SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2004
or
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 0-30319
THERAVANCE, INC.
(Exact name of registrant as specified in its charter)
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Delaware |
94-3265960 |
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(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
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901 Gateway Boulevard, South San Francisco, California |
94080 |
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(Address of principal executive offices) |
(Zip Code) |
Registrant’s telephone number, including area code: 650-808-6000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK $0.01 PAR VALUE
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o
Indicate by check mark whether registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes o No x
The aggregate market value of the voting stock and non-voting stock (consisting of Common Stock, $.01 par value and Class A Common Stock, $.01 par value) held by non-affiliates of the registrant based upon the closing price of the Common Stock on the NASDAQ National Market on February 28, 2005 was $661,727,346. Shares of Common Stock and Class A Common Stock held by each officer and director and by each person or group who owns 5% or more of the outstanding Common Stock and Class A Common Stock have been excluded in that such persons or groups may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.
On February 28, 2005 there were 43,710,141 shares of the Registrant’s Common Stock and 9,401,498 shares of the Registrant’s Class A Common Stock outstanding.
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Special Note regarding Forward-Looking Statements
This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements involve substantial risks, uncertainties and assumptions. All statements in this Annual Report on Form 10-K, other than statements of historical facts, including statements regarding our strategy, future operations, future financial position, future revenues, projected costs, prospects, plans, intentions, expectations and objectives could be 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 may not actually achieve the plans, intentions, expectations or objectives disclosed in our forward-looking statements and the assumptions underlying our forward-looking statements may prove incorrect. Therefore, you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions, expectations and objectives disclosed in the forward-looking statements that we make. Factors that we believe could cause actual results or events to differ materially from our forward-looking statements include, but are not limited to, those discussed below in the “Factors Affecting Results, Including Risks and Uncertainties” section in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Annual Report on Form 10-K and the risks discussed in our other filings with the Securities and Exchange Commission (SEC). Our forward-looking statements in this Annual Report on Form 10-K are based on current expectations and we do not assume any obligation to update any forward-looking statements.
ITEM 1. BUSINESS
Theravance is a biopharmaceutical company with a pipeline of internally discovered product candidates. Of our six programs in development, two are in late stage—our bacterial infections program focusing on treating serious Gram-positive infections (telavancin) and our Beyond Advair collaboration with GlaxoSmithKline (GSK). We are focused on the discovery, development and commercialization of small molecule medicines across a number of therapeutic areas including respiratory disease, bacterial infections, overactive bladder and gastrointestinal disorders. By leveraging our proprietary insight of multivalency to drug discovery focused on validated targets, we are pursuing a next generation drug discovery strategy designed to discover superior medicines in large markets. None of our products have been approved for marketing and sale to patients and we have not received any product revenue to date.
Our strategy focuses on the discovery, development and commercialization of medicines with superior efficacy, convenience, tolerability and/or safety. By primarily focusing on biological targets that have been either clinically validated by existing medicines or by potential medicines in late-stage clinical studies, we can leverage years of available knowledge regarding a target’s activity and the animal models used to test potential medicines against such targets. We move a product candidate into development after it demonstrates superiority to existing medicines or drug candidates in animal models that we believe correlate to human clinical experience. This strategy of developing the next generation of existing medicines or potential medicines is designed to reduce technical risk and increase productivity. Within the last four years, five product candidates that we discovered have entered clinical studies. Finally, we believe that we can enhance the probability of successfully developing and commercializing medicines by identifying at least two structurally different product candidates, whenever practicable, for development in each therapeutic program.
In November 2002, we entered into a collaboration agreement with GSK (the Beyond Advair collaboration) to develop and commercialize long-acting beta2 agonist (LABA) product candidates for the
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treatment of asthma and chronic obstructive pulmonary disease (COPD). These product candidates are intended to be administered via inhalation once daily both as a single new medicine and as part of a new combination medicine with an inhaled corticosteroid (ICS). Such a combination medicine could represent a “next generation” version of Advair, the current market leading medicine in this class with approximately $4.5 billion of sales reported by GSK in 2004. Each company contributed four LABA product candidates to the collaboration. In December 2003, GSK reported Phase 2a human clinical data for two lead compounds in the collaboration. GSK plans to initiate Phase 2b clinical studies in the second half of 2005. In addition, GSK has an inhaled corticosteroid in Phase 3 clinical studies that is intended to be combined with a LABA under the collaboration to create a potential new medicine that could be the next generation Advair medicine.
We entered into a strategic alliance agreement with GSK in March 2004 whereby GSK received an option to license product candidates from all of our current and future drug discovery programs initiated prior to September 1, 2007, on pre-determined terms and on an exclusive, worldwide basis. When GSK exercises its option to license any of our programs, we receive an upfront payment, additional payments upon achievement of future milestones and royalties on any future sales. In addition, GSK funds all of the subsequent development and commercialization costs for product candidates in such programs. Consistent with our strategy, we will be obligated at our sole cost to discover two structurally different product candidates for certain programs that are licensed by GSK. In August 2004, GSK exercised its right to license our long-acting muscarinic antagonist program for the treatment of COPD and informed us of its decision not to license our bacterial infections program, in each case pursuant to the terms of the strategic alliance. Recently GSK informed us of its decision to exercise its right to license our bifunctional muscarinic antagonist—beta2 agonist (MABA) program for the treatment of COPD and possibly asthma pursuant to the terms of the strategic alliance, and of its decision not to license our anesthesia program.
GSK currently owns all of our Class A common stock, which represents approximately 17.7% of our outstanding stock as of February 28, 2005. Under the terms of the 2004 strategic alliance, GSK’s ownership of our stock could increase to approximately 60% through the issuance by us to GSK of the number of shares of our common stock that we may be required to redeem from our stockholders as described below. In July 2007, GSK has the right to require us to redeem, and upon notice of such redemption, each stockholder (including GSK, to the extent GSK holds common stock) will automatically be deemed to have submitted for redemption, 50% of our common stock held by such stockholder at $54.25 per share. This right is referred to in this Annual Report as the “call.” If GSK does not exercise this right, then in August 2007, each of our stockholders (including GSK, to the extent GSK holds common stock) has the right to require us to redeem, up to 50% of their common stock at $19.375 per share. This right is referred to in this Annual Report as the “put.” In either case, GSK is obligated to pay to us the funds necessary for us to redeem the shares of common stock from our stockholders or, with respect to the shares of our common stock that are put, GSK may elect to purchase such shares directly from our stockholders. We are under no obligation to redeem our shares under the call or the put until we receive such funds from GSK. GSK’s ownership of our stock could increase to approximately 60% through the concurrent issuance to GSK of the number of shares of our common stock that we redeem. In addition, if GSK’s ownership of our stock increases to more than 50% as a result of the call or put, GSK will receive an extension of its exclusive option to our programs initiated prior to September 1, 2012.
Telavancin, the lead product candidate in our bacterial infections program, is a rapidly bactericidal, injectable antibiotic. Telavancin is currently in Phase 3 clinical studies designed to demonstrate non-inferiority of telavancin compared to vancomycin for the treatment of serious Gram-positive infections and superiority over vancomycin in those patients whose infections are due to MRSA in both cSSSI and hospital-acquired pneumonia. Our goal is for telavancin to become first line therapy in treating these very serious infections.
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TD-6301, our product candidate in our overactive bladder (OAB) program, is being developed to provide effective bladder control while minimizing dry mouth. In February 2005, we announced the results of our initial Phase 1 clinical studies. TD-6301 was well tolerated with no serious or unexpected adverse events. We plan to complete additional Phase 1 clinical studies and initiate a Phase 2 clinical study of TD-6301 in the second half of 2005.
TD-2749, our lead compound in our gastrointestinal program, and TD-5108, our alternate compound in this program, have each met our preclinical requirements, including favorable gastroprokinetic efficacy in relevant animal models. In December 2004, we initiated a Phase 1 clinical study to assess the safety, tolerability and pharmacokinetics of TD-2749. TD-5108 will be tested in various preclinical studies required by regulatory authorities before initiating Phase 1 clinical studies. We plan to report TD-2749 Phase 1 clinical studies in the second half of 2005.
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Our drug discovery efforts are based on the principles of multivalency. Multivalency involves the simultaneous attachment of a single molecule to multiple binding sites on one or more biological targets. We have applied our expertise in multivalency to discover product candidates and lead compounds in a wide variety of therapeutic areas. We have conducted extensive research in both relevant laboratory and animal models to demonstrate that by applying the design principles of multivalency, we can achieve significantly stronger and more selective attachment of our compounds to a variety of intended biological targets. We believe that medicines that attach more strongly and selectively to their targets will be superior to many medicines by substantially improving potency, duration of action and/or safety. The table below describes the status of programs and identifies which compounds were discovered by us and are being pursued as lead product candidates, which compounds were discovered by us and are being pursued as an alternative to a lead product candidate, and which compounds were discovered by GSK and are part of the pool of compounds being pursued under our Beyond Advair collaboration.
In the table, under the heading “Development Status,” Preclinical refers to formulation development or to safety testing in animal models required prior to initiating human clinical studies. Phase 1 indicates
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initial clinical safety testing in healthy volunteers, or studies directed toward understanding the mechanisms of action of the drug. Phase 2 indicates further clinical safety testing and preliminary efficacy testing in a limited patient population. Phase 3 indicates evaluation of clinical efficacy and safety within an expanded patient population. For purposes of the table, “Development Status” indicates the most advanced stage of development that has been completed or is in process.
Our Relationship with GlaxoSmithKline
2002 Beyond Advair Collaboration
In November 2002, we entered into collaboration with GSK to develop and commercialize product candidates for the treatment of asthma and COPD. Each company contributed four LABA product candidates to the collaboration. Our collaboration currently has five product candidates in clinical studies; two completed initial Phase 2a clinical studies in the fourth quarter of 2003, another is in initial Phase 2a clinical studies and two are in Phase 1 clinical studies. The remaining three product candidates are in preclinical studies. GSK has an ICS in Phase 3 clinical studies that is intended to be combined with a LABA under the collaboration to create a potential new medicine that could be the next generation Advair medicine. We plan to report results from Phase 2a clinical studies for the lead LABA candidates administered via a dry powder inhaler (DPI), the anticipated commercial delivery device, in the first half of 2005. GSK plans to initiate Phase 2b studies in the second half of 2005.
In connection with this collaboration, in 2002 we received from GSK an upfront payment of $10 million and sold to GSK shares of our Series E preferred stock for an aggregate purchase price of $40 million. We have also received $45 million in milestone payments through December 31, 2004, and may receive additional milestone payments from GSK if our LABA product candidates achieve development, regulatory or commercial milestones. In the event that a LABA product candidate discovered by us is successfully developed and commercially launched in multiple regions of the world, these future milestone payments could total up to an additional $450 million, of which $150 million would be attributable to the product candidates reaching certain sales thresholds. In the event that a LABA product candidate discovered by GSK is successfully developed and commercially launched in multiple locations of the world, we will be obligated to make payments to GSK of up to $220 million. Based on available information, we do not estimate that a significant portion of these potential milestone payments to GSK are likely to be made in the next four years. In addition, we will receive the same royalties on product sales of medicines from the Beyond Advair collaboration, regardless of whether the product candidate originated with us or with GSK. The royalty structure would result in an average percentage royalty rate in the low to mid-teens at annual net sales up to approximately $4 billion, and the average royalty rate would decline to single digits at annual net sales of more than $6 billion. Sales of single agent LABA medicines and combination LABA/ICS medicines would be combined for the purposes of this royalty calculation.
2004 Strategic Alliance
In March 2004, we entered into a strategic alliance with GSK. Under the terms of this strategic alliance, GSK received an option to license potential new medicines from all of our current and future drug discovery and development programs initiated prior to September 1, 2007, on pre-determined terms and on an exclusive, worldwide basis. We are obligated to use diligent efforts to discover and deliver compounds for the alliance and have committed to initiating at least three new discovery programs from May 2004 through August 2007. We maintain sole decision-making authority with respect to our discovery programs, including without limitation, decisions relating to initiation and termination of discovery programs, and staffing and resource allocation between and among discovery programs.
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GSK must exercise its right to license no later than sixty days subsequent to (i) for our inhaled respiratory discovery programs, the “development candidate” stage (generally defined as the point when the lead candidate is selected for preclinical studies and preparation for entry into a Phase 1 clinical study), or (ii) for programs other than inhaled respiratory programs, the “proof-of-concept” stage (generally defined as the successful completion of a Phase 2a clinical study if the biological target for the drug has been clinically validated by an existing medicine, and successful completion of a Phase 2b clinical study if the biological target for the drug has not been clinically validated by an existing medicine). Under the terms of the strategic alliance, GSK will have only one opportunity to license each of our programs. Upon its decision to license a program, GSK is responsible for and will fund all future development, manufacturing and commercialization activities for product candidates in that program. In addition, GSK is obligated to use diligent efforts to develop and commercialize product candidates from any program that it licenses. Consistent with our strategy, we may be obligated at our sole cost to discover two structurally different product candidates for programs that GSK licenses. If these programs are successfully advanced through development by GSK, we will receive clinical, regulatory and commercial milestone payments and royalties on any sales of medicines developed from these programs. The royalty structure for a product containing one of our compounds as a single active ingredient would result in an average percentage royalty rate in the low double digits. If a product is successfully commercialized, in addition to any royalty revenue that we receive, the total upfront and milestone payments in any given program that GSK licenses could range from $130 million to $162 million for programs with single-agent medicines and up to $252 million for programs with both a single-agent and a combination medicine. If GSK chooses not to license a program, we retain all rights to the program and may continue the program alone or with a third party. In August 2004, GSK exercised its right to license our long-acting muscarinic antagonist program for the treatment of COPD and informed us of its decision not to license our bacterial infections program, in each case pursuant to the terms of the strategic alliance. We received a $5.0 million payment from GSK in connection with its license of our long-acting muscarinic antagonist program in August 2004. Recently GSK informed us of its decision to exercise its right to license our MABA program for the treatment of COPD and possibly asthma pursuant to the terms of the strategic alliance, and of its decision not to license our anesthesia program. We have received a $5.0 million payment from GSK in connection with its license of our MABA program in March 2005. There can be no assurance that GSK will license any other programs under the terms of the alliance agreement or at all, which could have an adverse effect on our business and financial condition.
Upon entering into the strategic alliance with GSK, we received from GSK a payment of $20.0 million. At the same time, GSK purchased 6,387,096 shares of our Class A common stock for an aggregate purchase price of $108.9 million. The purchase of our Class A common stock increased the ownership position of our outstanding stock by GSK and GSK affiliates (GSK and this affiliate of GSK are sometimes referred to as “GSK” in this Annual Report on Form 10-K) from approximately 6.6% to 19.7% as of May 11, 2004.
As part of the sale of our Class A common stock to an affiliate of GSK, we amended our certificate of incorporation to provide for the redemption of our common stock under certain circumstances. In July 2007, GSK has a call right to require us to redeem, and upon notice, each stockholder (including GSK, to the extent GSK holds common stock) will automatically be deemed to have submitted for redemption, 50% of our common stock held by such stockholder at $54.25 per share. If GSK does not exercise this call right, then in August 2007, each of our stockholders (including GSK, to the extent GSK holds common stock) has a put right to cause us to redeem up to 50% of their common stock at $19.375 per share. In either case, GSK is contractually obligated to pay to us the funds necessary for us to redeem the shares of common stock from our stockholders; however, GSK’s maximum obligation for the shares subject to the put is capped at $525.0 million. We are under no obligation to redeem our shares under the call or the put until we receive funds to redeem such shares from GSK. Alternatively, if our stockholders exercise the put, GSK may elect to purchase the shares of common stock that are put directly from our stockholders. GSK’s
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ownership of our stock could increase to approximately 60% through the concurrent issuance to GSK of the number of shares of stock that we redeem. In addition, if GSK’s ownership of our stock increases to more than 50% as a result of the call right or put right, GSK will receive an extension of its exclusive option to our programs initiated prior to September 1, 2012; otherwise, this exclusive option does not apply to programs initiated after September 1, 2007.
Concurrent with the purchase of our Class A common stock, we entered into a governance agreement with GSK, which among other matters, (i) gives GSK the right to nominate directors to our Board of Directors, (ii) provides GSK with rights regarding certain corporate governance matters, including the right to restrict our ability to take specified significant corporate actions, such as the issuance of debt and equity securities above specified limitations, the sale of significant assets, acquisitions by us and the redemption of our common stock, and (iii) governs future acquisitions or dispositions of our securities by GSK. Pursuant to a partial exercise of its rights under the governance agreement, upon the closing of our initial public offering on October 8, 2004, GSK purchased an additional 433,757 shares of Class A common stock, bringing its ownership position of our outstanding stock to approximately 17.7%.
Asthma and Chronic Obstructive Pulmonary Disease (COPD)
Our respiratory franchise has three development programs directed toward asthma and COPD: our Beyond Advair collaboration with GSK, and our Long-Acting Muscarinic Antagonist (LAMA) and our MABA programs, both of which GSK has licensed under the terms of our strategic alliance.
Long-Acting Beta2 Agonists (LABAs) for Treatment of Asthma and COPD
Our Beyond Advair collaboration with GSK is currently developing product candidates for the treatment of asthma and COPD. The next generation Advair medicine from the collaboration is intended to replace GSK’s market leading Advair, an inhaled twice-a-day combination medicine containing a long-acting beta2 agonist and an ICS with sales of approximately $4.5 billion in 2004. The collaboration’s product candidates are intended to be administered via inhalation once daily for the treatment of asthma and COPD both as a single new medicine and as part of a new once-daily combination medicine with an ICS.
Beta2 agonists are medicines that work by relaxing the muscles that line the airways, allowing the airways (the bronchial tubes of various sizes through which air moves in and out of the lungs) to expand (known as bronchodilation) and leading to relief and/or prevention of many of the symptoms of asthma and COPD. The beta2 agonists and many other medications to treat asthma and COPD are administered by inhalation. Patients use a hand-held device to breathe in a measured amount of drug in an aerosol, metered dose inhaler (MDI), or dry powder inhaler (DPI).
In addition to a LABA to be given once a day, GSK is also developing a once-daily ICS and DPI to create a new combination medicine with a once-daily LABA from the collaboration.
The Unmet Medical Need
Asthma and COPD are both chronic diseases characterized by inflammation of the airways leading to limitation or obstruction of airflow and resulting in various symptoms relating to difficulty in breathing. Although many therapies are available for asthma and a growing number for COPD, reports from the National Institutes of Health indicate that these diseases remain major causes of death and disability. According to the Mattson Jack Group, a market research firm, approximately 17 million people in the United States, 15 million people in Western Europe and 5 million people in Japan have been diagnosed with asthma. In its September 2003 report, The American Lung Association estimates that 14 million
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people in the United States have been diagnosed with COPD. A similar number of people have been diagnosed with COPD in Western Europe and, according to the Mattson Jack Group, nearly 3 million people have been diagnosed with COPD in Japan. According to IMS Health (IMS MIDASÔ, 2/2005), the market for inhaled products containing long-acting beta2 agonists in the United States, Japan and Europe was approximately $5.5 billion in 2004.
Advair is the current market-leading medicine with approximately $4.5 billion of sales reported by GSK in 2004. It is an inhaled combination medicine consisting of a long-acting beta2 agonist (salmeterol) and an ICS (fluticasone) taken twice daily. While Advair has been approved by the FDA for the treatment of asthma and COPD, it must be administered twice a day, which can reduce patient compliance.
In our LABA collaboration with GSK, we plan to develop a longer-acting beta2 agonist that can be taken as an inhaled medicine once a day and can be combined with a once-a-day ICS so the combination medicine would also be taken once a day. We believe once-a-day dosing would be a significant convenience and compliance-enhancing advantage leading to improved overall clinical outcomes in patients with asthma or COPD.
Status of Our Program
Four of our LABA product candidates and four GSK LABA product candidates are currently in development. Two product candidates, one from each company, have completed initial Phase 2a clinical studies. The two initial Phase 2a clinical studies, completed in December 2003, involved patients with asthma. These studies were designed to measure bronchodilation in asthmatic patients at various times following a single dose of the product candidates compared to both placebo and salmeterol, the current market-leading long-acting beta2 agonist. Both product candidates demonstrated statistically greater bronchodilation at 24 hours compared to placebo and salmeterol and have progressed to repeat-dose studies.
In addition, a third product candidate, discovered by GSK, is currently in Phase 2a clinical studies. Phase 1 clinical studies were initiated for the fourth and fifth product candidates in April 2004.
We plan to report results from a Phase 2a DPI clinical study in the first half of 2005. We believe that it is important for the final medicine to be delivered in a DPI, as this has been the most successful method of delivering a combination of a LABA and an ICS. GSK plans to initiate Phase 2b clinical studies in the second half of 2005.
GSK also has a novel once-a-day ICS in Phase 3 clinical studies. This corticosteroid may prove to be a suitable drug candidate for co-administration with the selected LABA product candidate from the collaboration in order to develop a once-a-day combination product that could represent a “next generation” Advair.
Inhaled Long-Acting Muscarinic Antagonists (LAMAs) for COPD
Among the most frequently used bronchodilators for COPD are the inhaled muscarinic antagonists. Inhaled muscarinic antagonists work by inhibiting muscarinic receptors on the bronchial airways, which lead to muscle relaxation, bronchodilation and improved lung function. According to IMS Health (IMS MIDASÔ, 2/2005), the market for inhaled muscarinic antagonists in the United States, Japan and Europe was approximately $1.7 billion in 2004.
The Unmet Medical Need
Until recently, only one inhaled muscarinic antagonist (ipratropium) has been available in the United States, both as a single agent and in combination with the short-acting beta2 agonist albuterol. This product is short acting and requires dosing four or more times per day.
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An inhaled LAMA (tiotropium, Spiriva®) suitable for once-a-day dosing has been available in Europe since 2002 and was launched in the United States in May 2004. Tiotropium produces a prolonged blockade of muscarinic M3 receptors. Although blocking the M3 receptor is important for bronchodilation, there is emerging evidence that other receptor sub-types may play a role in mediating bronchodilation. In addition, after inhalation a significant amount of tiotropium reaches the systemic circulation, and, as a consequence, muscarinic M3 receptors at other sites in the body can be blocked for an extended time. We believe this systemic activity of tiotropium is the cause of bothersome side effects such as dry mouth and constipation, which have been seen more frequently with tiotropium (especially in elderly patients) than with short-acting muscarinic antagonists or with the long-acting beta2 agonist, salmeterol.
We are developing an inhaled LAMA designed to produce a prolonged blockade of the relevant receptor sub-types while also being highly lung-selective, which means that lower concentrations of drug should get into the systemic circulation. We believe this approach will result in improved tolerability over tiotropium at doses with comparable efficacy. At higher doses, a more lung-selective LAMA might offer improved efficacy versus tiotropium with comparable or improved tolerability.
Status of Our Program
After we had designated TD-5742 our lead LAMA compound, GSK exercised its right to license our LAMA program under the terms and conditions of our strategic alliance. Accordingly, GSK is required to fund all future development, manufacturing and commercialization activities for product candidates in this program. We are obligated to discover another structurally different product candidate for this program. We expect GSK to initiate a Phase 1 clinical study for TD-5742 by the second half of 2005.
Bifunctional Muscarinic Antagonist-Beta Agonist (MABAs) for COPD and possibly Asthma
The Unmet Medical Need
When inhaled into the lungs, both muscarinic antagonists and beta2 agonists cause bronchodilation, but by different mechanisms of action. Moreover, both classes of drugs have non-bronchodilator effects that can be complementary and beneficial in patients with COPD and perhaps in patients with severe asthma. Currently many patients are using both inhaled muscarinic antagonists and inhaled beta2 agonists (either in two separate inhalers or via the product, Combivent, which combines short-acting agents from the two drug classes). According to Scott-Levin (a division of Verispan), in the United States approximately 40% of patients on maintenance bronchodilator therapy are using both muscarinic antagonists and beta2 agonists.
We are developing a long-acting inhaled bronchodilator that is bifunctional, meaning that one small molecule functions as both a muscarinic antagonist and a beta2 receptor agonist. By combining bifunctional activity and high lung selectivity, we intend to develop a medicine with greater efficacy than single mechanism bronchodilators (such as tiotropium or salmeterol) and with equal or better tolerability. This bifunctional bronchodilator could potentially then serve as a basis for improved “triple therapy” through co-formulation with an inhaled respiratory compound into a single product that could potentially deliver three complementary therapeutic effects for patients with respiratory disease.
Status of Our Program
We designated TD-5959 our lead MABA compound in December 2004. Recently GSK licensed our MABA program under the terms of the strategic alliance, which requires GSK to fund all future development, manufacturing and commercialization activities for product candidates in this program. We are obligated to discover another structurally different product candidate for this program.
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Bacterial Infections
Despite the variety of antibiotics currently available, bacterial infections remain a significant and growing medical problem. Many of these infections are serious and require hospitalization and treatment with injectable antibiotics. The market that we are primarily targeting represents, according to IMS Health (IMS MIDASÔ, 2/2005), approximately 35 million patient treatment days with antibiotics effective against infections caused by drug resistant Gram-positive bacteria. According to IMS Health (IMS MIDASÔ, 2/2005), from 1998 to 2004, treatment days in this category grew at a rate of 12% annually. According to IMS Health (IMS MIDASÔ, 2/2005), worldwide sales in this category totaled $912 million in 2004 and vancomycin, a generic medicine, leads this portion of the injectable antibiotic market with over 80% of the treatment days and worldwide annual sales of approximately $415 million in 2004.
The Unmet Medical Need
Among the most common bacterial infections are those caused by Gram-positive bacteria, which include staphylococci, streptococci and enterococci. Gram-positive infections are often serious and life threatening. The need for more effective antibiotics is particularly acute because many Gram-positive bacterial strains, particularly many staphylococci, have become resistant to currently available antibiotics. Of particular note are infections due to methicillin-resistant Staphylococcus aureus (commonly known as MRSA). The presence of methicillin resistance typically indicates that the bacterial strain is resistant to multiple classes of antibiotics. Only a few drugs are currently available to treat MRSA infections.
Drug resistance is especially common in hospital-acquired infections. According to the Centers for Disease Control and Prevention, an estimated 2 million patients develop hospital-acquired bacterial infections in the United States each year.
Our lead antibiotic product candidate, telavancin, is a rapidly bactericidal, injectable antibiotic. We discovered telavancin in a research program dedicated to finding new antibiotics for serious infections due to Staphylococcus aureus (including multi-drug resistant strains) and other Gram-positive bacteria. Telavancin is multifunctional, which means that it has more than one mechanism of action against its biological target. Like the market-leading product vancomycin, telavancin inhibits the formation of the bacterial cell wall. Unlike vancomycin, however, telavancin also disrupts bacterial cell membrane integrity. We believe the additive mechanisms of action seen with telavancin speed bacterial killing while also reducing the risks of inducing resistance to telavancin or cross-resistance with other antibiotics.
Status of Our Program
Telavancin is currently being evaluated in four Phase 3 multinational, multicenter, double-blind, active control studies designed to assess the efficacy and safety of telavancin compared to vancomycin. Two of these studies will evaluate telavancin for the treatment of hospital-acquired pneumonia and two of the studies will evaluate telavancin for the treatment of complicated skin and skin structure infections caused by Gram-positive organisms such as Staphylococcus aureus. The studies are designed to demonstrate non-inferiority of telavancin compared to vancomycin for the treatment of serious Gram-positive infections and superiority over vancomycin in those patients whose infections are due to MRSA in both cSSSI and hospital-acquired pneumonia. Our goal is for telavancin to become first line therapy in treating these very serious infections.
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In parallel with the clinical development program for telavancin, we are working to finalize commercial manufacturing processes for the active pharmaceutical ingredient and formulated drug product.
TD-1792, a novel bifunctional antibiotic, is currently undergoing preclinical studies.
GSK has informed us of its decision not to license this program pursuant to the terms of the strategic alliance. As a result we may seek to enter into collaboration with another pharmaceutical company or to develop the product ourselves. Currently we are using the proceeds of our 2004 initial public offering and our other cash resources to fund the Phase 3 clinical studies for telavancin.
Overactive Bladder
Overactive bladder (OAB) describes a condition with four primary symptoms: urgency (the sudden need to urinate that is difficult to defer), incontinence (leakage of urine associated with the feeling of urgency), frequency (urinating more than seven times per day) and nocturia (awakening to urinate more than once per night).
The Unmet Medical Need
OAB is a common condition that increases in prevalence with age. According to the Mattson Jack Group, approximately 37 million people in the United States, 31 million in Western Europe and 20 million in Japan suffer from OAB. Many patients go untreated because incontinence carries a social stigma or because patients incorrectly believe it is an inevitable and untreatable consequence of aging. This condition is also associated with other important health problems. For example, frequent urination and nocturia resulting from OAB are associated with a significantly increased risk of falls and fractures in women over the age of 65. According to IMS Health (IMS MIDASÔ, 2/2005), the market for drugs to treat OAB in the United States, Japan and Europe was approximately $1.8 billion in 2004. While large, the current market for treatment of OAB may reflect only a portion of the market potential since we believe a large number of patients suffering from this disease are currently untreated.
OAB has been shown to impair quality of life even in patients who only have symptoms of urgency and frequency but not actual incontinence. Urgency leads to dramatic alterations in lifestyle, fear of embarrassment and proactive urination (increasing frequency).
Current therapies for the treatment of OAB produce side effects such as dry mouth, constipation and blurred vision that limit the tolerated dosages and ultimate effectiveness of these therapies. We believe these side effects reflect the inability of current therapies to discriminate between intended and unintended biological targets.
Status of Our Program
We initiated the first Phase 1 clinical study of TD-6301 in December 2003. The Phase 1 clinical study assessed the safety, tolerability, and pharmacokinetics of single ascending doses of TD-6301 in healthy volunteers. In February 2005, we announced the results of this study. TD-6301 was well tolerated with no serious or unexpected adverse events. The results were consistent with the low potential for dry mouth and side effects (e.g., constipation, blurred vision, dizziness) were observed at a low frequency. As seen in other commercialized OAB drugs, side effects, such as increased heart rate, were noted at higher doses. We believe we have identified doses that can be progressed into future studies. We plan to complete additional Phase 1 clinical studies and initiate a Phase 2 clinical study for TD-6301 in the second half of 2005.
13
Gastrointestinal Motility Dysfunction
Gastrointestinal motility dysfunction is a major contributing factor to many disorders of the gastrointestinal (GI) tract. In this context, motility refers to the speed and coordination with which the body moves food out of the stomach and through the rest of the digestive tract. Reduced GI motility can cause symptoms of bloating, nausea, pain and constipation. Gastroprokinetics are drugs that increase GI motility.
The Unmet Medical Need
There are few gastroprokinetics currently available for motility disorders of the GI tract, which include constipation-predominant irritable bowel syndrome (C-IBS), chronic constipation, functional dyspepsia (defined as indigestion without heartburn) and delayed gastric (stomach) emptying.
Novartis launched a new gastroprokinetic (tegaserod, Zelnorm®) in the United States in 2002 for the treatment of C-IBS and has submitted a supplemental New Drug Application (NDA) requesting approval of tegaserod for chronic constipation. According to Novartis AG, sales of tegaserod were approximately $300 million in 2004. Tegaserod exerts its prokinetic activity by stimulating the 5-HT4 receptor on the nerves that control the motility of intestinal muscles involved in normal peristalsis. The 5-HT4 receptor is one of many types of serotonin receptors found throughout the body. Tegaserod has limited selectivity for the 5-HT4 receptor. In addition, only a modest portion of the oral dose is actually absorbed by the body. The drug must be taken twice a day to partially overcome this deficiency. We believe these shortcomings result in inconvenience for patients and may also limit the efficacy of tegaserod.
The goal for our program is to develop a gastroprokinetic agent with once-a-day oral dosing and prokinetic efficacy superior to tegaserod. We have identified a series of compounds with excellent 5-HT4 receptor potency that are also highly selective with very low activity at other serotonin receptors.
Status of Our Program
TD-2749, our lead compound in this program, and TD-5108, our alternate compound in this program, have each met our preclinical requirements, including favorable gastroprokinetic efficacy compared to tegaserod in relevant animal models. In December 2004, we initiated a Phase 1 clinical study to assess the safety and tolerability of TD-2749 in healthy subjects. TD-5108 will be tested in various preclinical studies required by regulatory authorities before initiating Phase 1 clinical studies.
Anesthesia
Anesthesia is generally achieved using a combination of agents that together provide hypnosis (loss of consciousness), analgesia (pain relief) and areflexia (loss of reflex movement). Hypnosis can be provided by either using an intravenous drug initially (called induction) followed by inhaled gases to maintain anesthesia or by using intravenous drugs continuously for both induction and maintenance of anesthesia. At lower doses, the intravenous drugs used to achieve hypnosis in anesthesia can be used for sedation of patients in intensive care (for example, patients that need a ventilator to help them breathe) or during diagnostic or therapeutic procedures. As a group these drugs are known as sedative-hypnotics.
The Unmet Medical Need
The leading intravenous sedative-hypnotics, according to IMS Health (IMS MIDASÔ, 2/2005), are propofol (Diprivan®) and midazolam (Versed®). According to IMS Health (IMS MIDASÔ, 2/2005), the market for injectable forms of these two drugs in the United States, Japan, and Europe was approximately $978 million in 2004.
14
Among the primary goals for both anesthesia and sedation is a rapid return to normal consciousness. Awakening from propofol anesthesia or sedation can be delayed and unpredictable after extended infusions. The labeling for propofol recommends periodic dose reductions to maintain the lowest effective dose. This can be difficult in practice as patients are generally receiving multiple agents, which can obscure the propofol-specific effects.
Midazolam has less rapid offset of sedation than propofol with a somewhat reduced risk of respiratory depression. Moreover, the effects of midazolam can be reversed using an antagonist in the event of over-sedation leading to respiratory depression. In part because of these reasons, midazolam is used more frequently than propofol for sedation despite the longer recovery time.
The goal for our program is to develop an intravenous sedative-hypnotic with more rapid and predictable emergence from anesthesia and offset of sedation than propofol. A rapid response to dose titration may also improve management of adverse events such as respiratory depression, enhancing utility of the agent in sedation. Preclinical studies indicate that our product candidate, TD-4756, provides rapid emergence from hypnosis with no increase in the time to emergence as a result of prolonged infusions.
Status of Our Development Program
TD-4756 has met our preclinical requirements, including showing a more rapid and predictable emergence profile than propofol in relevant animal models. We are currently working to finalize development of a formulation of TD-4756 suitable for use in clinical studies. Once this formulation work is completed, TD-4756 will be tested in the various preclinical studies that regulatory authorities require before initiating Phase 1 human clinical studies.
GSK recently informed us of its decision not to license this program. We may seek to enter into collaboration with another pharmaceutical company for further development of TD-4756.
Our proprietary approach combines chemistry and biology to efficiently discover new product candidates for validated targets using our expertise in multivalency. Multivalency refers to the simultaneous attachment of a single molecule to multiple binding sites on one or more biological targets. When compared to monovalency, whereby a molecule attaches to only one binding site, multivalency can significantly increase a compound’s potency, duration of action and/or selectivity. Multivalent compounds generally consist of several individual small molecules, at least one of which is biologically active when bound to its target, joined by linking components.
Our approach is based on an integration of the following insights:
· Many targets have multiple binding sites and/or exist in clusters with similar or different targets;
· Biological targets with multiple binding sites and/or those that exist in clusters lend themselves to multivalent drug design;
· Molecules that simultaneously attach to multiple binding sites can exhibit considerably greater potency, duration of action and/or selectivity than molecules that attach to only one binding site; and
· Greater potency, duration of action and/or selectivity provides the basis for superior therapeutic effects, including enhanced convenience, tolerability and/or safety compared to conventional drugs.
15
Our objective is to discover, develop and commercialize new medicines with superior efficacy, convenience, tolerability and/or safety. The key elements of our strategy are to:
Apply our expertise in multivalency primarily to validated targets to efficiently discover and develop superior medicines in large markets. We intend to continue to concentrate our efforts on discovering and developing product candidates for validated targets where:
· existing drugs have levels of efficacy, convenience, tolerability and/or safety that are insufficient to meet an important medical need; and
· we believe our expertise in multivalency can be applied to create superior product candidates that are more potent, longer acting and/or more selective than currently available medicines; and
· there are established animal models that can be used to provide us with evidence as to whether our product candidates are likely to provide superior therapeutic benefits relative to current medicines; and
· there is a relatively large commercial opportunity.
Identify two structurally different product candidates in each therapeutic program whenever practicable. We believe that we can increase the likelihood of successfully bringing superior medicines to market by identifying, whenever practicable, two product candidates for development in each program. Our second product candidates are typically in a different structural class from the first product candidate. Applying this strategy can reduce our dependence on any one-product candidate and provide us with the potential opportunity to commercialize two compounds in a given area.
Partner with global pharmaceutical companies. Our strategy is to seek collaborations with leading global pharmaceutical companies to accelerate development and commercialization of our product candidates at the strategically appropriate time. Our Beyond Advair collaboration with GSK and our strategic alliance with GSK are examples of these types of partnerships.
Leverage the extensive experience of our people. We have an experienced senior management team with many years of experience discovering, developing and commercializing new medicines with companies such as Bristol-Myers Squibb Company, Merck & Co., Genentech, Inc., Millennium Pharmaceuticals, Inc., Pfizer Inc, GSK and Gilead Sciences, Inc.
Improve, expand and protect our technical capabilities. We have created a substantial body of know-how and trade secrets in the application of our multivalency approach to drug discovery. We believe this is a significant asset that distinguishes us from our competitors. We expect to continue to make substantial investments in multivalency and other technologies to maintain what we believe are our competitive advantages in drug discovery.
We currently rely on a number of third-party manufacturers and our collaborative partner, GSK, to produce our compounds for clinical purposes and expect do so for commercial production of any product candidates that are approved for marketing. Manufacturing of our Beyond Advair, LAMA and MABA program candidates will be handled by GSK. Additionally, GSK will be responsible for the manufacturing of any additional product candidates associated with the programs that it licenses under the strategic alliance agreement.
We believe that we have in-house expertise to manage a network of third-party manufacturers. We believe that we will be able to continue to negotiate third party manufacturing arrangements on commercially reasonable terms and that it will not be necessary for us to develop internal manufacturing
16
capacity in order to successfully commercialize our products. However, if we are unable to obtain contract manufacturing, or obtain such manufacturing on commercially reasonable terms, we may not be able to commercialize our products as planned.
The development and commercialization of our product candidates and our ongoing research will be subject to extensive regulation by governmental authorities in the United States and other countries. Before marketing in the United States, any medicine we develop must undergo rigorous preclinical studies and clinical studies and an extensive regulatory approval process implemented by the FDA under the Federal Food, Drug and Cosmetic Act. Outside the United States, our ability to market a product depends upon receiving a marketing authorization from the appropriate regulatory authorities. The requirements governing the conduct of clinical studies, marketing authorization, pricing and reimbursement vary widely from country to country. In any country, however, we will only be permitted to commercialize our medicines if the appropriate regulatory authority is satisfied that we have presented adequate evidence of the safety, quality and efficacy of our medicines.
Before commencing clinical studies in humans in the United States, we must submit to the FDA an Investigational New Drug application that includes, among other things, the results of preclinical studies. If the FDA approves the Investigational New Drug application, clinical studies are usually carried out in three phases and must be conducted under FDA oversight. These phases generally include the following:
Phase 1. The product candidate is introduced into humans and is tested for safety, dose tolerance and pharmacokinetics.
Phase 2. The product candidate is introduced into a limited patient population to assess the efficacy of the drug in specific, targeted indications, assess dosage tolerance and optimal dosage, and identify possible adverse effects and safety risks.
Phase 3. If a compound is found to be potentially effective and to have an acceptable safety profile in Phase 2 evaluations, the clinical study will be expanded to further demonstrate clinical efficacy, optimal dosage and safety within an expanded patient population.
The results of product development, preclinical studies and clinical studies must be submitted to the FDA as part of a new drug application, or NDA. The NDA also must contain extensive manufacturing information. Once the submission has been accepted for filing, the FDA typically takes one year to review the application and respond to the applicant. The review process is often significantly extended by FDA requests for additional information or clarification. Once approved, the FDA may withdraw the product approval if compliance with pre- and post-marketing regulatory standards is not maintained or if problems occur after the product reaches the marketplace. In addition, the FDA may require post-marketing studies, referred to as Phase 4 studies, to monitor the effect of approved products, and may limit further marketing of the product based on the results of these post-marketing studies. The FDA has broad post-market regulatory and enforcement powers, including the ability to suspend or delay issuance of approvals, seize or recall products, withdraw approvals, enjoin violations, and institute criminal prosecution.
If we obtain regulatory approval for a medicine, this clearance will be limited to those diseases and conditions for which the medicine is effective, as demonstrated through clinical studies. Even if this regulatory approval is obtained, a marketed medicine, its manufacturer and its manufacturing facilities are subject to continual review and periodic inspections by the FDA. Discovery of previously unknown problems with a medicine, manufacturer or facility may result in restrictions on the medicine or manufacturer, including costly recalls or withdrawal of the medicine from the market.
We are also subject to various laws and regulations regarding laboratory practices, the experimental use of animals and the use and disposal of hazardous or potentially hazardous substances in connection
17
with our research. In each of these areas, as above, the FDA and other regulatory authorities have broad regulatory and enforcement powers, including the ability to suspend or delay issuance of approvals, seize or recall products, withdraw approvals, enjoin violations, and institute criminal prosecution, any one or more of which could have a material adverse effect upon our business, financial condition and results of operations.
Outside the United States our ability to market our products will also depend on receiving marketing authorizations from the appropriate regulatory authorities. The regulatory approval process in other countries includes all of the risks associated with FDA approval described above.
Patents and Proprietary Rights
We will be able to protect our technology from unauthorized use by third parties only to the extent that our technology is covered by valid and enforceable patents or is effectively maintained as trade secrets. Our success in the future will depend in part on obtaining patent protection for our product candidates. Accordingly, patents and other proprietary rights are essential elements of our business. Our policy is to seek in the United States and selected foreign countries patent protection for novel technologies and compositions of matter that are commercially important to the development of our business. For proprietary know-how that is not patentable, processes for which patents are difficult to enforce and any other elements of our drug discovery process that involve proprietary know-how and technology that is not covered by patent applications, we rely on trade secret protection and confidentiality agreements to protect our interests. We require all of our employees, consultants and advisors to enter into confidentiality agreements. Where it is necessary to share our proprietary information or data with outside parties, our policy is to make available only that information and data required to accomplish the desired purpose and only pursuant to a duty of confidentiality on the part of those parties.
As of December 31, 2004, we had 44 issued United States patents and have received notices of allowance for 9 other United States patent applications. As of that date, we had 81 pending patent applications in the United States and 85 granted foreign patents. We also have 23 Patent Cooperation Treaty applications that permit us to pursue patents outside of the United States and 355 foreign national patent applications. The claims in these various patents and patent applications are directed to compositions of matter, including claims covering product candidates, lead compounds and key intermediates, pharmaceutical compositions, methods of use, and processes for making our compounds along with methods of design, synthesis, selection and use relevant to multivalency in general and to our research and development programs in particular.
United States issued patents and foreign patents generally expire 20 years after filing. The patent rights relating to telavancin owned by us currently consist of 2 issued United States patents that expire between 2019 and 2021, 3 allowed United States patent applications and 9 pending United States patent applications, and counterpart patents and patent applications in a number of jurisdictions, including Europe. The patent rights relating to GSK 159797 owned by us and licensed to GSK consist of 3 issued United States patents that expire in 2019, 1 allowed United States patent application and 3 pending United States patent applications, and counterpart patents and patent applications in a number of jurisdictions, including Europe. Nevertheless, issued patents can be challenged, narrowed, invalidated or circumvented, which could limit our ability to stop competitors from marketing similar products and threaten our ability to commercialize our product candidates. Our patent position, similar to other companies in our industry, is generally uncertain and involves complex legal and factual questions. To maintain our proprietary position we will need to obtain effective claims and enforce these claims once granted. It is possible that, before any of our products can be commercialized, any related patent may expire or remain in force only for a short period following commercialization, thereby reducing any advantage of the patent. Also, we do not know whether any of our patent applications will result in any issued patents or, if issued, whether the scope of the issued claims will be sufficient to protect our proprietary position.
18
We have entered into a License Agreement with Janssen Pharmaceutical pursuant to which we have licensed rights under certain patents owned by Janssen covering an excipient used in the formulation of telavancin. We believe that the general and financial terms of the agreement with Janssen are ordinary course terms. Pursuant to the terms of this license agreement, we are obligated to pay royalties and milestone payments to Janssen based on any commercial sales of telavancin. The license is terminable by us upon prior written notice to Janssen or upon an uncured breach or a liquidation event of one of the parties. We do not anticipate the royalty, milestone or other payments that may be made to Janssen under the terms of the License Agreement to be material to our financial results.
Our objective is to discover, develop and commercialize new medicines with superior efficacy, convenience, tolerability and/or safety. To the extent that we are able to develop medicines, they are likely to compete with existing drugs that have long histories of effective and safe use and with new therapeutic agents. We expect that any medicines that we commercialize with our collaborative partners or on our own will compete with existing, market-leading medicines.
Many of our potential competitors have substantially greater financial, technical and personnel resources than we have. In addition, many of these competitors have significantly greater commercial infrastructures than we have. Our ability to compete successfully will depend largely on our ability to leverage our experience in drug discovery and development to:
· discover and develop medicines that are superior to other products in the market;
· attract qualified scientific, product development and commercial personnel;
· obtain patent and/or other proprietary protection for our medicines and technologies;
· obtain required regulatory approvals; and
· successfully collaborate with pharmaceutical companies in the discovery, development and commercialization of new medicines.
Telavancin. We anticipate that, if approved, telavancin will compete with vancomycin, a generic drug that is manufactured by a variety of companies and was used for over 80% of treatment days associated with resistant Gram-positive infections, as well as other drugs targeted at Gram-positive bacterial infections. These include daptomycin (marketed by Cubist Pharmaceuticals), linezolid (marketed by Pfizer Inc) and quinupristin/dalfopristin (marketed by Sanofi-Aventis and King Pharmaceutical). In addition, dalbavancin (being developed by Vicuron Pharmaceuticals) and ceftobiprole (being developed by Basilea Pharmaceutica and Johnson & Johnson) are in late-stage clinical studies and represent potential competition for telavancin.
GSK Beyond Advair Collaboration. We anticipate that, if approved, any product from our Beyond Advair collaboration with GSK will compete with a number of approved bronchodilator drugs and drug candidates under development that are designed to treat asthma and COPD. These include salmeterol and fluticasone (marketed by GSK), formoterol (marketed by Novartis and AstraZeneca), and tiotropium (marketed by Boehringer Ingelheim and Pfizer Inc). In addition, QAB 149 (being developed by Novartis) is in late stage clinical studies and represents potential competition for any product from our Beyond Advair collaboration.
Overactive Bladder. We anticipate that, if approved, TD-6301 would compete with tolterodine (marketed by Pfizer Inc), oxybutinin (marketed by Ortho-McNeil Pharmaceutical, Inc. and Watson Pharmaceuticals), trospium (marketed by Indevus Pharmaceuticals, Inc.), darifenacin (marketed by Novartis) and solifenacin (marketed by GSK and Yamanouchi Pharmaceutical Co., Ltd.).
19
In addition, as the principles of multivalent medicine design become more widely known and appreciated based on patent and scientific publications and regulatory filings, we expect the field to become highly competitive. Pharmaceutical companies, biotechnology companies and academic and research institutions may seek to develop product candidates based upon the principles underlying our multivalent technologies.
As of December 31, 2004, we had 246 full-time employees, over 191 of which were primarily engaged in research and development activities. None of our employees are represented by a labor union. We consider our employee relations to be good.
Our Internet address is www.theravance.com. Our investor relations website is located at http://ir.theravance.com. We make available free of charge on our investors relations website under “SEC Filings” our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to those reports as soon as reasonably practicable after we electronically file or furnish such materials to the U.S. Securities and Exchange Commission (SEC). The information found on our website is not part of this or any other report that we file with or furnish to the SEC.
ITEM 2. PROPERTIES
Our headquarters are located in South San Francisco, California, and consist of two leased buildings of approximately 110,000 and 60,000 square feet, respectively. The leases expire in March 2012 and may be extended for two additional five-year periods. The current annual rental expense under these leases is approximately $5.6 million, subject to annual increases. We currently sublease 20,000 square feet of this space to a single tenant. This sublease expires in June 2005. We may require additional space as our business expands.
ITEM 3. LEGAL PROCEEDINGS
Currently, we are not a party to any material legal proceedings. In the future, we may become involved in litigation from time to time in the ordinary course of our business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of stockholders during the fourth quarter of the fiscal year covered by this report.
20
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
(a) Our Common Stock has been traded on The NASDAQ National Market under the symbol “THRX” since October 5, 2004. The following table sets forth the high and low sales prices of the Company’s Common Stock for the periods indicated and are as reported on The NASDAQ National Market:
|
Calendar Quarter |
|
|
|
High |
|
Low |
|
||
|
2004 |
|
|
|
|
|
||||
|
Fourth Quarter (from October 5, 2004) |
|
$ |
19.06 |
|
$ |
15.01 |
|
||
As of February 28, 2005, there were approximately 657 stockholders of record of our Common Stock. There is no established public trading market for our Class A common stock, all of which is owned by GSK.
Dividend Policy
We currently intend to retain any future earnings to finance our research and development efforts, the development of our proprietary technologies and the expansion of our business and do not intend to declare or pay cash dividends on our capital stock in the foreseeable future.
Unregistered Sales of Equity Securities
For the year ended December 31, 2004, we granted options to purchase an aggregate of 3,758,807 shares of our common stock to our employees, directors and consultants under our 1997 Stock Plan and 2004 Equity Incentive Plan. For the year ended December 31, 2004, we issued an aggregate of 338,581 shares of common stock pursuant to the exercise of stock options for cash consideration with an aggregate exercise price of $1,712,726. These transactions were undertaken in reliance upon the exemption from the registration requirements of the Securities Act afforded by Rule 701 promulgated under the Securities Act and Section 4(2) of the Securities Act.
(b) Use of Proceeds from Registered Securities.
We effected the initial public offering of our common stock pursuant to Registration Statements on Form S-1 (File No. 333-116384 and File No. 333-119527) that were declared effective by the Securities and Exchange Commission on October 4, 2004 and October 5, 2004, respectively.
We paid to the underwriters underwriting discounts and commissions totaling approximately $7.9 million in connection with the offering. In addition, we incurred additional expenses of $3.2 million in connection with the offering, which when added to the underwriting discounts and commissions paid by us, amounts to total expenses of $11.1 million. Thus, the net offering proceeds to us, after deducting underwriting discounts and commissions and offering expenses, were $102.1 million. No offering expenses were paid directly or indirectly to any of our directors or officers (or their associates) or persons owning ten percent or more of any class of our equity securities or to any of our other affiliates.
We expect to use the net proceeds of our initial public offering to partially fund our Phase 3 clinical studies of telavancin. We initiated four of these studies in September and October 2004 and January and February 2005. This expected use of the net proceeds of our initial public offering represents our current intentions based upon our present plans and business condition. The amounts and timing of our actual expenditures will depend upon numerous factors, including the ongoing status and results of the Phase 3 telavancin clinical studies and our ability to enter into a partnership with a pharmaceutical company
21
regarding telavancin, which could result in some or all of the clinical study costs for the telavancin program being paid by such partner. From October 4, 2004, the effective date of the registration statement for our initial public offering, to December 31, 2004, we estimate approximately $6.0 million, consisting entirely of third party expenses, of the net offering proceeds were used to fund our Phase 3 clinical studies of telavancin. Such use of proceeds payments were not paid directly or indirectly to any of our directors or officers (or their associates) or persons owning ten percent or more of any class of our equity securities or to any of our affiliates.
Equity Compensation Plans
The information required by this item concerning the Company’s equity compensation plans is discussed in Item 12 of Part III of this Annual Report on Form 10-K.
(c) Issuer Purchases of Equity Securities
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
|
Period |
|
|
|
(a) Total number of |
|
(b) Average Price Paid |
|
(c) Total Number of |
|
(d) Maximum Number |
|
|||||||||
|
10/05/2004 to 12/31/2004 |
|
|
21 shares* |
|
|
|
$ |
1.32 |
|
|
|
0 |
|
|
|
0 |
|
|
||
* Shares repurchased pursuant to the terms of a stock option agreement.
22
ITEM 6. SELECTED FINANCIAL DATA
The following tables reflect selected consolidated summary financial data for each of the last five fiscal years and are derived from our audited financials statements. This data should be read in conjunction with Item 8, “Financial Statements and Supplementary Data,” and with Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Annual Report on Form 10-K. The per share data shown below have been restated to reflect the Company’s one for 1.55 reverse stock split, effected September 27, 2004.
|
|
|
Year Ended December 31, |
|
|||||||||||||
|
|
|
2004 |
|
2003 |
|
2002 |
|
2001 |
|
2000 |
|
|||||
|
|
|
(in thousands, except per share data) |
|
|||||||||||||
|
CONSOLIDATED STATEMENT OF OPERATIONS DATA: |
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Revenue from related party |
|
$ |
8,940 |
|
$ |
3,605 |
|
$ |
156 |
|
$ |
— |
|
$ |
— |
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Research and development(1) |
|
86,996 |
|
61,704 |
|
66,481 |
|
53,773 |
|
49,802 |
|
|||||
|
General and administrative |
|
19,818 |
|
12,153 |
|
11,817 |
|
10,506 |
|
10,937 |
|
|||||
|
Stock-based compensation(2) |
|
8,521 |
|
2,214 |
|
4,941 |
|
10,134 |
|
43,188 |
|
|||||
|
Total operating expenses |
|
115,335 |
|
76,071 |
|
83,239 |
|
74,413 |
|
103,927 |
|
|||||
|
Loss from operations |
|
(106,395 |
) |
(72,466 |
) |
(83,083 |
) |
(74,413 |
) |
(103,927 |
) |
|||||
|
Interest and other income |
|
4,564 |
|
3,373 |
|
4,990 |
|
11,530 |
|
10,193 |
|
|||||
|
Interest expense |
|
(823 |
) |
(1,490 |
) |
(1,134 |
) |
(1,962 |
) |
(1,201 |
) |
|||||
|
Net loss |
|
$ |
(102,654 |
) |
$ |
(70,583 |
) |
$ |
(79,227 |
) |
$ |
(64,845 |
) |
$ |
(94,935 |
) |
|
Basic and diluted net loss per common share(3) |
|
$ |
(3.08 |
) |
$ |
(10.37 |
) |
$ |
(12.50 |
) |
$ |
(11.73 |
) |
$ |
(24.94 |
) |
|
Shares used in computing net loss per common share(3),(4),(5),(6) |
|
33,283 |
|
6,809 |
|
6,336 |
|
5,526 |
|
3,806 |
|
|||||
|
CONSOLIDATED BALANCE SHEET DATA: |
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Cash, cash equivalents and marketable securities |
|
$ |
257,141 |
|
$ |
89,152 |
|
$ |
148,550 |
|
$ |
152,976 |
|
$ |
203,995 |
|
|
Working capital |
|
229,431 |
|
71,085 |
|
112,720 |
|
142,649 |
|
194,885 |
|
|||||
|
Total assets |
|
286,022 |
|
125,449 |
|
192,715 |
|
188,749 |
|
246,854 |
|
|||||
|
Long-term liabilities |
|
60,618 |
|
37,494 |
|
18,187 |
|
7,916 |
|
11,713 |
|
|||||
|
Convertible preferred stock |
|
— |
|
367,358 |
|
367,358 |
|
327,107 |
|
327,107 |
|
|||||
|
Accumulated deficit |
|
(468,604 |
) |
(365,950 |
) |
(295,367 |
) |
(216,140 |
) |
(151,295 |
) |
|||||
|
Total stockholders’ equity (deficit) |
|
190,367 |
|
(299,566 |
) |
(231,934 |
) |
(157,752 |
) |
(102,918 |
) |
|||||
(1) Research and development expenses in 2001 and 2000 include a charge of $650,000 and $5.1 million, respectively, for acquired in-process research and development, impairment of intangible assets and other charges related to an acquisition in 1999.
(2) Stock-based compensation, consisting of amortization of deferred stock-based compensation and the value of options issued to non-employees for services rendered, is allocated as follows:
|
Research and development |
|
$ |
4,631 |
|
$ |
1,300 |
|
$ |
3,398 |
|
$ |
6,574 |
|
$ |
24,403 |
|
|
General and administrative |
|
3,890 |
|
914 |
|
1,543 |
|
3,560 |
|
18,785 |
|
|||||
|
Total non-cash stock-based compensation |
|
$ |
8,521 |
|
$ |
2,214 |
|
$ |
4,941 |
|
$ |
10,134 |
|
$ |
43,188 |
|
23
(3) Share and per share amounts for all periods reflect the effect of a one for 1.55 reverse stock split effected September 27, 2004.
(4) In May 2004, all shares of convertible preferred stock were converted into common stock.
(5) In May 2004, GSK, through an affiliate, purchased 6.4 million shares of Class A common stock for $108.9 million.
(6) On October 5, 2004, the Company completed its initial public offering with the sale of 7,072,500 shares of common stock. Net proceeds, after underwriters’ commissions and offering expenses, totaled $102.1 million. Contemporaneously with the closing of its initial public offering, the Company sold 433,757 shares of its Class A common stock to an affiliate of GSK in a private transaction for total proceeds of $6.9 million.
24
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management’s Discussion and Analysis (MD&A) is intended to facilitate an understanding of our business and results of operations. You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and related notes included in Item 8, “Financial Statements and Supplementary Data” in this Annual Report on Form 10-K. The information contained in this discussion and analysis or set forth elsewhere in this Annual Report on Form 10-K, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such statements are based upon current expectations that involve risks and uncertainties. You should review the section entitled “Factors Affecting Results, Including Risks and Uncertainties” immediately following this MD&A for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.
Theravance is a biopharmaceutical company with a pipeline of internally discovered product candidates. Of our six programs in development, two are in late stage—telavancin and the Beyond Advair collaboration with GSK. Theravance is focused on the discovery, development and commercialization of small molecule medicines across a number of therapeutic areas including respiratory disease, bacterial infections, overactive bladder and gastrointestinal disorders. By leveraging our proprietary insight of multivalency to drug discovery focused on validated targets, we are pursuing a next generation drug discovery strategy designed to discover superior medicines in large markets.
We commenced operations in 1997, and as of December 31, 2004, we had an accumulated deficit of $468.6 million. None of our products have been approved for marketing and sale to patients and we have not received any product revenue to date. Most of our spending to date has been for research and development activities and general and administrative expenses. We expect to incur substantial losses for at least the next several years as we continue to invest in research and development. We anticipate that research and development expenses will increase significantly, in particular, due to two telavancin Phase 3 clinical studies we initiated for complicated skin and soft tissue infections in September and October 2004 and two Phase 3 telavancin clinical studies we initiated for hospital acquired pneumonia in January and February 2005. These four Phase 3 clinical studies will increase our research and development expenses significantly through at least 2006. Also we may experience higher spending on other programs to the extent that we enter later-stage clinical studies for our product candidates currently in Phase 1 or 2, and as we advance the development of our other product candidates. Depending on the timing and structure of corporate collaborations, increases in spending may be partially offset by reimbursements or assumption of development costs by corporate partners.
The clinical development of our product candidates takes many years and requires substantial expenditures. Due to the numerous uncertainties related to drug development, we are unable to estimate the length of time or costs that will be required to complete the development of our product candidates and receive regulatory approval. Furthermore, even if we obtain regulatory approval, we cannot guarantee that a partner or we will be able to successfully commercialize our medicines. We currently have no internal manufacturing capacity or sales capabilities and have limited marketing capabilities. As a result, our ability to achieve revenue and profitability is principally dependent on our ability to collaborate with partners in order to successfully complete the development of our product candidates, conduct clinical studies, obtain necessary regulatory approvals and manufacture and commercialize our product candidates.
25
In October 2004, we completed our initial public offering with the sale of 7,072,500 shares of common stock. Net proceeds, after underwriters’ discounts and commissions and estimated offering expenses, totaled $102.1 million. Contemporaneously with the closing of our initial public offering, we sold 433,757 shares of our Class A common stock to an affiliate of GSK in a private transaction for total proceeds of $6.9 million.
We currently expect to continue to use the total net proceeds of our initial public offering to partially fund four telavancin Phase 3 clinical studies. We initiated these four programs in September and October 2004 and January and February 2005, respectively.
Our Development Programs
Our two major telavancin Phase 3 clinical studies in complicated skin and soft tissue infections and hospital-acquired pneumonia will significantly increase our research and development expenses through at least 2006. However, the amount and timing of the actual expenses will depend upon a number of factors including, in particular, clinical trial enrollment rates and the timing and structure of any collaboration in which the partner may incur a portion of the expenses.
In our respiratory disease program, GSK is responsible for all development and commercialization costs associated with our Beyond Advair collaboration as well as our LAMA and MABA programs under the terms of our Beyond Advair collaboration and 2004 strategic alliance, respectively. We participate in the joint steering and project committees associated with these programs and are not reimbursed for our participation.
We will be responsible for all development costs associated with our product candidates in our other development programs unless GSK exercises its right to license a development program pursuant to our strategic alliance or we enter into a collaboration agreement with a third party that provides otherwise. Development timelines and costs are difficult to estimate and may vary significantly for each product candidate from quarter to quarter. Preclinical studies and clinical studies are expensive and take many years to complete. Furthermore, the process of seeking regulatory approvals and the subsequent compliance with applicable regulations require substantial expenditures.
In addition to our development programs, we also currently have an active discovery effort underway to discover and move new product candidates from existing programs to development. We are currently responsible for all of these discovery costs.
Research and Development Expenses
Research and development expenses consist of costs of our drug discovery efforts, conducting preclinical studies and clinical studies, activities related to regulatory filings, patent prosecution related to our development programs and manufacturing development efforts. Research and development expenses include: external research and development expenses incurred under agreements with third-party contract research organizations, third-party contract manufacturing organizations and consultants; employee-related expenses such as, salaries and benefits; and facilities, depreciation and other allocated expenses, which include direct and allocated expenses for rent and maintenance of facilities, depreciation of leasehold improvements and equipment, and laboratory and other supplies. We outsource to third parties a substantial portion of our preclinical studies and all of our clinical studies and manufacturing of raw materials, active pharmaceutical ingredient and finished product.
26
General and Administrative Expenses
General and administrative expenses generally include salaries and benefits, professional fees and facility costs. We anticipate that general and administrative expenses will increase to support our growing development, manufacturing and commercialization efforts. We also expect to incur additional costs associated with operating as a public company.
This discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported revenue and expenses during the reporting periods. We periodically evaluate our material estimates and judgments based upon the terms of underlying agreements, the expected course of development, historical experience and other factors that we believe are reasonable under the circumstances. The results of this evaluation form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
While our significant accounting policies are more fully described in Note 2 to our consolidated financial statements contained in Item 8, “Financial Statements and Supplementary Data” in this Annual Report on Form 10-K, we believe that the following accounting policies relating to revenue recognition, preclinical study and clinical study expenses and stock-based compensation charges are most critical in fully understanding and evaluating our reported financial results.
Revenue Recognition
In connection with our agreements with GSK, we recognize revenue from non-refundable, upfront fees and development milestone payments ratably over the term of our performance under the agreements. These payments are recorded as deferred revenue pending recognition. When the period of deferral cannot be specifically identified from the agreement, management estimates the period based upon critical factors contained within the agreement and other relevant facts. We periodically review the estimated performance period, which could impact the deferral period and, therefore, the timing and the amount of revenue recognized. Significant milestones in the development process typically include initiation of various phases of clinical studies and approvals by regulatory agencies. To date, we have not recorded a material adjustment of our revenue recognition estimates.
We have been reimbursed by GSK for certain external development costs under the Beyond Advair collaboration agreement and the GSK strategic alliance. Such reimbursements have been reflected as a reduction of research and development expense and not as revenue.
Preclinical Study and Clinical Study Expenses
A substantial portion of our preclinical studies and all of our clinical studies have been performed by third-party contract research organizations (CROs). Some CROs bill monthly for services performed, while others bill based upon milestones achieved. We review the activities performed under the significant contracts each quarter. For preclinical studies, the significant factors used in estimating accruals include the percentage of work completed to date and contract milestones achieved. For clinical study expenses, the significant factors used in estimating accruals include the number of patients enrolled and percentage of work completed to date. Vendor confirmations are obtained for contracts with longer duration when necessary to validate our estimate of expenses. Our estimates are highly dependent upon the timeliness
27
and accuracy of the data provided by our CROs regarding the status of each program and total program spending. No material adjustments to preclinical study and clinical study expenses have been recognized.
Stock-based Compensation
Deferred stock-based compensation. Deferred stock-based compensation for stock options granted to employees is recorded when the fair value of our common stock exceeds the exercise price of the stock options on the date of measurement, which is typically the date of grant. Deferred stock-based compensation is amortized using the accelerated method over the vesting periods of the related options, generally four years. The accelerated vesting method provides for vesting of portions of the overall award at interim dates and results in higher expenses in earlier years than straight-line vesting.
The amount of stock-based compensation expense expected to be amortized in future periods may decrease if unvested options for which deferred stock-based compensation has been recorded are subsequently cancelled or may increase if future option grants are made with exercise prices below the deemed fair value of the common stock on the date of measurement.
The Company recorded deferred stock-based compensation of $17.4 million and $1.5 million in 2004 and 2003, respectively, due to options granted below the deemed fair market value on the option grant dates prior to our public offering in October 2004. In addition, a portion of the Company’s deferred stock-based compensation was established in 1999 and 2000 due to the Company granting options at exercise prices less than the deemed fair market value on the date of grant.
Other stock-based compensation. Other stock-based compensation generally consists of the fair value of options granted to non-employees, such as consultants and advisors, calculated using the Black-Scholes method. These options are subject to periodic remeasurement over the vesting period as services are rendered based on changes in the fair value of our common stock. As a result, other stock-based compensation charges in future periods may vary significantly.
Agreements with GlaxoSmithKline
2002 Beyond Advair Collaboration
In November 2002, we entered into a collaboration agreement with GSK to develop and commercialize product candidates for the treatment of asthma and COPD. Each company contributed four LABA product candidates to the collaboration. We received an initial cash payment from GSK of $10.0 million in December 2002. In addition, we also sold $40.0 million of our Series E preferred stock to GSK. In connection with this collaboration, in 2003 we received cash payments totaling $30.0 million as development milestones were achieved, and another $15.0 million was received in the first half of 2004.
We recorded the initial cash payment and subsequent milestone payments as deferred revenue, to be amortized ratably over our estimated period of performance (the product development period), which we currently estimate to be eight years from the collaboration’s inception. Collaboration revenue was $7.0 million, $3.6 million and $156,000 in 2004, 2003 and 2002, respectively. Subsequent development milestones will be recorded as deferred revenue when received and amortized over the remaining period of performance during the development period. Additionally, we recorded $385,000, $3.1 million and $1.3 million in 2004, 2003 and 2002, respectively, for certain costs related to the collaboration that were reimbursable by GSK as an offset to research and development expense.
GSK has agreed to make additional payments to us based on achievement of development, regulatory or commercial milestones over the development period. In addition, payments may be received based on product sales milestones subsequent to the estimated eight-year development period. In the event that a LABA product candidate discovered by us is successfully developed and commercially launched in multiple regions of the world, these payments could total up to $450.0 million, of which $150.0 million
28
would be attributable to the product candidates reaching certain sales thresholds. In the event that a LABA product candidate discovered by GSK is successfully developed and commercially launched in multiple locations of the world, we are obligated to make milestone payments of up to $220.0 million. Based on available information, we do not estimate that any significant portion of these potential milestone payments to GSK are likely to be made in the next four years. GSK will pay us the same royalty payments from product sales containing any LABA commercialized from this collaboration regardless of the origin of the compound. The royalty structure would result in an average percentage royalty rate in the low to mid-teens at annual net sales up to approximately $4.0 billion, and the average royalty rate would decline to single digits at annual net sales of more than $6.0 billion. Sales of single agent LABA medicines and combination LABA/ICS medicines would be combined for the purposes of this royalty calculation.
2004 Strategic Alliance
In March 2004, we entered into a strategic alliance with GSK for the development and commercialization of product candidates in a variety of therapeutic areas. In connection with the alliance agreement, we received a $20.0 million payment in May 2004. This payment is being amortized over the initial period during which GSK may exercise it right to license certain of our programs under the agreement, which is currently estimated to be approximately seven and one-half years. In connection with the strategic alliance, we recognized $1.7 million in revenue in 2004. In addition, in May 2004, GSK, through an affiliate, purchased approximately 6.4 million shares of our Class A common stock. GSK’s current percentage ownership in our outstanding stock is 17.7%. GSK also has an option to increase its ownership to up to approximately 60% in 2007 and to maintain its current ownership percentage until then.
The alliance provides GSK with an option to license, on an exclusive, worldwide basis, product candidates from all of our existing discovery and development programs, or discovery and development programs initiated prior to September 1, 2007. Upon licensing a program, GSK is responsible for all development, manufacturing and commercialization activities for such programs. Consistent with our strategy, we will be obligated at our sole cost to discover two structurally different product candidates for certain programs that GSK licenses. We may receive clinical, regulatory and commercial milestone payments based on performance and royalties on any future sales. The royalty structure for a product containing one of our compounds as a single active ingredient would result in an average percentage royalty rate in the low double digits. If a product is successfully commercialized, in addition to any royalty revenue we receive, the total upfront and milestone payments that we could receive could range from up to $130.0 million to $162.0 million for programs with single-agent medicines and up to $252.0 million for programs with both a single-agent and a combination medicine. GSK is not obligated to license any of our development programs. If GSK does not exercise its right to license with respect to a development program, we will need to collaborate with another third party or we will incur significant development costs and potential delays in the development of the program until funding is available.
In August 2004, GSK exercised its right to license our LAMA program for the treatment of COPD pursuant to the terms of the strategic alliance. We received a $5.0 million payment from GSK in connection with its licensing of our LAMA program. This payment is being amortized ratably over the estimated period of performance (the product development period), which is currently estimated to be approximately seven and one-half years. The Company recognized $238,000 in revenue in 2004. Additionally, we recorded $2.1 million in 2004 as an offset to research and development expense for certain costs related to the LAMA program that were reimbursable by GSK. Also in August 2004, GSK informed us of its decision not to license our bacterial infections program.
Recently GSK informed us of its decision to exercise its right to license our MABA program for the treatment of COPD and possibly asthma pursuant to the terms of the strategic alliance, and its decision not
29
to license our anesthesia program. We have received a $5.0 million payment from GSK in connection with license of our MABA program in March 2005.
GSK may increase its ownership in our outstanding stock to up to approximately 60% through the issuance by us to GSK of the number of shares of our common stock that we may be required to redeem from our stockholders as described below. In July 2007, GSK has the right to require us to redeem (“call”), and upon notice of such redemption, each stockholder (including GSK, to the extent GSK holds common stock) will automatically be deemed to have submitted for redemption, 50% of our common stock held by such stockholder at $54.25 per share. If GSK does not exercise this right, each of our stockholders (including GSK, to the extent GSK holds common stock) has the right to require us to redeem (“put”) up to 50% of their common stock at $19.375 per share in August 2007. In either case, GSK is contractually obligated to pay to us the funds necessary for us to redeem the shares of common stock from our stockholders; however, GSK’s maximum obligation for the shares subject to the put is capped at $525.0 million. We are under no obligation to redeem our shares under the call or the put until we receive from GSK funds to redeem the shares. Alternatively, if our stockholders exercise the put, GSK may elect to purchase the shares of common stock that are put directly from our stockholders. In connection with those arrangements, we have agreed not to issue new shares, which would cause the potential put liability to exceed $525.0 million. If GSK’s ownership increases to more than 50% in 2007 as a result of the call or put, it will receive an extension of its option to license our programs initiated prior to September 1, 2012; otherwise, this exclusive option does not apply to programs initiated after September 1, 2007.
Revenue. We recognized revenue of $8.9 million, $3.6 million and $156,000 in 2004, 2003 and 2002, respectively, from the amortization of upfront and milestone payments from GSK related to our Beyond Advair collaboration and strategic alliance agreements. Through December 31, 2004, we have received a $10.0 million payment for entering into the Beyond Advair collaboration and $45.0 million of milestone payments under this collaboration that are being amortized into revenue ratably through 2010. In May 2004, we received a $20.0 million payment from GSK representing partial consideration for the right to license our programs under the strategic alliance agreement. This payment is being amortized over the estimated term during which GSK can license our programs, which is currently estimated to extend through September 2011. In August 2004, we received a $5.0 million payment from GSK in connection with licensing our LAMA program, which is being amortized ratably through 2011. Revenue in 2005 will be comprised of the ongoing amortization of deferred revenue that relates to the $80 million of upfront and milestone payments received, as of the year ended December 31, 2004, under our agreements with GSK and any additional upfront or milestone payments earned under current or new agreements with GSK or other partners.
Research & Development
Research and development expenses (in millions):
|
|
|
Year Ended December 31, |
|
|||||||
|
|
|
2004 |
|
2003 |
|
2002 |
|
|||
|
External research and development |
|
$ |
34.9 |
|
$ |
15.8 |
|
$ |
20.2 |
|
|
Employee-related |
|
32.6 |
|
26.2 |
|
25.6 |
|
|||
|
Facilities, depreciation and other allocated |
|
19.5 |
|
19.7 |
|
20.7 |
|
|||
|
Total research and development expenses |
|
$ |
87.0 |
|
$ |
61.7 |
|
$ |
66.5 |
|
Research and development expenses increased 41% in 2004, compared to 2003. This increase was primarily the result of higher external research and development expenses and increased employee costs. The higher external development costs were primarily driven by increased spending on telavancin and
30
TD-6301, our OAB candidate, of $15.1 million, primarily related to further progress in clinical studies and external research and development expenses for the other development and discovery programs, which increased by $4.0 million compared to 2003. Employee-related expenses were higher in 2004 due to the forgiveness of an executive loan in June 2004 of $1.0 million and related employee income and employment taxes of $746,000, and higher salary and benefits costs compared to 2003. Facilities, depreciation and other allocated expenses were relatively unchanged in 2004 compared to 2003.
Research and development expenses decreased 7% in 2003 compared to 2002. This decrease was primarily the result of lower external research and development expenses incurred with third parties in 2003. This decrease was due to a decline in development costs of $2.7 million related to our telavancin program, which had large preclinical safety studies conducted and higher orders for clinical supplies costs in 2002 compared to 2003. In addition, Beyond Advair development costs declined by $2.6 million in 2003, due to lower costs in 2003 as GSK assumed full responsibility for development costs under the Beyond Advair collaboration agreement that we entered into in November 2002. These declines were partially offset by increases in external research and development expenses of $743,000 related to other development and discovery programs. Employee-related expenses increased in 2003 principally due to costs associated with hiring new employees. Facilities, depreciation and other allocated expenses declined in 2003 compared to 2002 due to our subleasing a portion of our facilities.
We anticipate that research and development expenses will continue to increase substantially in 2005 and subsequent years as we increase our research and development efforts and as our existing and future product candidates proceed through preclinical studies and more costly clinical studies. We expect our external research and development expenses to increase significantly through at least 2006, primarily driven by the four Phase 3 clinical studies for telavancin initiated in September and October 2004 and January and February 2005. Other external research and development expenses will be driven by our ongoing development efforts in overactive bladder and gastrointestinal prokinetic studies and any additional drug discovery programs that we may move into development. However, actual expenses may vary considerably based upon timing of program initiation, trial enrollment rates, and the timing and structure of any collaboration in which a partner may incur a portion of these expenses.
General and administrative. General and administrative expenses increased to $19.8 million in 2004 from $12.2 million in 2003. This increase was primarily related to the forgiveness of an executive loan in June 2004 of $3.0 million, which was net of forgiveness expense recorded in prior periods, related employee income and employment taxes of $2.9 million, an increase in consulting and business development expenses, and expenses related to the GSK strategic alliance in 2004. General and administrative expenses increased to $12.2 million in 2003, from $11.8 million in 2002, due to an increase in employee-related costs that was partially offset by lower financing and facilities costs.
Excluding the impact of the 2004 executive loan forgiveness, we anticipate general and administrative expenses will increase in 2005 and subsequent years to support our discovery and development efforts, commercial development activities and expanded operational infrastructure, including costs associated with operating as a public company.
Stock-based compensation. Stock-based compensation expense increased to $8.5 million in 2004 from $2.2 million in 2003. These amounts reflect the amortization of deferred stock-based compensation, much of which was recorded in 2004 and 2003. In 2004 we recorded deferred stock-based compensation of $17.4 million for stock options granted in 2004 at prices below the deemed fair value of our common stock on the option grant dates. Stock-based compensation expense declined to $2.2 million in 2003 from $4.9 million in 2002, reflecting higher amortization of expense for deferred stock-based compensation recorded in earlier periods under the accelerated method.
Interest and other income. Interest and other income include interest income earned on cash and marketable securities, net realized gains on marketable securities and net sublease income on facilities.
31
Interest income increased to $4.6 million in 2004 from $3.4 million in 2003, due to higher cash balances following the closing of the GSK strategic alliance in May 2004 and the closing of our initial public offering in October 2004. This increase was partially offset by a lower rate of return in 2004. Interest and other income decreased to $3.4 million in 2003 from $5.0 million in 2002. The decrease was due to lower rates of return on our investment portfolio and a lower average cash balance in 2003.
Interest and other expense. Interest and other expense include interest expense on capital lease and debt arrangements. Interest and other expense decreased to $823,000 in 2004 from $1.5 million in 2003 due to declining capital lease and debt balances. Interest expense rose to $1.5 million in 2003 from $1.1 million in 2002 due to a full year of interest expense on equipment and tenant improvement loans, both of which were effective beginning in mid-2002.
At December 31, 2004, we had net operating loss carryforwards for federal income taxes of $309.0 million and federal research and development tax credit carryforwards of $5.9 million. Our utilization of the net operating loss and tax credit carryforwards may be subject to annual limitations due to the ownership change limitations provided by the Internal Revenue Code and similar state provisions. The annual limitations may result in the expiration of net operating losses and credits prior to utilization. We recorded a valuation allowance to offset in full the benefit related to the deferred tax assets because realization of these benefits is uncertain.
Liquidity and Capital Resources
As of December 31, 2004, we had $257.1 million in cash, cash equivalents and marketable securities, excluding $4.5 million in restricted cash and cash equivalents that was pledged as collateral for certain of our leased facilities and equipment.
Our governance agreement with GSK limits the number of shares of capital stock that we may issue and the amount of debt that we may incur. Prior to the termination of the call and put arrangements with GSK in 2007, without the prior written consent of GSK, we may not issue any equity securities if it would cause more than approximately 54.2 million shares of common stock, or securities that are vested and exercisable or convertible into shares of common stock, to be outstanding. After estimating the number of shares we will require for equity incentive plans through the termination of the call and put arrangements, we believe that we may issue up to a total of approximately 5.0 million new shares of capital stock for capital raising purposes. In addition:
· If, on or immediately after the termination of the call and put arrangements with GSK in 2007, GSK directly or indirectly controls more than 35.1% of our outstanding capital stock, then without the prior written consent of GSK, we may not issue more than an aggregate of approximately 16.1 million shares of our capital stock after September 1, 2007 through August 2012; and
· Prior to the termination of the call and put arrangements with GSK in 2007, we may not borrow money or otherwise incur indebtedness of more than $100.0 million or if such indebtedness would cause our consolidated debt to exceed our cash and cash equivalents and marketable securities.
These limits on issuing equity and debt could leave us without adequate financial resources to fund our discovery and development efforts in the event that GSK does not license development programs pursuant to our alliance agreement and no other third parties enter into collaborations with us for these programs. This could result in a reduction of our discovery and development efforts and our ability to commercialize product candidates and generate revenues and may cause us to enter into collaborations with third parties on less favorable terms.
32
We expect to incur substantial expenses as we continue our drug discovery and development efforts, particularly to the extent we advance our product candidates into clinical studies, which are very expensive. We also expect expenditures to increase as we invest in administrative infrastructure to support our expanded operations.
We believe that our cash and cash equivalents and marketable securities, will be sufficient to meet our anticipated operating needs for at least the next year.
We expect to require additional capital. We may need to raise additional funds if we choose to expand more rapidly than we presently anticipate, or if our operating costs exceed our expectations. Subject to the restrictions in our agreements with GSK, we may seek to sell additional equity or debt securities, or both, or incur indebtedness under one or more credit facilities. The incurrence of indebtedness would result in increased fixed obligations and could also result in covenants that would restrict our operations. We cannot guarantee that future financing will be available in amounts or on terms acceptable to us, if at all.
Net cash used in operating activities was $47.9 million and $31.7 million in 2004 and 2003, respectively. The increase in cash used in operations of $16.2 million was primarily due to an increase of $28.0 million in cash research and development and general and administrative expenses, partially offset by an increase of $10.0 million in cash payments from GSK related to the 2004 strategic alliance. Net cash used in operating activities was $31.7 million and $58.6 million in 2003 and 2002, respectively. The decrease of cash used in operations of $26.9 million was primarily due to a $20.0 million increase in cash payments from GSK related to the LABA collaboration and an approximately $8.7 million decrease in cash operating expenses, partially offset by a $1.6 million decrease in interest and other income due to lower interest rates and cash balances.
Net cash used in investing activities was $100.3 million and $13.6 million in 2004 and 2003, respectively. The increase of cash used in investing activities of $86.7 million was primarily due to the increase of $89.2 million in net purchases of marketable securities with cash received from the initial public offering and the GSK strategic alliance, partially offset by a decrease in notes receivable of $3.7 million. Investing activities used cash of $13.6 million and provided cash of $51.6 million in 2003 and 2002, respectively. The increase of cash used in investing activities of $65.2 million was primarily due to an approximate $77.2 million decrease in net sales of marketable securities. This increase was partially offset by an approximately $6.2 million higher capital expenditures related to leasehold improvements in 2002 and approximately $5.8 million higher increase in notes receivable in 2002 for loans extended to assist relocating employees with the purchase of their primary residence.
Financing activities provided cash of $213.9 million and used cash of $27.8 million in 2004 and 2003, respectively. The increase in cash provided by financing activities of $241.6 million was primarily due to $109 million in net proceeds received from our initial public offering and concurrent sale of Class A common stock to GSK in October 2004 and GSK’s purchase of our Class A common stock for $108.9 million in connection with the May 2004 strategic alliance. Financing activities used cash of $27.8 million and provided cash of $66.8 million in 2003 and 2002, respectively. The decrease in cash provided by financing activities of $94.5 million was primarily due to GSK’s purchase of $40.0 million of convertible preferred stock in 2002 in connection with the Beyond Advair collaboration and the 2003 repayment of $25.0 million under a line of credit.
33
Contractual Obligations and Commitments
Our major outstanding contractual obligations relate to our notes payable, capital leases from equipment financings, operating leases and fixed purchase commitments under contract research, development and clinical supply agreements. These contractual obligations as of December 31, 2004, are as follows (in millions):
|
|
|
Less than 1 year |
|
1-3 years |
|
4-5 years |
|
After 5 years |
|
Total |
|
|||||||||||||
|
Notes payable |
|
|
$ |
0.3 |
|
|
|
$ |
0.2 |
|
|
|
$ |
0.2 |
|
|
|
$ |
0.3 |
|
|
$ |
1.0 |
|
|
Capital lease obligations |
|
|
2.4 |
|
|
|
1.0 |
|
|
|
— |
|
|
|
— |
|
|
3.4 |
|
|||||
|
Operating leases |
|
|
6.6 |
|
|
|
13.0 |
|
|
|
12.4 |
|
|
|
14.8 |
|
|
46.8 |
|
|||||
|
Purchase obligations |
|
|
6.3 |
|
|
|
0.6 |
|
|
|
— |
|
|
|
— |
|
|
6.9 |
|
|||||
|
Total |
|
|
$ |
15.6 |
|
|
|
$ |
14.8 |
|
|
|
$ |
12.6 |
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|
$ |
15.1 |
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$ |
58.1 |
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As security for performance of our obligations under the operating leases for our headquarters, we have issued letters of credit totaling $3.8 million, collateralized by an equal amount of restricted cash. Additionally, we have restricted cash of $677,000 as collateral for certain equipment leases. The terms of these facilities and equipment leases require us to maintain an unrestricted cash and marketable securities balance of at least $50.0 million on the last day of each calendar quarter.
Pursuant to our 2002 collaboration with GSK, in the event that a LABA product candidate discovered by GSK is successfully developed and commercially launched in multiple locations of the world, we are obligated to make milestone payments of up to an aggregate of $220.0 million. Based on available information, we do not estimate that any significant portion of these potential milestone payments to GSK are likely to be made in the next four years.
On July 1, 2002, we extended a loan to Mr. Winningham, our Chief Executive Officer, in the principal amount of $3.8 million pursuant to the terms of his employment offer letter. The proceeds from the loan were used by Mr. Winningham to purchase his principal residence. The note was interest free, with principal due on July 1, 2012, subject to acceleration upon borrower’s cessation of employment under certain circumstances and certain other events. The loan provided that 50% of the principal of such loan was to be forgiven on his fifth anniversary of employment with us and an additional 16% of the original principal was to be forgiven on his seventh anniversary with us. The loan was secured by a second deed of trust on the residence and a pledge of 774,192 shares of stock issuable upon exercise of his options. The largest aggregate amount of indebtedness outstanding under this loan during 2004 was $3.8 million.
On June 4, 2004, we entered into an agreement with our chief executive officer, Mr. Winningham pursuant to which we agreed to forgive Mr. Winningham’s housing loan in the amount of $3.8 million thereby extinguishing his debt in full, in recognition of Mr. Winningham entering into a lock-up agreement with us and GSK pursuant to which he has agreed not to sell or transfer 50% of the shares purchasable under all of his options prior to September 2007 and agreed not to put a portion of the shares purchasable under his options to purchase common stock in 2007 pursuant to the call and put arrangements with GSK. Also, Mr. Winningham agreed to deposit an additional 129,032 shares of common stock purchasable under an option into escrow if he exercises the option prior to September 7, 2007. Should Mr. Winningham leave our employ due to voluntary resignation or a termination by us for cause, then he will forfeit any of these shares deposited into escrow. Subject to continued employment, we will release any shares from escrow over the following periods: 25% on December 31, 2005, 25% on December 31, 2006, and the balance on September 7, 2007. We will release the shares immediately should Mr. Winningham die or leave our employ due to disability. The net balance of the loan, $3.0 million, representing the original principal amount of $3.8 million, less a reserve of approximately $800,000 for forgiveness under the original terms of the loan that was recorded in prior periods, plus $2.9 million of related income and employment taxes, was recorded as general and administrative expense.
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On February 27, 2002, we extended a loan to Dr. Humphrey, our Executive Vice President, Research, in the principal amount of $1,000,000 pursuant to the terms of his employment offer letter. The proceeds from the loan were used by Dr. Humphrey to purchase his principal residence. The note was interest free, with principal due on February 27, 2012, subject to acceleration upon borrower’s cessation of employment under certain circumstances and certain other events. The loan was secured by a deed of trust on the residence and a pledge of 387,096 shares of stock issuable upon exercise of his options. The largest aggregate amount of indebtedness outstanding under this loan during 2004 was $953,500.
On June 4, 2004, we entered into an agreement with Dr. Humphrey pursuant to which we agreed to forgive Dr. Humphrey’s housing loan in the amount of $953,500, thereby extinguishing his debt in full, in recognition of Dr. Humphrey entering into a lock-up agreement with us and GSK pursuant to which he has agreed not to sell or transfer 50% of the shares purchasable under all of his options prior to September 2007 and agreed not to put a portion of the shares purchasable under his options to purchase common stock in 2007 pursuant to the call and put arrangements with GSK. Also, Dr. Humphrey agreed to deposit an additional 62,696 shares of common stock purchasable under options into escrow if he exercises the options prior to September 7, 2007. Should Dr. Humphrey leave our employ due to voluntary resignation or a termination by us for cause, then he will forfeit any of these shares deposited into escrow. Subject to continued employment, we will release any shares from escrow over the following periods: 25% on December 31, 2005, 25% on December 31, 2006, and the balance on September 7, 2007. We will release the shares immediately should Dr. Humphrey die or leave our employ due to disability. The full amount of this loan, plus related income and employment taxes of $746,000, was recorded as research and development expense.
FACTORS AFFECTING RESULTS, INCLUDING RISKS AND UNCERTAINTIES
In addition to the other information in this Annual Report on Form 10-K, the following risk factors should be considered carefully in evaluating our business and us.
We have never commercialized any of our product candidates. We are uncertain whether any of our compounds or product candidates will prove effective and safe in humans or meet applicable regulatory standards. In addition, our approach to applying our expertise in multivalency to drug discovery is unproven and may not result in the creation of successful medicines. The risk of failure for all of our compounds and product candidates is high. To date, the data supporting our drug discovery and development programs is derived solely from laboratory and preclinical studies and limited clinical studies. Our most advanced product candidate, telavancin, is currently in Phase 3 clinical studies. In addition, a number of other compounds remain in the lead identification, lead optimization and preclinical testing stages. It is impossible to predict when or if any of our compounds and product candidates will prove effective or safe in humans or will receive regulatory approval. If we are unable to discover and develop medicines that are effective and safe in humans, we will not receive product revenue.
The Food and Drug Administration (FDA) must approve any new medicine before it can be marketed and sold in the United States. We must provide the FDA and similar foreign regulatory authorities with data from preclinical and clinical studies that demonstrate that our product candidates are safe and
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effective for a defined indication before they can be approved for commercial distribution. We will not obtain this approval for a product candidate unless and until the FDA approves a New Drug Application (NDA). In order to market our medicines in the European Union and other foreign jurisdictions, we must obtain separate regulatory approvals in each country. The approval procedure varies among countries and can involve additional testing, and the time required to obtain approval may differ from that required to obtain FDA approval. Approval by the FDA does not ensure approval by regulatory authorities in other countries, and approval by one foreign regulatory authority does not ensure approval by regulatory authorities in other foreign countries or by the FDA. We have not yet filed an NDA with the FDA or made a comparable filing in any foreign country for any of our product candidates.
Clinical studies involving our product candidates may reveal that those candidates are ineffective, inferior to existing approved medicines, unacceptably toxic or have other unacceptable side effects. In addition, the results of preclinical studies do not necessarily predict clinical success, and larger and later-stage clinical studies may not produce the same results as earlier-stage clinical studies. Frequently, product candidates that have shown promising results in early preclinical or clinical studies have subsequently suffered significant setbacks or failed in later clinical studies. In addition, clinical studies of potential products often reveal that it is not possible or practical to continue development efforts for these product candidates. If our clinical studies are substantially delayed or fail to prove the safety and effectiveness of our product candidates, we may not receive regulatory approval of any of our product candidates and our business and financial condition will be materially harmed.
Each of our product candidates must undergo extensive preclinical and clinical studies as a condition to regulatory approval. Preclinical and clinical studies are expensive and take many years to complete. To date we have not completed the clinical studies of any product candidate. The commencement and completion of clinical studies for our product candidates may be delayed by many factors, including:
· our inability or the inability of our collaborators or licensees to manufacture or obtain from third parties materials sufficient for use in preclinical and clinical studies;
· delays in patient enrollment, which we have experienced in the past, and variability in the number and types of patients available for clinical studies;
· difficulty in maintaining contact with patients after treatment, resulting in incomplete data;
· poor effectiveness of product candidates during clinical studies;
· unforeseen safety issues or side effects;
· governmental or regulatory delays and changes in regulatory requirements, policy and guidelines; and
· varying interpretation of data by the FDA and similar foreign regulatory agencies.
It is possible that none of our product candidates will complete clinical studies in any of the markets in which we, our collaborators or licensees intend to sell those product candidates. Accordingly, we, our collaborators or licensees may not receive the regulatory approvals needed to market our product candidates. Any failure or delay in commencing or completing clinical studies or obtaining regulatory approvals for our product candidates would delay commercialization of our product candidates and severely harm our business and financial condition.
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Even if we receive regulatory approval, this approval may include limitations on the indicated uses for which we can market our medicines. Further, if we obtain regulatory approval, a marketed medicine and its manufacturer are subject to continual review, including review and approval of the manufacturing facilities. Discovery of previously unknown problems with a medicine may result in restrictions on its permissible uses, or on the manufacturer, including withdrawal of the medicine from the market. The FDA and similar foreign regulatory bodies may also implement new standards, or change their interpretation and enforcement of existing standards and requirements, for the manufacture, packaging, or testing of products at any time. If we are unable to comply, we may be subject to regulatory or civil actions or penalties that could significantly and adversely affect our business. Any failure to maintain regulatory approval will limit our ability to commercialize our product candidates, which would materially and adversely affect our business and financial condition.
We have been engaged in discovering and developing compounds and product candidates since mid-1997. We have not generated any product sales revenue to date. We may never generate revenue from selling medicines or achieve profitability. As of December 31, 2004, we had an accumulated deficit of $469 million. We expect our research and development expenses to continue to increase as we continue to expand our development programs. As a result, we expect to continue to incur substantial and increasing losses for the foreseeable future. We are uncertain when or if we will be able to achieve or sustain profitability. Failure to become and remain profitable would adversely affect the price of our common stock and our ability to raise capital and continue operations.
We need large amounts of capital to support our research and development efforts. If we are unable to secure capital to fund our operations we will not be able to continue our discovery and development efforts and we might have to enter into strategic collaborations that could require us to share commercial rights to our medicines to a greater extent than we currently intend. Based on our current operating plans, we believe that our cash and cash equivalents and marketable securities will be sufficient to meet our anticipated operating needs for at least the next year. We expect to require additional capital after that period.
In addition, if GSK is granted regulatory approval and launches a medicine containing a LABA product candidate discovered by GSK, we would be required to pay GSK milestone payments of up to an aggregate of $220.0 million under our Beyond Advair collaboration. We may also need to raise additional funds if we choose to expand more rapidly than we presently anticipate. We may seek to sell additional equity or debt securities, or both, or incur other indebtedness. The sale of additional equity or debt securities, if convertible, could result in the issuance of additional shares of our capital stock and could result in dilution to our stockholders. The incurrence of indebtedness would result in increased fixed payment obligations and could also result in certain restrictive covenants, such as limitations on our ability to incur additional debt, limitations on our ability to acquire or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business. In addition, our ability to raise debt and equity financing is constrained by our alliance with GSK and we cannot guarantee that future financing will be available in sufficient amounts or on terms acceptable to us, if at all. If we are unable to raise additional capital in sufficient amounts or on terms acceptable to us, we will be
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prevented from pursuing research and development efforts. This could harm our business, prospects and financial condition and cause the price of our common stock to fall.
We entered into our Beyond Advair collaboration agreement with GSK in November 2002 and a strategic alliance agreement with GSK in March 2004. In connection with the these agreements, we have granted to GSK certain rights regarding the use of our patents and technology with respect to compounds in our development programs, including development and marketing rights. In connection with our strategic alliance agreement, upon exercise of its rights with respect to a particular development program, GSK will have full responsibility for development and commercialization of any product candidates in that program. Any future milestone payments or royalties to us from these programs will depend on the extent to which GSK advances the product candidate through development and commercial launch.
We cannot assure you that GSK will fulfill its obligations under these agreements. If GSK fails to fulfill its obligations under these agreements, we may be unable to assume the development of the product candidates covered by the agreements or enter into alternative arrangements with a third party to develop such product candidates. In addition, with the exception of product candidates in our Beyond Advair collaboration, GSK is not restricted from developing its own product candidates that compete with those licensed from us. If GSK elected to advance its own product candidates in preference to those licensed from us, future payments to us could be reduced and our business and financial condition would be materially and adversely affected. Accordingly, our ability to receive any revenue from the product candidates covered by these agreements is dependent on the efforts of GSK. We could also become involved in disputes with GSK, which could lead to delays in or termination of our development and commercialization programs and time-consuming and expensive litigation or arbitration. If GSK terminates or breaches its agreements with us, or otherwise fails to complete its obligations in a timely manner, the chances of successfully developing or commercializing our product candidates would be materially and adversely affected.
In addition, while our alliance with GSK sets forth pre-agreed upfront payments, development obligations, milestone payments and royalty rates under which GSK may obtain exclusive rights to develop and commercialize our product candidates, GSK may in the future seek to negotiate more favorable terms on a project-by-project basis. To date, GSK has only licensed our long-acting muscarinic antagonist (LAMA) program and our bifunctional muscarinic antagonist-beta agonist (MABA) program under the terms of the strategic alliance agreement. To date GSK has chosen not to license our bacterial infections program and our anesthesia program. There can be no assurance that GSK will license any other development program under the terms of the strategic alliance agreement, or at all. GSK’s failure to license our development programs could adversely affect the perceived prospects of the product candidates that are the subject of these development programs, which could negatively affect our ability to enter into collaborations for these product candidates with third parties and the price of our common stock.
As of December 31, 2004, GSK beneficially owned approximately 17.7% of our outstanding capital stock, and will have the right in July 2007 to acquire up to approximately 60% of our common stock through the exercise of its call right. Other than our bacterial infections program and our anesthesia program, which GSK has not licensed under the strategic alliance, GSK has the right to license exclusive development and commercialization rights to our product candidates arising from all of our current and future drug discovery and development programs initiated prior to September 1, 2007. This right will extend to our programs initiated prior to September 1, 2012 if GSK owns more than 50% of our common
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stock due to exercise of the call right or the put right. In brief, (i) the call right is GSK’s right, in July 2007, to require us to redeem 50% of our common stock held by each stockholder at $54.25 per share, and (ii) the put right is the right of each of our stockholders in August 2007, if GSK has not exercised its call right in July 2007, to require us to redeem up to 50% of their common stock at $19.375 per share. Pharmaceutical companies (other than GSK) that may be interested in developing products with us are likely to be less inclined to do so because of our relationship with GSK, or because of the perception that development programs that GSK does not license pursuant to our strategic alliance agreement are not promising programs. In addition, because GSK may license our development programs at any time prior to successful completion of a Phase 2 proof-of-concept study, we may be unable to collaborate with other partners with respect to these programs until we have expended substantial resources to advance them through clinical studies. Given the restrictions on our ability to raise capital provided for in our agreements with GSK, we may not have sufficient funds to pursue such projects in the event GSK does not license at an early stage. If our ability to work with present or future strategic partners, collaborators or consultants is adversely affected as a result of our strategic alliance with GSK, our business prospects may be limited and our financial condition may be adversely affected.
Although GSK has licensed our LAMA and our MABA program, GSK has not licensed our bacterial infections program nor our anesthesia program, and GSK may not license any of our other programs. As a result, we may be required to enter into collaborations with other third parties regarding our bacterial infections program, our anesthesia program, or other programs whereby we have to relinquish material rights, including revenue from commercialization of our medicines on terms that are less attractive than our current arrangements with GSK. Furthermore, our ability to raise additional capital to fund our drug discovery and development efforts is greatly limited as a result of our agreements with GSK. In addition, we may not be able to control the amount of time and resources that our collaborative partners devote to our product candidates and our partners may choose to pursue alternative products. Moreover, these collaboration arrangements are complex and time-consuming to negotiate. If we are unable to reach agreements with third-party collaborators, we may fail to meet our business objectives and our financial condition may be adversely affected. We face significant competition in seeking third-party collaborators and may be unable to find third parties to pursue product collaborations on a timely basis or on acceptable terms. Our inability to successfully collaborate with third parties would increase our development costs and could limit the likelihood of successful commercialization of our product candidates.
We do not have in-house manufacturing capabilities and depend entirely on a number of third-party compound manufacturers and active pharmaceutical ingredient formulators. We do not have long-term agreements with any of these third parties and our agreements with these parties are generally terminable at will by either party at any time. If, for any reason, these third parties are unable or unwilling to perform, we may not be able to locate alternative manufacturers or formulators or enter into favorable agreements with them. Any inability to acquire sufficient quantities of our compounds in a timely manner from these third parties could delay clinical studies and prevent us from developing our product candidates in a cost-effective manner or on a timely basis. In addition, manufacturers of our compounds are subject to the FDA’s current Good Manufacturing Practices regulations and similar foreign standards and we do not have control over compliance with these regulations by our manufacturers.
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Our manufacturing strategy presents the following additional risks:
· because of the complex nature of our compounds, our manufacturers may not be able to successfully manufacture our compounds in a cost effective or timely manner;
· some of the manufacturing processes for our compounds have not been tested in quantities needed for continued clinical studies or commercial sales, and delays in scale-up to commercial quantities could delay clinical studies, regulatory submissions and commercialization of our compounds; and
· because some of the third-party manufacturers and formulators are located outside of the U.S., there may be difficulties in importing our compounds or their components into the U.S. as a result of, among other things, FDA import inspections, incomplete or inaccurate import documentation or defective packaging.
We presently do not have sufficient quantities to complete all clinical studies of telavancin, our lead product candidate in our bacterial infections program. We have successfully produced multiple lots of clinical supplies at a new manufacturer. If this new manufacturer fails to continue to produce telavancin at acceptable quantity and quality levels, our clinical studies and any commercialization of telavancin may be delayed. For our other development compounds in clinical development, TD-6301 and TD-2749 we are using a single source for the drug substance and drug product. We believe we currently have adequate supplies of these compounds for development, but if either of these suppliers fails to continue to produce TD-6301 or TD-2749 at acceptable quantity or quality levels, our clinical studies could be delayed.
We are substantially dependent on third-party vendors and clinical research organizations for preclinical and clinical studies related to our drug discovery and development efforts. If we lose our relationship with any one or more of these providers, we could experience a significant delay in both identifying another comparable provider and then contracting for its services. We may be unable to retain an alternative provider on reasonable terms, if at all. Even if we locate an alternative provider, it is likely that this provider will need additional time to respond to our needs and may not provide the same type or level of service as the original provider. In addition, any clinical research organization that we retain will be subject to the FDA’s regulatory requirements and similar foreign standards and we do not have control over compliance with these regulations by these providers. Consequently, if these practices and standards are not adhered to by these providers, the development and commercialization of our product candidates could be delayed, which could severely harm our business and financial condition.
Our ability to succeed in the future depends on our ability to demonstrate and maintain a competitive advantage with respect to our approach to the discovery and development of medicines. Our objective is to discover, develop and commercialize new medicines with superior efficacy, convenience, tolerability and/or safety. Because our strategy is to develop new product candidates for biological targets that have been validated by existing medicines or potential medicines in late stage clinical studies, to the extent that we are able to develop medicines, they are likely to compete with existing drugs that have long histories of effective and safe use. We expect that any medicines that we commercialize with our collaborative partners or on our own will compete with existing or future market-leading medicines.
Many of our potential competitors have substantially greater financial, technical and personnel resources than we have. In addition, many of these competitors have significantly greater commercial
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infrastructures than we have. Our ability to compete successfully will depend largely on our ability to leverage our experience in drug discovery and development to:
· discover and develop medicines that are superior to other products in the market;
· attract qualified scientific, product development and commercial personnel;
· obtain patent and/or other proprietary protection for our medicines and technologies;
· obtain required regulatory approvals; and
· successfully collaborate with pharmaceutical companies in the discovery, development and commercialization of new medicines.
Established pharmaceutical companies may invest heavily to quickly discover and develop novel compounds that could make our product candidates obsolete. Accordingly, our competitors may succeed in obtaining patent protection, receiving FDA approval or discovering, developing and commercializing medicines before we do. We are also aware of other companies that may currently be engaged in the discovery of medicines that will compete with the product candidates that we are developing. In addition, in the markets that we are targeting, we expect to compete against current or future market-leading medicines.
Any new medicine that competes with a generic market leading medicine must demonstrate compelling advantages in efficacy, convenience, tolerability and/or safety in order to overcome severe price competition and be commercially successful. If we are not able to compete effectively against our current and future competitors, our business will not grow and our financial condition and operations will suffer.
As the principles of multivalency become more widely known, we expect to face increasing competition from companies and other organizations that pursue the same or similar approaches. Novel therapies, such as gene therapy or effective vaccines for infectious diseases, may emerge that will make both conventional and multivalent medicine discovery efforts obsolete or less competitive.
We have no experience selling or distributing products and no internal capability to do so.
Generally, our strategy is to engage pharmaceutical or other healthcare companies with an existing sales and marketing organization and distribution system to sell, market and distribute our products. We may not be able to establish these sales and distribution relationships on acceptable terms, or at all. If we receive regulatory approval to commence commercial sales of any of our product candidates, other than those subject to our current or future agreements with GSK or pursuant to other strategic partnerships that we may enter into, we will have to establish a sales and marketing organization with appropriate technical expertise and supporting distribution capability. At present, we have no sales personnel and a very limited number of marketing personnel. Factors that may inhibit our efforts to commercialize our products without strategic partners or licensees include:
· our inability to recruit and retain adequate numbers of effective sales and marketing personnel;
· the inability of sales personnel to obtain access to or persuade adequate numbers of physicians to prescribe our products;
· the lack of complementary products to be offered by sales personnel, which may put us at a competitive disadvantage relative to companies with more extensive product lines; and
· unforeseen costs and expenses associated with creating an independent sales and marketing organization.
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If we are not able to partner with a third party and are not successful in recruiting sales and marketing personnel or in building a sales and marketing infrastructure, we will have difficulty commercializing our product candidates, which would adversely affect our business and financial condition.
We are highly dependent on principal members of our management team and scientific staff, including our Chairman of the Board of Directors, P. Roy Vagelos, our Chief Executive Officer, Rick E Winningham, and our Executive Vice President of Research, Patrick P.A. Humphrey. These executives each have significant pharmaceutical industry experience and Dr. Vagelos and Dr. Humphrey are prominent scientists. The loss of Dr. Vagelos, Mr. Winningham or Dr. Humphrey could impair our ability to discover, develop and market new medicines.
Our scientific team has expertise in many different aspects of drug discovery and development. Our company is located in northern California, which is headquarters to many other pharmaceutical and biopharmaceutical companies and many academic and research institutions. There is currently a shortage of experienced scientists, which is likely to continue, and competition for skilled personnel in our market is very intense. Competition for experienced scientists may limit our ability to hire and retain highly qualified personnel on acceptable terms. In addition, none of our employees have employment commitments for any fixed period of time and could leave our employment at will. If we fail to identify, attract and retain qualified personnel, we may be unable to continue our development and commercialization activities.
Our principal facility is located in the San Francisco Bay Area near known earthquake fault zones and therefore is vulnerable to damage from earthquakes. In October 1989, a major earthquake struck this area and caused significant property damage and a number of fatalities. We are also vulnerable to damage from other types of disasters, including power loss, attacks from extremist organizations, fire, floods, communications failures and similar events. If any disaster were to occur, our ability to operate our business could be seriously impaired. In addition, the unique nature of our research activities and of much of our equipment could make it difficult for us to recover from this type of disaster. We currently may not have adequate insurance to cover our losses resulting from disasters or other similar significant business interruptions and we do not plan to purchase additional insurance to cover such losses due to the cost of obtaining such coverage. Any significant losses that are not recoverable under our insurance policies could seriously impair our business and financial condition.
Risks Related to GSK’s Ownership of Our Stock
As of December 31, 2004, GSK beneficially owned approximately 17.7% of our outstanding capital stock. In addition, GSK has certain rights to maintain its percentage ownership of our capital stock in the future, and in 2007 GSK may exercise its call right to acquire additional shares and thereby increase its ownership up to approximately 60% of our then outstanding capital stock. If GSK exercises this call right, or a sufficient number of our stockholders exercise the put right provided for in our certificate of incorporation, GSK could own a majority of our capital stock. In addition, GSK currently has the right to designate one member to our 12-member board of directors and, depending on GSK’s ownership percentage of our capital stock after September 2007, GSK will have the right to nominate up to one-third of the members of our board of directors and up to one-half of the independent members of our board of
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directors. There are currently no GSK designated directors on our board of directors. GSK’s control relationship could give rise to conflicts of interest, including:
· conflicts between GSK, as our controlling stockholder, and our other stockholders, whose interests may differ with respect to our strategic direction or significant corporate transactions; and
· conflicts related to corporate opportunities that could be pursued by us, on the one hand, or by GSK, on the other hand.
Further, pursuant to our certificate of incorporation, we renounce our interest in and waive any claim that a corporate or business opportunity taken by GSK constituted a corporate opportunity of ours unless such corporate or business opportunity is expressly offered to one of our directors who is a director, officer or employee of GSK, primarily in his or her capacity as one of our directors.
Our governance agreement with GSK requires us to exempt GSK from our stockholder rights plan, affords GSK certain rights to offer to acquire us in the event third parties seek to acquire our stock and contains other provisions that could deter or prevent another company from seeking to acquire us. For example, GSK may offer to acquire 100% of our outstanding stock from stockholders in certain circumstances, such as if we are faced with a hostile acquisition offer or if our board of directors acts in a manner to facilitate a change in control of us with a party other than GSK. In addition, pursuant to our strategic alliance agreement with GSK, GSK has the right to license all of our current and future drug discovery and development programs initiated prior to September 1, 2007 or, if GSK acquires more than 50% of our stock in 2007, prior to September 1, 2012. As a result, we may not have the opportunity to be acquired in a transaction that stockholders might otherwise deem favorable, including transactions in which our stockholders might realize a substantial premium for their shares.
Our governance agreement with GSK limits the number of shares of capital stock that we may issue and the amount of debt that we may incur. Prior to the termination of the call and put arrangements with GSK in 2007, without the prior written consent of GSK, we may not issue any equity securities if it would cause more than approximately 54.2 million shares of common stock, or securities that are vested and exercisable or convertible into shares of common stock, to be outstanding. After estimating the number of vested and exercisable shares of common stock we will require for equity incentive plans through the termination of the call and put arrangements, we believe that we may issue up to a total of approximately 5.0 million new shares of capital stock for capital raising purposes. In addition:
· If, on or immediately after the termination of the call and put arrangements with GSK in 2007, GSK directly or indirectly controls more than 35.1% of our outstanding capital stock, then without the prior written consent of GSK, we may not issue more than an aggregate of approximately 16.1 million shares of our capital stock after September 1, 2007 through August 2012; and
· Prior to the termination of the call and put arrangements with GSK in 2007, we may not borrow money or otherwise incur indebtedness of more than $100.0 million or if such indebtedness would cause our consolidated debt to exceed our cash, cash equivalents and marketable securities.
These limits on issuing equity and debt could leave us without adequate financial resources to fund our discovery and development efforts if GSK does not license additional development programs pursuant to our strategic alliance agreement, if we do not enter into alliances with third parties on similar or better
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terms for these programs, or if we do not earn any of the potentially significant milestones in the programs that we have currently partnered with GSK. These events could result in a reduction of our discovery and development efforts or could result in our having to enter into collaborations with other companies that could require us to share commercial rights to our medicines to a greater extent than we currently intend. In addition, if GSK’s ownership of our capital stock exceeds 50% as a result of the call and put arrangements, we will be prohibited from engaging in certain acquisitions, the disposition of material assets or repurchase of our outstanding stock without GSK’s consent. These restrictions could cause us to forego transactions that would otherwise be advantageous to us and our other stockholders.
In 2007, GSK has the right to require us to redeem 50% of our outstanding common stock for $54.25 per share, and, if GSK does not exercise this right, our stockholders will have the right to cause us to redeem up to the same number of shares for $19.375 per share. The existence of the call feature on 50% of our common stock at a fixed price of $54.25 may act as a material impediment to our common stock trading above the $54.25 per share call price. If the call is exercised, our stockholders would participate in valuations above $54.25 per share only with respect to 50% of their shares. Therefore, even if our common stock trades above $54.25 per share, 50% of each stockholder’s shares could be called at $54.25 per share. Similarly, because the put applies to only 50% of our common stock and is not exercisable prior to 2007, it is uncertain whether the put will have any effective supporting effect on our stock price. Prior to the expiration of the put period, the price at which our common stock will trade may be influenced by the put right. Therefore, after the expiration of the put period, the market price of the common stock may decline significantly. In addition, while GSK is generally prevented from making any unsolicited tender offer for our common stock, any announcement by GSK that it does not intend to exercise the call or any offer GSK may make to our board of directors on terms less favorable than the call right described above could adversely affect our common stock price.
After September 1, 2012, GSK will have no restrictions on its ability to sell or transfer our common stock on the open market, in privately negotiated transactions or otherwise, and these sales or transfers could create substantial declines in the price of the outstanding shares of our common stock or, if these sales or transfers were made to a single buyer or group of buyers, could transfer control of our company to a third party.
Due to a lack of definitive judicial and administrative interpretation, uncertainties exist with respect to various tax consequences resulting from the ownership of our common stock. These include:
· In the event we pay or are deemed to have paid dividends prior to the exercise and/or lapse of the put and call rights, individual stockholders may be required to pay tax on such dividends at ordinary income rates rather than capital gains rates, and corporate stockholders may be prevented from obtaining a dividends received deduction with respect to such dividend income.
· In the event that our common stock were to be considered as “not participating in corporate growth to any significant extent,” a holder thereof may be required, during the period beginning upon such holder’s acquisition of such stock and ending during the put period, to include currently in gross
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income a portion of the excess of $19.375 per share over the fair market value of the stock at issuance;
· In the event that a common stockholder’s put right were considered to be a property right separate from the common stock, such stockholder may be subject to limitations on recognition of losses and certain other adverse consequences with respect to the common stock and the put right (including the tolling of its capital gains holding period);
· The application of certain actual and constructive ownership rules could cause the redemption of our common stock to give rise to ordinary income and not to capital gain;
· A redemption of our common stock may be treated as a recapitalization pursuant to which a stockholder exchanges shares of common stock for cash and shares of new common stock not subject to call and put rights, in which case the stockholder whose shares were redeemed would be required to recognize gain, but not loss, in connection with this deemed recapitalization in an amount up to the entire amount of cash received (which gain may be taxed as ordinary income and not capital gain); and
· The put right could prevent a stockholder’s capital gain holding period for our common stock from running and thereby prevent a stockholder from obtaining long-term capital gain on any gain recognized on the disposition of the common stock.
Risks Related to Legal and Regulatory Uncertainty
We rely upon a combination of patents, patent applications, trade secret protection and confidentiality agreements to protect the intellectual property related to our technologies. Any involuntary disclosure to or misappropriation by third parties of this proprietary information could enable competitors to quickly duplicate or surpass our technological achievements, thus eroding our competitive position in our market. However, the status of patents in the biotechnology and pharmaceutical field involves complex legal and scientific questions and is very uncertain. As of December 31, 2004, we had 44 issued United States patents and have received notices of allowance for 9 other United States patent applications. As of that date, we had 81 pending patent applications in the United States and 85 granted foreign patents. We also have 23 Patent Cooperation Treaty applications that permit us to pursue patents outside of the United States, and 355 foreign national patent applications. Our patent applications may be challenged or fail to result in issued patents and our existing or future patents may be too narrow to prevent third parties from developing or designing around these patents. If the sufficiency of the breadth or strength of protection provided by our patents with respect to a product candidate is threatened, it could dissuade companies from collaborating with us to develop, and threaten our ability to commercialize, the product candidate.
In addition, we rely on trade secret protection and confidentiality agreements to protect proprietary know-how that is not patentable, for processes for which patents are difficult to enforce and for any other elements of our drug discovery and development processes that involve proprietary know-how, information and technology that is not covered by patent applications. Although we require all of our employees, consultants, advisors and any third parties who have access to our proprietary know-how, information and technology to enter into confidentiality agreements, we cannot be certain that this know-how, information and technology will not be disclosed or that competitors will not otherwise gain access to our trade secrets or independently develop substantially equivalent information and techniques. Further, the laws of some foreign countries do not protect proprietary rights to the same extent as the laws of the United States. As a result, we may encounter significant problems in protecting and defending our intellectual property both in the United States and abroad. If we are unable to prevent material disclosure of the intellectual property
45
related to our technologies to third parties, we will not be able to establish or, if established, maintain a competitive advantage in our market, which could materially adversely affect our business, financial condition and results of operations.
Our commercial success depends in part on our not infringing the patents and proprietary rights of third parties. Third parties may assert that we are employing their proprietary technology without authorization. In addition, third parties may obtain patents in the future and claim that use of our technologies infringes upon these patents. Furthermore, parties making claims against us may obtain injunctive or other equitable relief, which could effectively block our ability to further develop and commercialize one or more of our product candidates. Defense of these claims, regardless of their merit, would involve substantial litigation expense and would be a substantial diversion of employee resources from our business. In the event of a successful claim of infringement against us, we may have to pay substantial damages, obtain one or more licenses from third parties or pay royalties. In addition, even in the absence of litigation, we may need to obtain licenses from third parties to advance our research or allow commercialization of our product candidates, and we have done so from time to time. We may fail to obtain any of these licenses at a reasonable cost or on reasonable terms, if at all. In that event, we would be unable to further develop and commercialize one or more of our product candidates, which could harm our business significantly.
In addition, in the future we could be required to initiate litigation to enforce our proprietary rights against infringement by third parties. Prosecution of these claims to enforce our rights against others could involve substantial litigation expenses and divert substantial employee resources from our business. If we fail to effectively enforce our proprietary rights against others, our business will be harmed.
The risk that we may be sued on product liability claims is inherent in the development of pharmaceutical products. These lawsuits may divert our management from pursuing our business strategy and may be costly to defend. In addition, if we are held liable in any of these lawsuits, we may incur substantial liabilities and may be forced to limit or forgo further commercialization of those products. Although we maintain general liability and product liability insurance, this insurance may not fully cover potential liabilities. In addition, inability to obtain or maintain sufficient insurance coverage at an acceptable cost or to otherwise protect against potential product liability claims could prevent or inhibit the commercial production and sale of our products, which could adversely affect our business.
In both the United States and some foreign jurisdictions, there have been a number of legislative and regulatory proposals to change the healthcare system in ways that could adversely affect our ability to sell our products profitably. In the United States, new legislation has been proposed at the federal and state levels that would result in significant changes to the healthcare system, either nationally or at the state level. Further federal and state proposals and healthcare reforms are likely. Our results of operations could be materially and adversely affected by the Medicare prescription drug coverage legislation, by the possible effect of this legislation on amounts that private insurers will pay and by other healthcare reforms that may be enacted or adopted in the future.
46
Our research and development activities involve the controlled use of potentially hazardous substances, including chemical, biological and radioactive materials. In addition, our operations produce hazardous waste products. Federal, state and local laws and regulations govern the use, manufacture, storage, handling and disposal of hazardous materials. Although we believe that our procedures for use, handling, storing and disposing of these materials comply with legally prescribed standards, we may incur significant additional costs to comply with applicable laws in the future. Also, even if we are in compliance with applicable laws, we cannot completely eliminate the risk of contamination or injury resulting from hazardous materials and we may incur liability as a result of any such contamination or injury. In the event of an accident, we could be held liable for damages or penalized with fines, and the liability could exceed our resources. We do not have any insurance for liabilities arising from hazardous materials. Compliance with applicable environmental laws and regulations is expensive, and current or future environmental regulations may impair our research, development and production efforts, which could harm our business.
Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, we will be required, beginning with our fiscal year ending December 31, 2005, to include in our annual report our assessment of the effectiveness of our internal control over financial reporting and our audited financial statements as of the end of fiscal 2005. Furthermore, our independent registered public accounting firm will be required to attest to whether our assessment of the effectiveness of our internal control over financial reporting is fairly stated in all material respects and separately report on whether it believes we maintained, in all material respects, effective internal control over financial reporting as of December 31, 2005. We have prepared and are implementing a plan of action to assess the effectiveness of our internal control. If we fail to timely complete this assessment, or if our independent registered public accounting firm cannot timely attest to our assessment, we could be subject to regulatory sanctions and a loss of public confidence in our internal control and the reliability of our financial statements, which ultimately could negatively impact our stock price. In addition, any failure to implement required new or improved controls, or difficulties encountered in their implementation, could harm our operating results or cause us to fail to timely meet our regulatory reporting obligations.
Concentration of ownership will limit your ability to influence corporate matters.
As of December 31, 2004, GSK beneficially owned approximately 17.7% of our outstanding capital stock and our directors, executive officers and investors affiliated with these individuals beneficially owned approximately 18.3% of our outstanding common stock. These stockholders could substantially control the outcome of actions taken by us that require stockholder approval. In addition, pursuant to our governance agreement with GSK, GSK currently has the right to nominate a board member and following September 2007 will have the right to nominate a certain number of board members depending on GSK’s ownership percentage of our capital stock at the time. For these reasons, GSK could have substantial influence in the election of our directors, delay or prevent a transaction in which stockholders might receive a premium over the prevailing market price for their shares and have significant control over changes in our management or business.
Our stock price may be extremely volatile. The stock market in general and the market for biotechnology companies in particular have experienced extreme volatility that has often been unrelated to
47
the operating performance of particular companies. The following factors, in addition to the other risk factors described in this section, may also have a significant impact on the market price of our common stock:
· GSK’s call right in 2007 for 50% of our common stock at $54.25 per share;
· the put right and the expiration of the put right in 2007;
· announcements regarding GSK’s decisions whether or not to license any of our product development programs;
· the extent to which GSK advances (or does not advance) our product candidates through development into commercialization;
· announcements regarding GSK generally;
· announcements of patent issuances or denials, technological innovations or new commercial products by us or our competitors;
· developments concerning any collaboration we may undertake with companies other than GSK;
· publicity regarding actual or potential testing or study results or the outcome of regulatory review relating to products under development by us or by our competitors;
· regulatory developments in the United States and foreign countries; and
· economic and other external factors beyond our control.
If there are substantial sales of our common stock, our stock price could decline.
If our existing stockholders sell a large number of shares of our common stock or the public market perceives that existing stockholders might sell shares of common stock, the market price of our common stock could decline significantly. All of the shares sold in our initial public offering were freely tradable without restriction or further registration under the federal securities laws, unless purchased by our “affiliates” as that term is defined in Rule 144 under the Securities Act of 1933, as amended. Substantially all of our remaining shares of common stock outstanding will be eligible for sale pursuant to Rule 144 upon the expiration of 180-day lock-up agreements on April 4, 2005. In addition, to the extent options are exercised, the vested shares so acquired will also be eligible for sale to the public.
Provisions of our certificate of incorporation and bylaws may discourage, delay or prevent a merger or acquisition that stockholders may consider favorable, including transactions in which you might otherwise receive a premium for your shares. These provisions include:
· requiring supermajority stockholder voting to effect certain amendments to our certificate of incorporation and bylaws;
· restricting the ability of stockholders to call special meetings of stockholders;
· prohibiting stockholder action by written consent; and
· establishing advance notice requirements for nominations for election to the board of directors or for proposing matters that can be acted on by stockholders at stockholder meetings.
In addition, our board of directors has adopted a rights agreement that may prevent or delay a change in control of us. Further, some provisions of Delaware law may also discourage, delay or prevent someone from acquiring us or merging with us.
48
Recent Accounting Pronouncements
In June 2004, the FASB ratified Emerging Issues Task Force Issue No. 03-1 (EITF 03-1), “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments.” EITF 03-1 includes new guidance for evaluating and recording impairment losses on debt and equity investments, as well as new disclosure requirements for investments that are deemed to be temporarily impaired. In September 2004, the Financial Accounting Standards Board approved the issuance of a FASB Staff Position to delay the recognition and measurement provisions of EITF 03-1, but the disclosure requirements of EITF 03-1 are effective for our fiscal 2004 annual consolidated financial statements. The approved delay applies to all securities within the scope of EITF 03-1. Accordingly, additional disclosures as required by EITF 03-1 are included in Note 4 of the Notes to the Consolidated Financial Statements. We will evaluate the impact of the recognition and measurement provisions of EITF 03-1 once the final guidance is issued.
On December 16, 2004, the Financial Accounting Standards Board (FASB) issued FASB Statement No. 123 (revised 2004) (“SFAS 123(R)”), Share-Based Payment, which is a revision of FASB Statement No. 123 (“SFAS 123”), Accounting for Stock-Based Compensation. SFAS 123(R) supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees, and amends FASB Statement No. 95, Statement of Cash Flows. Generally, the approach in SFAS 123(R) is similar to the approach described in SFAS 123. However, SFAS 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. Pro forma disclosure is no longer an alternative. SFAS 123(R) requires companies to adopt in the first interim or annual period beginning after June 15, 2005, irrespective of the entity’s fiscal year. Early adoption will be permitted in periods in which financial statements have not yet been issued.
We are evaluating the requirements of SFAS 123(R) and we expect that the adoption of SFAS 123(R) will have a material impact on our consolidated results of operations and earnings per share, although it will have no impact on our overall financial position. The impact of adoption of Statement 123(R) cannot be predicted at this time because it will depend on levels of share-based payments granted in the future. However, had we adopted Statement 123(R) in prior periods, we believe the impact of that standard would have approximated the impact of Statement 123 as described in the disclosure of pro forma net loss and net loss per share in Note 1 of our notes to our consolidated financial statements included in Item 8, “Financial Statements and Supplementary Data” in this Annual Report on Form 10-K.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our exposure to market risk is confined to our cash, cash equivalents, restricted cash and marketable securities. We invest in high-quality financial instruments, primarily money market funds, federal agency notes, asset backed securities, corporate debt securities and U.S. treasury notes, with no security having an effective duration in excess of 2 years. The securities in our investment portfolio are not leveraged, are classified as available-for-sale and, due to their very short-term nature, are subject to minimal interest rate risk. We currently do not engage in hedging activities. Because of the short-term maturities of our investments, we do not believe that an increase in market rates would have any significant negative impact on the realized value of our investment portfolio. Our outstanding capital lease obligations and notes payable are all at fixed interest rates, and therefore, have minimal exposure to changes in interest rates.
Most of our transactions are conducted in U.S. dollars, although we do conduct some clinical and safety studies, and manufacture some active pharmaceutical product with vendors located outside the United States. Some of these expenses are paid in U.S. dollars, and some are paid in the local foreign currency. If the exchange rate undergoes a change of 10%, we do not believe that it would have a material impact on our results of operations or cash flows.
49
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
|
Consolidated Balance Sheets at December 31, 2004 and December 31, 2003 |
|
51 |
|
|
|
52 |
|
|
|
|
53 |
|
|
|
|
55 |
|
|
|
|
56 |
|
|
|
|
75 |
|
50
THERAVANCE, INC.
Consolidated Balance Sheets
(in thousands, except per share amounts)
|
|
|
December 31, |
|
||||
|
|
|
2004 |
|
2003 |
|
||
|
Assets |
|
|
|
|
|
||
|
Current assets: |
|
|
|
|
|
||
|
Cash and cash equivalents |
|
$ |
101,411 |
|
$ |
35,748 |
|
|
Marketable securities |
|
155,730 |
|
53,404 |
|
||
|
Receivable from related party |
|
2,124 |
|
408 |
|
||
|
Prepaid and other current assets |
|
5,203 |
|
1,688 |
|
||
|
Total current assets |
|
264,468 |
|
91,248 |
|
||
|
Property and equipment, net |
|
13,242 |
|
15,815 |
|
||
|
Restricted cash and cash equivalents |
|
4,537 |
|
6,124 |
|
||
|
Deferred sublease costs |
|
545 |
|
921 |
|
||
|
Notes receivable |
|
2,989 |
|
5,803 |
|
||
|
Notes receivable from related parties |
|
64 |
|
4,562 |
|
||
|
Other assets |
|
177 |
|
976 |
|
||
|
Total assets |
|
$ |
286,022 |
|
$ |
125,449 |
|
|
Liabilities, convertible preferred stock and stockholders’ equity (deficit) |
|
|
|
|
|
||
|
Current liabilities: |
|
|
|
|
|
||
|
Accounts payable |
|
$ |
5,925 |
|
$ |
3,199 |
|
|
Accrued personnel-related expenses |
|
7,615 |
|
4,441 |
|
||
|
Accrued clinical and development expenses |
|
5,579 |
|
1,849 |
|
||
|
Other accrued liabilities |
|
2,338 |
|
1,929 |
|
||
|
Current portion of notes payable |
|
262 |
|
420 |
|
||
|
Current portion of capital lease obligations |
|
2,359 |
|
3,052 |
|
||
|
Current portion of deferred revenue |
|
10,959 |
|
5,273 |
|
||
|
Total current liabilities |
|
35,037 |
|
20,163 |
|
||
|
Deferred rent |
|
2,500 |
|
2,131 |
|
||
|
Notes payable |
|
706 |
|
967 |
|
||
|
Capital lease obligations |
|
1,073 |
|
3,431 |
|
||
|
Deferred revenue |
|
56,339 |
|
30,965 |
|
||
|
Commitments and Contingencies |
|
|
|
|
|
||
|
Convertible preferred stock, $0.01 par value; no
shares authorized, issued or outstanding at |
|
— |
|
367,358 |
|
||
|
Stockholders’ equity (deficit): |
|
|
|
|
|
||
|
Preferred stock, $0.01 par value, 230 shares authorized, no shares issued and outstanding |
|
— |
|
— |
|
||
|
Common stock, $0.01 par value; 200,000 shares
authorized, issuable in series; 43,522 and 7,230 |
|
435 |
|
72 |
|
||
|
Class A Common Stock, $0.01 par value, 30,000 shares authorized, 9,402 issued and outstanding at December 31, 2004; no shares authorized, issued or outstanding, at December 31, 2003. |
|
94 |
|
— |
|
||
|
Additional paid-in capital |
|
669,698 |
|
68,737 |
|
||
|
Notes receivable from stockholders |
|
(495 |
) |
(928 |
) |
||
|
Deferred stock-based compensation |
|
(10,079 |
) |
(1,518 |
) |
||
|
Accumulated other comprehensive income (loss) |
|
(682 |
) |
21 |
|
||
|
Accumulated deficit |
|
(468,604 |
) |
(365,950 |
) |
||
|
Total stockholders’ equity (deficit) |
|
190,367 |
|
(299,566 |
) |
||
|
Total liabilities, convertible preferred stock, and stockholders’ equity (deficit) |
|
$ |
286,022 |
|
$ |
125,449 |
|
See accompanying notes to consolidated financial statements.
51
THERAVANCE, INC.
Consolidated Statements of
Operations
(in thousands, except per share amounts)
|
|
|
Year Ended December 31, |
|
|||||||
|
|
|
2004 |
|
2003 |
|
2002 |
|
|||
|
Revenue from related party |
|
$ |
8,940 |
|
$ |
3,605 |
|
$ |
156 |
|
|
Operating expenses: |
|
|
|
|
|
|
|
|||
|
Research and development |
|
86,996 |
|
61,704 |
|
66,481 |
|
|||
|
General and administrative |
|
19,818 |
|
12,153 |
|
11,817 |
|
|||
|
Stock-based compensation* |
|
8,521 |
|
2,214 |
|
4,941 |
|
|||
|
Total operating expenses |
|
115,335 |
|
76,071 |
|
83,239 |
|
|||
|
Loss from operations |
|
(106,395 |
) |
(72,466 |
) |
(83,083 |
) |
|||
|
Interest and other income |
|
4,564 |
|
3,373 |
|
4,990 |
|
|||
|
Interest expense |
|
(823 |
) |
(1,490 |
) |
(1,134 |
) |
|||
|
Net loss |
|
$ |
(102,654 |
) |
$ |
(70,583 |
) |
$ |
(79,227 |
) |
|
Basic and diluted net loss per common share |
|
$ |
(3.08 |
) |
$ |
(10.37 |
) |
$ |
(12.50 |
) |
|
Shares used in computing net loss per common share |
|
33,283 |
|
6,809 |
|
6,336 |
|
|||
* Stock-based compensation, consisting of amortization of deferred stock-based compensation and the value of options issued to non-employees for services rendered, is allocated as follows:
|
|
|
Year Ended December 31, |
|
|||||||
|
|
|
2004 |
|
2003 |
|
2002 |
|
|||
|
Research and development |
|
$ |
4,631 |
|
$ |
1,300 |
|
$ |
3,398 |
|
|
General and administrative |
|
3,890 |
|
914 |
|
1,543 |
|
|||
|
Total non-cash stock-based compensation |
|
$ |
8,521 |
|
$ |
2,214 |
|
$ |
4,941 |
|
See accompanying notes to consolidated financial statements.
52
THERAVANCE, INC.
Consolidated Statements of Stockholders’ Equity (Deficit)
(in thousands)
|
|
Convertible |
|
|
Common Stock |
|
Class A |
|
Additional |
|
Notes |
|
Deferred |
|
Accumulated |
|
Accumulated |
|
Total |
|
|||||||||||||||||||||||||
|
|
|
Shares |
|
Amount |
|
|
Shares |
|
Amount |
|
Shares |
|
Amount |
|
Capital |
|
Stockholders |
|
Compensation |
|
Income (loss) |
|
Deficit |
|
(Deficit) |
|
||||||||||||||||||
|
Balance at December 31, 2001 |
|
43,644 |
|
$ 327,107 |
|
|
7,174 |
|
|
$ 72 |
|
|
|
— |
|
|
|
— |
|
|
|
$ 68,943 |
|
|
|
$ (2,590 |
) |
|
|
$ (9,050 |
) |
|
|
$ 1,013 |
|
|
|
$ (216,140 |
) |
|
|
$ (157,752 |
) |
|
|
Issuance of Series E convertible preferred stock to a collaborative partner for cash at $10.00 per share in December 2002, net of issuance costs of $64 |
|
4,000 |
|
39,937 |
|
|
— |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
Stock option exercises at prices ranging from $1.32 to $8.53, net of repurchases |
|
— |
|
— |
|
|
27 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
71 |
|
|
|
108 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
179 |
|
|
|
Forgiveness of notes receivable |
|
— |
|
— |
|
|
— |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
717 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
717 |
|
|
|
Stock-based compensation related to grants of stock options to nonemployees |
|
— |
|
— |
|
|
— |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
511 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
511 |
|
|
|
Reversal of deferred stock-based compensation related to employee terminations |
|
— |
|
— |
|
|
— |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1,823 |
) |
|
|
— |
|
|
|
781 |
|
|
|
— |
|
|
|
— |
|
|
|
(1,042 |
) |
|
|
Amortization of deferred stock-based compensation |
|
— |
|
— |
|
|
— |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
5,472 |
|
|
|
— |
|
|
|
— |
|
|
|
5,472 |
|
|
|
Issuance of warrants to purchase Series D-1 convertible preferred stock |
|
— |
|
314 |
|
|
— |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
Comprehensive loss: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
— |
|
— |
|
|
— |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(79,227 |
) |
|
|
(79,227 |
) |
|
|
Net unrealized loss on marketable securities |
|
— |
|
— |
|
|
— |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(792 |
) |
|
|
— |
|
|
|
(792 |
) |
|
|
Total comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(80,019 |
) |
|
|
Balance at December 31, 2002 |
|
47,644 |
|
$ 367,358 |
|
|
7,201 |
|
|
$ 72 |
|
|
|
— |
|
|
|
— |
|
|
|
$ 67,702 |
|
|
|
$ (1,765 |
) |
|
|
$ (2,797 |
) |
|
|
$ 221 |
|
|
|
$ (295,367 |
) |
|
|
$ (231,934 |
) |
|
|
Stock option exercises at prices ranging from $1.32 to $8.53, net of repurchases and net of unvested stock options exercised early |
|
— |
|
— |
|
|
29 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
100 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
100 |
|
|
|
Forgiveness and repayments of notes receivable |
|
— |
|
— |
|
|
— |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
837 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
837 |
|
|
|
Stock-based compensation related to grants of stock options to nonemployees |
|
— |
|
— |
|
|
— |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
262 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
262 |
|
|
|
Reversal of deferred stock-based compensation related to employee terminations |
|
— |
|
— |
|
|
— |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(862 |
) |
|
|
— |
|
|
|
220 |
|
|
|
— |
|
|
|
— |
|
|
|
(642 |
) |
|
|
Deferred stock-based compensation |
|
— |
|
— |
|
|
— |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,535 |
|
|
|
— |
|
|
|
(1,535 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
Amortization of deferred stock-based compensation |
|
— |
|
— |
|
|
— |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2,594 |
|
|
|
— |
|
|
|
— |
|
|
|
2,594 |
|
|
|
Comprehensive loss: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
— |
|
— |
|
|
— |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(70,583 |
) |
|
|
(70,583 |
) |
|
|
Net unrealized loss on marketable securities |
|
— |
|
— |
|
|
— |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(200 |
) |
|
|
— |
|
|
|
(200 |
) |
|
|
Total comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(70,783 |
) |
|
|
Balance at December 31, 2003 |
|
47,644 |
|
$ 367,358 |
|
|
7,230 |
|
|
$ 72 |
|
|
|
— |
|
|
|
— |
|
|
|
$ 68,737 |
|
|
|
$ (928 |
) |
|
|
$ (1,518 |
) |
|
|
$ 21 |
|
|
|
$ (365,950 |
) |
|
|
$ (299,566 |
) |
|
53
THERAVANCE, INC.
Consolidated Statements of Stockholders’ Equity (Deficit) (Continued)
(in thousands)
|
Stock option exercises at prices ranging from $0.78 to $9.69, net of repurchases and net of unvested stock options exercised early |
|
— |
|
— |
|
|
329 |
|
|
3 |
|
|
|
— |
|
|
|
— |
|
|
|
1,728 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,731 |
|
|
|
Exercise of warrants to purchase 20,000 shares of Series C preferred stock |
|
20 |
|
170 |
|
|
— |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
Exercise of warrants to purchase 4,000 shares of Series A preferred stock |
|
4 |
|
5 |
|
|
— |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
Conversion of Series A through D-1 convertible preferred stock into common stock |
|
(43,668 |
) |
(327,596 |
) |
|
28,890 |
|
|
289 |
|
|
|
— |
|
|
|
— |
|
|
|
327,307 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
327,596 |
|
|
|
Conversion of Series E preferred stock into common stock |
|
(4,000 |
) |
(39,937 |
) |
|
2,580 |
|
|
26 |
|
|
|
— |
|
|
|
— |
|
|
|
39,911 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
39,937 |
|
|
|
Exchange of common stock for Class A common stock |
|
— |
|
— |
|
|
(2,580 |
) |
|
(26 |
) |
|
|
2,580 |
|
|
|
26 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
Issuance of common stock for cash in initial public offering, net of offering expenses of $3.2 million |
|
— |
|
— |
|
|
7,073 |
|
|
71 |
|
|
|
— |
|
|
|
— |
|
|
|
101,997 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
102,068 |
|
|
|
Issuance of Class A common stock, net of issuance costs of $2.8 million |
|
— |
|
— |
|
|
— |
|
|
— |
|
|
|
6,388 |
|
|
|
64 |
|
|
|
105,999 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
106,063 |
|
|
|
Issuance of Class A common stock for cash concurrent to our initial public offering |
|
— |
|
— |
|
|
— |
|
|
— |
|
|
|
434 |
|
|
|
4 |
|
|
|
6,936 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
6,940 |
|
|
|
Forgiveness and repayments of notes receivable |
|
— |
|
— |
|
|
— |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
433 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
433 |
|
|
|
Stock-based compensation related to grants of stock options to nonemployees |
|
— |
|
— |
|
|
— |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
830 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
830 |
|
|
|
Reversal of deferred stock-based compensation related to employee terminations |
|
— |
|
— |
|
|
— |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1,155 |
) |
|
|
— |
|
|
|
815 |
|
|
|
— |
|
|
|