
|
1,108
|
|
|
|
2
|
%
|
Administrative and headcount costs
|
|
|
9,290
|
|
|
|
12
|
%
|
|
|
4,512
|
|
|
|
7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Cleviprex
|
|
|
14,983
|
|
|
|
19
|
%
|
|
|
15,490
|
|
|
|
25
|
%
|
Cangrelor
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Clinical trials
|
|
|
30,135
|
|
|
|
39
|
%
|
|
|
14,222
|
|
|
|
22
|
%
|
Manufacturing development
|
|
|
4,240
|
|
|
|
6
|
%
|
|
|
2,153
|
|
|
|
3
|
%
|
Administrative and headcount costs
|
|
|
3,971
|
|
|
|
5
|
%
|
|
|
3,579
|
|
|
|
6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Cangrelor
|
|
|
38,346
|
|
|
|
50
|
%
|
|
|
19,954
|
|
|
|
31
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
8,667
|
|
|
|
11
|
%
|
|
|
9,112
|
|
|
|
14
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
77,255
|
|
|
|
100
|
%
|
|
$
|
63,536
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Angiomax
Research and development spending in 2007 related to Angiomax
decreased due to a decrease in clinical trial expenses
reflecting the completion in 2006 of our 13,819 patient
Phase III ACUITY trial. We continued to have research and
development expenses during 2007 for ACUITY relating primarily
to data analysis, but at significantly reduced rates compared to
those incurred in 2006. The decrease in clinical trial expenses
also reflects a decrease in post-marketing trial related
expenses. We expect research and development spending for
Angiomax to continue to decrease as a percentage of our research
and development expense. Expenses incurred in 2006 included
expenses for collection of
12-month
patient
follow-up
results in the ACUITY trial.
The decrease in Angiomax research and development spending was
offset by an increase in administrative and headcount costs
primarily due to our application to the FDA seeking approval of
an additional indication for Angiomax for the treatment of
patients with ACS based on the results of our Phase III
ACUITY trial. The FDA accepted this application to file in
September 2007.
We also continued to incur research and development expenses
relating to Angiomax in connection with our efforts to expand
the indications for which Angiomax is approved beyond patients
undergoing PCI
62
and patients with ACS. In October 2006, we received a
non-approvable letter from the FDA in connection with our
application to market Angiomax in patients with or at risk of
heparin- induced thrombocytopenia and thrombosis syndrome, or
HIT/HITTS, undergoing cardiac surgery. In the letter, the FDA
stated that it does not consider the data we submitted in
support of the application adequate to support approval for this
indication because it did not consider the evidence used to
qualify patients for inclusion in the trials as a persuasive
indicator for the risk of HIT/HITTS. We are evaluating potential
next steps. In July 2007, Canadian health authorities approved
the use of Angiomax in Canada for the treatment of patients with
HIT/HITTS undergoing cardiac surgery.
In 2007, we began a study of Angiomax in the pediatric setting
in connection with the written request we received from the FDA.
The study consists of a single trial to clarify the pediatric
dose that provides a pharmacodynamic response equivalent to that
observed in the adult population at the approved adult dose.
During 2007, we enrolled 80 patients for the pediatric
study. In 2007, we also supported an investigator-initiated
trial called HORIZONS AMI to study Angiomax use in adult AMI
patients. HORIZONS AMI was designed to evaluate whether Angiomax
with provisional use of GPIIb/IIIa inhibitors was as safe and
effective as heparin with planned use of GPIIb/IIIa inhibitors
in AMI patients.
Cleviprex
Research and development expenditures for Cleviprex remained
relatively consistent in 2007 and 2006. In July 2007, we
submitted our NDA for Cleviprex for approval to market Cleviprex
for patients receiving an intravenous antihypertensive agent in
the critical care setting when oral therapy is not desirable or
feasible. The FDA accepted this NDA to file in September 2007.
Research and development expense for Cleviprex that we incurred
in the year ended December 31, 2007 included
$9.3 million of administrative and headcount costs
primarily related to the preparation of the NDA, compared to
$4.5 million in 2006.
During 2007, expenditures for Cleviprex clinical trials
decreased by $7.1 million, primarily related to decreased
expenditures on our ECLIPSE trials, which are our three
Phase III clinical trials to evaluate the safety of
Cleviprex in approximately 1,500 patients in comparison to
sodium nitroprusside, nicardipine and nitroglycerine, three
leading blood pressure reducing agents, before, during and
following cardiac surgery, and decreased expenditures on our
VELOCITY trial. We completed the ECLIPSE studies and the
VELOCITY study in the first half of 2007. We incurred
$2.9 million of expenses in 2007 in connection with the
development of the processes to manufacture Cleviprex upon its
approval for sale by the FDA.
Cangrelor
We are developing cangrelor for potential use as an antiplatelet
agent in the critical care settings of the cardiac
catheterization laboratory, the operating room
and/or the
emergency department. Research and development expenditures
related to cangrelor increased in 2007 compared to 2006 as a
result of the two pivotal Phase III clinical trials that we
continue to conduct for the evaluation of cangrelors
effectiveness and safety in preventing ischemic events in
patients who require PCI. In March 2006, we commenced enrollment
of our CHAMPION-PCI trial. We commenced enrollment in October
2006 of a second trial, called CHAMPION-PLATFORM.
We enrolled approximately 3,000 and 2,000 patients in our
CHAMPION-PCI trial during 2007 and 2006, respectively. We
enrolled approximately 1,650 and 150 patients in our
CHAMPION-PLATFORM trial during 2007 and 2006, respectively.
Other
In 2007, spending decreased by $0.4 million compared to
2006 primarily reflecting a decrease in costs incurred in
connection with a third-party research and development agreement.
63
Selling, General and Administrative
Expenses. Selling, general and administrative
expenses increased by $53.5 million to $141.8 million
for 2007, from $88.3 million for 2006. The increase in
selling, general and administrative expenses primarily related
to costs incurred and recognized in connection with the
termination of the prior distribution agreement with Nycomed and
our reacquisition of all the rights to develop, distribute and
market Angiox in the Nycomed territory. In the third quarter of
2007, we recorded $30.8 million of expense attributable to
the termination of the prior distribution agreement with
Nycomed. The $30.8 million expense was offset by the
write-off of approximately $2.7 million of deferred
revenue, which amount represented the unamortized portion of
deferred revenue relating to milestone payments received from
Nycomed in 2004 and 2002. In 2007, we incurred approximately
$5.3 million of external consulting fees related to our
European expansion and $7.8 million of additional costs
under the Nycomed transition services agreement, which
terminated December 31, 2007. The additional costs related
to the transition services agreement include reimbursing Nycomed
for selling, management, marketing and certain personnel costs.
The increase in selling, general and administrative expenses is
also attributable to Cleviprex expenses of $6.1 million
that we incurred in preparation for the anticipated launch of
the product and a $5.0 million increase in stock-based
compensation expense.
Other Income. Other income, which is primarily
comprised of interest income, increased approximately 46% to
$10.7 million for 2007, from $7.3 million for 2006.
The increase in other income of $3.4 million was primarily
due to higher rates of return on our available for sale
securities in 2007, combined with higher levels of cash to
invest as a result of our generation of operating and financing
cash flows.
(Provision for) Benefit from Income Tax. The
tax provision for 2007 was ($0.9) million as compared to a
tax benefit for 2006 of $46.1 million. During 2007, we
increased our net deferred tax asset by $1.2 million in
connection with an excess tax benefit recorded in additional
paid-in capital attributable to stock compensation plans.
However, we did not recognize a benefit from income taxes on our
pretax loss as we determined the future recognition of
additional deferred tax assets is not currently considered more
likely than not. The net loss we incurred during 2007 is
primarily attributable to the Nycomed transaction. We did not
believe this one-time transaction would impact our ability to
realize the balance of deferred tax assets currently recorded.
The benefit for 2006 was a result of our decision to reduce
approximately $49.2 million of our valuation allowance
against our deferred tax assets because we believed it more
likely than not that we would realize a benefit from these
assets. This was partially offset by a provision for
U.S. alternative minimum taxes, which can not be entirely
offset with our NOL carryforwards, and state taxes based on net
worth.
Liquidity
and Capital Resources
Sources of Liquidity. Since our inception, we
have financed our operations principally through the sale of
common and preferred stock, sales of convertible promissory
notes and warrants, interest income and revenues from sales of
Angiomax. Except for 2006 and 2004, we have incurred losses on
an annual basis since our inception. We had $216.2 million
in cash, cash equivalents and available for sale securities as
of December 31, 2008. In February 2009, in connection with
our acquisition of Targanta, we used existing cash to pay
Targanta shareholders $2.00 in cash at closing for each common
share of Targanta common stock tendered, or approximately
$42.0 million in aggregate.
Cash Flows. As of December 31, 2008, we
had $81.0 million in cash and cash equivalents, as compared
to $88.1 million as of December 31, 2007. Our primary
sources of cash during 2008 included $38.1 million of net
cash provided by operating activities and $5.5 million in
net cash provided by financing activities. These amounts were
exceeded by the $50.2 million in net cash that we used in
investing activities.
Net cash provided by operating activities was $38.1 million
in 2008, compared to net cash provided by operating activities
of $36.1 million in 2007. The cash provided by operating
activities in 2008 includes a decrease in cash flow from
operations of $8.5 million due to a net loss in 2008. The
decrease in cash flows from operations related to net loss was
offset by non-cash items of $49.4 million mainly
attributable to the in-process research and development charge
of $21.4 million in connection with the Curacyte Discovery
acquisition, stock-based compensation expense of
$22.8 million and deferred tax provision of
$1.8 million.
64
Cash provided by operating activities included a decrease of
$2.8 million due to changes in working capital items.
Included within the changes in working capital items was a
$14.0 million decrease in accrued expenses primarily due to
payments made to Nycomed under our transitional distribution
agreement. We paid Nycomed $15.0 million on
January 15, 2008, $5.0 million on July 8, 2008,
as well as an additional $5.0 million on July 8, 2008
for our obtaining European Commission approval to market Angiox
for ACS in Europe in January 2008. Also included within changes
in working capital items was a $9.6 million increase in
deferred revenue primarily related to shipments of Cleviprex
during 2008.
During 2008, $50.2 million in net cash was used in
investing activities, which included $161.8 million used to
purchase available for sale securities, and $19.4 million
used to purchase fixed assets, offset by $161.5 million in
proceeds from the maturity and sale of available for sale
securities. Net cash used in investing activities also included
a net cash expenditure of $23.5 million in connection with
the Curacyte Discovery acquisition, a $5.0 million
investment in a specialty pharmaceutical company and
$2.0 million of milestone payments paid in connection with
FDA approval of Cleviprex.
During 2008, we received $5.5 million in net cash provided
by financing activities, which consisted of proceeds to us from
option exercises and purchases of stock under our employee stock
purchase plan.
Funding Requirements. We expect to devote
substantial resources to our research and development efforts
and to our sales, marketing and manufacturing programs
associated with the commercialization of our products. Our
funding requirements will depend on numerous factors including:
|
|
|
|
|
the extent to which Angiomax is commercially successful globally;
|
|
|
|
the extent to which Cleviprex is commercially successful in the
United States;
|
|
|
|
the extent to which we can successfully establish a commercial
infrastructure outside the United States;
|
|
|
|
the expansion of our sales force in connection with the
expansion of our sales and marketing efforts in Europe and the
sale of Cleviprex in the United States;
|
|
|
|
our plan to continue to evaluate possible acquisitions of
development-stage products, approved products, or businesses and
possible additional strategic or licensing arrangements with
companies that fit within our growth strategy, such as our
acquisitions of Curacyte Discovery and Targanta;
|
|
|
|
the progress, level and timing of our research and development
activities related to our clinical trials with respect to
Angiomax, Cleviprex, cangrelor, oritavancin and CU-2010;
|
|
|
|
the cost and outcomes of regulatory submissions and reviews,
including our efforts to obtain approval of the expansion of the
Angiomax product label in the United States to include an
additional dosing regimen in the treatment of ACS initiated in
the emergency department in the United States, approval of
Cleviprex internationally and approval of our product candidates
globally;
|
|
|
|
the continuation or termination of third-party manufacturing or
sales and marketing arrangements;
|
|
|
|
the size, cost and effectiveness of our sales and marketing
programs in the United States and internationally;
|
|
|
|
the status of competitive products;
|
|
|
|
the success of obtaining regulatory approval of oritavancin and
the extent of the commercial success of oritavancin, if and when
it is approved, which could result in the cash payment to former
Targanta shareholders; and
|
|
|
|
our ability to defend and enforce our intellectual property
rights.
|
If our existing resources are insufficient to satisfy our
liquidity requirements due to slower than anticipated revenues
from Angiomax and Cleviprex, or higher than anticipated costs in
Europe, if we acquire
65
additional product candidates or businesses, or if we determine
that raising additional capital would be in our interests and
the interests of our stockholders, we may sell equity or debt
securities or seek financing through other arrangements. Any
sale of additional equity or debt securities may result in
dilution to our stockholders, and debt financing may involve
covenants limiting or restricting our ability to take specific
actions, such as incurring additional debt or making capital
expenditures. We cannot be certain that public or private
financing will be available in amounts or on terms acceptable to
us, if at all. If we seek to raise funds through collaboration
or licensing arrangements with third parties, we may be required
to relinquish rights to products, product candidates or
technologies that we would not otherwise relinquish or grant
licenses on terms that may not be favorable to us. If we are
unable to obtain additional financing, we may be required to
delay, reduce the scope of, or eliminate one or more of our
planned research, development and commercialization activities,
which could harm our financial condition and operating results.
Contractual
Obligations
Our long-term contractual obligations include commitments and
estimated purchase obligations entered into in the normal course
of business. These include commitments related to purchases of
inventory of our products, research and development service
agreements, operating leases, selling, general and
administrative obligations, increases to our restricted cash in
connection with our lease of our principal office space in
Parsippany, New Jersey and milestone payments due under our
license agreements.
Future estimated contractual obligations as of December 31,
2008 are:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less Than
|
|
|
|
|
|
|
|
|
More Than
|
|
Contractual Obligations (in thousands)
|
|
Total
|
|
|
1 Year
|
|
|
1 - 3 Years
|
|
|
3 - 5 Years
|
|
|
5 Years
|
|
|
Inventory related commitments
|
|
$
|
43,479
|
|
|
$
|
28,936
|
|
|
$
|
13,543
|
|
|
$
|
1,000
|
|
|
|
|
|
Research and development
|
|
|
22,529
|
|
|
|
17,444
|
|
|
|
5,085
|
|
|
|
|
|
|
|
|
|
Operating leases
|
|
|
79,511
|
|
|
|
7,509
|
|
|
|
14,667
|
|
|
|
10,819
|
|
|
|
46,516
|
|
Selling, general and administrative
|
|
|
6,009
|
|
|
|
5,269
|
|
|
|
740
|
|
|
|
|
|
|
|
|
|
Restricted cash
|
|
|
3,000
|
|
|
|
3,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax contingencies
|
|
|
167
|
|
|
|
|
|
|
|
167
|
|
|
|
|
|
|
|
|
|
Milestone payments
|
|
|
22,250
|
|
|
|
16,750
|
|
|
|
5,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations
|
|
$
|
176,945
|
|
|
$
|
78,908
|
|
|
$
|
39,702
|
|
|
$
|
11,819
|
|
|
$
|
46,516
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All of the inventory related commitments included above are
non-cancellable. Included within the inventory related
commitments above are purchase commitments to Lonza Braine
totaling $23.4 million for 2009 and $13.3 million for
2010 for Angiomax bulk drug substance. Of the total estimated
contractual obligations for research and development and
selling, general and administrative activities,
$4.9 million is non-cancellable.
In January 2009, we moved our principal offices to a new office
building in Parsippany, New Jersey. The lease covering the new
office building covers 173,146 square feet and expires
January 2024. In connection with the move, we vacated our
previous office space in Parsippany. Additionally, certain other
costs such as leasing commissions and legal fees will be
expensed as incurred in conjunction with the sublease of the
vacated office space.
Approximately 82% of the total operating lease commitments above
relate to our new office building. Also included in total
operating lease commitments are automobile leases, computer
leases, the operating lease from our previous office space and
other property leases that we entered into while expanding our
European infrastructure.
In addition, we lease offices in Waltham, Massachusetts, Milton
Park, Abingdon, United Kingdom; Zurich, Switzerland; Paris,
France; Rome Italy; Munich, Germany; and Leipzig, Germany. In
connection with our acquisition of Targanta, we acquired leases
covering approximately 33,600 square feet in the aggregate
of
66
laboratory and office facilities located in the United States
and Canada, including facilities in Cambridge, Massachusetts,
Indianapolis, Indiana and Montreal, Canada. Rent expense was
approximately $2.2 million, $1.6 million and
$1.6 million in 2008, 2007 and 2006, respectively.
In connection with the lease for our new office space in
Parsippany, New Jersey, we collateralized outstanding letters of
credit associated with such lease with restricted cash of
$5.0 million. The funds are invested in certificates of
deposit. Under such lease agreement, we agreed to increase our
letter of credit on the Phase I Estimated Commencement Date, as
defined in the lease, by an additional $3.0 million for a
total letter of credit of $8.0 million. The Phase I
Commencement date occurred during the fourth quarter of 2008 and
we increased the letter of credit to $8.0 million in the
first quarter of 2009.
Included in milestone payments above are amounts that would be
owed to AstraZeneca under our product license agreements for
Cleviprex and cangrelor for achieving certain milestones. We
have agreed to make payments upon the achievement of certain
regulatory milestones. Also included in milestone payments above
is the contingent milestone payment of 10.5 million
(approximately $15.8 million) related to the Curacyte
Discovery acquisition, that will be due if we elect to proceed
with clinical development of CU-2010. The foregoing amounts do
not include royalties that we may also have to pay.
Obligations related to the acquisition of Targanta, such as
milestone payments, lease expenses and the contingent cash
payments that would be owed to former Targanta shareholders
under our merger agreement with Targanta, are not included in
the above.
|
|
Item 7A.
|
Quantitative
and Qualitative Disclosure About Market Risk
|
Market risk is the risk of change in fair value of a financial
instrument due to changes in interest rates, equity prices,
creditworthiness, financing, exchange rates or other factors.
Our primary market risk exposure relates to changes in interest
rates in our cash, cash equivalents and available for sale
securities. We place our investments in high-quality financial
instruments, primarily money market funds, corporate debt
securities, asset backed securities and U.S. government
agency notes with maturities of less than two years, which we
believe are subject to limited interest rate and credit risk. We
currently do not hedge interest rate exposure. At
December 31, 2008 we held $216.2 million in cash, cash
equivalents and available for sale securities which had an
average interest rate of approximately 1.97% and a 10% change in
such average interest rate would have had an approximate
$0.2 million impact on our interest income. At
December 31, 2008, all of our cash, cash equivalents and
available for sale securities were due on demand or within one
year.
Most of our transactions are conducted in U.S. dollars. We
do have certain agreements with parties located outside the
United States. Transactions under certain of these agreements
are conducted in U.S. dollars, subject to adjustment based
on significant fluctuations in currency exchange rates.
Transactions under certain other of these agreements are
conducted in the local foreign currency. As of December 31,
2008, we had receivables denominated in currencies other than
the U.S. dollar. A 10.0% change would have had an
approximate $1.5 million impact on our other income and
cash.
|
|
Item 8.
|
Financial
Statements and Supplementary Data
|
All financial statements and schedules required to be filed
hereunder are filed as Appendix A to this annual report on
Form 10-K
and incorporated herein by this reference.
67
|
|
Item 9.
|
Changes
in and Disagreements with Accountants on Accounting and
Financial Disclosure
|
None.
|
|
Item 9A.
|
Controls
and Procedures
|
Disclosure
Controls and Procedures
Our management, with the participation of our chief executive
officer and chief financial officer, evaluated the effectiveness
of our disclosure controls and procedures as of
December 31, 2008. The term disclosure controls and
procedures, as defined in
Rules 13a-15(e)
and
15d-15(e)
under the Exchange Act, means controls and other procedures of a
company that are designed to ensure that information required to
be disclosed by us in the reports that we file or submit under
the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in the SECs rules and
forms. Disclosure controls and procedures include, without
limitation, controls and procedures designed to ensure that
information required to be disclosed by a company in the reports
that it files or submits under the Exchange Act is accumulated
and communicated to the companys management, including its
principal executive and principal financial officers, as
appropriate to allow timely decisions regarding required
disclosure. Management recognizes that any controls and
procedures, no matter how well designed and operated, can
provide only reasonable assurance of achieving their objectives
and management necessarily applies its judgment in evaluating
the cost-benefit relationship of possible controls and
procedures. Based on the evaluation of our disclosure controls
and procedures as of December 31, 2008, our chief executive
officer and chief financial officer concluded that, as of such
date, our disclosure controls and procedures were effective at
the reasonable assurance level.
Managements
Annual Report on Internal Control Over Financial
Reporting
The report required to be filed hereunder is included in
Appendix A to this annual report on
Form 10-K
and incorporated herein by this reference.
Attestation
Report of Independent Registered Public Accounting
Firm
The report required to be filed hereunder is included in
Appendix A to this annual report on
Form 10-K
and incorporated herein by this reference.
Changes
in Internal Control Over Financial Reporting
No change in our internal control over financial reporting (as
defined in
Rules 13a-15(f)
and
15d-15(f)
under the Exchange Act) occurred during the quarter ended
December 31, 2008 that has materially affected, or is
reasonably likely to materially affect, our internal control
over financial reporting.
|
|
Item 9B.
|
Other
Information
|
On January 26, 2009, Catharine Newberrys employment
as our Senior Vice President and Chief Human Strategy Officer
terminated, effective immediately. On February 19, 2009, we
entered into a severance letter agreement, or the Severance
Agreement, with Ms. Newberry, pursuant to which
Ms. Newberry is entitled to receive the following severance
benefits:
|
|
|
|
|
a lump sum payment equal to one year of her current annual base
salary, less all applicable statutory tax withholdings and
deductions;
|
|
|
|
a lump sum bonus payment in the amount of $53,865 earned in
accordance with our annual cash bonus plan;
|
|
|
|
for the shorter of a period of twelve months after the
termination date or until Ms. Newberry commences employment
with a new employer, reimbursement of COBRA health insurance
premiums actually paid by Ms. Newberry and payment for
reasonable outplacement services; and
|
68
|
|
|
|
|
accelerated vesting of all stock options that Ms. Newberry
held immediately prior to termination which would have vested
within one year after the termination date if Ms. Newberry
had continued to be employed by us during such one-year period.
|
As part of the Severance Agreement, Ms. Newberry has also
entered into a general release of us, including our affiliates,
successors and assigns for all claims through the date of
termination of her employment. Ms. Newberry remains subject
to the non-compete, non-solicitation, confidentiality and
related provisions of her invention and non-disclosure agreement
and non-competition and non-solicitation agreement with us.
PART III
Pursuant to Paragraph G(3) of the General Instructions to
Form 10-K,
the information required by Part III (Items 10, 11,
12, 13 and 14) is being incorporated by reference herein
from our proxy statement to be filed with the Securities and
Exchange Commission within 120 days of the end of the
fiscal year ended December 31, 2008 in connection with our
2009 Annual Meeting of Stockholders (our 2009 Proxy
Statement).
|
|
Item 10.
|
Directors,
Executive Officers and Corporate Governance
|
The information required by this item will be contained in our
2009 Proxy Statement under the captions Discussion of
Proposals, Information About Corporate
Governance, Information About Our Executive
Officers and Section 16(a) Beneficial Ownership
Reporting Compliance and is incorporated herein by this
reference.
We have adopted a code of business conduct and ethics applicable
to all of our directors and employees, including our principal
executive officer, principal financial officer and our
controller. The code of business conduct and ethics is available
on the corporate governance section of Investor
Relations of our website,
www.themedicinescompany.com.
Any waiver of the code of business conduct and ethics for
directors or executive officers, or any amendment to the code
that applies to directors or executive officers, may only be
made by the board of directors. We intend to satisfy the
disclosure requirement under Item 5.05 of
Form 8-K
regarding an amendment to, or waiver from, a provision of this
code of ethics by filing a
Form 8-K
disclosing such waiver, or, to the extent permitted by
applicable NASDAQ regulations, by posting such information on
our website, at the address and location specified above. To
date, no such waivers have been requested or granted.
|
|
Item 11.
|
Executive
Compensation
|
The information required by this item will be contained in our
2009 Proxy Statement under the captions Information About
Corporate Governance and Information About Our
Executive Officers and is incorporated herein by this
reference.
|
|
Item 12.
|
Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
|
The information required by this item will be contained in our
2009 Proxy Statement under the captions Principal
Stockholders, Information About Our Executive
Officers and Equity Compensation Plan
Information and is incorporated herein by this reference.
|
|
Item 13.
|
Certain
Relationships and Related Transactions, and Director
Independence
|
The information required by this item will be contained in our
2009 Proxy Statement under the caption Information About
Corporate Governance and Information About Our
Executive Officers and is incorporated herein by this
reference.
69
|
|
Item 14.
|
Principal
Accountant Fees and Services
|
The information required by this item will be contained in our
2009 Proxy Statement under the caption Independent
Registered Public Accounting Firm Fees and Other Matters
and Discussion of Proposals and is incorporated
herein by this reference.
PART IV
|
|
Item 15.
|
Exhibits
and Financial Statement Schedules
|
(a) Documents filed as part of this annual report:
(1) Financial Statements. The
Consolidated Financial Statements are included as
Appendix A hereto and are filed as part of this annual
report. The Consolidated Financial Statements include:
|
|
|
|
|
|
|
Page
|
|
Managements Report on Consolidated Financial Statements
and Internal Control over Financial Reporting
|
|
|
F-2
|
|
Report of Independent Registered Public Accounting Firm
|
|
|
F-3
|
|
Report of Independent Registered Public Accounting Firm on
Internal Control over Financial Reporting
|
|
|
F-4
|
|
Consolidated Balance Sheets
|
|
|
F-5
|
|
Consolidated Statements of Operations
|
|
|
F-6
|
|
Consolidated Statements of Stockholders Equity
|
|
|
F-7
|
|
Consolidated Statements of Cash Flows
|
|
|
F-8
|
|
Notes to Consolidated Financial Statements
|
|
|
F-9
|
|
(2) Financial Statement Schedule. The
financial statement schedule following the Notes to Consolidated
Financial Statements is filed as part of this annual report. All
other schedules are omitted because they are not applicable or
are not required, or because the required information is
included in the consolidated financial statements or notes filed
as part of this annual report
(3) Exhibits. The exhibits set forth on
the Exhibit Index following the signature page to this
annual report are filed as part of this annual report. This list
of exhibits identifies each management contract or compensatory
plan or arrangement required to be filed as an exhibit to this
annual report.
70
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, on March 2, 2009.
THE MEDICINES COMPANY
|
|
|
|
By:
|
/s/
Clive A. Meanwell
|
Clive A. Meanwell
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the
dates indicated.
|
|
|
|
|
|
|
Signature
|
|
Title(s)
|
|
|
|
|
|
|
|
|
/s/ Clive
A. Meanwell
Clive
A. Meanwell
|
|
Chief Executive Officer and Chairman of the Board of
Directors
(Principal Executive Officer)
|
|
March 2, 2009
|
|
|
|
|
|
/s/ Glenn
P. Sblendorio
Glenn
P. Sblendorio
|
|
Executive Vice President, Chief Financial Officer and
Treasurer
(Principal Financial and Accounting Officer)
|
|
March 2, 2009
|
|
|
|
|
|
/s/ John
P. Kelley
John
P. Kelley
|
|
President, Chief Operating Officer and Director
|
|
March 2, 2009
|
|
|
|
|
|
/s/ William
W. Crouse
William
W. Crouse
|
|
Director
|
|
March 2, 2009
|
|
|
|
|
|
/s/ Robert
J. Hugin
Robert
J. Hugin
|
|
Director
|
|
March 2, 2009
|
|
|
|
|
|
/s/ T.
Scott Johnson
T.
Scott Johnson
|
|
Director
|
|
March 2, 2009
|
|
|
|
|
|
/s/ Armin
M. Kessler
Armin
M. Kessler
|
|
Director
|
|
March 2, 2009
|
|
|
|
|
|
/s/ Robert
G. Savage
Robert
G. Savage
|
|
Director
|
|
March 2, 2009
|
|
|
|
|
|
/s/ Hiroaki
Shigeta
Hiroaki
Shigeta
|
|
Director
|
|
March 2, 2009
|
|
|
|
|
|
/s/ Melvin
K. Spigelman
Melvin
K. Spigelman
|
|
Director
|
|
March 2, 2009
|
|
|
|
|
|
/s/ Elizabeth
H.S. Wyatt
Elizabeth
H.S. Wyatt
|
|
Director
|
|
March 2, 2009
|
71
APPENDIX A
INDEX TO
THE CONSOLIDATED FINANCIAL STATEMENTS OF
THE MEDICINES COMPANY
|
|
|
|
|
|
|
Page
|
|
|
|
|
F-2
|
|
|
|
|
F-3
|
|
|
|
|
F-4
|
|
|
|
|
F-5
|
|
|
|
|
F-6
|
|
|
|
|
F-7
|
|
|
|
|
F-8
|
|
|
|
|
F-9
|
|
|
|
|
F-42
|
|
F-1
Managements
Report on Consolidated Financial Statements and
Internal Control over Financial Reporting
The management of The Medicines Company has prepared, and is
responsible for, The Medicines Companys consolidated
financial statements and related footnotes. These consolidated
financial statements have been prepared in conformity with
U.S. generally accepted accounting principles.
The Medicines Companys management is responsible for
establishing and maintaining adequate internal control over
financial reporting. Internal control over financial reporting
is defined in
Rule 13a-15(f)
or 15d-15(f)
promulgated under the Securities Exchange Act of 1934 as a
process designed by, or under the supervision of the
Companys principal executive and principal financial
officers and effected by the Companys board of directors,
management, and other personnel, to provide reasonable assurance
regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in
accordance with generally accepted accounting principles and
includes those policies and procedures that:
|
|
|
|
|
pertain to the maintenance of records that in reasonable detail
accurately and fairly reflect the transactions and dispositions
of the assets of The Medicines Company;
|
|
|
|
provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and
that receipts and expenditures of The Medicines Company are
being made only in accordance with authorizations of management
and directors of The Medicines Company; and
|
|
|
|
provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use or disposition of The
Medicines Companys assets that could have a material
effect on the financial statements.
|
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
The Medicines Companys management assessed the
Companys internal control over financial reporting as of
December 31, 2008. Managements assessment was based
upon the criteria established in Internal
Control Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway
Commission. Based on its assessment, management concluded that,
as of December 31, 2008, The Medicines Companys
internal control over financial reporting is effective based on
those criteria.
|
|
|
/s/ Clive
A. Meanwell
Chairman
and
Chief Executive Officer
|
|
/s/ Glenn
P. Sblendorio
Executive
Vice President and
Chief Financial Officer
|
Dated February 25, 2009
F-2
Report of
Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of The Medicines
Company
We have audited the accompanying consolidated balance sheets of
The Medicines Company as of December 31, 2008 and 2007, and
the related consolidated statements of operations,
stockholders equity, and cash flows for each of the three
years in the period ended December 31, 2008. Our audits
also included the financial statement schedule listed in the
Index at Item 15(a). These financial statements and
schedule are the responsibility of the Companys
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of The Medicines Company at December 31,
2008 and 2007, and the consolidated results of its operations
and its cash flows for each of the three years in the period
ended December 31, 2008, in conformity with
U.S. generally accepted accounting principles. Also, in our
opinion, the related financial statement schedule when
considered in relation to the basic financial statements taken
as a whole, presents fairly in all material respects, the
information set forth therein.
As discussed in Note 2 to the consolidated financial
statements, The Medicines Company changed its method of
accounting for uncertainty in income taxes effective
January 1, 2007.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), The
Medicines Companys internal control over financial
reporting as of December 31, 2008, based on criteria
established in Internal Control-Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway
Commission and our report dated February 25, 2009 expressed
an unqualified opinion thereon.
MetroPark, NJ
February 25, 2009
F-3
Report of
Independent Registered Public Accounting Firm
on Internal Control over Financial Reporting
The Board of Directors and Stockholders of The Medicines
Company
We have audited The Medicines Companys internal control
over financial reporting as of December 31, 2008, based on
criteria established in Internal Control Integrated
Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission (the COSO criteria). The Medicines
Companys management is responsible for maintaining
effective internal control over financial reporting, and for its
assessment of the effectiveness of internal control over
financial reporting included in the accompanying
Managements Report on Consolidated Financial Statements
and Internal Control over Financial Reporting. Our
responsibility is to express an opinion on the companys
internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, The Medicines Company maintained, in all
material respects, effective internal control over financial
reporting as of December 31, 2008, based on the COSO
criteria.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
2008 consolidated financial statements of The Medicines Company
and our report dated February 25, 2009 expressed an
unqualified opinion thereon.
MetroPark, NJ
February 25, 2009
F-4
THE
MEDICINES COMPANY
CONSOLIDATED
BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands, except share and per share amounts)
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
81,018
|
|
|
$
|
88,127
|
|
Available for sale securities
|
|
|
135,188
|
|
|
|
133,986
|
|
Accrued interest receivable
|
|
|
1,336
|
|
|
|
1,598
|
|
Accounts receivable, net of allowances of approximately
$1.9 million and $1.2 million at December 31,
2008 and 2007
|
|
|
33,657
|
|
|
|
25,584
|
|
Inventory
|
|
|
28,229
|
|
|
|
35,468
|
|
Prepaid expenses and other current assets
|
|
|
16,402
|
|
|
|
7,425
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
295,830
|
|
|
|
292,188
|
|
Fixed assets, net
|
|
|
27,331
|
|
|
|
3,245
|
|
Intangible assets, net
|
|
|
16,349
|
|
|
|
14,929
|
|
Restricted cash
|
|
|
5,000
|
|
|
|
5,000
|
|
Deferred tax assets
|
|
|
37,657
|
|
|
|
46,018
|
|
Other assets
|
|
|
5,237
|
|
|
|
136
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
387,404
|
|
|
$
|
361,516
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
12,968
|
|
|
$
|
9,793
|
|
Accrued expenses
|
|
|
66,799
|
|
|
|
73,827
|
|
Deferred revenue
|
|
|
9,612
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
89,379
|
|
|
|
83,620
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Preferred stock, $1.00 par value per share,
5,000,000 shares authorized; no shares issued and
outstanding
|
|
|
|
|
|
|
|
|
Common stock, $.001 par value per share,
125,000,000 shares authorized; 52,280,006 and 51,866,398
issued and outstanding at December 31, 2008 and 2007,
respectively
|
|
|
52
|
|
|
|
52
|
|
Additional paid-in capital
|
|
|
565,083
|
|
|
|
537,027
|
|
Accumulated deficit
|
|
|
(267,948
|
)
|
|
|
(259,444
|
)
|
Accumulated other comprehensive income
|
|
|
838
|
|
|
|
261
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
298,025
|
|
|
|
277,896
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
387,404
|
|
|
$
|
361,516
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-5
THE
MEDICINES COMPANY
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands, except per share amounts)}
|
|
|
Net revenue
|
|
$
|
348,157
|
|
|
$
|
257,534
|
|
|
$
|
213,952
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue
|
|
|
88,355
|
|
|
|
66,502
|
|
|
|
51,812
|
|
Research and development
|
|
|
105,720
|
|
|
|
77,255
|
|
|
|
63,536
|
|
Selling, general and administrative
|
|
|
164,903
|
|
|
|
141,807
|
|
|
|
88,265
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
358,978
|
|
|
|
285,564
|
|
|
|
203,613
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from operations
|
|
|
(10,821
|
)
|
|
|
(28,030
|
)
|
|
|
10,339
|
|
Other income
|
|
|
5,235
|
|
|
|
10,653
|
|
|
|
7,319
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes
|
|
|
(5,586
|
)
|
|
|
(17,377
|
)
|
|
|
17,658
|
|
(Provision for) benefit from income taxes
|
|
|
(2,918
|
)
|
|
|
(895
|
)
|
|
|
46,068
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(8,504
|
)
|
|
$
|
(18,272
|
)
|
|
$
|
63,726
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic (loss) earnings per common share
|
|
$
|
(0.16
|
)
|
|
$
|
(0.35
|
)
|
|
$
|
1.27
|
|
Shares used in computing basic (loss) earnings per common share
|
|
|
51,904
|
|
|
|
51,624
|
|
|
|
50,300
|
|
Diluted (loss) earnings per common share
|
|
$
|
(0.16
|
)
|
|
$
|
(0.35
|
)
|
|
$
|
1.25
|
|
Shares used in computing diluted (loss) earnings per common share
|
|
|
51,904
|
|
|
|
51,624
|
|
|
|
51,034
|
|
See accompanying notes to consolidated financial statements.
F-6
THE
MEDICINES COMPANY
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS EQUITY
For The
Years Ended December 31, 2006, 2007 and 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Comprehensive
|
|
|
Total
|
|
|
|
Common Stock
|
|
|
Paid-in
|
|
|
Accumulated
|
|
|
(Loss)
|
|
|
Stockholders
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Income
|
|
|
Equity
|
|
|
|
(In thousands)
|
|
|
Balance at January 1, 2006
|
|
|
49,724
|
|
|
$
|
50
|
|
|
$
|
476,012
|
|
|
$
|
(304,898
|
)
|
|
$
|
(265
|
)
|
|
$
|
170,899
|
|
Employee stock purchases
|
|
|
1,503
|
|
|
|
1
|
|
|
|
23,964
|
|
|
|
|
|
|
|
|
|
|
|
23,965
|
|
Non-cash stock compensation
|
|
|
|
|
|
|
|
|
|
|
8,459
|
|
|
|
|
|
|
|
|
|
|
|
8,459
|
|
Tax effect of option exercises
|
|
|
|
|
|
|
|
|
|
|
2,641
|
|
|
|
|
|
|
|
|
|
|
|
2,641
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
63,726
|
|
|
|
|
|
|
|
63,726
|
|
Currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23
|
|
|
|
23
|
|
Unrealized gain on available for sale securities (net of tax)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
238
|
|
|
|
238
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
63,987
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2006
|
|
|
51,227
|
|
|
|
51
|
|
|
|
511,076
|
|
|
|
(241,172
|
)
|
|
|
(4
|
)
|
|
|
269,951
|
|
Employee stock purchases
|
|
|
498
|
|
|
|
1
|
|
|
|
9,329
|
|
|
|
|
|
|
|
|
|
|
|
9,330
|
|
Issuance of restricted stock awards
|
|
|
141
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash stock compensation
|
|
|
|
|
|
|
|
|
|
|
15,386
|
|
|
|
|
|
|
|
|
|
|
|
15,386
|
|
Tax effect of option exercises
|
|
|
|
|
|
|
|
|
|
|
1,236
|
|
|
|
|
|
|
|
|
|
|
|
1,236
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(18,272
|
)
|
|
|
|
|
|
|
(18,272
|
)
|
Currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
72
|
|
|
|
72
|
|
Unrealized gain on available for sale securities (net of tax)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
193
|
|
|
|
193
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(18,007
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
|
51,866
|
|
|
|
52
|
|
|
|
537,027
|
|
|
|
(259,444
|
)
|
|
|
261
|
|
|
|
277,896
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee stock purchases
|
|
|
321
|
|
|
|
|
|
|
|
5,541
|
|
|
|
|
|
|
|
|
|
|
|
5,541
|
|
Issuance of restricted stock awards
|
|
|
93
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash stock compensation
|
|
|
|
|
|
|
|
|
|
|
22,798
|
|
|
|
|
|
|
|
|
|
|
|
22,798
|
|
Tax effect of option exercises
|
|
|
|
|
|
|
|
|
|
|
(283
|
)
|
|
|
|
|
|
|
|
|
|
|
(283
|
)
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,504
|
)
|
|
|
|
|
|
|
(8,504
|
)
|
Currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(52
|
)
|
|
|
(52
|
)
|
Unrealized gain on available for sale securities (net of tax)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
629
|
|
|
|
629
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,927
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
|
52,280
|
|
|
$
|
52
|
|
|
$
|
565,083
|
|
|
$
|
(267,948
|
)
|
|
$
|
838
|
|
|
$
|
298,025
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-7
THE
MEDICINES COMPANY
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(8,504
|
)
|
|
$
|
(18,272
|
)
|
|
$
|
63,726
|
|
Adjustments to reconcile net (loss) income to net cash provided
by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
2,932
|
|
|
|
1,586
|
|
|
|
1,465
|
|
Acquired in-process research and development
|
|
|
21,373
|
|
|
|
|
|
|
|
|
|
Amortization of net premiums and discounts on available for sale
securities
|
|
|
113
|
|
|
|
(1,093
|
)
|
|
|
(1,160
|
)
|
Unrealized foreign currency transaction losses, net
|
|
|
580
|
|
|
|
|
|
|
|
|
|
Non-cash stock compensation expense
|
|
|
22,798
|
|
|
|
15,386
|
|
|
|
8,459
|
|
Loss on disposal of fixed assets
|
|
|
33
|
|
|
|
33
|
|
|
|
244
|
|
Loss on available for sale securities
|
|
|
33
|
|
|
|
2
|
|
|
|
|
|
Deferred tax provision (benefit)
|
|
|
1,803
|
|
|
|
|
|
|
|
(49,200
|
)
|
Tax effect of option exercises
|
|
|
(283
|
)
|
|
|
1,236
|
|
|
|
2,641
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued interest receivable
|
|
|
262
|
|
|
|
(184
|
)
|
|
|
(492
|
)
|
Accounts receivable
|
|
|
(6,375
|
)
|
|
|
(4,080
|
)
|
|
|
(6,893
|
)
|
Inventory
|
|
|
6,890
|
|
|
|
6,160
|
|
|
|
6,357
|
|
Prepaid expenses and other current assets
|
|
|
(2,475
|
)
|
|
|
5,538
|
|
|
|
(3,825
|
)
|
Other assets
|
|
|
|
|
|
|
(4,983
|
)
|
|
|
|
|
Accounts payable
|
|
|
3,315
|
|
|
|
907
|
|
|
|
2,896
|
|
Accrued expenses
|
|
|
(14,006
|
)
|
|
|
36,675
|
|
|
|
8,231
|
|
Deferred revenue
|
|
|
9,588
|
|
|
|
(2,814
|
)
|
|
|
(328
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
38,077
|
|
|
|
36,097
|
|
|
|
32,121
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of available for sale securities
|
|
|
(161,822
|
)
|
|
|
(148,954
|
)
|
|
|
(149,852
|
)
|
Maturities and sales of available for sale securities
|
|
|
161,505
|
|
|
|
137,541
|
|
|
|
144,347
|
|
Purchases of fixed assets
|
|
|
(19,395
|
)
|
|
|
(1,571
|
)
|
|
|
(790
|
)
|
Proceeds from sale of fixed assets
|
|
|
|
|
|
|
9
|
|
|
|
|
|
Acquisition of intangible assets
|
|
|
(2,000
|
)
|
|
|
(14,929
|
)
|
|
|
|
|
Investment in pharmaceutical company
|
|
|
(5,000
|
)
|
|
|
|
|
|
|
|
|
Acquisition of business, net of cash acquired
|
|
|
(23,534
|
)
|
|
|
|
|
|
|
|
|
Increase in restricted cash
|
|
|
|
|
|
|
(5,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(50,246
|
)
|
|
|
(32,904
|
)
|
|
|
(6,295
|
)
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuances of common stock, net
|
|
|
5,542
|
|
|
|
9,330
|
|
|
|
23,965
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
5,542
|
|
|
|
9,330
|
|
|
|
23,965
|
|
Effect of exchange rate changes on cash
|
|
|
(482
|
)
|
|
|
74
|
|
|
|
33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Decrease) increase in cash and cash equivalents
|
|
|
(7,109
|
)
|
|
|
12,597
|
|
|
|
49,824
|
|
Cash and cash equivalents at beginning of period
|
|
|
88,127
|
|
|
|
75,530
|
|
|
|
25,706
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
81,018
|
|
|
$
|
88,127
|
|
|
$
|
75,530
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxes paid
|
|
$
|
2,518
|
|
|
$
|
769
|
|
|
$
|
395
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of non-cash investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed asset additions included in current liabilities
|
|
$
|
6,327
|
|
|
$
|
308
|
|
|
$
|
76
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-8
THE
MEDICINES COMPANY
The Medicines Company (the Company) was incorporated in Delaware
on July 31, 1996. The Company is a global pharmaceutical
company focused on advancing the treatment of critical care
patients through the delivery of innovative, cost-effective
medicines to the worldwide hospital marketplace. The Company has
two marketed products,
Angiomax®
(bivalirudin) and
Cleviprex®
(clevidipine butyrate) injectable emulsion, two products in
late-stage development, cangrelor and oritavancin (which the
Company acquired in February 2009, see Note 19), and one
compound, CU-2010, scheduled to enter clinical development in
2009. The Company believes that Angiomax, Cleviprex and its
three product candidates share common features valued by
hospital practitioners, including a high level of
pharmacological specificity, potency and predictability. The
Company believes that Angiomax, Cleviprex and its three product
candidates possess favorable attributes that competitive
products do not provide, can satisfy unmet medical needs in the
critical care hospital product market and offer improved
performance to hospital businesses.
The Company markets Angiomax, an intravenous direct thrombin
inhibitor, primarily in the United States and Europe (under the
name
Angiox®
(bivalirudin)) to interventional cardiology customers for its
approved uses in patients undergoing percutaneous coronary
intervention (PCI), including in patients with or at risk of
heparin-induced thrombocytopenia and thrombosis syndrome, a
complication of heparin administration known as HIT/HITTS that
can result in limb amputation, multi organ failure
and death. In Europe, the Company also markets Angiomax for use
in adult patients with acute coronary syndrome (ACS). The
Company markets Cleviprex to anesthesiology/surgery, critical
care and emergency department practitioners in the United States
for its approved use for the reduction of blood pressure when
oral therapy is not feasible or not desirable. Cleviprex is not
approved for use outside of the United States. The Company
intends to continue to develop Angiomax and Cleviprex for use in
additional patient populations.
In addition to Angiomax and Cleviprex, the Company is currently
developing three other pharmaceutical products as potential
critical care hospital products. The first of these, cangrelor,
is an intravenous antiplatelet agent that is intended to prevent
platelet activation and aggregation, which the Company believes
has potential advantages in the treatment of vascular disease.
The Company is currently conducting Phase III clinical
trials of cangrelor. The second, oritavancin, is a novel
intravenous antibiotic, which the Company is developing for the
treatment of serious gram-positive bacterial infections,
including complicated skin and skin structure infections
(cSSSI), bacteremia, which is an infection of the bloodstream,
and other possible indications. The Company acquired oritavancin
in February 2009 in connection with its acquisition of Targanta
Therapeutics Corporation (Targanta), which made Targanta a
wholly owned subsidiary. The Company plans to consult with
regulatory authorities with a view to initiating a confirmatory
Phase III study of oritavancin given as a single dose
infusion as well as the daily dosing regimen examined in the
previous Phase III trial. The third,
CU-2010, is
a small molecule serine protease inhibitor that the Company is
developing for the prevention of blood loss during surgery. The
Company acquired CU-2010 in August 2008 in connection with its
acquisition of Curacyte Discovery GmbH (Curacyte Discovery). The
Company expects to initiate Phase I clinical trials of CU-2010
in 2009.
The Company has historically focused its commercial sales and
marketing resources on the U.S. hospital market, with
revenues to date being generated principally from sales of
Angiomax in the United States. Prior to July 1, 2007, the
Company relied on third-party distributors to market and
distribute Angiomax outside the United States. On July 1,
2007, the Company entered into a series of agreements with
Nycomed Danmark ApS (Nycomed), pursuant to which the Company
terminated its distribution agreement with Nycomed and
reacquired all rights held by Nycomed with respect to the
distribution and marketing of Angiox in the European Union
(excluding Spain, Portugal and Greece) and the former Soviet
republics (the Nycomed territory). Under these arrangements, the
Company assumed control of the marketing of Angiox immediately
and control of the distribution of Angiox in the majority of the
countries in the Nycomed territory during the third quarter of
2008 and the remainder of the countries in the Nycomed territory
by December 31, 2008. The
F-9
THE
MEDICINES COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Companys initial focus outside the United States is on the
four largest markets in Europe, Germany, France, Italy and the
United Kingdom, which, like the United States, have a
concentration of hospitals that conduct a large percentage of
critical care procedures. Prior to reacquiring the rights to
Angiox in the Nycomed territory, the Company initiated research
to understand the PCI market, as well as the hypertension
market, on a global basis, including profiling hospitals and
identifying key opinion leaders. Since reacquiring these rights,
the Company has developed a business infrastructure to conduct
the international sales and marketing of Angiox, including the
formation of subsidiaries in Switzerland, Germany, France and
Italy. The Company also obtained the licenses and authorizations
necessary to distribute the products in the various countries in
Europe, hired new personnel and entered into third-party
arrangements to provide services, such as importation,
packaging, quality control and distribution. The Company
believes that by establishing operations in Europe for Angiox,
the Company will be positioned to commercialize its pipeline of
critical care product candidates, including Cleviprex,
cangrelor, oritavancin and CU-2010, in Europe, if and when they
are approved.
|
|
2.
|
Significant
Accounting Policies
|
Basis
of Presentation
The consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries. All significant
intercompany balances and transactions have been eliminated in
consolidation. The Company has no unconsolidated subsidiaries or
investments accounted for under the equity method.
Use of
Estimates
The preparation of financial statements in conformity with
U.S. generally accepted accounting principles (GAAP)
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Risks
and Uncertainties
The Company is subject to risks common to companies in the
pharmaceutical industry including, but not limited to,
uncertainties related to commercialization of products,
regulatory approvals, dependence on key products, dependence on
key customers and suppliers, and protection of intellectual
property rights.
Concentrations
of Credit Risk
Financial instruments that potentially subject the Company to
concentration of credit risk include cash, cash equivalents,
available for sale securities and accounts receivable. The
Company believes it minimizes its exposure to potential
concentrations of credit risk by placing investments in
high-quality financial instruments with high quality
institutions. At December 31, 2008, approximately
$32.4 million of the Companys cash and cash
equivalents was invested in a single fund, the Dreyfus Treasury
and Agency Money Market Fund, a no-load money market fund with
Capital Advisors Group. At December 31, 2007, approximately
$68.1 million of the Companys cash and cash
equivalents was invested in a single fund, the Evergreen
Institutional Money Market Fund, a no-load money market fund,
with the Capital Advisors Group.
In March 2007, the Company began selling Angiomax in the United
States to a sole source distributor. The Company began selling
Cleviprex to the same sole source distributor in September 2008.
The Companys sole source distributor accounted for 96% of
its net revenue for the year ended December 31, 2008. At
December 31, 2008, amounts due from the sole source
distributor represented approximately $32.4 million, or
90%, of gross accounts receivable. From January 2007 through
March 2007, the Company sold Angiomax primarily to a limited
number of domestic wholesalers with distribution centers located
throughout the United States and to several international
distributors. The sole source distributor and the Companys
two
F-10
THE
MEDICINES COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
domestic wholesaler customers, AmerisourceBergen Drug
Corporation and Cardinal Health, Inc., accounted for 82%, 7% and
7%, respectively, of the Companys net revenue for the year
ended December 31, 2007. At December 31, 2007, amounts
due from the sole source distributor and the Companys two
domestic wholesaler customers to the Company represented
approximately $25.3 million, or 93%, of the Companys
gross accounts receivable. During 2006, net revenue from the
Companys three domestic wholesaler customers, which
included McKesson Corporation, totaled approximately 88% of net
revenue. The Companys trade accounts receivable are
reported net of allowances for chargebacks, cash discounts,
doubtful accounts and fees-for service due to the Companys
customers. The Company performs ongoing credit evaluations of
its customers and generally does not require collateral. The
Company maintains reserves for potential credit losses and,
during 2008 and 2007, such losses were within the expectations
of management.
Cash,
Cash Equivalents and Available for Sale Securities
The Company considers all highly liquid investments purchased
with original maturities at the date of purchase of three months
or less to be cash equivalents. Cash and cash equivalents
included cash of $46.9 million and $20.0 million at
December 31, 2008 and December 31, 2007, respectively.
Cash and cash equivalents at December 31, 2008 and
December 31, 2007 included investments of
$34.1 million and $68.1 million, respectively, in
money market funds and commercial paper with original maturities
of less than three months. These investments are carried at
cost, which approximates fair value. The Company measures all
original maturities from the date the investment was originally
purchased by the Company.
The Company considers securities with original maturities of
greater than three months to be available for sale securities.
Securities under this classification are recorded at fair market
value and unrealized gains and losses are recorded as a separate
component of stockholders equity. The estimated fair value
of the available for sale securities is determined based on
quoted market prices or rates for similar instruments. In
addition, the cost of debt securities in this category is
adjusted for amortization of premium and accretion of discount
to maturity. The Company evaluates securities with unrealized
losses to determine whether such losses are other than temporary.
At December 31, 2008 and December 31, 2007, the
Company held available for sale securities with fair value
totaling $135.2 million and $134.0 million,
respectively. These available for sale securities included
various United States government agency notes, corporate debt
securities and asset backed securities. At December 31,
2008 and 2007, all of the Companys available for sale
securities had maturities within one year.
Available for sale securities, including estimated fair values,
are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
|
Cost
|
|
|
Gain
|
|
|
Fair Value
|
|
|
|
(In thousands)
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government agency notes
|
|
$
|
107,513
|
|
|
$
|
978
|
|
|
$
|
108,491
|
|
Corporate debt securities
|
|
|
26,487
|
|
|
|
210
|
|
|
|
26,697
|
|
Total
|
|
$
|
134,000
|
|
|
$
|
1,188
|
|
|
$
|
135,188
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
|
Cost
|
|
|
Gain (Loss)
|
|
|
Fair Value
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government agency notes
|
|
$
|
79,301
|
|
|
$
|
158
|
|
|
$
|
79,459
|
|
Corporate debt securities
|
|
|
32,870
|
|
|
|
(90
|
)
|
|
|
32,780
|
|
Asset backed securities
|
|
|
21,659
|
|
|
|
88
|
|
|
|
21,747
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
133,830
|
|
|
$
|
156
|
|
|
$
|
133,986
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-11
THE
MEDICINES COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Fair
Value Measurements
On January 1, 2008, the Company adopted the provisions of
Statement of Financial Accounting Standards (SFAS) No. 157,
Fair Value Measurement
(SFAS No. 157) for financial assets and
liabilities. As permitted by Financial Accounting Standards
Board (FASB) Staff Position
157-2
(FSP 157-2),
the Company elected to defer until January 1, 2009 the
adoption of SFAS No. 157 for all nonfinancial assets
and nonfinancial liabilities, except those that are recognized
or disclosed at fair value in the financial statements on a
recurring basis. SFAS No. 157 provides a framework for
measuring fair value under GAAP and requires expanded
disclosures regarding fair value measurements.
SFAS No. 157 defines fair value as the exchange price
that would be received for an asset or paid to transfer a
liability (an exit price) in the principal or most advantageous
market for the asset or liability in an orderly transaction
between market participants on the measurement date.
SFAS No. 157 also establishes a fair value hierarchy
that requires an entity to maximize the use of observable
inputs, where available, and minimize the use of unobservable
inputs when measuring fair value. The standard describes three
levels of inputs that may be used to measure fair value:
Level 1 Quoted prices in active markets for
identical assets or liabilities. The Companys Level 1
assets and liabilities include investments in available for sale
securities.
Level 2 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 assets or
liabilities. At December 31, 2008, the Company did not have
any Level 2 assets or liabilities.
Level 3 Unobservable inputs that are supported by
little or no market activity and that are significant to the
fair value of the assets or liabilities. At December 31,
2008, the Company did not have any Level 3 assets or
liabilities.
The following table sets forth the Companys financial
assets that were measured at fair value on a recurring basis at
December 31, 2008 by level within the fair value hierarchy.
The Company did not have any nonfinancial assets or liabilities
that were measured or disclosed at fair value on a recurring
basis at December 31, 2008. As required by
SFAS No. 157, assets and liabilities measured at fair
value are classified in their entirety based on the lowest level
of input that is significant to the fair value measurement. The
Companys assessment of the significance of a particular
input to the fair value measurement in its entirety requires
judgment and considers factors specific to the asset or
liability:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
Quoted Prices In
|
|
|
Other
|
|
|
Significant
|
|
|
|
|
|
|
Active Markets for
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
|
|
|
Identical Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
Balance at
|
|
Assets
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
December 31, 2008
|
|
|
|
(In thousands)
|
|
|
Available for sale securities
|
|
$
|
135,188
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
135,188
|
|
Investments
The Company accounts for its investment in a minority interest
of a company over which it does not exercise significant
influence on the cost method in accordance with Accounting
Principles Board (APB) No. 18, The Equity Method of
Accounting for Investments in Common Stock. Under the cost
method, an investment is carried at cost until it is sold or
there is evidence that changes in the business environment or
other facts and circumstances suggest it may be other than
temporarily impaired based on criteria outlined in
FAS Staff Position Nos.
FAS 115-1
and
FAS 124-1
and on Emerging Issues Task Force Issue
No. 03-1,
The Meaning of Other-Than-Temporary Impairment and its
Application to Certain Investments. These non-marketable
securities have been classified as investments and included in
other assets on the consolidated balance sheets.
F-12
THE
MEDICINES COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Restricted
Cash
On October 11, 2007, the Company entered into a new lease
for office space in Parsippany, New Jersey. The Company
relocated its principal executive offices to the new space in
the first quarter of 2009. Restricted cash of $5.0 million
at December 31, 2008 and December 31, 2007, which is
included in other assets on the consolidated balance sheets,
collateralizes outstanding letters of credit associated with
such lease. The funds are invested in certificates of deposit.
Under the lease, the Company agreed to increase the amount of
the letter of credit on the Phase I Estimated Commencement Date,
as defined in the lease, by an additional $3.0 million for
a total letter of credit of $8.0 million. The Phase I
Commencement date occurred during the fourth quarter of 2008 and
the Company anticipates increasing the letter of credit to
$8.0 million in the first quarter of 2009. The letter of
credit permits draws by the landlord to cure defaults by the
Company. The amount of the letter of credit is subject to
reduction upon the achievement of certain regulatory and
operational milestones relating to the Companys products.
However, in no event will the amount of the letter of credit be
reduced below approximately $1.0 million.
Revenue
Recognition
Product Sales. The Company distributes
Angiomax and Cleviprex in the United States through a sole
source distribution model. Under this model, the Company sells
Angiomax and Cleviprex to its sole source distributor, which
then sells Angiomax and Cleviprex to a limited number of
national medical and pharmaceutical wholesalers with
distribution centers located throughout the United States and in
certain cases, directly to hospitals. Prior to March 2007, the
Company sold Angiomax to these wholesalers directly and these
wholesalers then sold Angiomax to hospitals. Outside of the
United States, the Company sells Angiomax either directly to
hospitals or to wholesalers or international distributors, which
then sell Angiomax to hospitals. As of December 31, 2008,
the Company had deferred revenue of $0.4 million associated
with sales to wholesalers outside of the United States. The
Company recognizes revenue from such sales when hospitals
purchase the product.
The Company does not recognize revenue from product sales until
there is persuasive evidence of an arrangement, delivery has
occurred, the price is fixed and determinable, the buyer is
obligated to pay the Company, the obligation to pay is not
contingent on resale of the product, the buyer has economic
substance apart from the Company, the Company has no obligation
to bring about the sale of the product, the amount of returns
can be reasonably estimated and collectibility is reasonably
assured.
Initial gross wholesaler orders of Cleviprex in the United
States in the third quarter of 2008 totaled $10.0 million.
The Company recorded this amount as deferred revenue as the
Company could not estimate certain adjustments to gross revenue,
including returns. Under this deferred revenue model, the
Company does not recognize revenue upon product shipment to its
sole source distributor. Instead, upon product shipment, the
Company invoices its sole source distributor, records deferred
revenue at gross invoice sales price, classifies the cost basis
of the product held by the sole source distributor as finished
goods inventory held by others and includes such cost basis
amount within prepaid expenses and other current assets on its
consolidated balance sheets. The Company recognized
$0.4 million of revenue associated with Cleviprex during
the fourth quarter of 2008 related to purchases by hospitals.
The Company expects to recognize revenue when hospitals purchase
product. The Company expects to recognize Cleviprex revenue upon
shipment to its sole source distributor in the same manner as it
recognizes Angiomax revenue when it has sufficient information
to develop reasonable estimates of expected returns and other
adjustments to gross revenue.
The Company records allowances for chargebacks and other
discounts or accruals for product returns, rebates and
fee-for-service charges at the time of sale, and reports revenue
net of such amounts. In determining the amounts of certain
allowances and accruals, the Company must make significant
judgments and estimates. For example, in determining these
amounts, the Company estimates hospital demand, buying patterns
by hospitals and group purchasing organizations from wholesalers
and the levels of inventory held by wholesalers
F-13
THE
MEDICINES COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
and by its sole source distributor. Making these determinations
involves estimating whether trends in past wholesaler and
hospital buying patterns will predict future product sales. The
Company receives data periodically from its sole source
distributor and wholesalers on inventory levels and levels of
hospital purchases and the Company considers this data in
determining the amounts of these allowances and accruals.
The nature of the Companys allowances and accruals
requiring critical estimates, and the specific considerations it
uses in estimating their amounts are as follows.
|
|
|
|
|
Product returns. The Companys customers
have the right to return any unopened product during the
18-month
period beginning six months prior to the labeled expiration date
and ending 12 months after the labeled expiration date. As
a result, in calculating the accrual for product returns, the
Company must estimate the likelihood that product sold might not
be used within six months of expiration and analyze the
likelihood that such product will be returned within
12 months after expiration.
|
In estimating the likelihood of product being returned, the
Company relies on information from the sole source distributor
and wholesalers regarding inventory levels, measured hospital
demand as reported by third-party sources and internal sales
data. The Company also considers the past buying patterns of the
sole source distributor and wholesalers, the estimated remaining
shelf life of product previously shipped and the expiration
dates of product currently being shipped.
At December 31, 2008 and December 31, 2007, the
Companys accrual for product returns was $1.0 million
and $3.1 million, respectively. Included within the accrual
at December 31, 2008 and December 31, 2007 is a
reserve of $0.8 million and $3.0 million,
respectively, that the Company established for existing
inventory at Nycomed that Nycomed has the right to return at any
time. A 10% change in the Companys accrual for Angiomax
product returns would have had an approximate $0.1 million
effect on the Companys reported net revenue for the year
ended December 31, 2008.
|
|
|
|
|
Chargebacks and rebates. Although the Company
primarily sells products to a sole source distributor in the
United States, the Company typically enters into agreements with
hospitals, either directly or through group purchasing
organizations acting on behalf of their hospital members, in
connection with the hospitals purchases of products. Based
on these agreements, most of the Companys hospital
customers have the right to receive a discounted price for
products and volume-based rebates on product purchases. In the
case of discounted pricing, the Company typically provides a
credit to the sole source distributor, or a chargeback,
representing the difference between the sole source
distributors acquisition list price and the discounted
price. In the case of the volume-based rebates, the Company
typically pays the rebate directly to the hospitals.
|
As a result of these agreements, at the time of product
shipment, the Company estimates the likelihood that product sold
to the sole source distributor might be ultimately sold to a
contracting hospital or group purchasing organization. The
Company also estimates the contracting hospitals or group
purchasing organizations volume of purchases.
The Company bases its estimates on certain industry data,
hospital purchases and the historic chargeback data it receives
from its sole source distributor, most of which the sole source
distributor receives from wholesalers, which detail historic
buying patterns and sales mix for particular hospitals and group
purchasing organizations, and the applicable customer chargeback
rates and rebate thresholds.
The Companys allowance for chargebacks was
$1.2 million and $0.6 million at December 31,
2008 and December 31, 2007, respectively. A 10% change in
the Companys allowance for chargebacks would have had an
approximate $0.1 million effect on the Companys
reported net revenue for the year ended December 31, 2008.
The Companys accrual for rebates was $0.4 million at
December 31, 2008 and $1.7 million at
December 31, 2007. A 10% change in the Companys
accrual for rebates would
F-14
THE
MEDICINES COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
have had an approximate $0.1 million effect on the
Companys reported net revenue for the year ended
December 31, 2008.
|
|
|
|
|
Fees-for-service. The Company offers discounts
to certain wholesalers and its sole source distributor based on
contractually determined rates for certain services. The Company
estimates its fee-for-service accruals and allowances based on
historical sales, wholesaler and distributor inventory levels
and the applicable discount rate. The Companys discounts
are accrued at the time of the sale and are typically settled
with the wholesalers or sole source distributor within
60 days after the end of each respective quarter. The
Companys fee-for-service accruals and allowances were
$2.0 million and $1.7 million at December 31,
2008 and December 31, 2007, respectively. A 10% change in
the Companys fee-for-service accruals and allowances would
have had an approximate $0.2 million effect on the
Companys reported net revenue for the year ended
December 31, 2008.
|
The Company has adjusted its allowances for chargebacks and
accruals for product returns, rebates and fees-for-service in
the past based on actual sales experience, and the Company will
likely be required to make adjustments to these allowances and
accruals in the future. The Company continually monitors its
allowances and accruals and makes adjustments when the Company
believes actual experience may differ from its estimates. The
allowances included in the table below reflect these adjustments.
The following table provides a summary of activity with respect
to the Companys sales allowances and accruals during 2008,
2007 and 2006 (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees-for-
|
|
|
|
Returns
|
|
|
Chargebacks
|
|
|
Rebates
|
|
|
Service
|
|
|
Balance at January 1, 2006
|
|
$
|
217
|
|
|
$
|
506
|
|
|
$
|
1,454
|
|
|
$
|
105
|
|
2006 allowances
|
|
|
404
|
|
|
|
4,240
|
|
|
|
2,247
|
|
|
|
7,063
|
|
Actual credits issued for prior years sales
|
|
|
(212
|
)
|
|
|
(737
|
)
|
|
|
(1,318
|
)
|
|
|
(103
|
)
|
Actual credits issued for sales during 2006
|
|
|
(8
|
)
|
|
|
(3,681
|
)
|
|
|
(1,549
|
)
|
|
|
(5,291
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2006
|
|
|
401
|
|
|
|
328
|
|
|
|
834
|
|
|
|
1,774
|
|
2007 allowances
|
|
|
3,132
|
|
|
|
4,485
|
|
|
|
4,571
|
|
|
|
4,507
|
|
Actual credits issued for prior years sales
|
|
|
(459
|
)
|
|
|
(427
|
)
|
|
|
(849
|
)
|
|
|
(929
|
)
|
Actual credits issued for sales during 2007
|
|
|
(14
|
)
|
|
|
(3,789
|
)
|
|
|
(2,894
|
)
|
|
|
(3,695
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
|
3,060
|
|
|
|
597
|
|
|
|
1,662
|
|
|
|
1,657
|
|
2008 allowances
|
|
|
(1,824
|
)
|
|
|
5,751
|
|
|
|
1,413
|
|
|
|
6,562
|
|
Actual credits issued for prior years sales
|
|
|
(261
|
)
|
|
|
(720
|
)
|
|
|
(1,397
|
)
|
|
|
(721
|
)
|
Actual credits issued for sales during 2008
|
|
|
|
|
|
|
(4,442
|
)
|
|
|
(1,247
|
)
|
|
|
(5,542
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
$
|
975
|
|
|
$
|
1,186
|
|
|
$
|
431
|
|
|
$
|
1,956
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included within the 2007 allowances above is the reserve of
$3.0 million that the Company recorded during the fourth
quarter of 2007 for the existing inventory at Nycomed which the
Company did not believe would be sold prior to the termination
of the transitional distribution agreement and would be subject
to purchase in accordance with the agreement. During 2008, the
Company reduced the reserve by $2.2 million as Nycomed sold
a portion of the existing inventory during the year. Such amount
is included within the 2008 allowances above. The Company will
reimburse Nycomed $0.8 million for the final amount of
inventory held by Nycomed at December 31, 2008.
International Distributors. Under the
Companys agreements with its primary international
distributors, including Nycomed under the distribution agreement
that was terminated in July 2007, the Company sells its product
to these distributors at a fixed transfer price. The established
transfer price is typically determined
F-15
THE
MEDICINES COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
once per year, prior to the first shipment of Angiomax to the
distributor each year. The minimum selling price used in
determining the transfer price is 50% of the average net unit
selling price.
Revenue from the sale of distribution rights during 2007
includes the amortization of milestone payments. These milestone
payments are recorded as deferred revenue until contractual
performance obligations have been satisfied, and they are
typically recognized ratably over the term of these agreements.
When the period of deferral cannot be specifically identified
from the contract, the Company must estimate the period based
upon other critical factors contained within the contract. The
Company reviews these estimates at least annually, which could
result in a change in the deferral period. In connection with
the Nycomed transaction (described in note 8 of these notes
to the consolidated financial statements), the Company wrote-off
approximately $2.7 million of deferred revenue during the
third quarter of 2007, which amount represented the unamortized
portion of deferred revenue related to milestone payments
received from Nycomed in 2004 and 2002.
Revenue associated with sales to the Companys
international distributors during 2008, 2007 and 2006 was
$6.6 million, $0.1 million and $11.3 million,
respectively. During 2007, international net revenue was reduced
by $3.0 million, which represented a reserve for existing
inventory at Nycomed because the Company did not believe that
such inventory would be sold by Nycomed prior to the termination
of the Companys transitional distribution agreement with
Nycomed and because such inventory was subject to return. During
2008, the Company reduced the Nycomed inventory reserve by
$2.2 million as Nycomed sold a portion of its existing
inventory during the year. Such amounts are included in the
$6.6 million of revenue associated with sales to the
Companys international distributors during 2008.
Reimbursement Revenue. In collaboration with a
third party, in 2006 the Company paid fees for services rendered
by a research organization and other out-of-pocket costs for
which the Company was reimbursed at cost, without
mark-up or
profits. The Company accounts for these arrangements using FASB
EITF 01-14
Income Statement Characterization of Reimbursements
Received for Out-of-Pocket Expenses Incurred
(EITF 01-14)
and FASB
EITF 99-19
Reporting Revenue Gross as a Principal versus Net as an
Agent
(EITF 99-19).
The reimbursements received have been reported as part of net
revenue on the Companys consolidated statements of
operations. The fees for the services rendered and the
out-of-pocket costs have been included in research and
development expenses.
Revenue from Collaborations. Under the terms
of the transitional distribution agreement with Nycomed, the
Company is entitled to receive a specified percentage of
Nycomeds net sales of Angiox to third parties. In the
event the Angiox sold was purchased by Nycomed from the Company
prior to July 1, 2007, the amount the Company is entitled
to receive in connection with such sale is reduced by the amount
previously paid by Nycomed to the Company for such product.
Accordingly, revenue related to the transitional distribution
agreement with Nycomed is not recognized until the product is
sold by Nycomed to a hospital customer. For the year ended
December 31, 2008, the Company recorded $3.8 million
of net revenue from sales made by Nycomed of approximately
$8.2 million under the transitional distribution agreement.
Cost
of Revenue
Cost of revenue consists of expenses in connection with the
manufacture of Angiomax and Cleviprex sold, royalty expenses
under the Companys agreements with Biogen Idec, Inc.,
Health Research Inc. and AstraZeneca and the logistics costs of
selling Angiomax and Cleviprex, such as distribution, storage
and handling.
Advertising
Costs
The Company expenses advertising costs as incurred. Advertising
costs were approximately $5.5 million, $4.2 million
and $2.7 million for the years ended December 31,
2008, 2007, and 2006, respectively.
F-16
THE
MEDICINES COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Inventory
The Company records inventory upon the transfer of title from
the Companys vendors. Inventory is stated at the lower of
cost or market value and valued using
first-in,
first-out methodology. Angiomax and Cleviprex bulk substance is
classified as raw materials and its costs are determined using
acquisition costs from the Companys contract
manufacturers. The Company records
work-in-progress
costs of filling, finishing and packaging against specific
product batches. The Company obtains all of its Angiomax bulk
drug substance from Lonza Braine, S.A. Under the terms of the
Companys agreement with Lonza Braine, the Company provides
forecasts of its annual needs for Angiomax bulk substance
18 months in advance. The Company also has a separate
agreement with Ben Venue Laboratories, Inc. for the fill-finish
of Angiomax drug product. The Company obtains all of its
Cleviprex bulk drug substance from Johnson Matthey Pharma
Services and also has a separate agreement with Hospira, Inc.
for the fill-finish of Cleviprex drug product.
The major classes of inventory were as follows:
|
|
|
|
|
|
|
|
|
Inventory
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Raw materials
|
|
$
|
10,003
|
|
|
$
|
18,573
|
|
Work-in-progress
|
|
|
10,334
|
|
|
|
11,130
|
|
Finished goods
|
|
|
7,892
|
|
|
|
5,765
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
28,229
|
|
|
$
|
35,468
|
|
|
|
|
|
|
|
|
|
|
The Company reviews inventory, including inventory purchase
commitments, for slow moving or obsolete amounts based on
expected revenues. As of December 31, 2008, the Company has
an inventory obsolescence reserve of $0.5 million related
to Cleviprex. If annual revenues are less than expected, the
Company may be required to make additional allowances for excess
or obsolete inventory in the future.
Fixed
Assets
Fixed assets are stated at cost. Depreciation is provided using
the straight-line method based on estimated useful lives or, in
the case of leasehold improvements, over the lesser of the
useful lives or the lease terms.
Impairment
of Long-Lived Assets
The Company evaluates the recoverability of its long-lived
assets, including amortizable intangible assets, if
circumstances indicate an impairment may have occurred pursuant
to Statement of Financial Accounting Standards (SFAS)
No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets. This analysis is performed by comparing
the respective carrying values of the assets to the current and
expected future cash flows, on an undiscounted basis, to be
generated from such assets. If such analysis indicates that the
carrying value of these assets is not recoverable, the carrying
value of such assets is reduced to fair value through a charge
to the consolidated statements of operations.
Research
and Development
Research and development costs are expensed as incurred.
Stock-Based
Compensation
Effective January 1, 2006, the Company adopted the fair
value recognition provisions of FASB Statement No. 123
(revised 2004) Share-Based Payment
(SFAS No. 123(R)), and recognizes expense using the
accelerated expense attribution method specified in FASB
Interpretation No. (FIN) 28, Accounting for Stock
Appreciation Rights and Other Variable Stock Option or Award
Plans (FIN 28). SFAS No. 123(R) requires
companies to recognize compensation expense in an amount equal
to the fair value of all share-based awards granted to employees.
F-17
THE
MEDICINES COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Expected volatilities are based on historic volatility of the
Companys common stock as well as implied volatilities of
peer companies in the life science industry over a range of
periods from 12 to 60 months and other factors. The Company
uses historical data to estimate forfeiture rate. The expected
term of options represents the period of time that options
granted are expected to be outstanding. The Company has made a
determination of expected term by analyzing employees
historical exercise experience and has made estimates of future
exercises of unexercised options based on the midpoint between
the vesting date and end of the contractual term. The risk-free
interest rate is based on the U.S. Treasury yield in effect
at the time of grant corresponding with the expected life of the
options.
For purposes of applying SFAS No. 123(R), the Company
estimated the fair value of each option on the date of grant
using the Black-Scholes closed-form option-pricing model
applying the weighted average assumptions in the following
table. The Company allocated this fair value to compensation
expense using the accelerated expense attribution method
specified in FIN 28.
For purposes of performing the valuation, employees were
separated into two groups according to patterns of historical
exercise behavior; the weighted average assumptions below
include assumptions from the two groups of employees exhibiting
different behavior.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Expected dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
Expected stock price volatility
|
|
|
45
|
%
|
|
|
49
|
%
|
|
|
46
|
%
|
Risk-free interest rate
|
|
|
2.78
|
%
|
|
|
4.49
|
%
|
|
|
4.77
|
%
|
Expected option term (years)
|
|
|
4.89
|
|
|
|
4.85
|
|
|
|
3.49
|
|
The fair value of each option element of the Companys 2000
Employee Stock Purchase Plan (the 2000 ESPP) is estimated on the
date of grant using the Black-Scholes closed-form option-pricing
model applying the weighted average assumptions in the following
table. Expected volatilities are based on historical volatility
of the Companys common stock. Expected term represents the
six-month offering period for the 2000 ESPP. The risk-free
interest rate is based on the U.S. Treasury yield curve in
effect at the time of grant.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Expected dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
Expected stock price volatility
|
|
|
39
|
%
|
|
|
33
|
%
|
|
|
36
|
%
|
Risk-free interest rate
|
|
|
2.04
|
%
|
|
|
5.08
|
%
|
|
|
4.85
|
%
|
Expected option term (years)
|
|
|
0.5
|
|
|
|
0.5
|
|
|
|
0.5
|
|
Translation
of Foreign Currencies
The functional currencies of the Companys foreign
subsidiaries are the local currencies: Euro, Swiss franc, and
British pound sterling. In accordance with SFAS No. 52
Foreign Currency Translation, the Companys
assets and liabilities are translated using the current exchange
rate as of the balance sheet date. Stockholders equity is
translated using historical rates at the balance sheet date.
Expenses and items of income are translated using a weighted
average exchange rate over the period ended on the balance sheet
date. Adjustments resulting from the translation of the
financial statements of the Companys foreign subsidiaries
into U.S. dollars are excluded from the determination of
net earnings (loss) and are accumulated in a separate component
of stockholders equity. Foreign exchange transaction gains
and losses are included in the Companys results of
operations.
F-18
THE
MEDICINES COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Income
Taxes
The Company provides for income taxes in accordance with
SFAS No. 109, Accounting for Income Taxes
(SFAS No. 109) and FASB Interpretation
No. 48, Accounting for Uncertainty in Income
Taxes an interpretation of FASB Statement
No. 109 (FIN 48).
On January 1, 2007, the Company adopted FIN 48, which
requires the use of a two-step approach for recognizing and
measuring tax benefits taken or expected to be taken in a tax
return and disclosures regarding uncertainties in income tax
positions. The first step is recognition: the Company determined
whether it is more likely than not that a tax position will be
sustained upon examination, including resolution of any related
appeals or litigation processes, based on the technical merits
of the position. In evaluating whether a tax position has met
the more-likely-than-not recognition threshold, the Company
presumed that the position will be examined by the appropriate
taxing authority that has full knowledge of all relevant
information. The second step is measurement: a tax position that
meets the more-likely-than-not recognition threshold is measured
to determine the amount of benefit to recognize in the financial
statements. The tax position is measured at the largest amount
of benefit that is greater than 50% likely of being realized
upon ultimate settlement. The adoption of FIN 48 by the
Company did not have a material impact on the Companys
financial condition or results of operation and resulted in no
cumulative effect of accounting change being recorded as of
January 1, 2007. On January 1, 2007, the Company
reduced its deferred tax asset attributable to certain tax
credits by approximately $1.2 million to appropriately
measure the amount of such deferred tax asset in accordance with
FIN 48. This adjustment did not affect the net deferred tax
asset because such asset was subject to a valuation allowance.
The recognition of this tax benefit may impact the effective
income tax rate if such tax benefit is more likely than not to
be realized when such benefit is recognized. The Company does
not anticipate a significant change in its unrecognized tax
benefits in the next twelve months. The Company is no longer
subject to federal, state or foreign income tax audits for tax
years prior to 2003, however such taxing authorities can review
any net operating losses utilized by the Company in years
subsequent to 2003.
In accordance with SFAS No. 109, deferred tax assets
and liabilities are determined based on differences between
financial reporting and income tax bases of assets and
liabilities, as well as net operating loss carryforwards, and
are measured using the enacted tax rates and laws in effect when
the differences are expected to reverse. Deferred tax assets are
reduced by a valuation allowance to reflect the uncertainty
associated with ultimate realization.
The Company recognizes potential interest and penalties relating
to income tax positions as a component of the provision for
income taxes.
Comprehensive
Income (Loss)
The Company reports comprehensive income (loss) and its
components in accordance with the provisions of
SFAS No. 130, Reporting Comprehensive
Income. Comprehensive income (loss) includes net income
(loss), all changes in equity for cumulative translations
adjustments resulting from the consolidation of foreign
subsidiaries financial statements and unrealized gain
(loss) on available for sale securities.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Net (loss) income As reported
|
|
$
|
(8,504
|
)
|
|
$
|
(18,272
|
)
|
|
$
|
63,726
|
|
Unrealized gain on available for sale securities
|
|
|
629
|
|
|
|
193
|
|
|
|
238
|
|
Currency translation adjustment
|
|
|
(52
|
)
|
|
|
72
|
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive (loss) income
|
|
$
|
(7,927
|
)
|
|
$
|
(18,007
|
)
|
|
$
|
63,987
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-19
THE
MEDICINES COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Segments
and Geographic Information
The Company manages its business and operations as one segment
and is focused on the acquisition, development and
commercialization of late-stage development drugs and drugs
approved for marketing. The Company has licensed rights to
Angiomax, Cleviprex, cangrelor and oritavancin. Revenues
reported to date are derived primarily from the sales of
Angiomax in the United States. During 2008, the Company
recognized $0.4 million of revenue associated with
Cleviprex. All other revenue in 2008, 2007 and 2006 were
associated with Angiomax.
The geographic segment information provided below is classified
based on the major geographic regions in which the Company
operates.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Net revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
334,582
|
|
|
$
|
254,975
|
|
|
$
|
202,676
|
|
Europe
|
|
|
9,051
|
|
|
|
(268
|
)
|
|
|
7,558
|
|
Other
|
|
|
4,524
|
|
|
|
2,827
|
|
|
|
3,718
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue
|
|
$
|
348,157
|
|
|
$
|
257,534
|
|
|
$
|
213,952
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-lived assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
47,308
|
|
|
$
|
18,305
|
|
|
$
|
3,198
|
|
Europe
|
|
|
1,609
|
|
|
|
5
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-lived assets
|
|
$
|
48,917
|
|
|
$
|
18,310
|
|
|
$
|
3,210
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.
|
Recent
Accounting Pronouncements
|
In December 2007, the FASB issued SFAS No. 141(R),
Business Combinations (SFAS No. 141(R)),
to replace SFAS No. 141, Business
Combinations. SFAS No. 141(R) requires use of
the acquisition method of accounting, defines the acquirer,
establishes the acquisition date and broadens the scope to all
transactions and other events in which one entity obtains
control over one or more other businesses. This statement is
effective for financial statements issued for fiscal years
beginning on or after December 15, 2008 with earlier
adoption prohibited. While there will be no impact to the
Companys financial statements on the accounting for
acquisitions completed prior to December 31, 2008, such as
the Curacyte Discovery acquisition, the adoption of
SFAS No. 141(R) on January 1, 2009 will
materially change the accounting for business combinations
consummated after that date, such as the Targanta acquisition.
In December 2007, the FASB issued SFAS No. 160,
Noncontrolling Interests in Consolidated Financial
Statements an amendment of ARB No. 51
(SFAS No. 160). SFAS No. 160 establishes
accounting and reporting standards for the noncontrolling
interest in a subsidiary and for the retained interest and gain
or loss when a subsidiary is deconsolidated. This statement is
effective for financial statements issued for fiscal years
beginning on or after December 15, 2008 with earlier
adoption prohibited. The Company does not expect the adoption of
SFAS No. 160 to have a material impact on its
financial statements as the Company currently does not have any
noncontrolling interests. However, the adoption of SFAS 160
could materially change the accounting for such interests
outstanding as of, or subsequent to, the date of adoption.
In April 2008, the FASB issued FSP
No. FAS 142-3,
Determination of the Useful Life of Intangible
Assets
(FAS 142-3).
In determining the useful life of intangible assets,
FAS 142-3
removes the requirement to consider whether an intangible asset
can be renewed without substantial cost or material
modifications to the existing terms and conditions and, instead,
requires an entity to consider its own historical experience in
F-20
THE
MEDICINES COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
renewing similar arrangements.
FAS 142-3
also requires expanded disclosure related to the determination
of intangible asset useful lives.
FAS 142-3
is effective for financial statements issued for fiscal years
beginning after December 15, 2008. The Company is currently
evaluating the impact, if any, of
FAS 142-3
on the Companys results of operations or financial
position.
In May 2008, the FASB issued SFAS No. 162, The
Hierarchy of Generally Accepted Accounting Principles
(SFAS No. 162). The new standard is intended to
improve financial reporting by identifying a consistent
framework or hierarchy for selecting accounting principles to be
used in preparing financial statements that are presented in
conformity with U.S. generally accepted accounting
principles (GAAP) for nongovernmental entities. Prior to the
issuance of SFAS No. 162, GAAP hierarchy was defined
in the American Institute of Certified Public Accountants
(AICPA) Statement on Auditing Standards (SAS) No. 69,
The Meaning of Present Fairly in Conformity With Generally
Accepted Accounting Principles. SFAS No. 162 is
effective 60 days following the SECs approval of the
Public Company Accounting Oversight Board Auditing amendments to
AU Section 411, The Meaning of Present Fairly in
Conformity with Generally Accepted Accounting Principles.
The Company does not expect the adoption of
SFAS No. 162 to have a material impact on the
Companys results of operations or financial position.
In June 2008, the FASB issued Staff Position
EITF 03-6-1,
Determining Whether Instruments Granted in Share-Based
Payment Transactions Are Participating Securities
(EITF 03-6-1).
EITF 03-6-1
addresses whether instruments granted in share-based payment
transactions are participating securities prior to vesting and,
therefore, need to be included in the earnings allocation in
computing earnings per share under the two-class method as
described in SFAS No. 128, Earnings per
Share. Under the guidance in
EITF 03-6-1,
unvested share-based payment awards that contain non-forfeitable
rights to dividends or dividend equivalents (whether paid or
unpaid) are participating securities and shall be included in
the computation of earnings per share pursuant to the two-class
method.
EITF 03-6-1
is effective for the Company as of January 1, 2009. After
the effective date of
EITF 03-6-1,
all prior-period earnings per share data presented must be
adjusted retrospectively. The Company is currently evaluating
the impact, if any, of
EITF 03-6-1
on the Companys results of operations or financial
position.
|
|
4.
|
The
Companys Plans and Financing
|
Except for the years ended December 31, 2006 and
December 31, 2004, the Company has incurred net losses on
an annual basis since inception. The Company has historically
funded its operations through the issuance of debt and equity,
and, in 2008, 2007, 2006 and 2004, from cash flow from
operations. The Company expects to continue to expend
substantial amounts for product research, development and
commercialization activities for the foreseeable future, and the
Company plans to fund these expenditures from revenue or through
debt or equity financing, if possible. Should revenue or
additional debt or equity financing be unavailable to the
Company, the Company will restrict certain of its planned
activities and operations, as necessary, to sustain operations
and conserve cash resources.
F-21
THE
MEDICINES COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Fixed assets consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
|
|
|
December 31,
|
|
|
|
Life (Years)
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
(In thousands)
|
|
|
Furniture, fixtures and equipment
|
|
|
3-7
|
|
|
$
|
7,689
|
|
|
$
|
2,413
|
|
Computer software
|
|
|
3
|
|
|
|
3,174
|
|
|
|
1,795
|
|
Computer hardware
|
|
|
3
|
|
|
|
1,629
|
|
|
|
1,503
|
|
Leasehold improvements
|
|
|
5-15
|
|
|
|
21,235
|
|
|
|
1,270
|
|
Construction in progress
|
|
|
|
|
|
|
|
|
|
|
1,015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33,727
|
|
|
|
7,996
|
|
Less: Accumulated depreciation
|
|
|
|
|
|
|
(6,396
|
)
|
|
|
(4,751
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
27,331
|
|
|
$
|
3,245
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense was approximately $2.4 million,
$1.6 million and $1.5 million for the years ended
December 31, 2008, 2007 and 2006, respectively.
On July 2, 2008, the Company made a short term convertible
loan of $5.0 million to a specialty pharmaceutical company
with expertise in drug development. This loan converted into
2.7 million shares of convertible preferred stock of the
specialty pharmaceutical company in the third quarter of 2008.
The $5.0 million has been classified as investments and is
included in other assets on the Companys consolidated
balance sheets. The Company holds less than 20% of the issued
and outstanding shares of the specialty pharmaceutical company
and does not have significant influence over the company.
Accordingly, the Company has accounted for the investment under
the cost method and included it in other assets on the
Companys consolidated balance sheets.
|
|
7.
|
Curacyte
Discovery Acquisition
|
In August 2008, the Company acquired Curacyte Discovery, a
wholly owned subsidiary of Curacyte AG. Curacyte Discovery, a
German limited liability company, is primarily engaged in the
discovery and development of small molecule serine protease
inhibitors. Its lead compound, CU-2010, is being developed for
the prevention of blood loss during surgery. In connection with
the acquisition, the Company paid Curacyte AG an initial payment
of 14.5 million (approximately $22.9 million) at
closing and agreed to pay a contingent milestone payment of
10.5 million if the Company elects to proceed with
clinical development of CU-2010 at the earlier of four months
after enrollment and
follow-up of
the last subject of a Phase I clinical program or
October 31, 2009 (which will be automatically extended to
March 31, 2010 if the Phase I clinical program has been
initiated by March 31, 2009) . In addition, the
Companys agreement with Curacyte AG provides for possible
future sales royalty payments and a commercial milestone payment.
F-22
THE
MEDICINES COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The total cost of the acquisition was approximately
$23.7 million which included a purchase price of
approximately $22.9 million and direct acquisition costs of
$0.8 million. The results of Curacyte Discoverys
operations since the acquisition date have been included in the
Companys consolidated financial statements. Below is a
summary which details the assets and liabilities acquired as a
result of the acquisition:
|
|
|
|
|
|
|
(In thousands)
|
|
|
Acquired Assets:
|
|
|
|
|
Total current assets
|
|
$
|
1,970
|
|
Fixed assets
|
|
|
1,273
|
|
Other assets
|
|
|
51
|
|
In-process research and development
|
|
|
21,373
|
|
|
|
|
|
|
Total acquired assets
|
|
|
24,667
|
|
Acquired Liabilities:
|
|
|
|
|
Total current liabilities
|
|
|
(1,004
|
)
|
|
|
|
|
|
Total purchase price
|
|
$
|
23,663
|
|
|
|
|
|
|
The purchase price was allocated to the estimated fair value of
assets acquired and liabilities assumed based on a preliminary
valuation and management estimates. The Company allocated
approximately $21.4 million of the purchase price to
in-process research and development and was expensed upon
completion of the acquisition. This amount was recorded as
research and development in the consolidated statements of
operations. The Company expects to finalize the purchase price
allocation within one year from the date of the acquisition,
pending final valuation.
On July 1, 2007, the Company entered into a series of
agreements with Nycomed (collectively, the Agreements) pursuant
to which the Company terminated its prior distribution agreement
with Nycomed and reacquired all rights to develop, distribute
and market the Companys product Angiox in the Nycomed
Territory. Prior to entering into the Agreements, Nycomed served
as the exclusive distributor of Angiox in the Nycomed Territory
pursuant to a sales, marketing and distribution agreement, dated
March 25, 2002, as amended. The Nycomed Territory does not
include Spain, Greece and Portugal, which are covered by another
third-party distributor.
Pursuant to the Agreements, the Company and Nycomed agreed to
transition to the Company the Angiox rights held by Nycomed.
Under these arrangements, the Company assumed control of the
marketing of Angiox immediately and Nycomed agreed to provide,
on a transitional basis, sales operations services, which ended
December 31, 2007, and product distribution services
through 2008. The Company assumed control of the distribution of
Angiox in the majority of countries in the Nycomed Territory
during the third quarter of 2008 and assumed control of the
distribution in the remaining countries in the Nycomed Territory
by December 31, 2008.
Under the terms of the transitional distribution agreement with
Nycomed, upon the sale by Nycomed to third parties of vials of
Angiox purchased by Nycomed from the Company prior to
July 1, 2007 (the existing inventory), Nycomed was required
to pay the Company a specified percentage of Nycomeds net
sales of Angiox, less the amount previously paid by Nycomed to
the Company for the existing inventory. In addition, under the
transitional distribution agreement, Nycomed had the right to
return any existing inventory for the price paid by Nycomed to
the Company for such inventory. Included within the
Companys accrual for product return is a reserve of
$0.8 million and $3.0 million, at December 31,
2008 and December 31, 2007, respectively, for existing
inventory at Nycomed that Nycomed has the right to return at any
time. During 2008, the Company reduced the reserve by
$2.2 million as Nycomed sold a portion of its existing
inventory during
F-23
THE
MEDICINES COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
the year. The Company will reimburse Nycomed $0.8 million
for the final amount of inventory held by Nycomed at
December 31, 2008. The transitional distribution agreement
terminated on December 31, 2008.
Under the transitional services agreement the Company had
entered into with Nycomed, Nycomed agreed to perform detailing
and other selling, sales management, product/marketing
management, medical advisor, international marketing and certain
pharmacovigilance services in accordance with an agreed upon
marketing plan through December 31, 2007. The Company
agreed to pay Nycomeds personnel costs, plus an agreed
upon markup, for the performance of the services, in accordance
with a budget detailed by country and function. In addition, the
Company has agreed to pay Nycomeds costs, in accordance
with a specified budget, for performing specified promotional
activities during the term of the services agreement. These
amounts were included in selling, general and administrative
expense on the consolidated statements of operations as the
Company received an identifiable benefit from these services and
could reasonably estimate their fair value. For the year ended
December 31, 2007, the Company recorded $7.8 million
of costs related to the services agreement with Nycomed. This
agreement terminated on December 31, 2007.
The Company incurred total costs of $45.7 million in
connection with the reacquisition of the rights to develop,
distribute and market Angiox in the Nycomed Territory. This
total costs amount includes transaction fees of approximately
$0.7 million and agreed upon milestone payments of
$20.0 million paid to Nycomed on June 2, 2007,
$15.0 million paid to Nycomed on January 15, 2008 and
$5.0 million paid to Nycomed on July 8, 2008, as well
as an additional $5.0 million paid to Nycomed on
July 8, 2008 in connection with the Companys
obtaining European Commission approval to market Angiox for ACS
in January 2008.
In the third quarter of 2007, the Company recorded approximately
$30.8 million as expense attributable to the termination of
the prior distribution agreement with Nycomed. The
$30.8 million expense was offset in part by the write-off
of approximately $2.7 million of deferred revenue, which
amount represented the unamortized portion of deferred revenue
related to milestone payments received from Nycomed in 2004 and
2002. Such amounts were included in selling, general and
administrative expense on the consolidated statements of
operations for the year ended December 31, 2007. The
Company allocated to intangible assets approximately
$14.9 million of the costs associated with the
reacquisition of the rights to develop, distribute and market
Angiox in the European Union. The Company is amortizing these
intangible assets over the remaining patent life of Angiox,
which expires in 2015. The period in which amortization expense
will be recorded reflects the pattern in which the Company
expects the economic benefits of the intangible assets to be
consumed.
The following information details the carrying amounts and
accumulated amortization of the Companys intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2008
|
|
|
As of December 31, 2007
|
|
|
|
Weighted
|
|
|
Gross
|
|
|
|
|
|
Net
|
|
|
Gross
|
|
|
|
|
|
Net
|
|
|
|
Average
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Carrying
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Carrying
|
|
|
|
Useful Life
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
|
(In thousands)
|
|
|
Identifiable intangible assets Customer relationships
|
|
|
8 years
|
|
|
$
|
7,457
|
|
|
$
|
288
|
|
|
$
|
7,169
|
|
|
$
|
7,457
|
|
|
$
|
|
|
|
$
|
7,457
|
|
Distribution agreement
|
|
|
8 years
|
|
|
|
4,448
|
|
|
|
171
|
|
|
|
4,277
|
|
|
|
4,448
|
|
|
|
|
|
|
|
4,448
|
|
Trademarks
|
|
|
8 years
|
|
|
|
3,024
|
|
|
|
116
|
|
|
|
2,908
|
|
|
|
3,024
|
|
|
|
|
|
|
|
3,024
|
|
Cleviprex milestones
|
|
|
13 years
|
|
|
|
2,000
|
|
|
|
5
|
|
|
|
1,995
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
9 years
|
|
|
$
|
16,929
|
|
|
$
|
580
|
|
|
$
|
16,349
|
|
|
$
|
14,929
|
|
|
$
|
|
|
|
$
|
14,929
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-24
THE
MEDICINES COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Company recorded $2.0 million of intangible assets
during the third quarter of 2008 in connection with payments
required to be made upon the FDAs approval on
August 1, 2008 of Cleviprex for the reduction of blood
pressure when oral therapy is not feasible or not desirable. As
a result of such approval, the Company paid a
$1.5 milestone payment to AstraZeneca under the terms of
the Companys patent license agreement with AstraZeneca and
a $0.5 million payment to Hospira for development work
under the Companys manufacturing agreement with Hospira.
The Company is amortizing intangible assets related to the
Cleviprex approval over the remaining life of the patent.
Amortization expense was approximately $0.6 million for
year ended December 31, 2008. The Company did not record
amortization expense in fiscal 2007 as it believed that the
economic benefits received from the intangible assets did not
begin until 2008. The Company expects annual amortization
expense related to these intangible assets to be
$1.2 million, $1.8 million, $2.4 million,
$2.4 million and $3.0 million for the years ending
December 31, 2009, 2010, 2011, 2012 and 2013, respectively,
with the balance of $5.6 million being amortized
thereafter. Amortization of customer relationships, distribution
agreements and trademarks will be recorded in selling, general
and administrative expense on the consolidated statements of
operations. Amortization of Cleviprex milestones will be
recorded in cost of revenue on the consolidated statements of
operations.
Accrued expenses consisted of the following at December 31:
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Nycomed termination and transition agreement
|
|
$
|
|
|
|
$
|
25,000
|
|
Nycomed service agreement
|
|
|
2,385
|
|
|
|
6,156
|
|
Royalties
|
|
|
15,792
|
|
|
|
14,013
|
|
Research and development services
|
|
|
13,312
|
|
|
|
8,831
|
|
Compensation related
|
|
|
8,889
|
|
|
|
7,164
|
|
Product returns, rebates and other fees
|
|
|
3,286
|
|
|
|
5,704
|
|
Fixed asset additions
|
|
|
6,165
|
|
|
|
308
|
|
Legal, accounting and other
|
|
|
9,943
|
|
|
|
2,601
|
|
Manufacturing, logistics and related fees
|
|
|
4,929
|
|
|
|
2,221
|
|
Sales and marketing
|
|
|
2,098
|
|
|
|
1,829
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
66,799
|
|
|
$
|
73,827
|
|
|
|
|
|
|
|
|
|
|
Preferred
Stock
The Company has 5,000,000 shares of preferred stock
(Preferred Stock) authorized, none of which are issued.
Common
Stock
Common stockholders are entitled to one vote per share and
dividends when declared by the Companys Board of
Directors, subject to the preferential rights of any outstanding
shares of Preferred Stock.
Employees, directors and consultants of the Company purchased
320,638 shares, 497,885 shares, and
1,478,557 shares of common stock during the years ended
December 31, 2008, 2007 and 2006, respectively, pursuant to
option exercises and the Companys employee stock purchase
plan. The aggregate net proceeds to
F-25
THE
MEDICINES COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
the Company resulting from these purchases were approximately
$5.5 million, $9.3 million, and $24.0 million
during the years ended December 31, 2008, 2007 and 2006,
respectively, and are included within the financing activities
section of the consolidated statements of cash flows. The
Company issued 92,970 shares, 141,200 shares and
25,000 shares under restricted stock awards during the year
ended December 31, 2008, 2007 and 2006, respectively.
Stock
Plans
The Company has adopted the following stock incentive plans:
|
|
|
|
|
the 2007 Equity Inducement Plan (the 2007 Plan),
|
|
|
|
the 2004 Stock Incentive Plan (the 2004 Plan),
|
|
|
|
the 2001 Non-Officer,
Non-Director
Stock Incentive Plan (the 2001 Plan),
|
|
|
|
the 2000 Outside Director Stock Option Plan (the
2000 Director Plan), and
|
|
|
|
the 1998 Stock Incentive Plan (the 1998 Plan).
|
Each of these plans provides for the grant of stock options and
other stock- based awards to employees, officers, directors,
consultants and advisors of the Company and its subsidiaries.
Stock option grants have an exercise price equal to the fair
market value of the Companys common stock on the date of
grant and generally have a
10-year
term. The fair value of stock option grants is recognized, net
of an estimated forfeiture rate, using an accelerated method
over the vesting period of the options, which is generally four
years.
2007
Plan
In December 2007, the Board of Directors adopted the 2007 Plan,
which provides for the grant of stock options, restricted stock
awards, stock appreciation rights and other stock-based awards
to any person who (a) was not previously an employee or
director of the Company or (b) is commencing employment
with the Company following a bona fide period of non-employment
by the Company, as an inducement material to the individual
entering into employment with the Company. The purpose of the
2007 Plan was to advance the interests of the Companys
stockholders by enhancing the Companys ability to attract,
retain and motivate persons who are expected to make important
contributions to the Company and providing such persons with
equity ownership opportunities that are intended to better align
their interests with those of the Companys stockholders.
The 2007 Plan was administered by the Compensation Committee of
the Board of Directors, which had the authority to grant awards
under the 2007 Plan. Under the 2007 Plan, the Company was
authorized to issue up to 1,700,000 shares of common stock,
subject to adjustment in the event of stock splits and other
similar events, pursuant to awards granted under the 2007 Plan.
Options granted under the 2007 Plan generally have a
10-year term
and vest 25% one year after grant and the remaining options vest
in equal monthly installments over a three-year period. The 2007
Plan terminated on May 29, 2008. As of December 31,
2008, an aggregate of 642,400 shares were issued under the
2007 Plan and of such issuances, options to purchase an
aggregate of 597,900 shares remained outstanding.
2004
Plan
In April 2004, the Board of Directors adopted, subject to
stockholder approval, the 2004 Plan, which provides for the
grant of stock options, restricted stock awards, stock
appreciation rights and other stock-based awards to the
Companys employees, officers, directors, consultants and
advisors, including any individuals who have accepted an offer
of employment. The Companys stockholders approved the 2004
Plan in May 2004. The 2004 Plan has been amended twice to
increase the number of shares issuable under the 2004 Plan
F-26
THE
MEDICINES COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
and to replace the existing sublimit on certain types of awards
that may be granted under the 2004 Plan with a fungible share
pool.
The Company may issue up to 11,800,000 shares of common
stock, subject to adjustment in the event of stock splits and
other similar events, pursuant to awards granted under the 2004
Plan. Shares awarded under the 2004 Plan that are subsequently
cancelled are available to be granted again under the 2004 Plan.
The Board of Directors has delegated its authority under the
2004 Plan to the Compensation Committee, consisting of
independent directors, which administers the 2004 Plan,
including granting options and other awards under the 2004 Plan.
In addition, pursuant to the terms of the 2004 Plan, the Board
of Directors has delegated to the Companys executive
officers limited authority to grant stock options to employees
without further action by the Board of Directors or the
Compensation Committee. Options granted under the 2004 Plan
generally have a
10-year term
and commence vesting one year after grant and vest in equal
monthly installments over a three-year period.
The Board of Directors has adopted a program under the 2004 Plan
providing for automatic grants of options to the Companys
non-employee directors. Each non-employee director is granted
non-statutory stock options under the 2004 Plan to purchase:
|
|
|
|
|
20,000 shares of common stock on the date of his or her
initial election to the Board of Directors (the Initial
Options); and
|
|
|
|
7,500 shares of the common stock on the date of each annual
meeting of the Companys stockholders (the Annual Options),
except if such non-employee director was initially elected to
the Board of Directors at such annual meeting. The lead director
will be granted an additional option to purchase
5,000 shares of the common stock on the date of each annual
meeting of the Companys stockholders.
|
Each non-employee director also receives an award of
3,750 shares of restricted stock on the date of each annual
meeting of the Companys stockholders.
These options have an exercise price equal to the closing price
of the common stock on the NASDAQ Global Select Market on the
date of grant and have a
10-year
term. The Initial Options vest in 36 equal monthly installments
beginning on the date one month after the grant date. The Annual
Options vest in 12 equal monthly installments beginning on the
date one month after the date of grant. All vested options are
exercisable at any time prior to the first anniversary of the
date the director ceases to be a director. The restricted stock
awards vest on the first anniversary date after the grant date.
As of December 31, 2008, an aggregate of
10,413,243 shares had been issued under the 2004 Plan and
of such issuances, options to purchase an aggregate of
8,274,946 shares remained outstanding.
2001
Plan
In May 2001, the Board of Directors approved the 2001 Plan,
which provides for the grant of non-statutory stock options to
employees, consultants and advisors of the Company and its
subsidiaries, including individuals who have accepted an offer
of employment, other than those employees who are officers or
directors of the Company. The 2001 Plan provides for the
issuance of up to 1,250,000 shares of common stock. Shares
awarded under the 2001 Plan that were subsequently cancelled
were available to be granted again under the 2001 Plan. The
Board of Directors delegated its authority under the 2001 Plan
to the Compensation Committee, which administers the 2001 Plan,
including granting options under the 2001 Plan. In addition,
pursuant to the terms of the 2001 Plan, the Board of Directors
delegated to the Companys chief executive officer limited
authority to grant stock options to employees without further
action by the Board of Directors or the Compensation Committee.
The Company ceased making grants under the 2001 Plan following
adoption of an amendment to the 2004 Plan at the Companys
annual stockholders meeting on May 25, 2006.
F-27
THE
MEDICINES COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
As of December 31, 2008, an aggregate of
1,898,100 shares had been issued under the 2001 Plan and of
such issuances, options to purchase an aggregate of
234,501 shares remained outstanding.
2000 Director
Plan
Prior to the adoption of the 2004 Plan, the Company granted
non-statutory stock options to the Companys non-employee
directors pursuant to the 2000 Director Plan. The Company
ceased making grants under the 2000 Director Plan following
adoption of the 2004 Plan.
As of December 31, 2008, an aggregate of
287,500 shares were issued under the 2000 Directors
Plan and of such issuances, options to purchase an aggregate of
134,167 shares remained outstanding.
1998
Plan
In April 1998, the Company adopted the 1998 Plan, which provides
for the grant of stock options, restricted stock and other
stock-based awards to employees, officers, directors,
consultants, and advisors of the Company and its subsidiaries,
including any individuals who have accepted an offer of
employment. The Board of Directors has authority to determine
the term of each option, the option price, the number of shares
for which each option is granted and the rate at which each
option becomes exercisable. As a result of subsequent
amendments, the 1998 Plan currently provides that
6,118,259 shares of common stock may be issued pursuant to
awards under the 1998 Plan. Shares awarded under the 1998 Plan
that were subsequently cancelled were available to be granted
again under the 1998 Plan. During 1999, the Board of Directors
amended all then-outstanding options to allow holders to
exercise the options prior to vesting, provided that the shares
of common stock issued upon exercise of the option would be
subject to transfer restrictions and vesting provisions that
allowed the Company to repurchase unvested shares at the
exercise price. There were no outstanding unvested shares of
common stock under the 1998 Plan at December 31, 2007 and
2006. Pursuant to the terms of the 1998 Plan, the Board of
Directors has delegated its authority under the 1998 Plan to the
Compensation Committee. Accordingly, the Compensation Committee
administers the 1998 Plan, including granting options and other
awards under the 1998 Plan. In addition, pursuant to the terms
of the 1998 Plan, the Board of Directors has delegated to the
Companys chief executive officer limited authority to
grant stock options to employees without further action by the
Board of Directors or the Compensation Committee. Options
granted under the 1998 Plan generally vest in increments over
four years and have a ten-year term. The Company ceased making
grants under the 1998 Plan following adoption of an amendment to
the 2004 Plan at its annual stockholders meeting on
May 25, 2006.
As of December 31, 2008, an aggregate of
9,295,662 shares were issued under the 1998 Plan and of
such issuances, options to purchase an aggregate of
1,515,097 shares remained outstanding.
F-28
THE
MEDICINES COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Stock
Option Activity
The following table presents a summary of option activity and
data under the Companys stock incentive plans as of
December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Weighted-Average
|
|
|
Remaining
|
|
|
|
|
|
|
|
|
|
Exercise Price
|
|
|
Contractual
|
|
|
Aggregate
|
|
|
|
Number of Shares
|
|
|
Per Share
|
|
|
Term
|
|
|
Intrinsic Value
|
|
|
Outstanding, January 1, 2006
|
|
|
7,679,136
|
|
|
|
20.85
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
1,496,789
|
|
|
|
20.60
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(1,415,605
|
)
|
|
|
16.15
|
|
|
|
|
|
|
|
|
|
Forfeited and expired
|
|
|
(1,006,913
|
)
|
|
|
24.66
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, December 31, 2006
|
|
|
6,753,407
|
|
|
|
21.21
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
1,975,189
|
|
|
|
23.69
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(418,126
|
)
|
|
|
19.14
|
|
|
|
|
|
|
|
|
|
Forfeited and expired
|
|
|
(387,316
|
)
|
|
|
23.43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, December 31, 2007
|
|
|
7,923,154
|
|
|
$
|
21.83
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
3,588,990
|
|
|
|
19.25
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(217,160
|
)
|
|
|
18.36
|
|
|
|
|
|
|
|
|
|
Forfeited and expired
|
|
|
(538,373
|
)
|
|
|
24.16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, December 31, 2008
|
|
|
10,756,611
|
|
|
$
|
20.92
|
|
|
|
7.35
|
|
|
$
|
3,985,949
|
|
Exercisable, December 31, 2008
|
|
|
6,023,511
|
|
|
$
|
21.48
|
|
|
|
6.16
|
|
|
$
|
3,845,319
|
|
Available for future grant at December 31, 2008
|
|
|
2,678,346
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate intrinsic value is the sum of the amounts by which the
quoted market price of the Companys common stock exceeded
the exercise price of the options at December 31, 2008, for
those options for which the quoted market price was in excess of
the exercise price. The weighted-average grant date fair value
of options granted during the years ended December 31,
2008, 2007 and 2006 was $8.08, $11.17, and $7.95, respectively.
The total intrinsic value of options exercised during the years
ended December 31, 2008, 2007 and 2006 was
$1.2 million, $4.3 million, and $10.3 million,
respectively.
In accordance with SFAS 123(R), the Company recorded
approximately $20.2 million, $13.5 million and
$7.9 million of stock option compensation expense for the
years ended December 31, 2008, 2007 and 2006, respectively.
As of December 31, 2008, there was approximately
$21.4 million of total unrecognized compensation costs
related to non-vested share-based employee compensation
arrangements granted under the Companys equity
compensation plans. This cost is expected to be recognized over
a weighted average period of 1.39 years.
F-29
THE
MEDICINES COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table summarizes information regarding options
outstanding as of December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
|
Options Vested
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
|
|
|
Remaining
|
|
|
Weighted Average
|
|
|
Number
|
|
|
Weighted Average
|
|
Range of Exercise
|
|
Outstanding
|
|
|
Contractual Life
|
|
|
Exercise Price
|
|
|
Outstanding
|
|
|
Exercise Price
|
|
Prices Per Share
|
|
at 12/31/08
|
|
|
(Years)
|
|
|
Per Share
|
|
|
at 12/31/08
|
|
|
Per Share
|
|
|
$1.23 $15.50
|
|
|
817,035
|
|
|
|
3.58
|
|
|
$
|
10.05
|
|
|
|
706,899
|
|
|
$
|
9.51
|
|
$15.59 $17.98
|
|
|
772,132
|
|
|
|
8.59
|
|
|
|
17.20
|
|
|
|
197,781
|
|
|
|
17.08
|
|
$18.00 $18.27
|
|
|
1,103,008
|
|
|
|
7.28
|
|
|
|
18.25
|
|
|
|
777,271
|
|
|
|
18.26
|
|
$18.29 $19.09
|
|
|
1,339,172
|
|
|
|
8.27
|
|
|
|
18.74
|
|
|
|
530,989
|
|
|
|
18.76
|
|
$19.11 $19.98
|
|
|
2,133,270
|
|
|
|
8.94
|
|
|
|
19.45
|
|
|
|
505,033
|
|
|
|
19.48
|
|
$20.05 $23.77
|
|
|
1,667,416
|
|
|
|
7.18
|
|
|
|
21.69
|
|
|
|
1,082,358
|
|
|
|
22.07
|
|
$23.79 $28.01
|
|
|
1,434,878
|
|
|
|
6.17
|
|
|
|
26.12
|
|
|
|
1,176,361
|
|
|
|
26.30
|
|
$28.02 $28.60
|
|
|
1,174,179
|
|
|
|
7.25
|
|
|
|
28.41
|
|
|
|
793,193
|
|
|
|
28.32
|
|
$28.81 $34.95
|
|
|
315,521
|
|
|
|
6.25
|
|
|
|
31.26
|
|
|
|
253,626
|
|
|
|
31.41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,756,611
|
|
|
|
7.35
|
|
|
$
|
20.92
|
|
|
|
6,023,511
|
|
|
$
|
21.48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents a summary of the Companys
outstanding shares of restricted stock awards granted as of
December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
Number of
|
|
|
Grant-Date
|
|
|
|
Shares
|
|
|
Fair Value
|
|
|
Outstanding, January 1, 2006
|
|
|
|
|
|
|
|
|
Awarded
|
|
|
25,000
|
|
|
$
|
20.11
|
|
Vested
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, December 31, 2006
|
|
|
25,000
|
|
|
|
20.11
|
|
Awarded
|
|
|
141,200
|
|
|
|
25.03
|
|
Vested
|
|
|
(6,250
|
)
|
|
|
20.11
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, December 31, 2007
|
|
|
159,950
|
|
|
|
24.46
|
|
Awarded
|
|
|
92,970
|
|
|
|
18.93
|
|
Vested
|
|
|
(64,050
|
)
|
|
|
22.65
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, December 31, 2008
|
|
|
188,870
|
|
|
$
|
22.35
|
|
|
|
|
|
|
|
|
|
|
The Company grants restricted stock awards under the 2004 Plan.
The restricted stock granted to employees generally vests in
equal increments of 25% per year on an annual basis commencing
twelve months after grant date. The restricted stock granted to
non-employee directors generally vests on the first anniversary
date after the grant date. Expense of approximately
$2.0 million, $1.5 million and $0.2 million was
recognized in the years ended December 31, 2008, 2007 and
2006, respectively. The remaining expense of approximately
$1.5 million will be recognized over a period of
1.23 years.
F-30
THE
MEDICINES COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
2000
ESPP
In May 2000, the Board of Directors and the Companys
stockholders approved the 2000 ESPP, which provides for the
issuance of up to 505,500 shares of common stock. The
number of shares the Company may issue under the 2000 ESPP
reflects an amendment approved by the Board of Directors on
April 11, 2006 and by stockholders at the 2006 annual
meeting. The 2000 ESPP permits eligible employees to purchase
shares of common stock at the lower of 85% of the fair market
value of the common stock at the beginning or at the end of each
offering period. Employees who own 5% or more of the common
stock are not eligible to participate in the 2000 ESPP.
Participation is voluntary.
As of December 31, 2008, the Company had issued
423,679 shares over the life of the 2000 ESPP. The Company
issued 103,478 shares, 79,759 shares, and
62,952 shares under the 2000 ESPP during the years ended
December 31, 2008, 2007 and 2006, respectively, and
currently has 81,821 shares in reserve for future issuance
under the 2000 ESPP. The Company recorded approximately
$0.6 million, $0.4 million, and $0.4 million in
compensation expense related to the 2000 ESPP in the years ended
December 31, 2008, 2007 and 2006.
Common
Stock Reserved for Future Issuance
At December 31, 2008, there were 81,821 shares of
common stock available for grant under the 2000 ESPP and
2,596,525 shares of common stock available for grant under
the 2004 Plan.
|
|
12.
|
Net
Earnings (Loss) per Share
|
The following table sets forth the computation of basic and
diluted net earnings (loss) per share for the years ended
December 31, 2008, 2007 and 2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands, except per share amounts)
|
|
|
Basic and diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income As reported
|
|
$
|
(8,504
|
)
|
|
$
|
(18,272
|
)
|
|
$
|
63,726
|
|
Weighted average common shares outstanding, basic
|
|
|
52,090
|
|
|
|
51,742
|
|
|
|
50,321
|
|
Less: unvested restricted common shares outstanding
|
|
|
186
|
|
|
|
118
|
|
|
|
21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net weighted average common shares outstanding, basic
|
|
|
51,904
|
|
|
|
51,624
|
|
|
|
50,300
|
|
Plus: net effect of dilutive stock options, restricted common
shares and warrants
|
|
|
|
|
|
|
|
|
|
|
734
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding, diluted
|
|
|
51,904
|
|
|
|
51,624
|
|
|
|
51,034
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) earnings per common share, basic
|
|
$
|
(0.16
|
)
|
|
$
|
(0.35
|
)
|
|
$
|
1.27
|
|
(Loss) earnings per common share, diluted
|
|
$
|
(0.16
|
)
|
|
$
|
(0.35
|
)
|
|
$
|
1.25
|
|
F-31
THE
MEDICINES COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Basic earnings (loss) per share is computed using the weighted
average number of shares of common stock outstanding during the
period, reduced where applicable for outstanding yet unvested
shares of restricted common stock. The table below provides
details of the weighted average number of outstanding options
and restricted stock that were included in the calculation of
diluted earnings per share for the year ended December 31,
2008, 2007 and 2006. The number of dilutive common stock
equivalents was calculated using the treasury stock method.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Weighted average options outstanding
|
|
|
10,118
|
|
|
|
7,429
|
|
|
|
7,459
|
|
Weighted average options included in computation of diluted
(loss) earnings per share
|
|
|
|
|
|
|
|
|
|
|
2,209
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average options considered anti-dilutive and excluded
from the computation of diluted (loss) earnings per share
|
|
|
10,118
|
|
|
|
7,429
|
|
|
|
5,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average restricted shares outstanding
|
|
|
186
|
|
|
|
118
|
|
|
|
21
|
|
Weighted average restricted shares included in computation of
diluted (loss) earnings per share
|
|
|
|
|
|
|
|
|
|
|
21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average restricted shares considered anti-dilutive and
excluded from the computation of diluted (loss) earnings per
share
|
|
|
186
|
|
|
|
118
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The (provision for) benefit from income taxes in 2008, 2007 and
2006 consists of current and deferred federal, state and foreign
taxes paid based on net income and state taxes based on net
worth as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
(377
|
)
|
|
$
|
(556
|
)
|
|
$
|
(348
|
)
|
State
|
|
|
(1,021
|
)
|
|
|
(339
|
)
|
|
|
(143
|
)
|
Foreign
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,398
|
)
|
|
|
(895
|
)
|
|
|
(491
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(1,910
|
)
|
|
|
|
|
|
|
43,300
|
|
State
|
|
|
390
|
|
|
|
|
|
|
|
3,259
|
|
Foreign
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,520
|
)
|
|
|
|
|
|
|
46,559
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total (provision for)/benefit from income taxes
|
|
$
|
(2,918
|
)
|
|
$
|
(895
|
)
|
|
$
|
46,068
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The components of (loss) income before income taxes consisted of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Domestic
|
|
$
|
7,489
|
|
|
$
|
(17,432
|
)
|
|
$
|
17,689
|
|
International
|
|
|
(13,075
|
)
|
|
|
55
|
|
|
|
(31
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(5,586
|
)
|
|
$
|
(17,377
|
)
|
|
$
|
17,658
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-32
THE
MEDICINES COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The difference between tax expense and the amount computed by
applying the statutory federal income tax rate (35% in 2008, 35%
in 2007, and 34% in 2006) to income before income taxes is
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Statutory rate applied to pre-tax (loss) income
|
|
$
|
(1,955
|
)
|
|
$
|
(6,082
|
)
|
|
$
|
6,004
|
|
Add (deduct):
|
|
|
|
|
|
|
|
|
|
|
|
|
State income taxes, net of federal benefit
|
|
|
430
|
|
|
|
240
|
|
|
|
(2,057
|
)
|
Foreign
|
|
|
4,576
|
|
|
|
(19
|
)
|
|
|
4
|
|
Tax credits
|
|
|
(1,456
|
)
|
|
|
(1,106
|
)
|
|
|
(2,326
|
)
|
Other
|
|
|
1,323
|
|
|
|
1,366
|
|
|
|
100
|
|
Increase (decrease) to federal valuation allowance (net)
|
|
|
|
|
|
|
6,496
|
|
|
|
(47,793
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
|
2,918
|
|
|
$
|
895
|
|
|
$
|
(46,068
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The significant components of the Companys deferred tax
assets are as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Net operating loss carryforwards
|
|
$
|
56,037
|
|
|
$
|
71,085
|
|
Research and development credit
|
|
|
16,630
|
|
|
|
15,930
|
|
Intangible assets
|
|
|
16,818
|
|
|
|
11,820
|
|
Stock based compensation
|
|
|
14,876
|
|
|
|
8,316
|
|
Other
|
|
|
10,109
|
|
|
|
4,793
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
114,470
|
|
|
|
111,944
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Fixed assets
|
|
$
|
(1,198
|
)
|
|
$
|
|
|
Other
|
|
|
(494
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
(1,692
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets, net of deferred tax liabilities
|
|
|
112,778
|
|
|
|
111,944
|
|
Valuation allowance
|
|
|
(64,547
|
)
|
|
|
(61,508
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
48,231
|
|
|
$
|
50,436
|
|
|
|
|
|
|
|
|
|
|
During the fourth quarter of 2006, the Company reduced its
valuation allowance and recognized a $49.2 million deferred
tax asset. The Company recorded a $46.6 million deferred
income tax benefit and a $2.6 million credit to additional
paid-in capital representing the excess tax benefit attributable
to stock compensation plans. This benefit was primarily related
to the portion of deferred tax assets that management believes
is more likely than not will be realized in future periods. The
Company considered the level of past and future taxable income
as well as the utilization of carryforwards and other factors
when considering the recognition of deferred tax assets.
During 2007, the Company increased its net deferred tax asset by
$1.2 million in connection with an excess tax benefit
recorded in additional paid-in capital attributable to stock
compensation plans. The Company did not recognize any additional
benefit from income taxes on pretax loss as the future
recognition
F-33
THE
MEDICINES COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
of additional deferred tax assets is not currently considered
more likely than not. The net loss incurred during 2007 is
primarily attributable to the Nycomed transaction. The Company
does not believe this one-time transaction impacts its ability
to realize the balance of deferred tax assets currently recorded.
During 2008, the Company reduced its net deferred tax asset to
$48.2 million which included a reduction of the net
deferred tax asset by $1.5 million related to the deferred
tax provision and by $0.7 million of other activity
recorded directly to equity including an adjustment to
additional paid-in capital for the tax effect of option
exercises and adjustments for unrealized gains on available for
sale securities. The Company believes that it is more likely
than not that the net deferred tax asset of $48.2 million
will be realized in future periods.
The Company will continue to evaluate the realizability of its
deferred tax assets and liabilities on a periodic basis, and
will adjust such amounts in light of changing facts and
circumstances, including but not limited to future projections
of taxable income, tax legislation, rulings by relevant tax
authorities, the progress of ongoing tax audits, the regulatory
approval of products currently under development, extension of
the patent rights relating to Angiomax, failure to achieve
future anticipated revenues or the implementation of tax
planning strategies in connection with the Companys
European expansion. If the Company further reduces or increases
the valuation allowance on deferred tax assets in future years,
the Company would recognize a tax benefit or expense. If the
Company maintains profitability, these deferred tax assets are
available to offset future income taxes.
In 1998 and 2002, the Company experienced a change in ownership
as defined in Section 382 of the Internal Revenue Code.
Section 382 can potentially limit a companys ability
to use net operating losses, tax credits and other tax
attributes in periods subsequent to a change in ownership.
However, based on the market value of the Company at such dates,
the Company believes that these ownership changes will not
significantly impact its ability to use net operating losses or
tax credits in the future to offset taxable income. At
December 31, 2008, the Company has federal net operating
loss carryforwards available to reduce taxable income, and
federal research and development tax credit carryforwards
available to reduce future tax liabilities, which expire
approximately as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal Research
|
|
|
|
Federal Net
|
|
|
and Development
|
|
|
|
Operating Loss
|
|
|
Tax Credit
|
|
Year of Expiration
|
|
Carryforwards
|
|
|
Carryforwards
|
|
|
|
(In thousands)
|
|
|
2018
|
|
$
|
|
|
|
$
|
147
|
|
2019
|
|
|
|
|
|
|
922
|
|
2020
|
|
|
22,422
|
|
|
|
1,083
|
|
2021
|
|
|
51,100
|
|
|
|
477
|
|
2022
|
|
|
41,403
|
|
|
|
1,856
|
|
2023
|
|
|
19,693
|
|
|
|
2,031
|
|
2024
|
|
|
11
|
|
|
|
1,795
|
|
2025
|
|
|
12,541
|
|
|
|
3,436
|
|
2026
|
|
|
97
|
|
|
|
1,971
|
|
2027
|
|
|
79
|
|
|
|
1,190
|
|
2028
|
|
|
|
|
|
|
1,372
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
147,346
|
|
|
$
|
16,280
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2008 a total of $10.7 million of the
deferred tax asset valuation allowance related to net operating
loss carryforwards is associated with the exercise of
non-qualified stock options. Such benefits, when realized, will
be credited to additional paid-in capital.
F-34
THE
MEDICINES COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
For state tax purposes, net operating loss carryforwards of
approximately $22.7 million expire in the years 2009
through 2010. State research and development tax credit
carryforwards are approximately $0.5 million.
On January 1, 2007, the Company adopted FIN 48, which
clarifies the accounting for income taxes by prescribing the
minimum threshold a tax position is required to meet before
being recognized in the financial statements as well as guidance
on de-recognition, measurement, classification and disclosure of
tax positions. The adoption of FIN 48 by the Company did
not have a material impact on the Companys financial
condition or results of operation and resulted in no cumulative
effect of accounting change being recorded as of January 1,
2007. The Company has reduced its deferred tax asset by
approximately $1.2 million to appropriately measure the
amount of such deferred tax asset in accordance with
FIN 48. The adjustment did not affect the net deferred tax
asset because such asset was subject to a valuation allowance.
The recognition of this tax benefit may impact the effective
income tax rate if such tax benefit is more likely than not to
be realized when such benefit is recognized. During 2008, the
Company recorded a $0.2 million increase to non-current
liabilities for unrecognized tax benefits during the year. The
recognition of these tax benefits will impact the Companys
effective income tax rate when recognized. The Company does not
anticipate a significant change in its unrecognized tax benefits
in the next twelve months. The Company is no longer subject to
federal, state or foreign income tax audits for tax years prior
to 2004, however such taxing authorities can review any net
operating losses utilized by the Company in years subsequent to
2003. A reconciliation of the beginning and ending amount of
gross unrecognized tax benefits is as follows:
|
|
|
|
|
|
|
Gross
|
|
|
|
Unrecognized
|
|
|
|
Tax Benefits
|
|
|
|
(In thousands)
|
|
|
Balance at January 1, 2007
|
|
$
|
1,214
|
|
Additions related to current year tax positions
|
|
|
|
|
Additions for prior year tax positions
|
|
|
|
|
Reductions for prior year tax positions
|
|
|
|
|
Settlements
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
|
1,214
|
|
Additions related to current year tax positions
|
|
|
167
|
|
Additions for prior year tax positions
|
|
|
|
|
Reductions for prior year tax positions
|
|
|
|
|
Settlements
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
$
|
1,381
|
|
|
|
|
|
|
The Company classifies interest and penalties related to
unrecognized tax benefits in income tax expense. The Company has
not accrued any interest or penalties as of December 31,
2008.
Angiomax
In March 1997, the Company entered into an agreement with
Biogen, Inc., a predecessor of Biogen Idec Inc., for the license
of the anticoagulant pharmaceutical bivalirudin, which the
Company has developed as Angiomax. Under the terms of the
agreement, the Company acquired exclusive worldwide rights to
the technology, patents, trademarks, inventories and know-how
related to Angiomax. In exchange for the license, the Company
paid $2.0 million on the closing date and is obligated to
pay up to an additional $8.0 million upon the first
commercial sales of Angiomax for the treatment of acute
myocardial infarction in the United States and Europe. In
addition, the Company is obligated to pay royalties on sales of
Angiomax and on
F-35
THE
MEDICINES COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
any sublicense royalties on a
country-by-country
basis earned until the later of (1) 12 years after the
date of the first commercial sales of the product in a country
or (2) the date on which the product or its manufacture,
use or sale is no longer covered by a valid claim of the
licensed patent rights in such country. Under the terms of the
agreement, the royalty rate due to Biogen Idec on sales
increases with growth in annual sales of Angiomax. The agreement
also stipulates that the Company use commercially reasonable
efforts to meet certain milestones related to the development
and commercialization of Angiomax, including expending at least
$20 million for certain development and commercialization
activities, which the Company met in 1998. The license and
rights under the agreement remain in force until the
Companys obligation to pay royalties ceases. Either party
may terminate the agreement for material breach by the other
party, if the material breach is not cured within 90 days
after written notice. In addition, the Company may terminate the
agreement for any reason upon 90 days prior written notice.
The Company recognized royalty expense under the agreement of
$53.6 million in 2008, $40.3 million in 2007 and
$27.2 million in 2006 for Angiomax sales.
Cleviprex
The Company exclusively licensed Cleviprex in March 2003 from
AstraZeneca AB for all countries other than Japan. In May 2006,
the Company amended its license agreement with AstraZeneca to
provide exclusive license rights in Japan in exchange for an
upfront payment. The Company acquired this license after having
studied Cleviprex under a study and exclusive option agreement
with AstraZeneca that the Company entered into in March 2002.
Under the terms of the agreement, the Company has the rights to
the patents, trademarks, inventories and know-how related to
Cleviprex. In exchange for the license, the Company paid
$1.0 million in 2003 upon entering into the license and
agreed to pay up to an additional $5.0 million upon
reaching certain regulatory milestones, including a payment of
$1.5 million that was remitted in September 2007 after the
FDA accepted the NDA for Cleviprex for the treatment of acute
hypertension and a payment of $1.5 million paid in the
third quarter of 2008 upon the FDAs approval of Cleviprex.
In addition, the Company will be obligated to pay royalties on a
country-by-country
basis on future annual sales of Cleviprex, and on any sublicense
royalties earned, until the later of (1) the duration of
the licensed patent rights which are necessary to manufacture,
use or sell Cleviprex in a country or (2) ten years from
the Companys first commercial sale of Cleviprex in such
country. The licenses and rights under the agreement remain in
force on a
country-by-country
basis until the Company ceases selling Cleviprex in such country
or the agreement is otherwise terminated. The Company may
terminate the agreement upon 30 days written notice, unless
AstraZeneca, within 20 days of having received the
Companys notice, requests that the Company enter into good
faith discussions to redress its concerns. If the Company cannot
reach a mutually agreeable solution with AstraZeneca within
three months of the commencement of such discussions, the
Company may then terminate the agreement upon 90 days
written notice. Either party may terminate the agreement for
material breach upon 60 days prior written notice, if the
breach is not cured within such 60 days.
Cangrelor
In December 2003, the Company acquired from AstraZeneca AB
exclusive license rights to cangrelor for all countries other
than Japan, China, Korea, Taiwan and Thailand. Under the terms
of the agreement, the Company has the rights to the patents,
trademarks, inventories and know-how related to cangrelor. In
exchange for the license, in January 2004, the Company paid an
upfront payment upon entering into the license and agreed to
make additional payments upon reaching certain regulatory
milestones. Under the terms of the license agreement, the
Company will be obligated to pay royalties on a
country-by-country
basis on future annual sales of cangrelor, and on any sublicense
royalties earned, until the later of (1) the duration of
the licensed patent rights which are necessary to manufacture,
use or sell cangrelor in a country or (2) ten years from
the Companys first commercial sale of cangrelor in such
country. The licenses and rights under the agreement remain in
force on a
country-by-country
basis until the Company ceases selling cangrelor in such country
or the agreement is otherwise terminated. The Company may
terminate the agreement upon 30 days
F-36
THE
MEDICINES COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
written notice, unless AstraZeneca, within 20 days of
having received the Companys notice, requests that the
Company enter into good faith discussions to redress its
concerns. If the Company cannot reach a mutually agreeable
solution with AstraZeneca within three months of the
commencement of such discussions, the Company may then terminate
the agreement upon 90 days written notice. Either party may
terminate the agreement for material breach upon 60 days
prior written notice, if the breach is not cured within such
60 days.
Lonza
Braine S.A. (formerly UCB Bioproducts)
In December 1999, the Company entered into a commercial supply
agreement with Lonza Braine S.A. (formerly UCB Bioproducts S.A)
for the development and supply of the Angiomax bulk drug
substance. Under the terms of the commercial supply agreement,
Lonza Braine completed development of a modified production
process known as the Chemilog process and filed an amendment in
2001 to its drug master file for regulatory approval of the
Chemilog process by the FDA. The Chemilog process was approved
by the FDA in May 2003. The Company has agreed to purchase a
substantial portion of its Angiomax bulk drug product
manufactured using the Chemilog process from Lonza Braine at
agreed upon prices for a period ending in September 2010.
Following the expiration of the agreement, which automatically
renews for consecutive three-year periods unless either party
provides notice of non-renewal within one year prior to the
expiration of the initial term or any renewal term, or if the
Company terminates the agreement prior to its expiration, Lonza
Braine has agreed to transfer the development technology to the
Company. If the Company engages a third party to manufacture
Angiomax using this technology prior to bivalirudin becoming a
generic drug in the United States, the Company will be obligated
to pay Lonza Braine a royalty based on the amount paid by the
Company to the third party manufacturer. The Company may only
terminate the agreement prior to its expiration in the event of
a material breach by Lonza Braine. During 2008, 2007 and 2006
the Company recorded $8.6 million, $10.4 million and
$10.8 million, respectively, in costs related to Lonza
Braines production of Angiomax bulk drug substance.
|
|
16.
|
Commitments
and Contingencies
|
The Companys long-term contractual obligations include
commitments and estimated purchase obligations entered into in
the normal course of business. These include commitments related
to purchases of inventory of the Companys products,
research and development service agreements, operating leases
and selling, general and administrative obligations, increases
to the Companys restricted cash in connection with its new
principal office space in Parsippany, New Jersey, and milestone
payments due.
Future estimated contractual obligations as of December 31,
2008 are:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contractual Obligations
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
Later Years
|
|
|
Total
|
|
|
|
(In thousands)
|
|
|
Inventory related commitments
|
|
$
|
28,936
|
|
|
$
|
13,343
|
|
|
$
|
200
|
|
|
$
|
400
|
|
|
$
|
600
|
|
|
$
|
|
|
|
$
|
43,479
|
|
Research and development
|
|
|
17,444
|
|
|
|
4,964
|
|
|
|
121
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,529
|
|
Operating leases
|
|
|
7,509
|
|
|
|
7,623
|
|
|
|
7,044
|
|
|
|
6,328
|
|
|
|
4,491
|
|
|
|
46,516
|
|
|
|
79,511
|
|
Selling, general and administrative
|
|
|
5,269
|
|
|
|
372
|
|
|
|
368
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,009
|
|
Restricted cash
|
|
|
3,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,000
|
|
Income tax contingencies
|
|
|
|
|
|
|
167
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
167
|
|
Milestone payments
|
|
|
16,750
|
|
|
|
1,000
|
|
|
|
4,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations
|
|
$
|
78,908
|
|
|
$
|
27,469
|
|
|
$
|
12,233
|
|
|
$
|
6,728
|
|
|
$
|
5,091
|
|
|
$
|
46,516
|
|
|
$
|
176,945
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-37
THE
MEDICINES COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
All of the inventory related commitments included above are
non-cancellable. Included within the inventory related
commitments above are purchase commitments to Lonza Braine
totaling $23.4 million for 2009 and $13.3 million for
2010 for Angiomax bulk drug substance. Of the total estimated
contractual obligations for research and development and
selling, general and administrative activities,
$4.9 million is non-cancellable.
In January 2009, the Company moved its principal offices to a
new office building in Parsippany, New Jersey. The lease
covering the new office building covers 173,146 square feet
and expires January 2024. In connection with the move, the
Company vacated its previous office space in Parsippany.
Additionally, certain other costs such as leasing commissions
and legal fees will be expensed as incurred in conjunction with
the sublease of the vacated office space.
Approximately 82% of the total operating lease commitments above
relate to the Companys new office building. Also included
in total operating lease commitments are automobile leases,
computer leases, the operating lease from the Companys
previous office space and other property leases that the Company
entered into while expanding its European infrastructure.
In addition, the Company leases offices in Waltham,
Massachusetts, Milton Park, Abingdon, United Kingdom; Zurich,
Switzerland; Paris, France; Rome Italy; Munich, Germany; and
Leipzig, Germany. In connection with the Companys
acquisition of Targanta in February 2009, the Company acquired
leases covering approximately 33,600 square feet in the
aggregate of laboratory and office facilities located in the
United States and Canada, including facilities in Cambridge,
Massachusetts, Indianapolis, Indiana and Montreal, Canada. Rent
expense was approximately $2.2 million, $1.6 million
and $1.6 million in 2008, 2007 and 2006, respectively.
In connection with the lease for our new office space in
Parsippany, New Jersey, the Company expects to collateralize
outstanding letters of credit associated with such lease with
restricted cash of $5.0 million. The funds are invested in
certificates of deposit. Under such lease agreement, the Company
agreed to increase its letter of credit on the Phase I Estimated
Commencement Date, as defined in the lease, by an additional
$3.0 million for a total letter of credit of
$8.0 million. The Phase I Commencement date occurred during
the fourth quarter of 2008 and the Company increased the letter
of credit to $8.0 million in the first quarter of 2009.
Included in milestone payments above are amounts that would be
owed to AstraZeneca under the Companys product license
agreements for Cleviprex and cangrelor for achieving certain
milestones. The Company has agreed to make payments upon the
achievement of certain regulatory milestones. Also included in
milestone payments above is the contingent milestone payment of
10.5 million (approximately $15.8 million)
related to the Curacyte Discovery acquisition, that will be due
if the Company elects to proceed with clinical development of
CU-2010. The foregoing amounts do not include royalties that the
Company may also have to pay.
Obligations related to the acquisition of Targanta which
occurred in February 2009, such as milestone payments, lease
expenses and the contingent cash payments that would be owed to
former Targanta shareholders under the Companys merger
agreement with Targanta, are not included in the above.
Litigation
The Company is involved in ordinary and routine matters and
litigation incidental to its business. In the opinion of
management, there are no matters outstanding that would have a
material adverse effect on the consolidated financial position
or results of operations of the Company.
F-38
THE
MEDICINES COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
17.
|
Employee
Benefit Plan
|
The Company has an employee savings and retirement plan which is
qualified under Section 401(k) of the Internal Revenue
Code. The Companys employees may elect to reduce their
current compensation up to the statutorily prescribed limit and
have the amount of such reduction contributed to the 401(k)
plan. The Company may make matching or additional contributions
to the 401(k) plan in amounts to be determined annually by the
Board of Directors. The Company has not made any matching or
additional contributions to date.
|
|
18.
|
Selected
Quarterly Financial Data (Unaudited)
|
The following table presents selected quarterly financial data
for the years ended December 31, 2008 and 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Mar. 31,
|
|
|
June 30,
|
|
|
Sept. 30,
|
|
|
Dec. 31,
|
|
|
Mar. 31,
|
|
|
June 30,
|
|
|
Sept. 30,
|
|
|
Dec. 31,
|
|
|
|
2008
|
|
|
2008
|
|
|
2008
|
|
|
2008
|
|
|
2007
|
|
|
2007
|
|
|
2007
|
|
|
2007
|
|
|
|
(In thousands, except per share data)
|
|
|
Net revenue
|
|
$
|
79,427
|
|
|
$
|
86,731
|
|
|
$
|
88,126
|
|
|
$
|
93,873
|
|
|
$
|
66,647
|
|
|
$
|
56,399
|
|
|
$
|
62,191
|
|
|
$
|
72,297
|
|
Cost of revenue
|
|
|
19,092
|
|
|
|
21,939
|
|
|
|
22,089
|
|
|
|
25,235
|
|
|
|
17,780
|
|
|
|
15,094
|
|
|
|
16,157
|
|
|
|
17,471
|
|
Total operating expenses
|
|
|
54,013
|
|
|
|
58,570
|
|
|
|
86,939
|
|
|
|
71,101
|
|
|
|
64,396
|
|
|
|
57,642
|
|
|
|
90,397
|
|
|
|
73,129
|
|
Net income/(loss)
|
|
|
4,853
|
|
|
|
4,056
|
|
|
|
(13,217
|
)
|
|
|
(4,196
|
)
|
|
|
3,049
|
|
|
|
817
|
|
|
|
(23,643
|
)
|
|
|
1,505
|
|
Basic net income/(loss) per common share
|
|
$
|
0.09
|
|
|
$
|
0.08
|
|
|
$
|
(0.25
|
)
|
|
$
|
(0.08
|
)
|
|
$
|
0.06
|
|
|
$
|
0.02
|
|
|
$
|
(0.46
|
)
|
|
$
|
0.03
|
|
Diluted net income/(loss) per common share
|
|
$
|
0.09
|
|
|
$
|
0.08
|
|
|
$
|
(0.25
|
)
|
|
$
|
(0.08
|
)
|
|
$
|
0.06
|
|
|
$
|
0.02
|
|
|
$
|
(0.46
|
)
|
|
$
|
0.03
|
|
Market price high
|
|
$
|
21.41
|
|
|
$
|
21.13
|
|
|
$
|
28.00
|
|
|
$
|
24.18
|
|
|
$
|
34.73
|
|
|
$
|
27.40
|
|
|
$
|
21.30
|
|
|
$
|
19.90
|
|
Market price low
|
|
$
|
16.38
|
|
|
$
|
17.18
|
|
|
$
|
19.07
|
|
|
$
|
11.37
|
|
|
$
|
23.88
|
|
|
$
|
17.25
|
|
|
$
|
14.26
|
|
|
$
|
16.68
|
|
Targanta
Acquisition
On January 12, 2009, the Company entered into a merger
agreement with Targanta Therapeutics Corporation (Targanta)
under which the Company agreed to commence a tender offer to
acquire 100 percent of Targantas outstanding shares
(the Offer). On February 25, 2009, the Company accepted for
purchase approximately 98 percent of the outstanding shares
of Targanta common stock on a fully diluted basis, which shares
had been tendered during the initial offering period of the
tender offer made by the Company and completed its acquisition
of Targanta through a short-form merger of Boxford Subsidiary
Corporation (Boxford), a direct wholly owned subsidiary of the
Company, into Targanta. With the consummation of the merger,
Targanta has become a wholly owned subsidiary of the Company.
Under the terms of the Companys tender offer, which was
followed promptly by a short-form merger of the Boxford into
Targanta, the Company paid Targanta shareholders $2.00 in cash
at the closing of the Offer for each common share of Targanta
common stock tendered and at the closing of the merger for each
share of Targanta common stock cancelled, or approximately
$42 million, and agreed to pay up to an additional $4.55
per share in contingent cash payments as described below:
|
|
|
|
|
If the Company or a MDCO Affiliated Party (meaning an affiliate
of the Company, a successor or assigns of the Company, or a
licensee or collaborator of the Company) obtains approval from
the European Medicines Agency (EMEA) for a Marketing
Authorization Application, for oritavancin for the treatment of
cSSSI on or before December 31, 2013, each former Targanta
shareholder will be
|
F-39
THE
MEDICINES COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
entitled to receive a cash payment equal to (1) $1.00 per
share if such approval is granted on or before December 31,
2009, (2) $0.75 per share if such approval is granted
between January 1, 2010 and June 30, 2010, or
(3) $0.50 per share if such approval is granted between
July 1, 2010 and December 31, 2013, a payment of
approximately $21.0 million in the aggregate, approximately
$15.8 million in the aggregate, or approximately
$10.5 million in the aggregate, respectively.
|
|
|
|
|
|
If the Company or a MDCO Affiliated Party obtains final approval
from the FDA for an NDA for oritavancin for the treatment of
cSSSI (1) within 40 months after the date the first
patient is enrolled in a Phase III clinical trial of cSSSI
that is initiated by the Company or a MDCO Affiliated Party
after the date of the Companys agreement with Targanta and
(2) on or before December 31, 2013, each former
Targanta shareholder will be entitled to receive a cash payment
equal to $0.50 per share, a payment of approximately
$10.5 million in the aggregate.
|
|
|
|
If the Company or a MDCO Affiliated Party obtains final FDA
approval for an NDA for the use of oritavancin for the treatment
of cSSSI administered by a single dose intravenous infusion
(1) within 40 months after the date the first patient
is enrolled in a Phase III clinical trial of cSSSI that is
initiated by the Company or a MDCO Affiliated Party after the
date of the Companys agreement with Targanta and
(2) on or before December 31, 2013, each former
Targanta shareholder will be entitled to receive a cash payment
equal to $0.70 per share, a payment of approximately
$14.7 million in the aggregate. This payment may become
payable simultaneously with the payment described in the
previous bullet above.
|
|
|
|
If aggregate net sales of oritavancin in four consecutive
calendar quarters ending on or before December 31, 2021
reach or exceed $400 million, each former Targanta
shareholder will be entitled to receive a cash payment equal to
$2.35 per share, a payment of approximately $49.4 million
in the aggregate.
|
The Company expects to account for this transaction in
accordance with SFAS 141(R) and expects to complete the
allocation of the purchase price within one year from the date
of the acquisition.
Shareholder
Litigation
On January 21, 2009, Martin Albright and Vito Caruso filed
a lawsuit in the Business Session of the Superior Court for
Suffolk County, Massachusetts (Civ. Action No
09-0269-BLS)
against Targanta and each member of Targantas Board of
Directors including its President and Chief Executive Officer,
and the Company. On February 2, 2009, the plaintiffs filed
an Amended Complaint in the Business Session of the Superior
Court for Suffolk County, Massachusetts. The Amended Complaint
alleges that (1) the defendants breached their fiduciary
duties,
and/or aided
and abetted the breach of fiduciary duties, owed to Targanta
stockholders in connection with the Offer to purchase all of the
outstanding shares of Targanta, or the Offer, (2) Targanta
failed to disclose certain information to its stockholders in
connection with the Offer and (3) the consideration being
offered pursuant to the Offer is inadequate. The Amended
Complaint seeks to be certified as a class action on behalf of
the public stockholders of Targanta and seeks injunctive relief
enjoining the Offer, or, in the event the Offer has been
consummated prior to the courts entry of final judgment,
rescinding the Offer or awarding rescissory damages. The Amended
Complaint also seeks an accounting for all damages and an award
of costs, including a reasonable allowance for attorneys
and experts fees and expenses.
On February 17, 2009, the plaintiffs filed a Notice of
Motion and Motion for Preliminary Injunction, a Memorandum in
Support of Motion for Preliminary Injunction and affidavits in
support of the motion from Juan E. Monteverde and Matthew Morris.
While the defendants believe that the lawsuit is entirely
without merit and that they have valid defenses to all claims,
in an effort to minimize the cost and expense of any litigation,
on February 19, 2009, the defendants entered into a
memorandum of understanding, or MOU, with the parties to the
lawsuit providing
F-40
THE
MEDICINES COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
for the settlement of the lawsuit. Subject to court approval and
further definitive documentation, the MOU resolves the
allegations by the plaintiffs against the defendants in
connection with the merger agreement with Targanta, or the
Merger Agreement, and the transactions contemplated by the
Merger Agreement, including without limitation the Offer and the
merger contemplated by the Merger Agreement, or the Merger, and
provides a release and settlement by the purported class of
Targantas stockholders of all claims against the
defendants and their affiliates and agents in connection with
the Merger Agreement and the transactions contemplated by the
Merger Agreement, including without limitation the Offer and the
Merger. In exchange for such release and settlement, pursuant to
the terms of the MOU, the parties agreed, after arms
length discussions between and among the parties, that Targanta
would provide additional supplemental disclosures to its
Schedule 14D-9
previously filed with the SEC. The defendants have also agreed
not to oppose any fee application by plaintiffs counsel
that does not exceed $250,000. The settlement, including the
payment by Targanta or any successor thereto of any such
attorneys fees, is also contingent upon, among other
things, the Merger becoming effective under Delaware law. In the
event that the settlement is not approved and such conditions
are not satisfied, the defendants will continue to vigorously
defend the lawsuit.
The Company and Boxford have denied, and continue to deny, that
either has committed or aided and abetted in the commission of
any violation of law of any kind or engaged in any of the
wrongful acts alleged in the above-referenced lawsuit. The
Company and Boxford each expressly maintain that it has
diligently and scrupulously complied with its legal duties, and
has executed the MOU solely to eliminate the burden and expense
of further litigation.
Relocation
of Principal Offices
On January 12, 2009, the Company moved its principal
executive offices to new office space in Parsippany, New Jersey.
The lease for the Companys existing office facility
expires in January 2013. As a result of vacating the existing
facility, the Company triggered a cease-use date on
January 12, 2009 and estimated lease termination costs in
accordance with SFAS 146, Accounting for Costs
Associated with Exit or Disposal Activities. Estimated
lease termination costs include the net present value of future
minimum lease payments from the cease-use date to the end of the
remaining lease term net of estimated sublease rental income.
The Company currently expects to record an expense of
approximately $2.0 to $3.0 million during the first quarter
of 2009 for its initial estimate of the net present value of
these estimated lease termination costs. Additionally, certain
other costs such as leasing commissions and legal fees will be
expensed as incurred in conjunction with the sublease of the
vacated office space.
2009
Equity Inducement Plan
In February 2009, the Board of Directors adopted the 2009 Equity
Inducement Plan (2009 Plan), which provides for the grant of
stock options, restricted stock awards, stock appreciation
rights and other stock based awards to any person who
(a) was not previously an employee or director of the
Company or (b) is commencing employment with the Company
following a bona fide period of non-employment by the Company,
as an inducement material to the individual entering into
employment with the Company. The purpose of the 2009 Plan is to
advance the interests of the Companys stockholders by
enhancing the Companys ability to attract, retain and
motivate persons who are expected to make important
contributions to the Company and providing such persons with
equity ownership opportunities that are intended to better align
their interests with those of the Companys stockholders.
The 2009 Plan is administered by the Compensation Committee of
the Board of Directors, which has the authority to grant awards
under the 2009 Plan. Under the 2009 Plan, the Company is
authorized to issue up to 1,500,000 shares of common stock,
subject to adjustment in the event of stock splits and other
similar events, pursuant to awards granted under the 2009 Plan.
Options granted under the 2009 Plan generally have a
10-year term
and vest 25% one year after grant and the remaining options vest
in equal monthly installments over a three-year period. The 2007
Plan will terminate in May 2010.
F-41
Schedule II
Valuation
and Qualifying Accounts
Year
ended December 31, 2008, 2007 and 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
(Credit) Charged
|
|
|
Other
|
|
|
Balance
|
|
|
|
Beginning
|
|
|
to Costs and
|
|
|
Charges
|
|
|
at End
|
|
|
|
of Period
|
|
|
Expenses(1)
|
|
|
(Deductions)(2)
|
|
|
of Period
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowances for chargebacks, cash discounts and doubtful accounts
|
|
$
|
1,192
|
|
|
$
|
15,149
|
|
|
$
|
14,425
|
|
|
$
|
1,916
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowances for chargebacks, cash discounts and doubtful accounts
|
|
$
|
800
|
|
|
$
|
10,024
|
|
|
$
|
9,632
|
|
|
$
|
1,192
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowances for chargebacks, cash discounts and doubtful accounts
|
|
$
|
851
|
|
|
$
|
8,592
|
|
|
$
|
8,643
|
|
|
$
|
800
|
|
|
|
|
(1) |
|
amounts presented herein were charged to and reduced revenues |
|
(2) |
|
represents actual cash discounts, chargeback credits and other
deductions |
F-42
INDEX TO
EXHIBITS
|
|
|
|
|
Number
|
|
Description
|
|
|
2
|
.1
|
|
Sale and Purchase Agreement, dated August 4, 2008, between the
Company and Curacyte AG (filed as Exhibit 2.1 of the
registrants current report on Form 8-K/A, filed on
November 10, 2008)
|
|
2
|
.2
|
|
Agreement and Plan of Merger among The Medicines Company,
Boxford Subsidiary Corporation, and Targanta Therapeutics
Corporation, dated as of January 12, 2009 (filed as Exhibit 2.1
of the registrants current report on Form 8-K, filed on
January 14, 2009)
|
|
3
|
.1
|
|
Third Amended and Restated Certificate of Incorporation of the
registrant, as amended (filed as Exhibit 4.1 to the Amendment
No. 1 to the registrants registration statement on Form
8-A/A, filed July 14, 2005)
|
|
3
|
.2
|
|
Amended and Restated By-laws of the registrant, as amended
(filed as Exhibit 3.2 to the registrants annual report on
Form 10-K for the year ended December 31, 2007)
|
|
10
|
.1*
|
|
1998 Stock Incentive Plan, as amended (filed as Exhibit 10.1 to
the registration statement on Form S-1 filed on May 19, 2000
(registration no. 333-37404))
|
|
10
|
.2*
|
|
2000 Employee Stock Purchase Plan, as amended (filed as Exhibit
10.3 to the registrants quarterly report on Form 10-Q for
the quarter ended June 30, 2006)
|
|
10
|
.3*
|
|
2000 Outside Director Stock Option Plan, as amended (filed as
Exhibit 10.1 to the registrants quarterly report on Form
10-Q for the quarter ended March 31, 2003)
|
|
10
|
.4
|
|
2001 Non-Officer, Non-Director Employee Stock Incentive Plan
(filed as Exhibit 99.1 to the registration statement on Form S-8
filed December 5, 2001 (registration no. 333-74612))
|
|
10
|
.5*
|
|
2004 Stock Incentive Plan, as amended (filed as Exhibit 10.2 to
the registrants quarterly report on Form 10-Q for the
quarter ended June 30, 2006)
|
|
10
|
.6*
|
|
Form of stock option agreement under 1998 Stock Incentive Plan
(filed as Exhibit 10.3 to the registrants quarterly report
on Form 10-Q for the quarter ended June 30, 2004)
|
|
10
|
.7*
|
|
Form of stock option agreement under 2004 Stock Incentive Plan
(filed as Exhibit 10.22 to the registrants annual report
on Form 10-K for the year ended December 31, 2004)
|
|
10
|
.8*
|
|
Form of restricted stock agreement under 2004 Stock Incentive
Plan (filed as Exhibit 10.1 to the registrants quarterly
report on Form 10-Q for the quarter ended March 31, 2006)
|
|
10
|
.9
|
|
Amended and Restated Registration Rights Agreement, dated as of
August 12, 1998, as amended, by and among the registrant and the
other parties thereto (filed as Exhibit 10.1 to the
registrants quarterly report on Form 10-Q for the quarter
ended June 30, 2002)
|
|
10
|
.10
|
|
License Agreement, dated as of June 6, 1990, by and between
Biogen, Inc. and Health Research, Inc., as assigned to the
registrant (filed as Exhibit 10.6 to the registration statement
on Form S-1 filed on May 19, 2000 (registration no. 333-37404))
|
|
10
|
.11
|
|
License Agreement dated March 21, 1997, by and between the
registrant and Biogen, Inc. (filed as Exhibit 10.7 to the
registration statement on Form S-1 filed on May 19, 2000
(registration no. 333-37404))
|
|
10
|
.12
|
|
License Agreement effective as of March 28, 2003 by and between
AstraZeneca AB and the registrant (filed as Exhibit 10.17 to the
registrants annual report on Form 10-K for the year ended
December 31, 2003)
|
|
10
|
.13
|
|
Amendment No. 1 to License Agreement by and between AstraZeneca
AB (filed as Exhibit 10.1 to the registrants quarterly
report on Form 10-Q for the quarter ended June 30, 2006)
|
|
10
|
.14
|
|
License Agreement dated as of December 18, 2003 by and between
AstraZeneca AB and the registrant (filed as Exhibit 10.18 to the
registrants annual report on Form 10-K for the year ended
December 31, 2003)
|
|
10
|
.15
|
|
Chemilog Development and Supply Agreement, dated as of December
20, 1999, by and between the registrant and UCB Bioproducts S.A.
(filed as Exhibit 10.5 to the registration statement on Form S-1
filed on May 19, 2000 (registration no. 333-37404))
|
|
10
|
.16
|
|
Lease for 8 Campus Drive dated September 30, 2002 by and between
Sylvan/Campus Realty L.L.C. and the registrant, as amended
(filed as Exhibit 10.15 to the registrants annual report
on Form 10-K for the year ended December 31, 2003)
|
|
10
|
.17
|
|
Third Amendment to Lease for 8 Campus Drive dated December 30,
2004 by and between Sylvan/Campus Realty L.L.C. and the
registrant (filed as Exhibit 10.18 to the registrants
annual report on Form 10-K for the year ended December 31, 2004)
|
|
|
|
|
|
Number
|
|
Description
|
|
|
10
|
.18
|
|
Lease for 400 Fifth Avenue, Waltham, MA dated October 2008
by and between Normandy Waltham Holdings, LLC and the registrant
|
|
10
|
.19*
|
|
Employment agreement dated September 5, 1996 by and between the
registrant and Clive Meanwell (filed as Exhibit 10.12 to the
registration statement on Form S-1 filed on May 19, 2000
(registration no. 333-37404))
|
|
10
|
.20*
|
|
Letter Agreement dated December 1, 2004 by and between the
registrant and John Kelley (filed as Exhibit 10.25 to the
registrants annual report on Form 10-K for the year ended
December 31, 2004)
|
|
10
|
.21*
|
|
Letter Agreement dated February 1, 2006 by and between the
registrant and Catharine S. Newberry (filed as Exhibit 10.22 to
the registrants annual report on Form 10-K for the year
ended December 31, 2005)
|
|
10
|
.22*
|
|
Letter Agreement dated March 2, 2006 by and between the
registrant and Glenn P. Sblendorio, (filed as Exhibit 10.23 to
the registrants annual report on Form 10-K for the year
ended December 31, 2005)
|
|
10
|
.23*
|
|
Summary of Board of Director Compensation (filed as Exhibit 10.1
to the registrants quarterly report on Form 10-Q for the
quarter ended March 31, 2007)
|
|
10
|
.24*
|
|
Form of Amended and Restated Management Severance Agreement by
and between the registrant and each of Clive Meanwell, John
Kelley and Glenn Sblendorio
|
|
10
|
.25*
|
|
Form of Amended and Restated Management Severance Agreement by
and between the registrant and each of Paul Antinori, William
OConnor and Kelli Watson
|
|
10
|
.26*
|
|
Form of Lock-Up Agreement dated as of December 23, 2005 by and
between the registrant and each of its executive officers and
directors (filed as Exhibit 10.27 to the registrants
annual report on Form 10-K for the year ended December 31,
2005)
|
|
10
|
.27
|
|
Consulting Agreement dated April 6, 2007 between Hiroaki Shigeta
and the registrant (filed as Exhibit 10.2 to the
registrants quarterly report on Form 10-Q for the quarter
ended March 31, 2007)
|
|
10
|
.28
|
|
Termination and Transition Agreement dated July 1, 2007 between
Nycomed Danmark ApS and the registrant (filed as Exhibit 10.1 to
the registrants quarterly report on Form 10-Q for the
quarter ended September 30, 2007)
|
|
10
|
.29
|
|
Distribution Agreement dated July 1, 2007 between Nycomed
Danmark ApS and the registrant, (filed as Exhibit 10.2 to the
registrants quarterly report on Form 10-Q for the quarter
ended September 30, 2007)
|
|
10
|
.30
|
|
Services Agreement dated July 1, 2007 between Nycomed Danmark
ApS and the registrant (filed as Exhibit 10.3 to the
registrants quarterly report on Form 10-Q for the quarter
ended September 30, 2007)
|
|
10
|
.31
|
|
Amendment to License Agreement dated July 6, 2007 between
AstraZeneca AB and the registrant (filed as Exhibit 10.4 to the
registrants quarterly report on Form 10-Q for the quarter
ended September 30, 2007)
|
|
10
|
.32
|
|
Lease for 8 Sylvan Way, Parsippany, NJ dated October 11, 2007 by
and between 8 Sylvan Way, LLC and the registrant (filed as
Exhibit 10.32 to the registrants annual report on Form
10-K for the year ended December 31, 2007)
|
|
10
|
.33*
|
|
2007 Equity Inducement Plan (filed as Exhibit 10.1 to the
registration statement on Form S-8 filed January 11, 2008
(registration no. 333-148602))
|
|
10
|
.34*
|
|
Form of stock option agreement under 2007 Equity Inducement Plan
(filed as Exhibit 10.34 to the registrants annual report
on Form 10-K for the year ended December 31, 2007)
|
|
10
|
.35*
|
|
Form of restricted stock agreement under 2007 Equity Inducement
Plan (filed as Exhibit 10.35 to the registrants annual
report on Form 10-K for the year ended December 31, 2007)
|
|
10
|
.36*
|
|
Amended and Restated 2004 Stock Incentive Plan (filed as Exhibit
99.1 to the registrants registration statement on Form
S-8, dated July 3, 2008)
|
|
10
|
.37*
|
|
Summary of Annual Cash Bonus Plan (filed as Exhibit 10.2 to
the registrants quarterly report on
Form 10-Q
for the quarter ended June 30, 2008)
|
|
10
|
.38
|
|
Amendment No. 2 to License Agreement, dated October 22, 2008 by
and between the registrant and AstraZeneca AB
|
|
|
|
|
|
Number
|
|
Description
|
|
|
10
|
.39
|
|
License Agreement, dated December 23, 2005 by and between
Targanta Therapeutics Corporation (as successor to InterMune,
Inc.) and Eli Lilly and Company (filed as Exhibit 10.11 to
Targantas registration statement on Form S-1 (registration
no. 333-142842), as amended, originally filed with the SEC on
May 11, 2007)
|
|
10
|
.40
|
|
Amendment to Lease for 8 Sylvan Way, Parsippany, NJ dated
October 11, 2007 by and between 8 Sylvan Way, LLC and the
registrant
|
|
10
|
.41*
|
|
2009 Equity Inducement Plan (filed as Exhibit 10.1 to the
registration statement on Form S-8 filed February 24, 2009
(registration number 333-157499))
|
|
10
|
.42*
|
|
Severance Agreement, dated February 17, 2009 by and between
Catharine Newberry and the registrant
|
|
21
|
|
|
Subsidiaries of the registrant
|
|
23
|
|
|
Consent of Ernst & Young LLP, Independent Registered
Accounting Firm
|
|
31
|
.1
|
|
Chief Executive Officer--Certification pursuant to Rule
13a-14(a) of the Securities Exchange Act of 1934, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
31
|
.2
|
|
Chief Financial Officer--Certification pursuant to Rule
13a-14(a) of the Securities Exchange Act of 1934, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
32
|
.1
|
|
Chief Executive Officer--Certification pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
|
|
32
|
.2
|
|
Chief Financial Officer--Certification pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
|
|
|
|
* |
|
Management contract or compensatory plan or arrangement filed as
an exhibit to this form pursuant to Items 15(a) and 15(c)
of
Form 10-K |
|
|
|
Confidential treatment requested as to certain portions, which
portions have been omitted and filed separately with the
Securities and Exchange Commission Unless otherwise indicated,
the exhibits incorporated herein by reference were filed under
Commission file number
000-31191. |