e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended: September 30, 2010
OR
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 000-31191
THE MEDICINES COMPANY
(Exact name of registrant as specified in its charter)
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Delaware
(State or other jurisdiction of
incorporation or organization)
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04-3324394
(I.R.S. Employer
Identification No.) |
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8 Sylvan Way
Parsippany, New Jersey
(Address of principal executive offices)
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07054
(Zip Code) |
Registrants telephone number, including area code: (973) 290-6000
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files).
Yes þ No 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 definitions of large accelerated
filer, accelerated filer, and smaller reporting company in Rule 12b-2 of the Exchange Act.
(Check one):
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Large accelerated filer o
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Accelerated filer þ
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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) |
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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
As of November 5, 2010, there were 53,386,166 shares of Common Stock, $0.001 par value per share,
outstanding.
THE MEDICINES COMPANY
TABLE OF CONTENTS
2
Item 1. Financial Statements
THE MEDICINES COMPANY
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
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September 30, |
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December 31, |
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2010 |
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2009 |
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(Unaudited) |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
105,169 |
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$ |
72,225 |
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Available for sale securities |
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122,284 |
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103,966 |
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Accrued interest receivable |
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922 |
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922 |
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Accounts receivable, net of allowances of
approximately $21.4 million and $6.4 million
at September 30, 2010 and December 31, 2009,
respectively |
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34,070 |
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29,789 |
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Inventory |
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29,624 |
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25,836 |
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Prepaid expenses and other current assets |
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7,367 |
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9,984 |
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Total current assets |
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299,436 |
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242,722 |
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Fixed assets, net |
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21,387 |
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25,072 |
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Intangible assets, net |
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83,363 |
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84,678 |
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Goodwill |
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14,671 |
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14,934 |
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Restricted cash |
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5,764 |
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7,049 |
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Other assets |
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269 |
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321 |
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Total assets |
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$ |
424,890 |
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$ |
374,776 |
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LIABILITIES AND STOCKHOLDERS EQUITY |
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Current liabilities: |
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Accounts payable |
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$ |
12,788 |
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$ |
8,431 |
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Accrued expenses |
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64,545 |
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77,088 |
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Deferred revenue |
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434 |
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1,100 |
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Total current liabilities |
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77,767 |
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86,619 |
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Contingent purchase price |
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25,932 |
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23,667 |
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Deferred tax liabilities |
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19,105 |
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18,395 |
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Other liabilities |
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5,829 |
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5,706 |
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Total liabilities |
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128,633 |
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134,387 |
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Stockholders equity: |
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Preferred stock, $1.00 par value per share,
5,000,000 shares authorized; no shares
issued and outstanding |
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Common stock, $0.001 par value per share,
125,000,000 shares authorized; 53,373,836
and 52,830,376 issued and outstanding at
September 30, 2010 and
December 31, 2009, respectively |
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53 |
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53 |
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Additional paid-in capital |
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594,296 |
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584,678 |
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Accumulated deficit |
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(298,114 |
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(344,177 |
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Accumulated other comprehensive income (loss) |
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22 |
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(165 |
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Total stockholders equity |
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296,257 |
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240,389 |
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Total liabilities and stockholders equity |
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$ |
424,890 |
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$ |
374,776 |
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See accompanying notes to unaudited condensed consolidated financial statements.
3
THE MEDICINES COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)
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Three Months Ended September 30, |
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Nine months Ended September 30, |
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2010 |
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2009 |
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2010 |
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2009 |
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Net revenue |
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$ |
105,743 |
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$ |
98,789 |
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$ |
317,966 |
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$ |
302,181 |
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Operating expenses: |
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Cost of revenue |
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31,568 |
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28,308 |
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93,905 |
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86,958 |
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Research and development |
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16,676 |
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22,464 |
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54,128 |
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68,685 |
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Selling, general and administrative |
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35,788 |
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47,358 |
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121,318 |
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146,863 |
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Total operating expenses |
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84,032 |
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98,130 |
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269,351 |
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302,506 |
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Income (loss) from operations |
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21,711 |
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659 |
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48,615 |
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(325 |
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Other income |
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483 |
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151 |
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55 |
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2,055 |
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Income before income taxes |
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22,194 |
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810 |
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48,670 |
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1,730 |
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Provision for income taxes |
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(989 |
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(4,007 |
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(2,607 |
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(4,465 |
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Net income (loss) |
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$ |
21,205 |
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$ |
(3,197 |
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$ |
46,063 |
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$ |
(2,735 |
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Basic earnings (loss) per common share |
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$ |
0.40 |
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$ |
(0.06 |
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$ |
0.87 |
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$ |
(0.05 |
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Diluted earnings (loss) per common share |
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$ |
0.40 |
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$ |
(0.06 |
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$ |
0.87 |
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$ |
(0.05 |
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Weighted average number of common shares outstanding: |
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Basic |
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52,991 |
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52,298 |
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52,773 |
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52,225 |
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Diluted |
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53,359 |
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52,298 |
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53,005 |
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52,225 |
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See accompanying notes to unaudited condensed consolidated financial statements.
4
THE MEDICINES COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
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Nine months Ended |
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September 30, |
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2010 |
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2009 |
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Cash flows from operating activities: |
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Net income (loss) |
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$ |
46,063 |
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$ |
(2,735 |
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Adjustments to reconcile net income to net cash provided by operating
activities: |
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Depreciation and amortization |
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5,085 |
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4,331 |
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Amortization of net premiums and discounts on available for sale securities |
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2,432 |
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1,460 |
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Unrealized foreign currency transaction (gains) losses, net |
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(596 |
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559 |
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Non-cash stock compensation expense |
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6,855 |
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15,328 |
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Loss on disposal of fixed assets |
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6 |
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11 |
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Deferred tax provision |
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710 |
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4,900 |
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Tax effect of option exercises |
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(928 |
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Adjustment to contingent purchase price |
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2,265 |
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(442 |
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Changes in operating assets and liabilities: |
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Accrued interest receivable |
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468 |
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Accounts receivable |
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(4,214 |
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(10,547 |
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Inventory |
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(3,656 |
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8,944 |
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Prepaid expenses and other current assets |
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2,450 |
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1,283 |
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Accounts payable |
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4,275 |
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(10,725 |
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Accrued expenses |
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(12,481 |
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(8,988 |
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Deferred revenue |
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(691 |
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(6,319 |
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Other liabilities |
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122 |
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(104 |
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Net cash provided by (used in) operating activities |
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48,625 |
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(3,504 |
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Cash flows from investing activities: |
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Purchases of available for sale securities |
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(100,830 |
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(108,883 |
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Proceeds from maturities and sales of available for sale securities |
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80,140 |
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121,510 |
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Purchases of fixed assets |
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(151 |
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(287 |
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Adjustment to goodwill |
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263 |
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Acquisition of business, net of cash acquired |
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(37,229 |
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Decrease (increase) in restricted cash |
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1,285 |
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(1,709 |
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Net cash used in investing activities |
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(19,293 |
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(26,598 |
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Cash flows from financing activities: |
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Proceeds from issuances of common stock, net |
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2,764 |
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1,803 |
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Net cash provided by financing activities |
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2,764 |
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1,803 |
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Effect of exchange rate changes on cash |
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848 |
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(794 |
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Increase (decrease) in cash and cash equivalents |
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32,944 |
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(29,093 |
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Cash and cash equivalents at beginning of period |
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72,225 |
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81,018 |
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Cash and cash equivalents at end of period |
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$ |
105,169 |
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$ |
51,925 |
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Supplemental disclosure of cash flow information: |
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Taxes paid |
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$ |
229 |
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$ |
354 |
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5
THE MEDICINES COMPANY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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 quarterly report on Form 10-Q
are the property of their respective owners. Except where otherwise indicated, or where the context
may otherwise require, references to Angiomax in this quarterly report on Form 10-Q mean Angiomax
and Angiox collectively. References to the Company, we, us or our mean The Medicines
Company, a Delaware corporation, and its subsidiaries.
1. Nature of Business
The Medicines Company (the Company) is a global pharmaceutical company focused on advancing
the treatment of intensive and 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, and a
pipeline of critical care hospital products in development, including two late-stage development
product candidates, cangrelor and oritavancin, two early stage development product candidates,
MDCO-2010 (formerly known as CU2010) and MDCO-216 (formerly known as ApoA-I Milano), and marketing
rights in the United States and Canada to a ready-to-use formulation of Argatroban for which a new
drug application (NDA) has been submitted to the U.S. Food and Drug Administration (FDA). The
Company believes that Angiomax, Cleviprex and its products in development possess favorable
attributes that competitive products do not provide, can satisfy unmet medical needs in the
critical care hospital product market and offer, or, in the case of the Companys products in
development, have the potential to offer, improved performance to patients and hospital businesses.
2. Significant Accounting Policies
The Companys significant accounting policies are described in note 2 of the notes to the
consolidated financial statements included in the Annual Report on Form 10-K for the year ended
December 31, 2009 filed with the Securities and Exchange Commission (SEC).
Basis of Presentation
The accompanying condensed consolidated financial statements have been prepared in accordance
with U.S. generally accepted accounting principles (GAAP) for interim financial information and
with the instructions to Form 10-Q. Accordingly, they do not include all the information and
footnotes required by GAAP for complete financial statements. In the opinion of management, the
accompanying financial statements include all adjustments, consisting of normal recurring accruals,
considered necessary for a fair presentation of the Companys financial position, results of
operations, and cash flows for the periods presented.
The condensed consolidated financial statements include the accounts of the Company and its
wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in
consolidation. The Company has no unconsolidated subsidiaries or investments accounted for under
the equity method.
The results of operations for the three months and nine months ended September 30, 2010 are
not necessarily indicative of the results that may be expected for the entire fiscal year or the
fourth quarter of the fiscal year ending December 31, 2010. These condensed consolidated financial
statements should be read in conjunction with the audited financial statements included in the
Companys Annual Report on Form 10-K for the year ended December 31, 2009, filed with the SEC.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make
estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs,
expenses and accumulated other comprehensive income/(loss) that are reported in the consolidated
financial statements and accompanying disclosures. Actual results may be different. See note 2 of
the
6
notes to the consolidated financial statements in the Companys Annual Report on Form 10-K for the
year ended December 31, 2009 for a discussion of the Companys critical accounting estimates.
Reclassifications
Certain prior year amounts have been reclassified to conform to the current year presentation.
Recent Accounting Pronouncements
In June 2009, the FASB issued SFAS No. 167, Amendments to FASB Interpretation No. 46(R),
which was later superseded by the FASB Codification and included in ASC topic 810-10 (ASC 810-10),
which modifies how a company determines when an entity that is insufficiently capitalized or is not
controlled through voting (or similar rights) should be consolidated. ASC 810-10 clarifies that the
determination of whether a company is required to consolidate an entity is based on, among other
things, an entitys purpose and design and a companys ability to direct the activities of the
entity that most significantly impact the entitys economic performance. ASC 810-10 requires an
ongoing reassessment of whether a company is the primary beneficiary of a variable interest entity.
ASC 810-10 also requires additional disclosures about a companys involvement in variable interest
entities and any significant changes in risk exposure due to that involvement. This guidance is
effective for fiscal years beginning after November 15, 2009 and was effective for the Company on
January 1, 2010. The Company adopted this accounting pronouncement as of January 1, 2010 and it did
not have a material impact on its consolidated financial statements.
3. Stock-Based Compensation
The Company recorded approximately $1.8 million and $6.9 million of stock-based compensation
expense for the three and nine months ended September 30, 2010, respectively. For the three and
nine months ended September 30, 2009, the Company recorded approximately $4.4 million and $15.3
million of stock-based compensation expense, respectively. As of September 30, 2010, there was
approximately $8.4 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 1.24 years.
During the nine months ended September 30, 2010, the Company issued a total of 543,460 shares
of its common stock upon the exercise of stock options, pursuant to restricted stock grants and
pursuant to purchases under employee stock purchase plans (the ESPP). During the nine months ended
September 30, 2009, the Company issued a total of 596,818 shares of its common stock upon the
exercise of stock options, pursuant to restricted stock grants and pursuant to purchases under the
ESPP. Cash received from exercise of stock options and purchases through the ESPP during the nine
months ended September 30, 2010 and 2009 was approximately $2.8 million and $1.8 million,
respectively, and is included within the financing activities section of the consolidated
statements of cash flows.
At September 30, 2010, there were a total of 6,726,585 shares of common stock reserved for
future issuance under the ESPP and for future grants under the Companys amended and restated 2004
stock incentive plan.
4. Earnings per Share
The following table sets forth the computation of basic and diluted earnings per share for the
three and nine months ended September 30, 2010 and 2009:
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Three Months Ended September 30, |
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Nine Months Ended September 30, |
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2010 |
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2009 |
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2010 |
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2009 |
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(in thousands, except per share amounts) |
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Basic and diluted |
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Net income (loss) |
|
$ |
21,205 |
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|
$ |
(3,197 |
) |
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$ |
46,063 |
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|
$ |
(2,735 |
) |
Weighted average common shares outstanding, basic |
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52,991 |
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52,298 |
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52,773 |
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52,225 |
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Plus: net effect of dilutive stock options and
restricted common shares |
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368 |
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|
232 |
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Weighted average common shares outstanding, diluted |
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53,359 |
|
|
|
52,298 |
|
|
|
53,005 |
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52,225 |
|
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Earnings (loss) per share, basic |
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$ |
0.40 |
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$ |
(0.06 |
) |
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$ |
0.87 |
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$ |
(0.05 |
) |
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Earnings (loss) per share, diluted |
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$ |
0.40 |
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$ |
(0.06 |
) |
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$ |
0.87 |
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$ |
(0.05 |
) |
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7
Basic earnings 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 number of dilutive common stock equivalents was calculated using
the treasury stock method. For the three months ended September 30, 2010 and 2009, options to
purchase 7,150,519 shares and 10,887,737 shares, respectively, of common stock that could
potentially dilute basic earnings per share in the future were excluded from the calculation of
diluted earnings per share as their effect would have been anti-dilutive because their exercise
price was in excess of the average closing price of the common stock during the period. For the
nine months ended September 30, 2010 and 2009, options to purchase 8,684,283 shares and 11,032,956
shares, respectively, of common stock that could potentially dilute basic earnings per share in the
future were excluded from the calculation of diluted earnings per share as their effect would have
been anti-dilutive.
For the three months ended September 30, 2010 and 2009, 6,750 and 0 shares, respectively, of
unvested restricted stock that could potentially dilute basic earnings per share in the future were
excluded from the calculation of diluted earnings per common share as their effect would have been
anti-dilutive. For the nine months ended September 30, 2010 and 2009, 8,500 and 116,870 shares,
respectively, of unvested restricted stock that could potentially dilute basic earnings per share
in the future were excluded from the calculation of diluted earnings per common share as their
effect would have been anti-dilutive.
5. Comprehensive Income (Loss)
Comprehensive income (loss) includes net income (loss), unrealized gain (loss) on available
for sale securities and currency translation adjustments. Comprehensive income (loss) for the three
and nine months ended September 30, 2010 and September 30, 2009 is detailed below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Income (Loss) |
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
(in thousands) |
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
21,205 |
|
|
$ |
(3,197 |
) |
|
$ |
46,063 |
|
|
$ |
(2,735 |
) |
Unrealized gain (loss) on available
for sale securities |
|
|
80 |
|
|
|
(244 |
) |
|
|
61 |
|
|
|
(1,004 |
) |
Foreign currency translation adjustment |
|
|
79 |
|
|
|
132 |
|
|
|
126 |
|
|
|
(168 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss) |
|
$ |
21,364 |
|
|
$ |
(3,309 |
) |
|
$ |
46,250 |
|
|
$ |
(3,907 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
6. Income Taxes
For the three months ended September 30, 2010 and 2009, the Company recorded a provision for
income taxes of $1.0 million and $4.0 million, respectively, based upon its estimated tax liability
for the year. The Companys effective tax rate for the three months ended September 30, 2010 and
2009 was approximately 4% and 495%, respectively. For the nine months ended September 30, 2010 and
2009, the Company recorded a provision for income taxes of $2.6 million and $4.5 million,
respectively, based upon its estimated tax liability for the year. The Companys effective tax rate
for the nine months ended September 30, 2010 and 2009 was approximately 5% and 258%, respectively.
The provision for income taxes is based on federal, state and foreign income taxes.
In the fourth quarter of 2009, the Company established a full valuation allowance against its
deferred tax assets. It continues to evaluate their future realizability on a periodic basis in
light of changing facts and circumstances, including but not limited to projections of future
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 and the ability to achieve future anticipated revenues. If the Company
reduces the valuation allowance on deferred tax assets in future periods, the Company would
recognize an income tax benefit.
8
7. Acquisition
Targanta Therapeutics Corporation
In February 2009, the Company acquired Targanta Therapeutics Corporation (Targanta), a
biopharmaceutical company focused on developing and commercializing innovative antibiotics to treat
serious infections in the hospital and other institutional settings.
Under the terms of the Companys agreement with Targanta, it paid Targanta shareholders an
aggregate of approximately $42.0 million at closing, and agreed to pay contingent cash payments up
to an additional $90.4 million in the aggregate, as described below:
|
|
|
Upon approval from the European Medicines Agency (EMA)
for a Marketing Authorization Application (MAA) for oritavancin for the treatment of
serious gram-positive bacterial infections, including acute bacterial skin and skin
structure infections (ABSSSI) (which were formerly referred to as complicated skin and
skin structure infections, or cSSSI) on or before December 31, 2013, approximately $10.5
million if such approval is granted between July 1, 2010 and December 31, 2013. As of
September 30, 2010, the Company has not filed an application with the EMA for oritavancin
for the treatment of ABSSSI. |
|
|
|
|
Upon final approval from the FDA for a new drug application, or NDA, for oritavancin
for the treatment of ABSSSI (1) within 40 months after the date the first patient is
enrolled in a Phase 3 clinical trial of ABSSSI that is initiated by the Company and (2) on
or before December 31, 2013, approximately $10.5 million in the aggregate. |
|
|
|
|
Upon final FDA approval for an NDA for the use of oritavancin for the treatment of
ABSSSI administered by a single dose intravenous infusion (1) within 40 months after the
date the first patient is enrolled in a Phase 3 clinical trial of ABSSSI that is initiated
by the Company and (2) on or before December 31, 2013, 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 $400.0 million, approximately $49.4 million in
the aggregate. |
The Company expensed transaction costs as incurred, capitalized as an indefinite lived
intangible asset the value of acquired in-process research and development and recorded contingent
payments at their estimated fair value. The results of Targantas operations have been included in
the Companys consolidated financial statements since the acquisition date. The purchase price of
approximately $64 million, which includes $42 million of cash paid upon acquisition and $23 million
that represents the fair market value of the contingent purchase price on the date of acquisition,
was allocated to the net tangible and intangible assets of Targanta based on their estimated fair
values. Below is a summary which details the assets and liabilities acquired as a result of the
acquisition:
|
|
|
|
|
|
|
(in thousands) |
|
Acquired Assets: |
|
|
|
|
Cash and cash equivalents |
|
$ |
4,815 |
|
Available for sale securities |
|
|
397 |
|
Prepaid expenses & other current assets |
|
|
2,440 |
|
Fixed assets, net |
|
|
1,960 |
|
In-process research and development |
|
|
69,500 |
|
Goodwill |
|
|
14,671 |
|
Other assets |
|
|
70 |
|
|
|
|
|
Total assets |
|
|
93,853 |
|
Liabilities Assumed: |
|
|
|
|
Accounts payable |
|
|
3,280 |
|
Accrued expenses |
|
|
6,976 |
|
Contingent purchase price |
|
|
23,181 |
|
Deferred tax liability |
|
|
17,877 |
|
Other liabilities |
|
|
556 |
|
|
|
|
|
Total liabilities |
|
|
51,870 |
|
|
|
|
|
Total cash purchase price paid upon acquisition |
|
$ |
41,983 |
|
|
|
|
|
9
The purchase price was allocated to the estimated fair value of assets acquired and
liabilities assumed based on a valuation and management estimates. The Company recorded a deferred
tax liability for the difference in basis of the identifiable intangible assets.
In determining the fair value of all of the Companys in-process research and development
projects related to oritavancin, the Company used the income approach, specifically a probability
weighting to the estimated future net cash flows that are derived from projected sales revenues and
estimated costs. These projections are based on factors such as relevant market size, patent
protection, historical pricing of similar products and expected industry trends. This method
requires a forecast of cash inflows, cash outflows, and pro forma charges for economic returns of
and on tangible assets employed, including working capital, fixed assets and assembled workforce.
Cash outflows include direct and indirect expenses for clinical trials, manufacturing, sales,
marketing, general and administrative expenses and taxes. For purposes of these forecasts, the
Company assumed that cash outflows for research and development, general administrative and
marketing expenses from February 2009 and continuing through 2012 would not exceed $165 million.
All internal and external research and development expenses are expensed as incurred.
The Company expects its oritavancin development efforts to have a material impact on its
research and development expenses.
The Company defines an in-process research and development project by specific therapeutic
treatment indication. At this time, the Company is pursuing four therapeutic treatment indications
for oritavancin. After applying a risk adjusted discount rate of 13% to each projects expected
cash flow stream, the Company determined a preliminary value for each project as set forth below.
In determining these values, the Company assumed that it would generate cash inflows from
oritavancin for ABSSSI in 2012 and from the other projects thereafter.
|
|
|
|
|
|
Project |
|
|
(in thousands) |
|
ABSSSI |
|
|
$ |
54,000 |
|
Bacteremia |
|
|
|
5,900 |
|
Anthrax |
|
|
|
6,400 |
|
Clostridium difficile infections |
|
|
|
3,200 |
|
|
|
|
|
|
Total |
|
|
$ |
69,500 |
|
The Companys success in developing and obtaining marketing approval for oritavancin for
ABSSSI and for any of the other indications is highly uncertain. Subject to the completion of
ongoing discussions with the FDA, the Company expects to commence such a Phase 3 study of
oritavancin in the fourth quarter of 2010. The Company cannot know or predict 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, oritavancin due to the numerous risks and
uncertainties associated with developing and commercializing drugs. These risks and uncertainties,
including their impact on the timing of completing clinical trial and development work and
obtaining regulatory approval, would have a material impact on each projects value.
If the acquisition of Targanta had occurred as of January 1, 2009, the Companys pro forma
results for the three and nine months ended September 30, 2010 and 2009 would have been as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
(in thousands, except per share amounts) |
|
Net revenue |
|
$ |
105,743 |
|
|
$ |
98,789 |
|
|
$ |
317,966 |
|
|
$ |
302,181 |
|
Income (loss) from operations |
|
|
21,711 |
|
|
|
659 |
|
|
|
48,615 |
|
|
|
(10,995 |
) |
Net income (loss) |
|
|
21,205 |
|
|
|
(3,197 |
) |
|
|
46,063 |
|
|
|
(13,851 |
) |
Basic and diluted loss per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share |
|
$ |
0.40 |
|
|
$ |
(0.06 |
) |
|
$ |
0.87 |
|
|
$ |
(0.27 |
) |
Diluted earnings (loss) per share |
|
$ |
0.40 |
|
|
$ |
(0.06 |
) |
|
$ |
0.87 |
|
|
$ |
(0.27 |
) |
Weighted average number of common shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
52,991 |
|
|
|
52,298 |
|
|
|
52,773 |
|
|
|
52,225 |
|
Diluted |
|
|
53,359 |
|
|
|
52,298 |
|
|
|
53,005 |
|
|
|
52,225 |
|
The above pro forma information was determined based on historical GAAP results adjusted for
the elimination of interest foregone on net cash and cash equivalents used to pay the closing
consideration and transaction related costs. Such amount was offset by the elimination of interest
expense on third party debt that is assumed to be repaid in full prior to the completion of the
acquisition.
10
8. 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 at
September 30, 2010 and December 31, 2009 included investments of $10.6 million and $47.5 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.
At September 30, 2010 and December 31, 2009, the Company held available for sale securities
with a fair value totaling $122.3 million and $104.0 million, respectively. These available for
sale securities included various U.S. government agency notes and corporate debt securities. At
September 30, 2010, approximately $117.1 million of available for sale securities were due on
demand or within one year and the remaining $5.2 million were due within two years. At December 31,
2009, approximately $100.3 million of available for sale securities were due on demand or within
one year and the remaining $3.7 million were due within two years.
Available for sale securities, including carrying value and estimated fair values, are
summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2010 |
|
|
As of December 31, 2009 |
|
|
|
|
|
|
|
|
|
|
|
Carrying |
|
|
Unrealized |
|
|
|
|
|
|
|
|
|
|
Carrying |
|
|
Unrealized |
|
|
|
Cost |
|
|
Fair Value |
|
|
Value |
|
|
Gain |
|
|
Cost |
|
|
Fair Value |
|
|
Value |
|
|
Gain |
|
|
|
(in thousands) |
|
U.S. government
agency notes |
|
$ |
65,729 |
|
|
$ |
65,768 |
|
|
$ |
65,768 |
|
|
$ |
39 |
|
|
$ |
103,936 |
|
|
$ |
103,965 |
|
|
$ |
103,965 |
|
|
$ |
29 |
|
Corporate debt securities |
|
$ |
56,464 |
|
|
$ |
56,516 |
|
|
$ |
56,516 |
|
|
$ |
52 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
122,193 |
|
|
$ |
122,284 |
|
|
$ |
122,284 |
|
|
$ |
91 |
|
|
$ |
103,936 |
|
|
$ |
103,966 |
|
|
$ |
103,966 |
|
|
$ |
29 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted Cash
The Company had restricted cash of $5.8 million at September 30, 2010 and $7.0 million at
December 31, 2009, which is included in restricted cash on the consolidated balance sheets. 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 $5.5 million and $6.8 million at September 30, 2010 and December 31, 2009,
respectively, collateralizes outstanding letters of credit associated with such lease. The funds
are invested in certificates of deposit. 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. In addition, as a result of the Targanta acquisition in 2009, the Company has restricted
cash of $0.3 million in the form of a guaranteed investment certificate collateralizing an
available credit facility.
9. Inventory
The Company obtains all of its Angiomax bulk drug substance from Lonza Braine, S.A. (Lonza
Braine). 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. As of September 30, 2010, the Company had inventory-related purchase commitments totaling
$2.8 million during 2010, $25.3 million during 2011 and $14.7 million during 2012 for Angiomax bulk
drug substance. 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
Inventory |
|
|
2010 |
|
|
2009 |
|
|
|
|
(in thousands) |
|
Raw materials |
|
|
$ |
11,496 |
|
|
$ |
13,609 |
|
Work-in-progress |
|
|
|
11,482 |
|
|
|
8,646 |
|
Finished goods |
|
|
|
6,646 |
|
|
|
3,581 |
|
|
|
|
|
|
|
|
|
Total |
|
|
$ |
29,624 |
|
|
$ |
25,836 |
|
|
|
|
|
|
|
|
|
11
The Company reviews inventory, including inventory purchase commitments, for slow moving or
obsolete amounts based on expected revenues. If annual revenues are less than expected, the Company
may be required to make additional allowances for excess or obsolete inventory in the future.
10. Intangible Assets and Goodwill
The following information details the carrying amounts and accumulated amortization of the
Companys amortizing intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2010 |
|
|
As of December 31, 2009 |
|
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
Net |
|
|
Gross |
|
|
|
|
|
|
Net |
|
|
|
Weighted Average |
|
|
Carrying |
|
|
Accumulated |
|
|
Carrying |
|
|
Carrying |
|
|
Accumulated |
|
|
Carrying |
|
|
|
Useful Life |
|
|
Amount |
|
|
Amortization |
|
|
Amount |
|
|
Amount |
|
|
Amortization |
|
|
Amount |
|
|
|
(in thousands) |
|
Identifiable intangible assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships(1) |
|
8 years |
|
$ |
7,457 |
|
|
$ |
(1,501 |
) |
|
$ |
5,956 |
|
|
$ |
7,457 |
|
|
$ |
(861 |
) |
|
$ |
6,596 |
|
Distribution agreements(1) |
|
8 years |
|
|
4,448 |
|
|
|
(896 |
) |
|
|
3,552 |
|
|
|
4,448 |
|
|
|
(514 |
) |
|
|
3,934 |
|
Trademarks(1) |
|
8 years |
|
|
3,024 |
|
|
|
(609 |
) |
|
|
2,415 |
|
|
|
3,024 |
|
|
|
(349 |
) |
|
|
2,675 |
|
Cleviprex milestones(2) |
|
13 years |
|
|
2,000 |
|
|
|
(60 |
) |
|
|
1,940 |
|
|
|
2,000 |
|
|
|
(27 |
) |
|
|
1,973 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
9 years |
|
$ |
16,929 |
|
|
$ |
(3,066 |
) |
|
$ |
13,863 |
|
|
$ |
16,929 |
|
|
$ |
(1,751 |
) |
|
$ |
15,178 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The Company amortizes intangible assets related to Angiox based on the ratio of annual
forecasted revenue compared to total forecasted revenue from the sale of Angiox through the
end of its patent life. |
|
(2) |
|
The Company amortizes intangible assets related to the Cleviprex approval over the remaining
life of the patent. |
The Company expects amortization expense related to these intangible assets to be $0.4 million
for the remainder of 2010. The Company expects annual amortization expense related to these
intangible assets to be $2.4 million, $2.4 million, $3.0 million, $3.6 million and $0.8 for the
years ending December 31, 2011, 2012, 2013, 2014 and 2015, respectively, with the balance of $1.2
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.
The following information details the carrying amounts of the Companys intangible assets not
subject to amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2010 |
|
|
As of December 31, 2009 |
|
|
|
Gross |
|
|
|
|
|
|
Net |
|
|
Gross |
|
|
|
|
|
|
Net |
|
|
|
Carrying |
|
|
Accumulated |
|
|
Carrying |
|
|
Carrying |
|
|
Accumulated |
|
|
Carrying |
|
|
|
Amount |
|
|
Amortization |
|
|
Amount |
|
|
Amount |
|
|
Amortization |
|
|
Amount |
|
|
|
(in thousands) |
|
Intangible assets not subject to amortization: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In-process research and development |
|
$ |
69,500 |
|
|
$ |
|
|
|
$ |
69,500 |
|
|
$ |
69,500 |
|
|
$ |
|
|
|
$ |
69,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
69,500 |
|
|
$ |
|
|
|
$ |
69,500 |
|
|
$ |
69,500 |
|
|
$ |
|
|
|
$ |
69,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The changes in goodwill for the nine months ended September 30, 2010 and for the year ended
December 31, 2009 are as follows:
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(in thousands) |
|
Balance at beginning of period |
|
$ |
14,934 |
|
|
$ |
|
|
Goodwill acquired during the year(1) |
|
|
|
|
|
|
14,934 |
|
Adjustment to goodwill |
|
|
(263 |
) |
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period |
|
$ |
14,671 |
|
|
$ |
14,934 |
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The goodwill acquired during 2009 is solely attributable to the Targanta acquisition (note
7). |
12
11. Fair Value Measurements
ASC 820-10 provides a framework for measuring fair value under GAAP and requires expanded
disclosures regarding fair value measurements. ASC 820-10 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. ASC 820-10 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 consist of money market investments. |
|
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. The Companys Level 2 assets and liabilities consist of U.S. government agency
and corporate debt securities. |
|
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. The Companys Level 3 assets and
liabilities consist of the contingent purchase price associated with the Targanta acquisition
(note 7). The fair value of the contingent purchase price was determined utilizing a
probability weighted discounted financial model. |
The following table sets forth the Companys assets and liabilities that were measured at fair
value on a recurring basis at September 30, 2010 by level within the fair value hierarchy. As
required by ASC 820-10, 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 and Liabilities |
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|
September 30, 2010 |
|
|
|
(in thousands) |
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market |
|
$ |
10,593 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
10,593 |
|
U.S. government agency |
|
$ |
|
|
|
$ |
72,053 |
|
|
$ |
|
|
|
$ |
72,053 |
|
Corporate debt securities |
|
$ |
|
|
|
$ |
50,231 |
|
|
$ |
|
|
|
$ |
50,231 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at fair value |
|
$ |
10,593 |
|
|
$ |
122,284 |
|
|
$ |
|
|
|
$ |
132,877 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent purchase price |
|
$ |
|
|
|
$ |
|
|
|
$ |
25,932 |
|
|
$ |
25,932 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities at fair value |
|
$ |
|
|
|
$ |
|
|
|
$ |
25,932 |
|
|
$ |
25,932 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The changes in fair value of the Companys Level 3 contingent purchase price during the nine
months ended September 30, 2010 were as follows:
|
|
|
|
|
|
|
Level 3 |
|
|
|
(in thousands) |
|
Balance at December 31, 2009 |
|
$ |
23,667 |
|
Contingent purchase price related to acquisition of Targanta |
|
|
|
|
Fair value adjustment to contingent purchase price included in net income |
|
|
2,265 |
|
|
|
|
|
Balance at September 30, 2010 |
|
$ |
25,932 |
|
|
|
|
|
No changes in valuation techniques or inputs occurred during the nine months ended September
30, 2010. No transfers of assets between Level 1 and Level 2 of the fair value measurement
hierarchy occurred during the nine months ended September 30, 2010.
13
12. Restructuring Costs and Other, Net
On January 7, 2010 and February 9, 2010, the Company commenced two separate workforce
reductions to improve efficiencies and better align its costs and structure for the future. As a
result of the first workforce reduction, the Company reduced its office-based personnel by 30
employees. The second workforce reduction resulted in a reduction of 42 primarily field-based
employees. Upon signing release agreements, affected employees received reduction payments, earned
2009 bonuses, fully paid health care coverage for six months and outplacement services. The Company
completed these workforce reductions in February 2010.
The Company recorded, in the aggregate, charges of $6.9 million associated with the workforce
reductions. These charges were recorded in research and development and selling, general and
administrative costs in the Companys financial statements.
Of the approximately $6.9 million of charges related to the workforce reductions, $1.0 million
were noncash charges, $5.7 million was paid during the nine months ended September 30, 2010 and
approximately $0.2 million are expected to be paid out during the remainder of 2010.
Details of the activities described above during the nine-month period ended September 30,
2010 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of |
|
|
|
of January 1, |
|
|
Expenses, |
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
|
2009 |
|
|
Net |
|
|
Cash |
|
|
Noncash |
|
|
2010 |
|
|
|
(in thousands) |
|
Employee severance and other personnel benefits: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Workforce reductions |
|
$ |
|
|
|
$ |
5,703 |
|
|
$ |
5,536 |
|
|
$ |
|
|
|
$ |
167 |
|
Leases and equipment write-offs |
|
|
|
|
|
|
1,164 |
|
|
|
150 |
|
|
|
945 |
|
|
|
69 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
6,867 |
|
|
$ |
5,686 |
|
|
$ |
945 |
|
|
$ |
236 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13. Segment and Geographic Information
The Company manages its business and operations as one segment and is focused on advancing the
treatment of critical care patients through the delivery of innovative, cost-effective medicines to
the worldwide hospital marketplace. Revenues reported to date are derived primarily from the sales
of Angiomax in the United States.
The geographic information provided below is classified based on the major geographic regions
in which the Company operates.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
|
|
|
|
Nine months Ended September 30, |
|
|
|
|
|
|
|
2010 |
|
|
|
|
|
|
2009 |
|
|
|
|
|
|
2010 |
|
|
|
|
|
|
2009 |
|
|
|
|
|
|
|
(in thousands) |
|
|
|
|
|
Net revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
$ |
100,234 |
|
|
|
94.8 |
% |
|
$ |
93,317 |
|
|
|
94.5 |
% |
|
$ |
301,065 |
|
|
|
94.7 |
% |
|
$ |
289,044 |
|
|
|
95.6 |
% |
Europe |
|
|
4,018 |
|
|
|
3.8 |
% |
|
|
2,915 |
|
|
|
2.9 |
% |
|
|
13,613 |
|
|
|
4.3 |
% |
|
|
8,692 |
|
|
|
2.9 |
% |
Other |
|
|
1,491 |
|
|
|
1.4 |
% |
|
|
2,557 |
|
|
|
2.6 |
% |
|
|
3,288 |
|
|
|
1.0 |
% |
|
|
4,445 |
|
|
|
1.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue |
|
|
105,743 |
|
|
|
|
|
|
|
98,789 |
|
|
|
|
|
|
|
317,966 |
|
|
|
|
|
|
|
302,181 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
|
|
|
|
December 31, |
|
|
|
|
|
|
|
2010 |
|
|
|
|
|
|
2009 |
|
|
|
|
|
|
|
(in thousands) |
|
|
|
|
|
Long-lived assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
$ |
118,123 |
|
|
|
98.7 |
% |
|
$ |
122,968 |
|
|
|
98.4 |
% |
Europe |
|
|
1,352 |
|
|
|
1.1 |
% |
|
|
1,684 |
|
|
|
1.3 |
% |
Other |
|
|
215 |
|
|
|
0.2 |
% |
|
|
353 |
|
|
|
0.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-lived assets |
|
$ |
119,690 |
|
|
|
|
|
|
$ |
125,005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
14. 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 previous office facility expires in January
2013. As a result of vacating the previous facility, the Company triggered a cease-use date on
January 12, 2009 and incurred estimated lease termination costs. 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. As of September 30, 2010, the
Company has accrued approximately $1.1 million for its estimate of the net present value of these
estimated lease termination costs. Additionally, certain other costs such as leasing commissions
and legal fees were expensed as incurred in conjunction with the sublease of the vacated office
space.
15. Contingencies
The Company may be, from time to time, a party to various disputes and claims arising from
normal business activities. The Company accrues for loss contingencies when information available
indicates that it is probable that a liability has been incurred and the amount of such loss can be
reasonably estimated. The Company believes that the ultimate resolution of these matters will not
have a material adverse effect on the Companys financial condition or liquidity. However,
adjustments, if any, to the Companys estimates could be material to operating results for the
periods in which adjustments to the liability are recorded.
The U.S. Patent and Trademark Office (PTO) rejected the Companys application under the
Hatch-Waxman Act for an extension of the term of U.S. Patent
No. 5,196,404 (404 patent), the principal U.S.
patent that covers Angiomax (the patent term extension application filing), because in the PTOs
view the application was not timely filed. The Company filed suit against the PTO, the FDA and U.S.
Department of Health and Human Services (HHS) seeking to set aside the denial of the patent term
extension application filing. On August 3, 2010, the court granted the Companys motion for summary
judgment and ordered the PTO to consider the patent term extension application timely filed. On
August 5, 2010, the PTO granted an interim extension of the term
of the 404 patent until August 13, 2011. The period for the government to appeal the courts August 3,
2010 decision expired on October 5, 2010 without government appeal. The PTO has sent the patent
term extension application to the FDA for a determination on the length of the
extension of the 404 patent.
On August 19, 2010, APP Pharmaceuticals, LLC (APP) filed a motion to intervene for the purpose
of appeal in the Companys case against the PTO, the FDA and HHS. On September 13, 2010, the court
issued an order denying APPs motion to intervene. On September 1, 2010, as amended on September
17, 2010, APP filed a notice of appeal to the United States Court of Appeals for the Federal
Circuit of the district courts August 3, 2010 and September 13, 2010 orders (and all
related and underlying orders). On October 5, 2010, the Company filed a motion to dismiss APPs
appeal and the Company is awaiting a decision by the court.
The
Company has entered into agreements with the law firms involved in
the patent term extension application
filing that suspend the statute of limitations on any claims against them for failing to make a
timely filing. The Company has entered into a similar agreement with Biogen Idec, one of its
licensors for Angiomax, relating to any claims, including claims for damages and/or license
termination, that Biogen Idec may bring relating to the patent term
extension application filing. Such claims by
Biogen Idec could have a material adverse effect on the Companys financial condition, results of
operations, liquidity or business. The Company is currently in discussions with the law firms
involved in the patent term extension application filing and with Biogen Idec and Health Research Inc. with respect
to the possible resolution of potential claims among the parties.
15
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion and analysis of our financial condition and results
of operations together with our financial statements and accompanying notes included elsewhere in
this quarterly report. In addition to the historical information, the discussion in this quarterly
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 quarterly
report, including under Risk Factors in Part II, Item 1A of this quarterly report.
Overview
Our Business
We are a global pharmaceutical company focused on advancing the treatment of intensive and
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, and a pipeline of critical care hospital
products in development, including two late-stage development product candidates, cangrelor and
oritavancin, two early stage development product candidates, MDCO-2010 (formerly known as CU2010)
and MDCO-216 (formerly known as ApoA-I Milano) and marketing rights in the United States and Canada
to a ready-to-use formulation of Argatroban for which a new drug application, or NDA, has been
submitted to the U.S. Food and Drug Administration, or FDA. We believe that Angiomax, Cleviprex and
our products in development possess favorable attributes that competitive products do not provide,
can satisfy unmet medical needs in the critical care hospital product market and offer, or, in the
case of our products in development, have the potential to offer, improved performance to patients
and hospital businesses. During the three months ended September 30, 2010, we did not sell
Cleviprex due to a lack of supply as a result of product recalls and manufacturing issues.
The following chart identifies each of our marketed products and our products in development,
their stage of development, their mechanism of action and the indications which they address or are
intended to address. All of our marketed products and products in development are administered
intravenously.
16
|
|
|
|
|
|
|
Product or |
|
|
|
|
|
|
Product in |
|
Development |
|
|
|
|
Development |
|
Stage |
|
Mechanism/Target |
|
Clinical Indication(s) |
Angiomax |
|
Marketed |
|
Direct thrombin inhibitor |
|
U.S. for use as an anticoagulant in
combination with aspirin in patients with
unstable angina undergoing percutaneous
coronary intervention, or PCI, with or at risk
of heparin induced thrombocytopenia and
thrombosis syndrome, or HIT/HITTS |
|
|
|
|
|
|
|
|
|
|
|
|
|
EU for use as an anticoagulant in patients
with acute coronary syndrome, or ACS, or
ST-segment elevation myocardial infarction, or
STEMI, undergoing primary PCI |
|
|
|
|
|
|
|
Cleviprex |
|
Marketed in the
U.S.; Marketing Authorization Application, or MAA, submitted
in the European
Union |
|
Calcium channel blocker |
|
Blood pressure reduction when oral therapy is
not feasible or not desirable |
|
|
|
|
|
|
|
Cangrelor |
|
Phase 3 |
|
Antiplatelet agent |
|
Prevention of platelet activation and aggregation |
|
|
|
|
|
|
|
Oritavancin |
|
Phase 3 |
|
Antibiotic |
|
Treatment of serious gram-positive bacterial
infections, including acute bacterial skin and
skin structure infections, or ABSSSI (which were
formerly referred to as complicated skin and
skin structure infections, or cSSSI) |
|
|
|
|
|
|
|
MDCO-2010 |
|
Phase 1 |
|
Serine protease inhibitor |
|
Reduction of blood loss during surgery |
|
|
|
|
|
|
|
MDCO-216 |
|
Phase 1 |
|
Naturally occurring
variant of a protein
found in human
high-density lipoprotein
(HDL) |
|
Reversal of atherosclerotic plaque development
and reduction of the risk of coronary events in
patients with ACS |
|
|
|
|
|
|
|
Ready-to-Use
Argatroban |
|
Phase 3; NDA filed |
|
Direct thrombin inhibitor |
|
Anticoagulant for prophylaxis or treatment of
thrombosis in patients with or at risk for HIT
and for patients with or at risk for HIT
undergoing PCI |
We market and sell Angiomax and Cleviprex in the United States with a sales force that, as of
September 30, 2010, consisted of 106 representatives, which we refer to as engagement partners and
managers, experienced in selling to hospital customers. In Europe, we market and sell Angiox with a
sales force that, as of September 30, 2010, consisted of 44 engagement partners and managers
experienced in selling to hospital customers. Our revenues to date have been generated primarily
from sales of Angiomax in the United States, but we continue to expand our sales and marketing
efforts in Europe. We believe that by establishing operations in Europe for Angiox, we will be
positioned to commercialize our pipeline of critical care product candidates in Europe, if and when
they are approved.
Research and development expenses represent costs incurred for company acquisitions and
license of rights to products, clinical trials, nonclinical and preclinical studies, activities
relating to regulatory filings and manufacturing development efforts. We outsource much of our
clinical trials, nonclinical and preclinical studies 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 September 30, 2010, we had an accumulated deficit of approximately $298.1 million. We expect
to make substantial expenditures to further develop and commercialize our products, including costs
and expenses associated with clinical trials, nonclinical and preclinical studies, regulatory
17
approvals
and commercialization. Although we achieved profitability in 2004 and
2006 and expect to be profitable in 2010, we have
not been profitable on an annual basis since 2006. We will likely need to generate significantly
greater revenue in future periods to achieve and maintain profitability in light of our planned
expenditures.
Angiomax Patent Term
The
principal U.S. patent covering Angiomax, U.S. patent No. 5,196,404,
or the 404 patent, was set to expire in March 2010, but has been
extended in connection with our litigation against the U.S. Patent and Trademark Office, or PTO,
the FDA and the U.S. Department of Health and Human Services, or HHS. We applied, under the
Hatch-Waxman Act, for an extension of the term of the 404 patent.
However, the PTO rejected our application because in its view the application was not timely filed.
As a result, we filed suit against the PTO, the FDA and HHS seeking to set aside the denial of our
application to extend the term of the 404 patent. In response to court
orders, the PTO first extended the term of the patent to May 2010 and then to the date at least 10
days after the court issued an order deciding the case. On August 3, 2010, the court granted our
motion for summary judgment and ordered the PTO to consider our patent term extension application
timely filed. On August 5, 2010, the PTO granted an interim
extension of the term of the 404 patent until August 13, 2011. On October 5, 2010, the period for the government
to appeal the courts August 3, 2010 summary judgment decision expired without government appeal.
The PTO has sent our application to the FDA for a determination on the length of
the extension of the 404 patent.
On August 19, 2010, APP Pharmaceuticals, LLC, or APP, filed a motion to intervene for the
purpose of appeal in our case against the PTO, the FDA and HHS. On September 13, 2010, the court
issued an order denying APPs motion to intervene. On September 1, 2010, as amended on September
17, 2010, APP filed a notice of appeal to the United States Court of Appeals for the Federal
Circuit of the district courts August 3, 2010 and September 13, 2010 orders (and all
related and underlying orders). On October 5, 2010, we filed a motion to dismiss APPs appeal and
we are awaiting a decision by the court.
We also continue to pursue legislative action to address the matter. In addition, we will have
a six-month period of market exclusivity for Angiomax in the United States due to our study of
Angiomax in the pediatric setting following the expiration of the U.S. patents covering Angiomax.
The PTO has recently issued two patents to us covering a more consistent and improved Angiomax
drug product and the processes by which it is made. In October 2009, January 2010 and June 2010, we
filed suit against pharmaceutical companies which have filed abbreviated new drug applications, or
ANDAs, with the FDA for generic versions of Angiomax, alleging infringement of the two recently
issued patents.
If the August 3, 2010 court order requiring the PTO to consider our application to extend the
term of the 404 patent timely filed is successfully challenged, either
by APP in its pending appeal or in a separate challenge. If we are otherwise unsuccessful in further extending the term of the 404 patent, or if we are unable to maintain our market exclusivity for Angiomax
in the United States through enforcement of our other U.S. patents covering Angiomax, Angiomax
could be subject to generic competition in the United States following the expiration of the
six-month period of market exclusivity resulting from our pediatric study of Angiomax. In Europe,
the principal patent covering Angiox expires in 2015.
Cleviprex Resupply
In December 2009 and March 2010, we conducted voluntary recalls of manufactured lots of
Cleviprex due to the presence of visible particulate matter that was deposited at the bottom of
some vials. As a result, since the first quarter of 2010 we have not been able to supply the market
with Cleviprex with existing inventory or to use the current manufacturing method to manufacture
Cleviprex. We are cooperating with the FDA and our contract
manufacturer to remedy the problem at the manufacturing site that
resulted in the recalls. We expect to be able to resupply the market with
drug product and to resume selling Cleviprex in the third quarter of 2011.
Distribution and 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, Integrated
Commercialization Solutions, Inc., or ICS, which then sells
18
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. Our agreement with ICS, which we initially entered into February 2007, provides that ICS
will be our exclusive distributor of Angiomax and Cleviprex in the United States. Under the terms
of this fee-for-service agreement, ICS places orders with us for sufficient quantities of Angiomax
and Cleviprex to maintain an appropriate level of inventory based on our customers historical
purchase volumes. ICS assumes all credit and inventory risks, is subject to our standard return
policy and has sole responsibility for determining the prices at which it sells Angiomax and
Cleviprex, subject to specified limitations in the agreement. The agreement terminates on February
28, 2012, but will automatically renew for additional one-year periods unless either party gives
notice at least 120 days prior to the automatic extension. We may also terminate the agreement at
any time and for any reason upon prior written notice to ICS and payment of a termination fee of
between $100,000 and $250,000.
In Europe, we market and sell Angiox with a sales force that, as of September 30, 2010,
consisted of 44 engagement partners and managers. We also market and sell Angiomax outside the
United States through distributors, including Sunovion Pharmaceuticals Inc., which distributes Angiomax in Canada,
and affiliates of Grupo Ferrer Internacional, which distribute Angiox in Greece, Portugal and Spain
and in a number of countries in Central America and South America. We also have agreements with
other third parties for other countries outside of the United States and Europe, including Israel
and Australia. We are developing a global strategy for Cleviprex in preparation for its potential
approval outside of the United States but do not expect to launch Cleviprex in other countries
until the manufacturing issues regarding the product have been resolved.
To support the marketing, sales and distribution efforts of Angiomax, we are continuing to
develop our business infrastructure outside the United States. We currently have subsidiaries in
the Australia, Austria, Belgium, Brazil, Canada, Denmark, Finland, France, Germany, Italy, the
Netherlands, Norway, Poland, Spain, Sweden, Switzerland and the United Kingdom, in connection with
the development of a business infrastructure to conduct the international sales and marketing of
Angiomax. We also obtained licenses and authorizations necessary to distribute Angiomax in the
various countries outside the United States, hired personnel and entered into third-party
arrangements to provide services, such as importation, packaging, quality control and distribution.
We believe that by establishing operations outside the United States for Angiomax, we will be
positioned to commercialize our products in development, if and when they are approved.
Business Development Activity
Our core strategy is to acquire, develop and commercialize products that we believe help
hospitals treat patients more efficiently by improving the effectiveness and safety of treatment
while reducing cost. Since the beginning of 2009, we have acquired or licensed a portfolio of
critical care products that we are developing.
Targanta Acquisition. 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 Clostridium difficile infections, or C. difficile.
Under the terms of our agreement with Targanta, we paid Targanta shareholders an aggregate of
approximately $42.0 million at closing, and agreed to pay contingent cash payments up to an
additional $90.4 million in the aggregate, as described below:
|
|
|
Upon approval from the European Medicines Agency, or EMA, for a MAA for oritavancin for the treatment of ABSSSI on or
before December 31, 2013, approximately $10.5 million if such approval is granted between
July 1, 2010 and December 31, 2013. As of September 30, 2010, we had not filed an
application with the EMA for oritavancin for the treatment of ABSSSI. |
|
|
|
|
Upon final approval from the FDA for a new drug application, or NDA, for oritavancin for
the treatment of ABSSSI (1) within 40 months after the date the first patient is enrolled in
a Phase 3 clinical trial of ABSSSI that is initiated by us and (2) on or before December 31,
2013, approximately $10.5 million in the aggregate. |
|
|
|
|
Upon final FDA approval for an NDA for the use of oritavancin for the treatment of ABSSSI
administered by a single dose intravenous infusion (1) within 40 months after the date the
first patient is enrolled in a Phase 3 clinical trial of ABSSSI that is initiated by us and
(2) on or before December 31, 2013, approximately $14.7 million in the aggregate. This
payment may become payable simultaneously with the payment described in the previous bullet
above. |
19
|
|
|
If aggregate net sales of oritavancin in four consecutive calendar quarters ending on or
before December 31, 2021 reach or exceed $400 million, approximately $49.4 million in the
aggregate. |
We expensed the transaction costs as incurred and capitalized the value of acquired in-process
research and development as an indefinite lived intangible asset. We recorded contingent payments
at their estimated fair value. We included the results of Targantas operations in our consolidated
financial statements since the acquisition. The purchase price of approximately $64 million, which
includes $42 million of cash paid upon acquisition and $23 million that represents the fair market
value of the contingent purchase price on the date of acquisition, was allocated to the net
tangible and intangible assets of Targanta based on their estimated fair values.
As a result of our acquisition of Targanta, we are a party to an asset purchase agreement that
Targanta entered into with InterMune, Inc., or InterMune, in connection with Targantas December
2005 acquisition of the worldwide rights to oritavancin from 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.
Licensing Arrangement with Eagle. In September 2009, we licensed marketing rights in the
United States and Canada to a ready-to-use formulation of Argatroban developed by Eagle
Pharmaceuticals, Inc., or Eagle, for which Eagle submitted an NDA to the FDA in 2008. We and Eagle
are currently in discussions with the FDA regarding the NDA. Under the license agreement with
Eagle, we paid Eagle a $5.0 million technology license fee. We also agreed to pay additional
approval and commercialization milestones up to a total of $15.0 million and royalties. Eagle has
agreed to supply us with the ready-to-use product under a supply agreement we entered into with it
in September 2009.
Licensing Arrangement with Pfizer. In December 2009, we licensed exclusive worldwide rights
to MDCO-216 (formerly known as ApoA-I Milano) from Pfizer Inc., or Pfizer. Under the terms of the
agreement, we paid Pfizer an up-front payment of $10.0 million and agreed to make additional
payments upon the achievement of clinical, regulatory and sales milestones up to a total of $410
million. We also agreed to pay Pfizer single-digit royalty payments on worldwide net sales of
MDCO-216. We also paid $7.5 million to third parties in connection with the license and agreed to
make additional payments to them of up to $12.0 million in the aggregate upon the achievement of
specified development milestones and continuing payments based on sales of MDCO-216.
Workforce Reductions
On January 7, 2010 and February 9, 2010, we commenced two separate workforce reductions to
improve efficiencies and better align our costs and structure for the future. As a result of the
first workforce reduction, we reduced our office-based personnel by 30 employees. The second
workforce reduction resulted in a reduction of 42 primarily field-based employees. In the nine
months ended September 30, 2010, we recorded, in the aggregate, charges of $6.9 million associated
with these workforce reductions. Of the approximately $6.9 million of charges related to the
workforce reductions, $1.0 million were noncash charges, $5.7 million was paid during the nine
months ended September 30, 2010 and approximately $0.2 million is expected to be paid out during
the remainder of 2010. We expect to realize estimated annualized cost savings from the workforce
reductions in the range of $14.5 to $16.5 million.
Results of Operations
Three Months Ended September 30, 2010 and 2009
Net Revenue:
Net revenue increased 7% to $105.7 million for the three months ended September 30, 2010 as
compared to $98.8 million for the three months ended September 30, 2009. The following table
reflects the components of net revenue for the three months ended September 30, 2010 and 2009:
20
Net Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
|
|
|
|
|
|
|
|
|
Change |
|
|
Change |
|
|
|
2010 |
|
|
2009 |
|
|
$ |
|
|
% |
|
|
|
(in thousands) |
|
|
(in thousands) |
|
|
(in thousands) |
|
|
|
|
Net Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. sales |
|
$ |
100,234 |
|
|
$ |
93,317 |
|
|
$ |
6,917 |
|
|
|
7.4 |
% |
International net revenue |
|
|
5,509 |
|
|
|
5,472 |
|
|
|
37 |
|
|
|
0.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue |
|
$ |
105,743 |
|
|
$ |
98,789 |
|
|
$ |
6,954 |
|
|
|
7.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue during the three months ended September 30, 2010 increased $7.0 million compared
to the three months ended September 30, 2009 primarily due to an increase in sales of Angiomax in
the United States and an increase in sales of Angiox in Europe. Increased Angiomax net sales in the
United States were offset by higher chargebacks related to the 340B Drug Pricing Program under the
Public Health Service Act, pursuant to which we offer qualifying entities a discount off the
commercial price of Angiomax for patients undergoing PCI on an outpatient basis. U.S. sales for the
three months ended September 30, 2010 do not include any sales of Cleviprex, reflecting our lack of
supply of Cleviprex due to manufacturing problems, compared to $1.1 million from sales of Cleviprex
in the three months ended September 30, 2009.
International net revenue was relatively unchanged during the three months ended September 30,
2010 compared to the three months ended September 30, 2009 since decreased sales of
Angiomax in Canada offset the increased sales of Angiomax in Europe.
If the August 3, 2010 court order requiring the PTO to consider our application to extend the
term of the 404 patent timely filed is successful challenged either by
APP in its pending appeal or in a separate challenge, if we are otherwise unsuccessful in further extending the term of the 404 patent, or if we are unable to maintain our market exclusivity for Angiomax
in the United States through enforcement of our other U.S. patents covering Angiomax, Angiomax
could be subject to generic competition in the United States following the expiration of the
six-month period of market exclusivity resulting from our pediatric study of Angiomax. Competition
from generic equivalents sold at a price that is less than the price at which we currently sell
Angiomax could reduce our revenues, possibly materially.
Since the first quarter of 2010, we have not been able to supply the market with Cleviprex
with existing inventory or to use the current manufacturing method to
manufacture Cleviprex related to the December 2009 and
March 2010 recalls of the drug product. We expect to be able to resupply the
market with drug product and to resume selling Cleviprex in the third quarter of 2011.
Cost of Revenue:
Cost of revenue in the three months ended September 30, 2010 was $31.6 million, or 30% of net
revenue, compared to $28.3 million, or 29% of net revenue, in the three months ended September 30,
2009. Cost of revenue consisted of expenses in connection with the manufacture of Angiomax and
Cleviprex sold, royalty expenses under our agreements with Biogen Idec and Health Research Inc., or
HRI, related to Angiomax and with AstraZeneca AB, or AstraZeneca, related to Cleviprex and the
logistics costs related to Angiomax and Cleviprex, including distribution, storage and handling
costs.
21
Cost of Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
|
|
|
|
|
% of Total |
|
|
|
|
|
|
% of Total |
|
|
|
2010 |
|
|
Cost |
|
|
2009 |
|
|
Cost |
|
|
|
(in thousands) |
|
|
|
|
|
(in thousands) |
|
|
|
|
Cost of Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufacturing |
|
$ |
7,277 |
|
|
|
23 |
% |
|
$ |
6,830 |
|
|
|
24 |
% |
Royalty |
|
|
21,129 |
|
|
|
67 |
% |
|
|
18,755 |
|
|
|
66 |
% |
Logistics |
|
|
3,162 |
|
|
|
10 |
% |
|
|
2,723 |
|
|
|
10 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenue |
|
$ |
31,568 |
|
|
|
100 |
% |
|
$ |
28,308 |
|
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue increased $3.3 million during the three months ended September 30, 2010
compared to the three months ended September 30, 2009. The increase in cost of revenue is primarily
related to the higher volume of goods sold and an increase in royalty expense due to a higher
effective royalty rate to Biogen Idec and was partially offset by a $0.5 million decrease related
to manufacturing costs of Angiomax reflecting higher manufacturing costs in the third quarter of
2009 due to production failures at the third-party manufacturer for Angiomax that occurred in the
third quarter of 2009.
Research and Development Expenses:
Research and development expenses decreased by 26% to $16.7 million for the three months ended
September 30, 2010, compared to $22.5 million for the three months ended September 30, 2009. The
decrease primarily reflects reduced clinical activity for cangrelor as the CHAMPION clinical trial
program for cangrelor was ongoing until we discontinued enrollment in May 2009. The decrease also
reflects reduced regulatory and clinical activity for Cleviprex as
we suspend our clinical trials as a result of the recalls
and lack of supply. These decreases were offset by an increase in manufacturing development cost
for Angiomax, costs incurred in preparation for Phase 3 trials of cangrelor and oritavancin and
costs associated with the development of MDCO-2010 and MDCO-216.
We expect to continue to invest in the development of Angiomax, Cleviprex, cangrelor,
oritavancin, MDCO-2010 and MDCO-216 during 2010. We expect research and development expenses in the
fourth quarter of 2010 to reflect costs associated with our anticipated Phase 3 clinical trials of
oritavancin and the Phase 3 clinical trials of cangrelor we began in October 2010, manufacturing
development activities for Angiomax, Cleviprex, cangrelor and MDCO-216, our Phase 1 clinical trial
program for MDCO-2010 and product lifecycle management activities.
The following table identifies, for each of our major research and development projects, our
spending for the three months ended September 30, 2010 and 2009. Spending for past periods is not
necessarily indicative of spending in future periods.
Research and Development Spending
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
|
|
|
|
|
% of |
|
|
|
|
|
|
% of |
|
|
|
2010 |
|
|
Total R&D |
|
|
2009 |
|
|
Total R&D |
|
|
|
(in thousands) |
|
|
|
|
|
(in thousands) |
|
|
|
|
Research and Development |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Angiomax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Clinical trials |
|
$ |
1,781 |
|
|
|
11 |
% |
|
$ |
1,008 |
|
|
|
5 |
% |
Manufacturing development |
|
|
622 |
|
|
|
4 |
% |
|
|
2,896 |
|
|
|
13 |
% |
Administrative and headcount costs |
|
|
417 |
|
|
|
2 |
% |
|
|
926 |
|
|
|
4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Angiomax |
|
|
2,820 |
|
|
|
17 |
% |
|
|
4,830 |
|
|
|
22 |
% |
Cleviprex |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Clinical trials |
|
|
229 |
|
|
|
1 |
% |
|
|
563 |
|
|
|
3 |
% |
Manufacturing development |
|
|
488 |
|
|
|
3 |
% |
|
|
744 |
|
|
|
3 |
% |
Administrative and headcount costs |
|
|
521 |
|
|
|
3 |
% |
|
|
1,158 |
|
|
|
5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Cleviprex |
|
|
1,238 |
|
|
|
7 |
% |
|
|
2,465 |
|
|
|
11 |
% |
Cangrelor |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Clinical trials |
|
|
1,611 |
|
|
|
10 |
% |
|
|
2,796 |
|
|
|
12 |
% |
Manufacturing development |
|
|
763 |
|
|
|
5 |
% |
|
|
512 |
|
|
|
2 |
% |
Administrative and headcount costs |
|
|
1,082 |
|
|
|
6 |
% |
|
|
1,036 |
|
|
|
5 |
% |
Total Cangrelor |
|
|
3,456 |
|
|
|
21 |
% |
|
|
4,344 |
|
|
|
19 |
% |
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
|
|
|
|
|
% of |
|
|
|
|
|
|
% of |
|
|
|
2010 |
|
|
Total R&D |
|
|
2009 |
|
|
Total R&D |
|
|
|
(in thousands) |
|
|
|
|
|
(in thousands) |
|
|
|
|
Oritavancin |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Clinical trials |
|
|
1,186 |
|
|
|
7 |
% |
|
|
|
|
|
|
0 |
% |
Manufacturing development |
|
|
383 |
|
|
|
3 |
% |
|
|
|
|
|
|
0 |
% |
Administrative and headcount |
|
|
2,034 |
|
|
|
12 |
% |
|
|
2,542 |
|
|
|
11 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Oritavancin |
|
|
3,603 |
|
|
|
22 |
% |
|
|
2,542 |
|
|
|
11 |
% |
MDCO-2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Clinical trials |
|
|
861 |
|
|
|
5 |
% |
|
|
833 |
|
|
|
4 |
% |
Manufacturing development |
|
|
575 |
|
|
|
3 |
% |
|
|
|
|
|
|
0 |
% |
Administrative and headcount |
|
|
1,077 |
|
|
|
7 |
% |
|
|
742 |
|
|
|
3 |
% |
Government subsidy |
|
|
(530 |
) |
|
|
(3 |
)% |
|
|
(1,024 |
) |
|
|
(4 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total MDCO-2010 |
|
|
1,983 |
|
|
|
12 |
% |
|
|
551 |
|
|
|
3 |
% |
MDCO-216 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Clinical trials |
|
|
86 |
|
|
|
0 |
% |
|
|
|
|
|
|
0 |
% |
Manufacturing development |
|
|
655 |
|
|
|
4 |
% |
|
|
|
|
|
|
0 |
% |
Administrative and headcount |
|
|
121 |
|
|
|
1 |
% |
|
|
|
|
|
|
0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total MDCO-216 |
|
|
862 |
|
|
|
5 |
% |
|
|
|
|
|
|
0 |
% |
Ready-to-Use Argatroban |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufacturing development |
|
|
139 |
|
|
|
1 |
% |
|
|
|
|
|
|
0 |
% |
Acquisition license fee |
|
|
|
|
|
|
0 |
% |
|
|
5,000 |
|
|
|
22 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Ready-to-Use Argatroban |
|
|
139 |
|
|
|
1 |
% |
|
|
5,000 |
|
|
|
22 |
% |
Other |
|
|
2,575 |
|
|
|
15 |
% |
|
|
2,732 |
|
|
|
12 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
16,676 |
|
|
|
100 |
% |
|
$ |
22,464 |
|
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Angiomax
Research and development spending related to Angiomax during the three months ended September
30, 2010 decreased by approximately $2.0 million compared to the three months ended September 30,
2009, primarily due to a decrease in manufacturing development expenses of $2.3 million related to
product lifecycle management activities and a decrease in administrative costs in the third quarter
of 2010 of $0.5 million primarily reflecting the increased costs incurred in the three months ended
September 30, 2009 in connection with the regulatory filing related to a clinical study report for
the pediatric extension filed with the FDA in the second quarter of 2009. These decreases were
partially offset by an increase in clinical trial costs of approximately $0.8 million primarily due
to increased expenditures in connection with our ongoing Phase 4 EUROMAX and EUROVISION clinical
trials. We are conducting the Phase 4 EUROMAX clinical trial to assess whether the early
administration of Angiox in ST-segment elevation myocardial infarction, or STEMI, patients intended
for primary PCI presenting either via ambulance or to referral centers where PCI is not performed
improves 30-day outcomes when compared to the current standard of care, heparin plus an optional GP
IIb/IIIa inhibitor. We expect to enroll approximately 3,680 patients in the EUROMAX trial, in up to
ten European countries. We commenced enrollment in the trial in March 2010. We are conducting the
EUROVISION study to assess Angiox dosing practices in Europe. We commenced enrollment in this
study in May 2009 and in October 2010 we completed enrollment, with 2,022 patients at 70 sites in
six European countries.
We plan to incur increased research and development expenses relating to Angiomax in
connection with our efforts to further develop Angiomax for use in additional patient populations,
as well as to continue to incur research and development expenses related to our product lifecycle management
activities.
Cleviprex
Research and development expenditures for Cleviprex decreased approximately $1.2 million
during the three months ended September 30, 2010 compared to the three months ended September 30,
2009. The decrease in research and development expenditures is primarily due to the recalls and
lack of supply of Cleviprex and the discontinuation in late 2009 of our Phase 4 clinical trials and
the observational studies conducted by hospitals and third-party researchers until such time that
we are able to resupply the market with Cleviprex.
Cangrelor
Research and development expenditures related to cangrelor decreased by approximately $0.9
million in the three months ended September 30, 2010 compared to the three months ended September
30, 2009. The decrease in research and development expenditures primarily reflects lower clinical
trial expenses related to our Phase 3 CHAMPION clinical trial program. In May 2009, we
discontinued enrollment in our Phase 3 CHAMPION clinical trial program for cangrelor but continued
to have administrative and
23
headcount costs related to the trial in the third quarter of 2009. In October 2010, we
commenced a Phase 3 clinical trial of cangrelor, which we refer to as the PHOENIX clinical trial.
We initially expect to enroll approximately 10,900 patients, and may enroll up to 15,000 patients
in this double-blind parallel group randomized study which compares cangrelor to clopidogrel given
according to institutional practice.
Oritavancin
Research and development expenditures related to oritavancin increased by approximately $1.1
million in the three months ended September 30, 2010 compared to the three months ended September
30, 2009. The increase in research and development expenditures for
oritavancin primarily relates
to manufacturing costs, headcount expenses and our preparation for our SOLO I and SOLO II Phase 3
clinical trials incurred during the third quarter of 2010. With our acquisition of Targanta in
February 2009, we acquired a worldwide exclusive license to oritavancin. Subject to the completion
of ongoing discussions with the FDA regarding finalizing a special protocol assessment, we expect
to commence two identical Phase 3 clinical trials of oritavancin for the treatment of ABSSSI in the
fourth quarter of 2010, SOLO I and SOLO II. The SOLO I and SOLO II clinical trials are expected to
each enroll approximately 2,000 patients and will test the use of a simplified dosing regimen
involving a single dose of oritavancin. In August 2009, we withdrew the European MAA for
oritavancin.
MDCO-2010
Research and development expenditures related to MDCO-2010 increased by approximately $1.4
million in the three months ended September 30, 2010 compared to the three months ended September
30, 2009 due primarily to increased manufacturing expenses related to the production of drug
product in preparation for our Phase 1b trial for MDCO-2010. Costs incurred during the third
quarter of 2010 primarily relate to our Phase 1a clinical trial of MDCO-2010, which we commenced in
July 2009, and headcount related costs. Our costs were partially offset by a $0.5 million German
government research and development subsidy.
MDCO-216
Research and development expenditures related to MDCO-216 increased by approximately $0.9
million in the three months ended September 30, 2010 compared to the three months ended September
30, 2009. In December 2009, we acquired exclusive worldwide rights to MDCO-216 from Pfizer. Costs
incurred during the third quarter of 2010 primarily relate to manufacturing development related to
preclinical activities, administrative and headcount expenses and our preparation for clinical
trials.
Ready-to-Use Argatroban
Research and development expenditures related to ready-to-use Argatroban decreased by
approximately $4.9 million in the three months ended September 30, 2010 compared to the three
months ended September 30, 2009, reflecting the $5.0 million technology license fee paid to Eagle
in September 2009 in connection with the acquisition of marketing rights for a ready-to-use
formulation of Argatroban in the United States and Canada. Costs incurred during the third quarter
of 2010 were primarily related to manufacturing development activities.
Other
Spending in this category includes 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 in connection with our efforts to
evaluate early stage and late stage compounds for development and commercialization and other
strategic opportunities. Spending in this category decreased by approximately $0.2 million during
the third quarter of 2010 compared to the third quarter of 2009, primarily due to a reduction of
business development expenses.
Our success in further developing Angiomax and Cleviprex, obtaining marketing approvals for
Angiomax in additional countries and for Cleviprex outside the United States, and developing and
obtaining marketing approval for our products in development, 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
continue the development of Angiomax
24
and Cleviprex, or the period in which material net cash inflows are expected to commence from
the further development of Angiomax and Cleviprex, obtaining marketing approvals for Angiomax in
additional countries and Cleviprex outside the United States, or our products in development 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 products
and 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
|
|
|
|
|
|
|
|
|
Change |
|
|
Change |
|
|
|
2010 |
|
|
2009 |
|
|
$ |
|
|
% |
|
|
|
(in thousands) |
|
Selling, general and administrative expenses |
|
$ |
35,788 |
|
|
$ |
47,358 |
|
|
$ |
(11,570 |
) |
|
|
(24.4 |
)% |
The decrease in selling, general and administrative expenses of $11.6 million includes a
reduction of $8.3 million in selling, marketing and promotional spending, a $3.6 million decrease
in general administrative expenses, and a $2.0 million decrease in stock-based compensation
expense. Selling, general and administrative expenses decreased due to a reduction in personnel
costs caused by our first quarter 2010 reductions in force and a reduction in Cleviprex promotional
activities as a result of the recalls. These decreases were offset in part by higher expenses
associated with ongoing Angiomax patent restoration efforts.
Other Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
|
|
|
|
|
|
|
|
|
Change |
|
|
Change |
|
|
|
2010 |
|
|
2009 |
|
|
$ |
|
|
% |
|
|
|
(in thousands) |
|
Other income |
|
$ |
483 |
|
|
$ |
151 |
|
|
$ |
332 |
|
|
|
219.9 |
% |
Other income, which is comprised of interest income and gains and losses on foreign currency
transactions, increased by $0.3 million to $0.5 million for the three months ended September 30,
2010, from $0.2 million of income for the three months ended September 30, 2009. This increase was
primarily due to gains on foreign currency transactions and partially offset by lower rates of
return on our available for sale securities in the three months ended September 30, 2010.
Provision for Income Tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
|
|
|
|
|
|
|
|
|
Change |
|
|
Change |
|
|
|
2010 |
|
|
2009 |
|
|
$ |
|
|
% |
|
|
|
(in thousands) |
|
Provision for income tax |
|
$ |
989 |
|
|
$ |
4,007 |
|
|
$ |
(3,018 |
) |
|
|
(75.3 |
)% |
25
We recorded a $1.0 million provision for income taxes for the three months ended September 30,
2010 based on income before taxes of $22.2 million. We recorded a $4.0 million provision for the
three months ended September 30, 2009 based on income before taxes of $0.8 million. Our effective
income tax rate for the three months ended September 30, 2010 and 2009 was approximately 4% and
495%, respectively. The effective tax rate for 2010 currently assumes utilization of U.S. net
operating loss carryforwards against projected taxable income and a liability for alternative
minimum tax. It also includes a non-cash tax expense arising from purchase accounting for
in-process research and development acquired in the Targanta acquisition. It is possible that our
full-year effective tax rate could change because of discrete events, specific transactions or
receipt of new information affecting our current projections.
In 2009, we established a full valuation allowance against our deferred tax assets and
continue to evaluate their future realizability on a periodic basis in light of changing facts and
circumstances. These would include but are not limited to projections of future taxable income, tax
legislation, rulings by relevant tax authorities, the progress of ongoing tax audits, the
regulatory approval of products currently under development, the extension of the patent rights
relating to Angiomax and the ability to achieve future anticipated revenues. If we reduce the
valuation allowance on deferred tax assets in a future period, we would recognize an income tax
benefit.
Nine months Ended September 30, 2010 and 2009
Net Revenue:
Net revenue increased 5% to $318.0 million for the nine months ended September 30, 2010, as
compared to $302.2 million for the nine months ended September 30, 2009. The following table
reflects the components of net revenue for the nine months ended September 30, 2010 and 2009:
Net Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
|
|
|
|
|
|
|
|
|
|
|
Change |
|
|
Change |
|
|
|
2010 |
|
|
2009 |
|
|
$ |
|
|
% |
|
|
|
(in thousands) |
|
|
(in thousands) |
|
|
(in thousands) |
|
|
|
|
Net Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. sales |
|
$ |
301,065 |
|
|
$ |
289,044 |
|
|
$ |
12,021 |
|
|
|
4.2 |
% |
International net revenue |
|
|
16,901 |
|
|
|
13,137 |
|
|
|
3,764 |
|
|
|
28.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue |
|
$ |
317,966 |
|
|
$ |
302,181 |
|
|
$ |
15,785 |
|
|
|
5.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue during the nine months ended September 30, 2010 increased $15.8 million compared
to the nine months ended September 30, 2009 primarily due to an increase in sales of Angiox in
Europe and an increase in sales of Angiomax in the United States. Increased Angiomax net sales in
the United States were offset by higher chargebacks related to the 340B Drug Pricing Program under
the Public Health Services Act. U.S. sales also include net revenue of $0.8 million from sales of
Cleviprex in the nine months ended September 30, 2010 compared to $2.5 million in the nine months
ended September 30, 2009, as a result of the recalls. The $0.8 million in sales of Cleviprex in the
nine months ended September 30, 2010 reflects an offset of $0.7 million due to returns related to
the Cleviprex recall.
International net revenue increased by $3.8 million during the nine months ended September 30,
2010 compared to the nine months ended September 30, 2009 primarily as a result of increased demand in France, Italy, Sweden and
the United Kingdom, partially offset by decreased sales of Angiomax in Canada.
Cost of Revenue:
Cost of revenue in the nine months ended September 30, 2010 was $94.0 million, or 30% of net
revenue, compared to $87.0 million, or 29% of net revenue, in the nine months ended September 30,
2009. Cost of revenue consisted of expenses in connection with the manufacture of Angiomax and
Cleviprex sold, royalty expenses under our agreements with Biogen Idec and HRI related to Angiomax
and with AstraZeneca related to Cleviprex and the logistics costs of selling Angiomax and
Cleviprex, such as distribution, storage, and handling.
26
Cost of Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
|
|
|
|
|
|
|
% of Total |
|
|
|
|
|
|
% of Total |
|
|
|
2010 |
|
|
Cost |
|
|
2009 |
|
|
Cost |
|
|
|
(in thousands) |
|
|
|
|
|
(in thousands) |
|
|
|
|
Cost of Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufacturing |
|
$ |
21,645 |
|
|
|
23 |
% |
|
$ |
19,675 |
|
|
|
23 |
% |
Royalty |
|
|
63,004 |
|
|
|
67 |
% |
|
|
58,375 |
|
|
|
67 |
% |
Logistics |
|
|
9,256 |
|
|
|
10 |
% |
|
|
8,908 |
|
|
|
10 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenue |
|
$ |
93,905 |
|
|
|
100 |
% |
|
$ |
86,958 |
|
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue increased $6.9 million during the nine months ended September 30, 2010
compared to the nine months ended September 30, 2009. The increase in cost of revenue is primarily
related to the higher volume of goods sold, an increase in royalty expense due to a higher
effective royalty rate to Biogen Idec, and $0.5 million related to inventory write offs associated
with the Cleviprex recall. These increases were partially offset by $0.9 million related to a
reversal of certain charges originally recorded in the fourth quarter of 2009 in connection with
production failures at the third-party manufacturer for Angiomax.
Research and Development Expenses:
Research and development expenses decreased by 21% to $54.1 million for the nine months ended
September 30, 2010, compared to $68.7 million for the nine months ended September 30, 2009. The
decrease primarily reflects reduced clinical activity for cangrelor as the CHAMPION clinical trial
program for cangrelor was ongoing until we discontinued enrollment in May 2009. The decrease also
reflects reduced regulatory and clinical activity for Cleviprex. These decreases were offset by an
increase in costs incurred in preparation for Phase 3 trials of cangrelor and oritavancin, costs
associated with the development of MDCO-2010 and MDCO-216 and charges of approximately $1.7 million
associated with our workforce reductions in the first quarter of 2010.
The following table identifies, for each of our major research and development projects, our
spending for the nine months ended September 30, 2010 and 2009. Spending for past periods is not
necessarily indicative of spending in future periods.
Research and Development Spending
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
|
|
|
|
|
|
|
% of |
|
|
|
|
|
|
% of |
|
|
|
2010 |
|
|
Total R&D |
|
|
2009 |
|
|
Total R&D |
|
|
|
(in thousands) |
|
|
|
|
|
(in thousands) |
|
|
|
|
Research and Development |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Angiomax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Clinical trials |
|
$ |
5,080 |
|
|
|
9 |
% |
|
$ |
2,722 |
|
|
|
4 |
% |
Manufacturing development |
|
|
4,596 |
|
|
|
9 |
% |
|
|
6,530 |
|
|
|
10 |
% |
Administrative and headcount costs |
|
|
1,824 |
|
|
|
3 |
% |
|
|
3,536 |
|
|
|
5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Angiomax |
|
|
11,500 |
|
|
|
21 |
% |
|
|
12,788 |
|
|
|
19 |
% |
Cleviprex |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Clinical trials |
|
|
1,316 |
|
|
|
3 |
% |
|
|
4,116 |
|
|
|
6 |
% |
Manufacturing development |
|
|
1,209 |
|
|
|
2 |
% |
|
|
1,360 |
|
|
|
2 |
% |
Administrative and headcount costs |
|
|
1,610 |
|
|
|
3 |
% |
|
|
4,059 |
|
|
|
6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Cleviprex |
|
|
4,135 |
|
|
|
8 |
% |
|
|
9,535 |
|
|
|
14 |
% |
Cangrelor |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Clinical trials |
|
|
4,964 |
|
|
|
9 |
% |
|
|
19,730 |
|
|
|
29 |
% |
Manufacturing development |
|
|
1,724 |
|
|
|
3 |
% |
|
|
2,500 |
|
|
|
3 |
% |
Administrative and headcount costs |
|
|
3,094 |
|
|
|
6 |
% |
|
|
3,388 |
|
|
|
5 |
% |
Milestone |
|
|
3,000 |
|
|
|
6 |
% |
|
|
|
|
|
|
0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Cangrelor |
|
|
12,782 |
|
|
|
24 |
% |
|
|
25,618 |
|
|
|
37 |
% |
Oritavancin |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Clinical trials |
|
|
2,250 |
|
|
|
4 |
% |
|
|
|
|
|
|
0 |
% |
Manufacturing development |
|
|
2,833 |
|
|
|
5 |
% |
|
|
|
|
|
|
0 |
% |
Administrative and headcount |
|
|
5,728 |
|
|
|
11 |
% |
|
|
4,461 |
|
|
|
6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Oritavancin |
|
|
10,811 |
|
|
|
20 |
% |
|
|
4,461 |
|
|
|
6 |
% |
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
|
|
|
|
|
|
|
% of |
|
|
|
|
|
|
% of |
|
|
|
2010 |
|
|
Total R&D |
|
|
2009 |
|
|
Total R&D |
|
|
|
(in thousands) |
|
|
|
|
|
(in thousands) |
|
|
|
|
MDCO-2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Clinical trials |
|
|
1,516 |
|
|
|
3 |
% |
|
|
833 |
|
|
|
1 |
% |
Manufacturing development |
|
|
946 |
|
|
|
2 |
% |
|
|
|
|
|
|
0 |
% |
Administrative and headcount |
|
|
3,151 |
|
|
|
6 |
% |
|
|
2,621 |
|
|
|
4 |
% |
Government subsidy |
|
|
(1,038 |
) |
|
|
(2 |
)% |
|
|
(1,024 |
) |
|
|
(1 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total MDCO-2010 |
|
|
4,575 |
|
|
|
9 |
% |
|
|
2,430 |
|
|
|
4 |
% |
MDCO-216 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Clinical trials |
|
|
126 |
|
|
|
0 |
% |
|
|
|
|
|
|
0 |
% |
Manufacturing development |
|
|
1246 |
|
|
|
2 |
% |
|
|
|
|
|
|
0 |
% |
Administrative and headcount |
|
|
430 |
|
|
|
1 |
% |
|
|
|
|
|
|
0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total MDCO-216 |
|
|
1,802 |
|
|
|
3 |
% |
|
|
|
|
|
|
0 |
% |
Ready-to-Use Argatroban |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufacturing development |
|
|
616 |
|
|
|
1 |
% |
|
|
|
|
|
|
0 |
% |
Administrative and headcount |
|
|
169 |
|
|
|
0 |
% |
|
|
|
|
|
|
0 |
% |
Acquisition license fee |
|
|
|
|
|
|
0 |
% |
|
|
5,000 |
|
|
|
7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Ready-to-Use Argatroban |
|
|
785 |
|
|
|
1 |
% |
|
|
|
|
|
|
7 |
% |
Other |
|
|
7,738 |
|
|
|
14 |
% |
|
|
8,853 |
|
|
|
13 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
54,128 |
|
|
|
100 |
% |
|
$ |
68,685 |
|
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Angiomax
Research and development spending related to Angiomax during the nine months ended September
30, 2010 decreased by approximately $1.3 million compared to the nine months ended September 30,
2009, primarily due to a decrease of $1.9 million in manufacturing development expenses related to
product lifecycle management activities. Administrative costs in the nine months ended September
30, 2010 decreased $1.7 million primarily reflecting the increased costs incurred in the nine
months ended September 30, 2009 in connection with the regulatory filing related to a clinical
study report for the pediatric extension filed with the FDA in the second quarter of 2009. These
decreases were partially offset by an increase of $2.3 million in clinical trial costs primarily
due to increased expenditures in connection with our Phase 4 EUROMAX and EUROVISON clinical trials.
We commenced enrollment in our Phase 4 EUROMAX clinical trial in March 2010 and in our EUROVISION
trial in May 2009.
We plan to incur increased research and development expenses relating to Angiomax in
connection with our efforts to further develop Angiomax for use in additional patient populations,
as well as continued research and development expenses related to our product lifecycle management
activities.
Cleviprex
Research and development expenditures for Cleviprex decreased approximately $5.4 million
during the nine months ended September 30, 2010 compared to the nine months ended September 30,
2009. The decrease in research and development expenditures is primarily due to the recalls and
lack of supply of Cleviprex and the discontinuation in late 2009 of our Phase 4 clinical trials and
the observational studies conducted by hospitals and third-party researchers until such time that
we are able to resupply the market with Cleviprex.
Cangrelor
Research and development expenditures related to cangrelor decreased by approximately $12.8
million in the nine months ended September 30, 2010 compared to the nine months ended September 30,
2009. The decrease in research and development expenditures primarily reflects lower clinical trial
expenses related to our Phase 3 CHAMPION clinical trial program. In May 2009, we discontinued
enrollment in our Phase 3 CHAMPION clinical trial program for cangrelor. This decrease was
partially offset by a payment made to AstraZeneca in the second quarter of 2010 in connection with
the June 2010 amendment to our agreement with AstraZeneca.
Oritavancin
Research and development expenditures related to oritavancin increased by approximately $6.4
million in the nine months ended September 30, 2010 compared to the nine months ended September 30,
2009. The increase in research and development expenditures for
oritavancin primarily relates to
manufacturing costs, headcount expenses and our preparation for our SOLO I and SOLO II Phase 3
28
clinical trials incurred during the third quarter of 2010. Research and development costs for
oritavancin incurred during the nine months ended September 30, 2010 primarily relate to
manufacturing costs, headcount and our preparation for Phase 3 clinical trials of oritavancin.
Research and development costs also include approximately $1.3 million of severance payments
related to the workforce reductions initiated in the first quarter of 2010. The results of
Targantas operations are included in our consolidated financial statements as of the February 9,
2009 acquisition date.
MDCO-2010
Research and development expenditures related to MDCO-2010 increased by approximately $2.1
million in the nine months ended September 30, 2010 compared to the nine months ended September 30,
2009 due primarily to increased manufacturing expenses related to the production of drug product in
preparation for our Phase 1b trial for MDCO-2010. Research and development costs for MDCO-2010
incurred during the nine months ended September 30, 2010 primarily relate to our Phase 1a clinical
trial of MDCO-2010, which we commenced in July 2009, and headcount related costs. This increase was
partially offset by a $1.0 million German government research and development subsidy.
MDCO-216
Research and development expenditures related to MDCO-216 increased by approximately $1.8
million in the nine months ended September 30, 2010 compared to the nine months ended September 30,
2009. In December 2009, we acquired exclusive worldwide rights to MDCO-216 from Pfizer. Costs
incurred during the nine months ended September 30, 2010 primarily relate to administrative and
headcount expenses, clinical trials and manufacturing development
related to preclinical activities.
Ready-to-Use Argatroban
Research and development expenditures related to ready-to-use Argatroban decreased by
approximately $4.2 million in the nine months ended September 30, 2010 compared to the nine months
ended September 30, 2009, reflecting the $5.0 million technology license fee paid to Eagle in
September 2009 in connection with the acquisition of marketing rights for a ready-to-use
formulation of Argatroban in the United States and Canada. Costs incurred during the nine months
ended September 30, 2010 primarily relate to manufacturing development activities and
administrative and headcount related expenses.
Other
Spending in this category includes infrastructure costs in support of our product development
efforts, which includes expenses for data management, statistical analysis, analysis of
pre-clinical data, analysis of PK/PD data and product safety as well as expenses related to
business development activities in connection with our efforts to evaluate early stage and late
stage compounds for development and commercialization and other strategic opportunities. Spending
in this category decreased by approximately $6.1 million during the nine months ended September 30,
2010 compared to the nine months ended September 30, 2009, primarily due to a reduction of business
development expenses.
Selling, General and Administrative Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
|
|
|
|
|
|
|
|
|
|
Change |
|
Change |
|
|
2010 |
|
2009 |
|
$ |
|
% |
|
|
(in thousands) |
Selling, general and administrative expenses |
|
$ |
121,318 |
|
|
$ |
146,863 |
|
|
$ |
(25,545 |
) |
|
|
(17.4 |
)% |
The decrease in selling, general and administrative expenses of $25.5 million reflects the
$6.6 million in costs we incurred in the nine months ended September 30, 2009 in connection with
the acquisition of Targanta and our U.S. headquarters relocation, a $21.5 million decrease related
to lower selling, marketing and promotional activity principally related to Angiomax and Cleviprex,
approximately $4.0 million of lower general corporate and administrative spending, and a $6.8
million decrease in stock-based compensation expense. These decreases were partially offset by
costs associated with the Companys ongoing patent restoration efforts and approximately $5.2
million associated with our reduction in force announced in the first quarter of 2010, including
expenses related to employee severance arrangements and the closure and consolidation of our
Indianapolis site which was completed in February 2010.
29
Other Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
|
|
|
|
|
|
|
|
|
|
Change |
|
Change |
|
|
2010 |
|
2009 |
|
$ |
|
% |
|
|
(in thousands) |
Other income |
|
$ |
55 |
|
|
$ |
2,055 |
|
|
$ |
(2,000 |
) |
|
|
(97.3 |
)% |
Other income, which is comprised of interest income and gains and losses on foreign currency
transactions, decreased by $2.0 million to $0.1 million for the nine months ended September 30,
2010, from $2.1 million for the nine months ended September 30, 2009. This decrease was primarily
due to losses on foreign currency transactions and to lower rates of return on our available for
sale securities in the nine months ended September 30, 2010.
Provision for Income Tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
|
|
|
|
|
|
|
|
|
|
Change |
|
Change |
|
|
2010 |
|
2009 |
|
$ |
|
% |
|
|
(in thousands) |
Provision for income tax |
|
$ |
2,607 |
|
|
$ |
4,465 |
|
|
$ |
(1,858 |
) |
|
|
(41.6 |
)% |
We recorded a $2.6 million provision for income taxes for the nine months ended September 30,
2010 based on income before taxes of $48.7 million. We recorded a $4.5 million provision for the
nine months ended September 30, 2009 based on income before taxes of $1.7 million. Our effective
income tax rate for the nine months ended September 30, 2010 and 2009 was approximately 5% and
258%, respectively. The effective tax rate for 2010 currently assumes utilization of U.S. net
operating loss carryforwards against projected taxable income and a liability for alternative
minimum tax. It also includes a non-cash tax expense arising from purchase accounting for
in-process research and development acquired in the Targanta acquisition. It is possible that our
full-year effective tax rate could change because of discrete events, specific transactions or
receipt of new information affecting our current projections.
In 2009, we established a full valuation allowance against our deferred tax assets and
continue to evaluate their future realizability on a periodic basis in light of changing facts and
circumstances. These would include but are not limited to projections of future taxable income, tax
legislation, rulings by relevant tax authorities, the progress of ongoing tax audits, the
regulatory approval of products currently under development, the extension of the patent rights
relating to Angiomax and the ability to achieve future anticipated revenues. If we reduce the
valuation allowance on deferred tax assets in a future period, we would recognize an income tax
benefit.
Liquidity and Capital Resources
Sources of Liquidity
Since
our inception, we have financed our operations principally through revenues from sales
of Angiomax, the sale of common
stock, sales of convertible promissory notes and warrants and interest income. Except for 2006 and 2004, we have incurred losses on an annual basis since our
inception. We had $227.5 million in cash, cash equivalents and available for sale securities as of
September 30, 2010.
Cash Flows
As of September 30, 2010, we had $105.2 million in cash and cash equivalents, as compared to
$72.2 million as of December 31, 2009. Our primary sources of cash during the nine months ended
September 30, 2010 included $48.6 million of net cash provided by operating activities and $2.8
million in net cash provided by financing activities. These amounts were partially offset by the
$19.3 million in net cash that we used in investing activities.
Net cash provided by operating activities was $48.6 million in the nine months ended September
30, 2010, compared to net cash used in operating activities of $3.5 million in the nine months
ended September 30, 2009. The cash provided by operating activities in the nine months ended
September 30, 2010 included net income of $46.1 million and non-cash items of $16.7 million
consisting
30
primarily of stock-based compensation expense of $6.8 million and depreciation and
amortization of $5.1 million. Cash provided by operating activities in the nine months ended
September 30, 2010 also includes a decrease of $14.2 million due to changes in working capital
items.
During the nine months ended September 30, 2010, $19.3 million in net cash was used in
investing activities, which reflected $100.8 million used to purchase available for sale
securities, offset by $80.1 million in proceeds from the maturity and sale of available for sale
securities and a $1.3 million decrease in restricted cash resulting from a reduction of our
outstanding letter of credit associated with the lease of our principal executive offices.
For the nine months ended September 30, 2010, we received $2.8 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 Angiomax, Cleviprex and our products in
development. Our funding requirements to support these efforts and programs depend upon many
factors, including:
|
|
|
the extent to which Angiomax is commercially successful globally; |
|
|
|
|
whether the court order requiring the PTO to consider our application to extend the term
of the 404 patent timely filed is successfully challenged
either by APP in its pending appeal or in a separate challenge; |
|
|
|
|
the outcome of our efforts to otherwise extend the patent term of the 404 patent to 2014 and our ability to maintain market exclusivity for Angiomax
in the United States through our other U.S. patents covering Angiomax; |
|
|
|
|
the terms of any settlements with Biogen Idec, HRI or the two law firms with respect to
the 404 patent and the PTOs denial of our application to
extend the term of the patent; |
|
|
|
|
our ability to resupply the market with Cleviprex and 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 cost of acquisitions or licensing of development-stage products, approved products,
or businesses and strategic or licensing arrangements with companies that fit within our
growth strategy; |
|
|
|
|
the progress, level, timing and cost of our research and development activities related
to our clinical trials and non-clinical studies with respect to Angiomax, Cleviprex and our
products in development; |
|
|
|
|
the cost and outcomes of regulatory submissions and reviews for approval of Cleviprex
outside the United States and of our products in development globally; |
|
|
|
|
the continuation or termination of third-party manufacturing and sales and marketing
arrangements; |
|
|
|
|
the size, cost and effectiveness of our sales and marketing programs globally; |
|
|
|
|
the amounts of our payment obligations to third parties as to Angiomax, Cleviprex and our
products in development; and |
|
|
|
|
our ability to defend and enforce our intellectual property rights. |
31
If our existing resources are insufficient to satisfy our liquidity requirements due to slower
than anticipated sales of Angiomax and our sales of Cleviprex not resuming as soon as we
anticipate, 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 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.
Certain Contingencies:
As we have previously disclosed, the PTO, rejected the application under the Hatch-Waxman Act
for an extension of the term of the 404 patent beyond March 23, 2010 because in its view the application was not
timely filed. We refer to such application herein as the patent term extension application filing.
We filed suit against the PTO, the FDA and HHS seeking to set aside the denial of our patent term
extension application filing. On August 3, 2010, the court granted our motion for summary judgment
and ordered the PTO to consider our patent term extension application timely filed. On August 5,
2010, the PTO granted an interim extension of the term of the 404 patent
until August 13, 2011. The PTO has sent our application to the FDA for a determination on
the length of the extension of the 404 patent.
On August 19, 2010, APP filed a motion to intervene for the purpose of appeal in our case
against the PTO, FDA and HHS. On September 13, 2010, the court issued an order denying APPs
motion to intervene. On September 1, 2010, as amended on September 17, 2010, APP filed a notice of
appeal to the United States Court of Appeals for the Federal Circuit of the district courts August
3, 2010 and September 13, 2010 orders (and all related and underlying orders). On
October 5, 2010, we filed a motion to dismiss APPs appeal and we are awaiting a decision by the
court.
We
have entered into agreements with the law firms involved in the
patent term extension application filing
that suspend the statute of limitations on any claims against them for failing to make a timely
filing. We have entered into a similar agreement with Biogen Idec, one of our licensors for
Angiomax, relating to any claims, including claims for damages and/or license termination, that
Biogen Idec may bring relating to the patent term extension application filing. Such claims by Biogen Idec could
have a material adverse effect on our financial condition, results of operations, liquidity or
business. In the third quarter of 2009, we initiated discussions, which are still ongoing, with the
law firms involved in the patent term extension application filing and are currently in related
discussions with Biogen Idec and HRI with respect to the possible resolution of potential claims
among the parties.
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 the purchase of
inventory of our products, research and development service agreements, milestone payments due
under our license agreements, income tax contingencies, operating leases, and selling, general and
administrative obligations. A summary of these aggregate contractual obligations was included in
our Annual Report on Form 10-K for the year ended December 31, 2009. As of September 30, 2010, we
have inventory-related purchase commitments totaling $2.8 million during 2010, $25.3 million during
2011 and $14.7 million for 2012 for Angiomax bulk drug substance.
Application of Critical Accounting Estimates
The discussion and analysis of our financial condition and results of operations is based on
our unaudited condensed consolidated financial statements, which have been prepared in accordance
with GAAP for interim financial information and with the instructions to Form 10-Q. Accordingly,
they do not include all the information and footnotes required by GAAP for complete financial
statements. 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
32
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:
|
|
|
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 |
|
|
|
|
the impact of the estimates and assumptions on financial condition or operating
performance is material. |
Our significant accounting policies are more fully described in note 2 of our unaudited
condensed consolidated financial statements in this Quarterly Report and note 2 of our consolidated
financial statements in our Annual Report on Form 10-K for the year ended December 31, 2009. 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, income taxes and stock-based compensation described
under the caption Item 7. Managements Discussion and Analysis of Financial Condition and Results
of Operations Application of Critical Accounting Estimates in our Annual Report on Form 10-K for
the year ended December 31, 2009 are critical accounting estimates.
Off-Balance Sheet Transactions
We do not maintain any off-balance sheet transactions, arrangements, obligations or other
relationships with unconsolidated entities or others that are reasonably likely to have a material
current or future effect on our financial condition, changes in financial condition, revenues or
expenses, results of operations, liquidity, capital expenditures or capital resources.
Forward-Looking Information
This quarterly report on Form 10-Q includes forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934, as amended. For this purpose, any statements
contained herein regarding our strategy, future operations, financial position, future revenue,
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 results, 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 Part I, Item 2 of this
quarterly report on Form 10-Q and the factors set forth under the caption Risk Factors in Part
II, Item 1A of this quarterly report on Form 10-Q. 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 those forward-looking statements as representing our views
as of any date subsequent to the date of this quarterly report on Form 10-Q.
Item 3. Quantitative and Qualitative Disclosures 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
September 30, 2010 we held $227.5 million in cash, cash equivalents and available for sale
securities which had an average interest rate of approximately 0.5% and a 10 basis point change in
such average interest rate would have had an approximate $0.2 million impact on our interest
income. Of the $227.5 million, approximately $222.2 million of cash, cash equivalents and available
for sale securities were due on demand or within one year and had an average interest rate of
approximately 0.5%. The remaining $5.3 million were due within two years and had an average
interest rate of approximately 0.4%.
33
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 September 30, 2010, we had receivables denominated in currencies other than
the U.S. dollar. A 10% change in foreign exchange rates would have had an approximate $0.6 million
impact on our other income and cash.
Item 4. 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 September 30,
2010. 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 September 30, 2010, 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.
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 September 30, 2010 that has
materially affected, or is reasonably likely to materially affect, our internal control over
financial reporting.
34
Part II. Other Information
Item 1. Legal Proceedings
From time to time we are party to legal proceedings in the course of our business in addition
to those described below. Other than the proceedings discussed below, we do not, however, expect
such other legal proceedings to have a material adverse effect on our business, financial condition
or results of operations.
727 Patent and 343 Patent Litigations
Teva Parenteral Medicines, Inc.
In September 2009, we were notified that Teva Parenteral Medicines, Inc. had submitted an ANDA
seeking permission to market its generic version of Angiomax prior to the expiration of U.S. Patent
No. 7,528,727, or the 727 patent. The 727 patent was issued on September 1, 2009 and relates to a
more consistent and improved Angiomax drug product. The 727 patent expires on July 27, 2028. On
October 8, 2009, we filed suit against Teva Parenteral Medicines, Inc., Teva Pharmaceuticals USA,
Inc. and Teva Pharmaceutical Industries, Ltd., which we refer to collectively as Teva, in the U.S.
District Court for the District of Delaware for infringement of the 727 patent. On October 29,
2009, Teva filed an answer denying infringement and alleging affirmative defenses of
non-infringement and invalidity. On October 21, 2009, the case was reassigned in lieu of a vacant
judgeship to the U.S. District Court for the Eastern District of Pennsylvania. The court has set a
pre-trial schedule in the case and fact discovery is ongoing. No trial date has been set by the
court.
On October 8, 2009, we were issued U.S. Patent No. 7,598,343, or the 343 patent, which
relates to a more consistent and improved Angiomax drug product made by processes described in the
patent. On January 4, 2010, we filed suit against Teva Parenteral Medicines, Inc. and its related
parent entities in the U.S. District Court for the District of Delaware for infringement of the
343 patent. The case was assigned to the same Judge in the Eastern District of Pennsylvania as the
727 case above.
On March 23, 2010, the judge in the Eastern District of Pennsylvania consolidated the Teva
727 and 343 patent cases with the Pliva 727 and 343 patent cases (discussed below) and the APP
727 patent case (discussed below).
Pliva Hrvatska d.o.o.
In September 2009, we were notified that Pliva Hrvatska d.o.o. had submitted an ANDA seeking
permission to market its generic version of Angiomax prior to the expiration of the 727 patent. On
October 8, 2009, we filed suit against Pliva Hrvatska d.o.o., Pliva d.d., Barr Laboratories, Inc.,
Barr Pharmaceuticals, Inc., Barr Pharmaceuticals, LLC, Teva Pharmaceuticals USA, Inc. and Teva
Pharmaceutical Industries, Ltd., which we refer to collectively as Pliva, in the U.S. District
Court for the District of Delaware for infringement of the 727 patent. On October 28, 2009, Pliva
filed an answer denying infringement and alleging affirmative defenses of non-infringement and
invalidity. On October 21, 2009, the case was reassigned in lieu of a vacant judgeship to the U.S.
District Court for the Eastern District of Pennsylvania. The court has set a pre-trial schedule in
the case and fact discovery is ongoing. No trial date has been set by the court.
On October 8, 2009, we were issued the 343 patent, which relates to a more consistent and
improved Angiomax drug product made by processes described in the patent. On January 4, 2010, we
filed suit against Pliva Hrvatska d.o.o. and its related parent entities in the U.S. District Court
for the District of Delaware for infringement of the 343 patent. The case was assigned to the same
Judge in the Eastern District of Pennsylvania as the 727 patent case above.
APP Pharmaceuticals, LLC.
In September 2009, we were notified that APP had submitted an ANDA seeking permission to
market its generic version of Angiomax prior to the expiration of the 727 patent. On October 8,
2009, we filed suit against APP Pharmaceuticals, LLC and APP Pharmaceuticals, Inc., which we refer
to collectively as APP, in the U.S. District Court for the District of Delaware for infringement of
the 727 patent. On October 21, 2009, the case was reassigned in lieu of a vacant judgeship to the
U.S. District Court for the Eastern District of Pennsylvania. An amended complaint was filed on
February 5, 2010. APPs answer denied infringement and raised
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counterclaims of invalidity, non-infringement and a request to delist the 727 patent from the
Orange Book. On March 1, 2010, we filed a reply denying the counterclaims raised by APP. The court
has set a pre-trial schedule in the case and fact discovery is ongoing. No trial date has been set
by the court.
On October 8, 2009, we were issued the 343 patent, which relates to a more consistent and
improved Angiomax drug product made by processes described in the patent. In April 2010, we were
notified by APP that it is seeking permission to market its generic version of Angiomax prior to
the expiration of the 343 patent. On June 1, 2010, we filed suit against APP in the U.S. District
Court for the District of Delaware for infringement of the 343 patent. On June 28, 2010, APP filed
an answer denying infringement and raised counterclaims of invalidity, non-infringement and a
request to delist the 343 patent from the Orange Book. On July 16, 2010, we filed a reply denying
the counterclaims raised by APP. The case has been assigned to a judge in the U.S. District Court
for the District of Delaware. On October 14, 2010, the case was reassigned to the same judge in
the Eastern District of Pennsylvania who is presiding over the above APP 727 patent case and the
Teva 727 and 343 patent cases and the Pliva 727 and 343 patent cases. On the same day, the APP
343 patent case was consolidated with these other cases.
Hospira, Inc.
In July 2010, we were notified that Hospira, Inc., or Hospira, had submitted two ANDAs seeking
permission to market its generic version of Angiomax prior to the expiration of the 727 and 343
patents. On August 19, 2010, we filed suit against Hospira in the U.S. District Court for the
District of Delaware for infringement of the 727 and 343 patents. On August 25, 2010, the case
was reassigned in lieu of a vacant judgeship to the U.S. District Court for the Eastern District of
Pennsylvania. Hospiras answer denied infringement of the 727 and 343 patents and raised
counterclaims of non-infringement and invalidity of the 727 and 343 patents. On September 24,
2010, we filed a reply denying the counterclaims raised by Hospira.
On September 17, 2010, Hospira filed a motion to be consolidated with the Teva, Pliva and APP
cases. On October 13, 2010 the Court denied Hospiras motion to consolidate. The Court has yet to
set a pre-trial schedule and no trial date has been set by the Court.
404 Patent Litigation
PTO, FDA and HHS, et al.
On January 27, 2010, we filed a complaint in the U.S. District Court for the Eastern District
of Virginia against the PTO, the FDA, HHS et al. seeking to set aside the denial of our application
pursuant to the Hatch-Waxman Act to extend the term of the 404 patent. In our complaint, we
primarily alleged that the PTO and the FDA each misinterpreted the filing deadlines in the
Hatch-Waxman Act when they rendered their respective determinations that our application for
extension of the term of the 404 patent was not timely filed. We asked the court to grant relief
including to vacate and set aside the PTOs and FDAs determinations regarding the timeliness of
our application for patent term extension and to order the PTO to extend the term of the 404
patent for the full period required under the Hatch-Waxman Act. On March 10, 2010, the court
conducted a hearing on the parties cross motions for summary judgment. On March 16, 2010, the
court set aside the PTOs denial of our patent term extension application and sent the matter back
to the PTO for reconsideration. The court further ordered that the PTO take the actions necessary
to ensure that 404 patent does not expire pending resolution of the court proceedings. On March
18, 2010, the PTO issued an interim extension of the 404 patent to May 23, 2010. On March 19,
2010, the PTO issued a decision again denying our application for patent term extension for the
404 patent.
On March 25, 2010, we filed a complaint in the U.S. District Court for the Eastern District of
Virginia against the PTO, the FDA, HHS, et al. asking the court to set aside the PTOs March 19,
2010 decision, to instruct the PTO to accept our patent term extension application as timely filed
and to order the PTO to extend the term of the 404 patent for the full period required under the
Hatch-Waxman Act. On May 6, 2010, the court conducted a hearing on the parties cross motions for
summary judgment. On May 21, 2010, the court issued an order instructing the PTO to take the
actions necessary to ensure that 404 patent does not expire until at least 10 days after the court
issues an order deciding the case. On August 3, 2010, the court granted our motion for summary
judgment and ordered the PTO to consider our patent term extension application timely filed. The
period for the government to appeal the courts August 3, 2010 decision expired on October 5, 2010
without government appeal and the PTO has sent our patent term extension application to the FDA for
a determination on the length of the extension of the 404 patent.
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On August 19, 2010, APP filed a motion to intervene in the U.S. District Court for the Eastern
District of Virginia for purpose of appeal in our case against the PTO, FDA and HHS, et al. On
September 13, 2010, the court issued an order denying APPs motion to intervene. On September 1,
2010, as amended on September 17, 2010, APP filed a notice of appeal to the United States Court of
Appeals for the Federal Circuit of the district courts August 3, 2010 and September 13,
2010 orders (and all related and underlying orders). On October 5, 2010, we filed a motion to
dismiss APPs appeal and we are awaiting a decision by the court.
Item 1A. Risk Factors
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 quarterly 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.
An updated description of the risk factors associated with our business is set forth below.
These risk factors have been updated from those included in our Quarterly Report on Form 10-Q for
the quarterly period ended June 30, 2010, to, among other things, update the risk factors related
to our need to achieve our revenue targets or raise additional funds in the future; Angiomaxs
competition with all categories of anticoagulant drugs; our use of third-party manufacturers; and
whether the court order requiring the PTO to consider our application to extend the term of the
404 patent timely filed is successfully challenged or our ability to
maintain market exclusivity for Angiomax in the United States through the enforcement of our other
U.S. patents covering Angiomax.
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 September 30, 2010, we had an accumulated deficit of approximately $298.1 million. We expect
to make substantial expenditures to further develop and commercialize our products, including costs
and expenses associated with clinical trials, nonclinical and preclinical studies, regulatory
approvals and commercialization. Although we achieved profitability in 2004 and in 2006, we have
not been profitable in any year since 2006. We will likely need to generate significantly greater
revenue in future periods to achieve and maintain profitability in light of our planned
expenditures. Our ability to generate this revenue will be adversely impacted, possibly materially,
if we are unable to maintain market exclusivity for Angiomax. 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 this
product in 2001. Until the approval of Cleviprex by the FDA in August 2008, Angiomax was our only
commercial product and in the three months ended September 30, 2010 our only revenues were from
sales of Angiomax. We expect revenues from Angiomax to continue to account for substantially all of
our revenues in 2010. The commercial success of Angiomax depends upon:
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whether the court order requiring the PTO to consider our application to extend
the term of the 404 patent timely filed is successfully
challenged either by APP in its pending appeal or in a separate challenge; |
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the outcome of our efforts to otherwise extend the patent term of the 404 patent to 2014 and our ability to maintain market exclusivity for
Angiomax in the United States through our other U.S. patents covering Angiomax; |
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the continued acceptance by regulators, physicians, patients and other key
decision-makers of Angiomax 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; |
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the overall number of PCI procedures performed; |
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our success in selling and marketing Angiox in Europe; |
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the impact of competition from competitive products and generic versions of
Angiomax and those competitive products; and |
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the extent to which we and our international distributors are successful in
marketing Angiomax. |
We intend to continue to develop Angiomax for use in additional patient populations. Even if
we are successful in expanding the Angiomax label, the expanded label may not result in higher
revenue or income on a continuing basis.
As of September 30, 2010, our inventory of Angiomax was $28.6 million and we had
inventory-related purchase commitments to Lonza Braine totaling $2.8 million for 2010, $25.3
million for 2011 and $14.7 million for 2012 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, ICS, 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, ICS, 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. Our revenue from sales of Angiomax in the United States is now exclusively
from sales to ICS. We anticipate that our revenue from sales of Cleviprex in the United States will
be exclusively from sales to ICS. As a result, we expect that our revenue will continue to be
subject to fluctuation from quarter to quarter based on the buying patterns of ICS.
In some countries outside the European Union and in a few countries in the European Union, we
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 ICS 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 expect to devote substantial resources to our research and development efforts and to our
sales, marketing and manufacturing programs associated with Angiomax, Cleviprex and our products in
development. Our funding requirements to support these efforts and programs depend upon many
factors, including:
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the extent to which Angiomax is commercially successful globally; |
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whether the court order requiring the PTO to consider our application to extend the
term of the 404 patent timely filed is successfully
challenged either by APP in its pending appeal or in a separate
challenge; |
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the outcome of our efforts to otherwise extend the patent
term of the 404 patent to 2014 and our ability to maintain market exclusivity for
Angiomax in the United States through our other U.S. patents covering Angiomax; |
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the terms of any settlements with Biogen Idec, HRI or the two law firms with
respect to the 404 patent and the PTOs denial of our
application to extend the term of the patent; |
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our ability to resupply the market with Cleviprex and 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 cost of acquisitions and licenses of development-stage products, approved
products, or businesses and strategic or licensing arrangements with companies that fit
within our growth strategy; |
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the progress, level, timing and cost of our research and development activities
related to our clinical trials and non-clinical studies with respect to Angiomax,
Cleviprex and our products in development; |
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the cost and outcomes of regulatory submissions and reviews for approval of
Angiomax in additional countries and Cleviprex outside the United States, Australia and
New Zealand and of our products in development globally; |
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the continuation or termination of third-party manufacturing and sales and
marketing arrangements; |
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the size, cost and effectiveness of our sales and marketing programs globally; |
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the amounts of our payment obligations to third parties as to Angiomax, Cleviprex
and our products in development; and |
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our ability to defend and enforce our intellectual property rights. |
If our existing resources, together with revenues that we generate from sales of our products
and other sources, are insufficient to satisfy our funding requirements, or if we determine that
raising additional capital would be in our interest and the interests of our stockholders, we may
sell equity or debt securities or seek additional financing through other arrangements. Any sale of
equity or debt securities may result in dilution to our stockholders. Any debt financing may
involve covenants limiting or restricting our ability to take specific actions, such as incurring
additional debt or making capital expenditures. Public or private financing may not 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,
products in development 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 and adversely affect our revenue
Due to the incidence and severity of cardiovascular diseases, the market for anticoagulant
therapies is large and competition is intense. There are a number of anticoagulant drugs currently
on the market, awaiting regulatory approval and in development, including orally administered
agents, which we compete with or may compete with in the future. Angiomax competes with these
anticoagulant drugs to the extent Angiomax and any of these anticoagulant drugs are approved for
the same or similar indications.
We have positioned Angiomax to compete primarily with heparin, platelet inhibitors such as GP
IIb/IIIa inhibitors, and treatment regimens combining heparin and GP IIb/IIIa inhibitors. Because
heparin is inexpensive and has been widely used for many years,
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physicians and medical decision-makers may be hesitant to adopt Angiomax instead of heparin.
GP IIb/IIIa inhibitors that Angiomax competes with include ReoPro from Eli Lilly and Johnson &
Johnson/Centocor, Inc., Integrilin from Merck & Co., Inc., and Aggrastat from Iroko
Pharmaceuticals, LLC and MediCure Inc. GP IIb/IIIa inhibitors are widely used and some physicians
believe they offer superior efficacy in high risk patients. Physicians may chose to use heparin
combined with GP IIb/IIIa inhibitors due their years of experience with this combination therapy
and reluctance to change existing hospital protocols and pathways.
Angiomax may compete with other anticoagulant drugs 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 other
anticoagulant drugs but not necessarily several of the drugs together.
If the court order requiring the PTO to consider our application to extend the term of the
404 patent timely filed is successful challenged, either by APP in its
pending appeal or in a separate challenge, if we are otherwise
unsuccessful in further extending the term of the 404 patent, or if we
are unable to maintain our market exclusivity for Angiomax in the United States through enforcement
of our other U.S. patents covering Angiomax, Angiomax could be subject to generic competition in
the United States following the expiration of the six-month period of market exclusivity resulting
from our pediatric study of Angiomax. Competition from generic equivalents that would be sold at a
price that is less than the price at which we currently sell Angiomax could have a material adverse
impact on our business, financial condition and operating results.
Cleviprex competes with all categories of intravenous antihypertensive, or IV-AHT, drugs,
which may limit the use of Cleviprex and adversely affect our revenue
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.
We have positioned Cleviprex as an improved alternative drug for selected patient types with
acute, severe hypertension. Because all other drug options are available as generics, Cleviprex
must demonstrate compelling advantages in delivering value to the hospital. In addition to
advancements in efficacy, convenience, tolerability and/or safety, we may need to demonstrate that
Cleviprex will save the hospital resources in other areas such as length of stay and other resource
utilization in order to become commercially successful. Because generic 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 and fail to recognize the value delivered through a
newer agent that offers precise blood pressure control.
Hospitals establish formularies, which are lists of drugs approved for use in the hospital. If
a drug is not included on the formulary, the ability of our
engagement partners and managers to promote the
drug may be limited or denied. Hospital formularies may also limit the number of IV-AHT drugs in
each drug class. If we fail to secure and maintain formulary inclusion 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 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 or
license, and then develop, products and apply technology, as well as our ability to establish and
maintain markets for our products. Competitors in the United States and other countries include
major pharmaceutical companies, 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 products in development noncompetitive. We may not be
successful in establishing or maintaining technological competitiveness.
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If physicians, patients and other key decision-makers do not accept clinical data from trials
of Angiomax and Cleviprex, then sales of Angiomax and Cleviprex may be adversely affected
We believe that the near-term commercial success of Angiomax and Cleviprex will depend in part
upon the extent to which physicians, patients and other key decision-makers accept the results of
clinical trials of Angiomax and Cleviprex. 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. These trends, however, may not 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, physicians, patients and
other key decision-makers may not 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 its 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 and continued use of
Angiomax and Cleviprex may suffer, and our business will be materially adversely affected.
If
the number of PCI procedures performed decreases, sales of Angiomax may be negatively
impacted
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. 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 and declined again in 2009 from 2008 levels. We
believe that the 2009 decline was due, in part, to economic pressures on our hospital customers in
2009. The decline in the number of PCI procedures has had a direct impact on our net revenues. PCI
procedure volume might further decline and might not return to its previous levels. Because PCI
procedures are the primary procedures during which Angiomax is used, a further decline in the
number of procedures may negatively impact sales of Angiomax.
If we are unable to successfully expand our business infrastructure and develop our global
operations, our ability to generate future product revenue will be adversely affected
To support the global sales and marketing of Angiomax, Cleviprex and our product candidates in
development if and when they are approved for sale and marketed outside the United States, we are
developing our business infrastructure globally, with European operations being our initial focus.
If we are unable to expand our global 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, more expensive or take longer than we anticipate, and
we may not be able to successfully market and sell our products globally.
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. |
If we do not take these actions and are not able to manage our global business, then our
global 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.
The success of our global operations may be adversely affected by international risks and
uncertainties. If these operations are not successful, our results of operations and financial
position could be adversely affected.
Our future profitability will depend in part on our ability to grow and ultimately maintain
our product sales in foreign markets, particularly in Europe. In addition, with our acquisitions of
Curacyte Discovery and Targanta, we are conducting research and
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development activities in Germany and Canada. These foreign operations subject us to
additional risks and uncertainties, particularly because we have limited experience in marketing,
servicing and distributing our products or otherwise operating our business outside of the United
States. These risks and uncertainties include:
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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. |
Our foreign operations 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 product revenue will be affected by reimbursement and drug
pricing and if access to our products by governmental and other third-party payors is reduced or
terminated
Acceptable levels of coverage and reimbursement of drug treatments by government payers such
as Medicare and Medicaid programs, private health insurers and other organizations will have a
significant effect on our ability to successfully commercialize our product candidates.
Reimbursement in the United States, Europe or elsewhere may not be available for any products we
may develop or, if already available, may be decreased in the future. We may not get reimbursement
or reimbursement may be limited if government payers, private health insurers and other
organizations are influenced by the prices of existing drugs in determining whether our products
will be reimbursed and at what levels. For example, the availability of numerous generic
antibiotics at lower prices than branded antibiotics, such as oritavancin, if it were approved for
commercial sale, could substantially affect the likelihood of reimbursement and the level 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 may result in lower prices for pharmaceutical products. Additionally, the newly
enacted Health Care Reform Act has provided sweeping health care reform, which may impact the
prices of drugs and the number of procedures that are performed. In addition to the newly enacted
federal legislation, state legislatures and foreign governments have also shown significant
interest in implementing cost-containment programs, including price controls, restrictions on
reimbursement and requirements for substitution of generic products. The establishment of
limitations on patient access to our drugs, adoption of price controls and cost-containment
measures in new jurisdictions or programs, and adoption of more restrictive policies in
jurisdictions with existing controls and measures, including the impact of the Health Care Reform
Act, could adversely impact our business and future results. If these organizations and third-party
payors do not consider our products to be cost-effective compared to other available therapies,
they may not reimburse providers or consumers of our products or, if they do, the level of
reimbursement may not be sufficient to allow us to sell our products on a profitable basis.
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Our ability to sell our products to hospitals in the United States depends in part on our
relationships with group purchasing organizations, or GPOs. Many existing and potential customers
for our products become members of GPOs. GPOs negotiate pricing arrangements and contracts,
sometimes on an exclusive basis, with medical supply manufacturers and distributors, and these
negotiated prices are made available to a GPOs affiliated hospitals and other members. If we are
not one of the providers selected by a GPO, affiliated hospitals and other members may be less
likely to purchase our products, and if the GPO has negotiated a strict sole source, market share
compliance or bundling contract for another manufacturers products, we may be precluded from
making sales to members of the GPO for the duration of the contractual arrangement. Our failure to
renew contracts with GPOs may cause us to lose market share and could have a material adverse
effect on our sales, financial condition and results of operations. We cannot assure you that we
will be able to renew these contracts at the current or substantially similar terms. If we are
unable to keep our relationships and develop new relationships with GPOs, our competitive position
may suffer.
If we do not comply with federal, state and foreign laws and regulations relating to the
health care business, 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; |
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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; and |
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various state laws that impose similar requirements and liability with respect to
state healthcare reimbursement and other programs. |
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.
If we are unable to obtain insurance at acceptable costs and adequate levels or otherwise
protect ourselves against potential product liability claims, we could be exposed to significant
liability
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.
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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
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. Except for Angiomax in the United States, Europe and other countries and Cleviprex in
the United States, Australia and New Zealand, we do not have any other product approved for sale in
the United States or any foreign market. 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. |
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 globally 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 ABSSSI 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, for adult patients with ACS and for the
treatment of STEMI patients undergoing primary PCI in the European Union. One of our key objectives
is to expand the indications for which Angiomax is approved. 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
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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 the emergency
department. 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 continue to evaluate how to respond to the FDAs views on
the ACUITY trial. 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 unexpected result in one or more of our clinical
trials can occur at any stage of testing. For example, in May 2009 we discontinued enrollment in
our Phase 3 CHAMPION clinical trial program of cangrelor in patients undergoing PCI after receiving
a letter from the clinical programs independent Interim Analysis Review Committee that stated that
the CHAMPION-PLATFORM trial would not meet the goal of demonstrating persuasive evidence of
clinical effectiveness that could form the basis for regulatory approval.
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. |
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
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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 EMA 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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untitled or warning letters; |
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injunctions; |
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fines and other monetary penalties; |
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the imposition of civil or criminal penalties; and |
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unanticipated expenditures. |
Risks Related to our Dependence on Third Parties for Manufacturing, Research and Development,
and Distribution Activities
We depend on single source suppliers for the production of bulk drug substance for Angiomax,
Cleviprex and our other products in development 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 bulk drug substance for each of Angiomax, Cleviprex and
our products in development from single source suppliers, and rely on a limited number of
manufacturers to carry out all fill-finish activities for each of Angiomax, Cleviprex and our
products in development.
We do not currently have alternative sources for production of bulk drug substance or to carry
out fill finish activities. In the event that any of our third-party manufacturers is unable or
unwilling to carry out its respective manufacturing or supply obligations or terminates or refuses
to renew its arrangements with us, we may be unable to obtain alternative manufacturing or supply,
or obtain such manufacturing or supply on commercially reasonable terms or on a timely basis. In
addition, we purchase finished drug product from a number of our third-party manufacturers under
purchase orders. In such cases, the third-party manufacturers have made no commitment to supply the
drug product to us on a long-term basis and could reject a new purchase order. Only a limited
number of manufacturers are capable of manufacturing Angiomax, Cleviprex and our products in
development. Moreover, consolidation within the pharmaceutical manufacturing industry could further
reduce the number of manufacturers capable of producing our products, or
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otherwise affect our existing contractual relationships. If we were required to transfer
manufacturing processes to other third-party manufacturers and we were able to identify an
alternative manufacturer, we would still need to satisfy various regulatory requirements, which
could cause us to experience significant delays in receiving an adequate supply of Angiomax,
Cleviprex and our products in development. 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, which could
reduce our revenue, and supply product for clinical trials of Angiomax, Cleviprex and our products
in development, which could affect our ability to complete clinical trials on a timely basis or at
all.
If third parties on whom we rely to manufacture and support the development and
commercialization of our products do not fulfill their obligations, the development and
commercialization of our products may be terminated or delayed, and the costs of development and
commercialization may increase.
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 many of these activities on our
own and, as a result, are particularly dependent on third parties in many 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 our products in development 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, our products in development or any additional
products we may acquire, 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, our products in development 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. |
Use of third-party manufacturers may increase the risk that we will not have appropriate
supplies of our products or 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. |
Angiomax and Cleviprex and our products in development 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 and our products in development, it will be more difficult
for us to compete effectively, market and sell our approved products and develop our products in
development.
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 and our products in development.
On December 16, 2009, we conducted a voluntary recall of 11 lots of Cleviprex due to the
presence of visible particulate matter that was deposited at the bottom of some vials and was
observed in such vials during a routine annual inspection. On March 17, 2010, we extended our
voluntary recall to include four additional manufactured lots of Cleviprex that also showed visible
particulate matter that was deposited at the bottom of some vials. As a result of the recalls and
the manufacturing issues that resulted in the recalls, we are not able to supply the market at this
time with existing inventory or using the current manufacturing method. We are cooperating with the
FDA and our contract manufacturer on these recalls and to remedy the problem at the manufacturing
site. We expect to resupply the market with drug product and resume selling Cleviprex in the third
quarter of 2011. Any delay in resupplying the market with Cleviprex would reduce our revenue.
In order to satisfy some regulatory authorities, we may need to reformulate the way in which
our oritavancin bulk drug substance is created to remove animal source product, which may delay
marketing approval of our products and increase our costs
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 better position oritavancin for approval in
foreign jurisdictions, under our agreement with Abbott, we 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, we may be unable to receive regulatory approval
for oritavancin in some foreign jurisdictions, which would likely have a negative impact on our
ability to achieve our business objectives as to oritavancin.
If we use hazardous and biological materials in a manner that causes injury or violates
applicable law, we may be liable for damages
As a result of our acquisitions of Curacyte Discovery and Targanta, we now conduct research
and development activities that 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. We may incur significant additional costs to comply with applicable laws in
the future. Also, 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
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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.
Risks Related to Our Intellectual Property
If the court order requiring the PTO to consider our application to extend the term of the
404 patent timely filed is successfully challenged, if we are otherwise
unsuccessful in further extending the term of the 404 patent, or if we
are unable to maintain our market exclusivity for Angiomax in the United States through enforcement
of our other U.S. patents covering Angiomax, Angiomax could be subject to generic competition.
Generic competition for Angiomax would have a material adverse effect on the our business, financial
condition and results of operations
The
principal U.S. patent covering Angiomax, the 404 patent, was set to expire in March 2010, but has been
extended in connection with our litigation against the PTO, the FDA and HHS. We applied, under the
Hatch-Waxman Act, for an extension of the term of the 404 patent.
However, the PTO rejected our application because in its view the application was not timely filed.
On August 3, 2010, the court granted our motion for summary
judgment and ordered the PTO to consider our patent term extension application for the 404 patent
timely filed. The period for the government to appeal the courts August 3, 2010 decision expired
on October 5, 2010 without government appeal and the PTO has sent our patent term extension
application to the FDA for a determination on the length of the extension of the
404 patent.
On August 19, 2010, APP filed a motion to intervene in the U.S. District Court for the Eastern
District of Virginia for purpose of appeal in our case against the PTO, FDA and HHS. On September
13, 2010, the court issued an order denying APPs motion to intervene. On September 1, 2010, as
amended on September 17, 2010, APP filed a notice of appeal to the United States Court of Appeals
for the Federal Circuit of the district courts August 3, 2010 and September 13, 2010
orders (and all related and underlying orders). On October 5, 2010, we filed a motion to dismiss
APPs appeal and we are awaiting a decision by the court.
We
also continue to pursue legislative action to address the term of the
404 patent; however, a bill may not be introduced
or enacted. We plan to continue to explore alternatives to extend the term of the 404 patent, but
we may not be successful in doing so.
In September and October 2009, we were granted two U.S. patents covering Angiomax. We listed
both patents in the Orange Book for Angiomax. In October 2009, January 2010, June 2010 and August
2010, in response to Paragraph IV Certification Notice letters we received with respect to ANDAs
filed with the FDA seeking approval to market generic versions of Angiomax, we filed lawsuits
against the ANDA filers alleging patent infringement of the two patents in the U.S. District Court
for the District of Delaware. We cannot predict the outcome of these lawsuits.
If the August 3, 2010 court order requiring the PTO to consider our application to extend the
term of the 404 patent timely filed is successful challenged either by
APP in its pending appeal or in a separate challenge of the term of the 404 patent, if we are
otherwise unsuccessful in further extending the term of the 404 patent, or if we are unable to maintain our market exclusivity for Angiomax in the United States
through enforcement of our other U.S. patents covering Angiomax, Angiomax could be subject to
generic competition in the United States following the expiration of the six-month period of market
exclusivity resulting from our pediatric study of Angiomax. Competition from generic equivalents
that would be sold at a price that is less than the price at which we currently sell Angiomax could
have a material adverse impact on our business, financial condition and operating results.
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If we breach any of the agreements under which we license rights to products or technology
from others, we could lose license rights that are material to our business or be subject 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, Cleviprex and each of our products in development
other than MDCO-2010. Under these agreements, we are subject to a range of commercialization and
development, sublicensing, royalty, patent prosecution and maintenance, insurance and other
obligations.
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 financial condition, results of operations, liquidity or business. Even if we
contest any such termination or claim and are ultimately successful, our stock price could suffer.
In addition, on termination we may be required to license to the licensor any related intellectual
property that we developed.
We have entered into an agreement with Biogen Idec, one of our licensors for Angiomax, that
suspends the statute of limitations relating to any claims, including claims for damages and/or
license termination, that Biogen Idec may bring relating to the PTOs rejection of the application
under the Hatch-Waxman Act for an extension of the term of the 404 patent on the grounds that, in its view, it was not timely filed. We have also entered into
agreements with the law firms involved in the patent extension filing that suspend the statute of
limitations on our claims against them for the filing. In the third quarter of 2009, we initiated
discussions with the two law firms involved in the patent extension filing of the application under
the Hatch-Waxman Act and are currently in related discussions with Biogen Idec and HRI with respect
to the possible resolution of the potential claims among the parties. We may not reach an agreement
with the parties on acceptable terms to us or at all.
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. |
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.
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We exclusively licensed patents and patent applications for Angiomax, Cleviprex and each of
our other products in development other than MDCO-2010. The U.S. patents licensed by us are
currently set to expire at various dates. We plan to file applications for U.S. patent term
extension for our products in development upon their approval by the FDA.
We are a party to a number of lawsuits that we brought against pharmaceutical companies that
have notified us that they have filed ANDAs seeking approval to market generic versions of
Angiomax. We cannot predict the outcome of these lawsuits. During the period in which these matters
are pending, the uncertainty of their outcome may cause our stock price to decline. In addition, an
adverse result in these matters whether appealable or not, will likely cause our stock price to
decline. Any final, unappealable, adverse result in these matters will likely have a material
adverse effect on our results of operations and financial conditions and cause our stock price to
decline. In addition, involvement in litigation can be expensive.
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 2013, but is subject to automatic
renewals of consecutive three-year periods unless either party provides notice of non-renewal at
least 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 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
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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, our business plan is to acquire or license, and then develop and market,
additional product candidates or approved products. In 2008 and 2009, for instance, we acquired
Curacyte Discovery and Targanta, licensed marketing rights to the ready-to-use formulation of
Argatroban and licensed development and commercialization rights to MDCO-216. The success of this
growth strategy depends upon our ability to identify, select and acquire or license 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 need to integrate any acquired products into our existing operations.
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. In addition, 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 or licenses 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.
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, any approved products that we develop or acquire
may not be:
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manufactured or produced economically; |
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successfully commercialized; or |
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widely accepted in the marketplace. |
We have previously acquired or licensed rights to products and, after having conducted
development activities, determined not to devote further resources to those products. Any
additional products that we acquire or license may not be successfully developed. In addition,
proposing, negotiating and implementing an economically viable acquisition or license 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 or license of product
candidates and approved products. We may not be able to acquire or license the rights to additional
product candidates and approved products on terms that we find acceptable, or at all.
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 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.
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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 and Cleviprex, underlying hospital demand for Angiomax and Cleviprex,
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 November 5, 2010, the last reported sale price of our common stock ranged
from a high of $27.68 per share to a low of $6.47 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:
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changes in securities analysts estimates of our financial performance; |
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changes in valuations of similar companies; |
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variations in our operating results; |
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acquisitions and strategic partnerships; |
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announcements of technological innovations or new commercial products by us or
our competitors; |
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disclosure of results of clinical testing or regulatory proceedings by us or our
competitors; |
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the timing, amount and receipt of revenue from sales of our products and margins
on sales of our products; |
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governmental regulation and approvals; |
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developments in patent rights or other proprietary rights, particularly with
respect to the our U.S. Angiomax patents; |
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the outcome of any challenge of the August 3, 2010 court order requiring the PTO
to consider our application to extend the term of the 404 patent timely filed, either by APP in its pending appeal or in a separate challenge; |
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the terms of any settlement with Biogen Idec, HRI or the two law firms with
respect to the principal U.S. patent covering Angiomax and the PTOs denial of our
application to extend the term of the patent; |
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developments or issues with our contract manufacturers; |
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changes in our management; and |
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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.
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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 6. Exhibits
Exhibits
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See the Exhibit Index on the page immediately preceding the exhibits for a list of exhibits filed
as part of this quarterly report, which Exhibit Index is incorporated herein by this reference. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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THE MEDICINES COMPANY
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Date: November 9, 2010 |
By: |
/s/ Glenn P. Sblendorio
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Glenn P. Sblendorio |
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Executive Vice President and Chief Financial
Officer (Principal Financial and Accounting
Officer) |
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EXHIBIT INDEX
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Exhibit Number |
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Description |
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10.1
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First Amendment to lease for 400 Fifth Avenue, Waltham, MA, dated as of June 30, 2010 by and between
ATC Realty Sixteen Inc. and the registrant |
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10.2
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Form of restricted stock agreement under the registrants Amended and Restated 2004 Stock Incentive Plan |
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31.1
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Chairman and 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 |
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31.2
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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 |
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32.1
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Chairman and 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 |
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32.2
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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 |
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101
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The following materials from The Medicines Company Quarterly Report on Form 10-Q for the quarter ended
September 30, 2010, formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated
Balance Sheet, (ii) the Consolidated Statement of Operations, (iii) the Consolidated Statement of Cash
Flow, and (iv) Notes to Consolidated Financial Statements, tagged as blocks of text. |